Three vaccine 'science' fraudsters who should probably be (or already have been) in jail: Poul Thorsen, Paul Offit and Henry Miller
And all of this on a Dudley statement (that said nothing), an oil rumor (repeatedly uttered with no actual news), a billionaire bank CEO buying some more stock in his firm, and a seasonal adjustrment (which made retail sales 'appear positive')...
Public Service Announcement:
Crude is the headline of the day...WTI RISES 12% TO $29.44/BBL, BIGGEST PCT GAIN SINCE FEB. 2009With what appears like another major liquidation in the triple-inverse ETF DWTI... And a major compression of the roll...
And while everyone crowed about Jamie Dimon's share purchase - which had the stink of Lehman-esque time when every bank CEO trotted out his own brand of confidence inspiring headlines - and that ramped financial stocks... but once again credit wouldn't play along... in cash markets...
and even less so in CDS (hedging)
* * *
Gold wins the week, bonds second best...
* * *
Today's ripfest stalled at 1130ET when Europe closed but the incessant ramp in crude oil lifted everything as algos latched on...
Nasdaq desperately wanted to "get back to even" for the week in today's ramp but only Trannies closed the week green...
With today's ramp led by Jamie Dimon's financials... (which still closed lower by 2.4% on the week - worst of all sectors)
But just look at the mess that is VIX in the last 2 days...
Does this look like financials are fixed?
When stocks took off at around 1300ET (as Oil spiked on rig count data), HY credit did not want to play...
Still could be worse... could be Japan...
A stunning roundtrip in US Treasury yields this week with 10Y swinging to down 30bps at Thursday's lows befoere faxce-ripping higher by over 20bps in the last 24 hours...
The USD rallied modestly today as sellers reappeared in Yen and EUR weakened...
The USD Index collapsed 3.7% in the last 2 weeks - the biggest drop since October 2010...to 4-month lows...
Despite all the algos and liquidation-fueled craziness, crude ended the week down over 5% - the 5th losing week in the last 7; as gold had its best week since dec 08...
You decide if you trust this rally in crude (and thus every risk asset pinned off it)
Bonus Chart: Meanwhile these two developed markets now have inverted yield curves...
Donald Trump is no fan of illegal immigrants.
The problem, Trump reckons, is that Mexico “isn’t sending their best people.” “They’re bringing drugs. They’re bringing crime. They’re rapists.” the bellicose billionaire famously remarked last summer when his bid for The White House was still largely regarded as a sideshow.
“Some, I assume, are good people,” he added, apparently realizing that what he just said might be rather inflammatory.
Since then, Trump hasn’t let up at all on immigration. In fact, he’s gone out of his way to let the American electorate know that he wouldn’t just seek to shore up the border with Mexico (by forcing the country to pay for a wall), he also wants to create an invisible anti-Islam fence to keep Muslims from coming to America “until we can figure out what’s going on” that makes tragedies like the San Bernardino massacre possible.
Of course Trump also wants to deport all illegal immigrants. “They have to go,” he said aboard his 757 in an August interview with Chuck Todd. “We either have a country or we don’t.”
All of this comes as the Obama administration has had a difficult time implementing an executive order designed to shield non-violent migrants from deportation.
In December, the Department of Homeland Security began to prepare to deport hundreds of families who came to the US in 2015 fleeing Central America. “The nationwide campaign, to be carried out by U.S. Immigration and Customs Enforcement (ICE) agents as soon as early January, would be the first large-scale effort to deport families who have fled violence in Central America,” The Washington Post reported at the time, adding that “groups that have called for stricter immigration limits said the raids are long overdue and remained skeptical about whether the scale would be large enough to deter future illegal immigration from Central America.”
“I’ll believe it when I see it,” Mark Krikorian, executive director of the Center for Immigration Studies told WaPo. “What share is this going to be?. . . It’s a drop in the bucket compared to the number they’ve admitted into the country. If you have photogenic raids on a few dozen illegal families and that’s the end of it, it’s just for show. It’s just a [public relations] thing, enforcement theater.”
Krikorian, it turns out, was wrong. The DHS chief Jeh Johnson said on Thursday that the deportations have sharply reduced the number of Central American migrants entering the country. "I know this has made a lot of people I respect very unhappy," Johnson said, "But we must enforce the law in accordance with our priorities."
Yes, yes you “must” and here are the results as reported yesterday by NBC: “Since the enforcement action began in late December, the number of unaccompanied children apprehended at the southwest border dropped 54 percent, and the number of those in families fell 65 percent.”
We're reasonably sure those figures will please Donald Trump as they seemingly prove that deportations have a direct and pronouned impact on the number of people streaming across the southern border. We can almost here to stump speech soundbite now. As VOA notes, "Trump applauded the raids last month and took partial credit for them, claiming the pressure he placed on the administration had resulted in the deportations."
One person who isn't enamored with the DHS effort is Bernie Sanders who VOA goes on to say "wrote a letter to the president, asking for the raids to stop and for the country to protect the immigrants."
The White House defended the program. "This is consistent with the way we've described our priorities, that we are seeking to deport felons, " spokesman John Earnest said, "not break apart families."
In January, protesters staged demonstrations in front of the White House in an effort to convince the president to stop the raids. One immigrant who arrived illegally from El Salvador 36 years ago and eventually became a citizen said he would go on hunger strike. "I think I'm going to lose some of the pounds I need to lose," he told VOA. "At least they are going to listen."
It turns out they didn't listen and if the numbers out of the DHS are any indication of the effect deportations will have, you can expect Trump to cite these stats as proof positive of why all illegal immigrants should be sent back where they came from.
And you can surely expect Bernie Sanders to take the other side of the argument - and quite fervently so. That should make for a spirited debate assuming both "protest" candidates receive their party's nomination.
As for Obama, the President doesn't seem to know if he wants immigrants to stay or go.
In his final state-of-the-union address, President Obama famously accused anyone who dares to question the strength of the US economic "recovery" of "peddling fiction."
Shortly thereafter, we learned that the US economy grew at a paltry 0.69% in Q4. Below estimates.
Perhaps the most disturbing thing about the state of the economy - well, besides the fact that healthcare spending is essentially driving "growth" - is that the labor market has becoming a waiter and bartender creation machine. That's come at the expense of manufacturing jobs, where skilled workers can actually earn a decent living.
Here's what the disparity looks like since 2007:
No fiction "peddling" there. Just numbers.
Additionally, we've noted the fact that foreign born workers account for the vast majority of job creation in America since the crisis:
On Wednesday, United Technologies decided to reinforce both of these trends all at once, when the company announced it would be eliminating 1,400 jobs at a Carrier plant in Indianapolis in favor of hiring some new "foreign-born" employees - only these "foreign-born" workers will be hired in Mexico.
"Two Indiana plants that make products for the heating, ventilating and air conditioning industry are shifting their manufacturing operations to Mexico, which will cost about 2,100 workers their jobs," The Indianapolis Star reports. "Carrier is shuttering its manufacturing facility on Indianapolis' west side, eliminating about 1,400 jobs during the next three years [and] United Technologies Electronic Controls said that it will move its Huntington manufacturing operations to a new plant in Mexico, costing the northeastern Indiana city 700 jobs by 2018."
Watch below as 1,000 soon-to-be Donald Trump voters react to the announcement:
Economists called the move "highly unusual." "Today’s surprise announcement was without warning," the mayor said.
Actually, it's neither "highly unusual" or "surprising." Here's why (again from The Star): "Carrier’s workers are separated into a two-tier wage system. A quarter of the workers make about $14 an hour, or about $30,000 a year. The rest make about $26 an hour, or about $55,000, but make well above $70,000 a year with overtime."
Something tells us labor costs will be "slightly" lower south of the border.
Who's "peddling fiction" now?
We are on the precipice of what can only be described as a rising systemic risk for all markets. The Fed is now hinting that banks should prepare for NEGATIVE INTEREST RATES. This insanity of following the crowd is undermining the entire world economy. The increasingly unstable footing that we find ourselves standing on is reflected in widening credit spreads that demonstrate that CONFIDENCE is indeed collapsing.
The EU Commission will no longer classify government bonds in bank balance sheets as “risky.” Banks would have government bonds on par with “equity” yet government bonds have proven risky and are inferior to what would, in some financial institutions, result in an increased capital requirement.
Turning to Goldman Sachs, we saw the so-called world’s greatest trader close out its long USD trade against a basket of euros and Japanese yen with a potential loss of around 5%, which is being bantered about on the street showing they too got this all wrong. This early 2016 destabilization is stopping out short gold positions, but it is not replacing them with any buying conviction. The euro trade of long Italian 5-year against short German 5-year has also turned into a bloodbath as the euro finally rallied begrudgingly to reach our first resistance target in the mid-113 area.
Global economic growth has been anemic at best; and in the US it is clearly turning down since Q3 2015.
This new world order of NEGATIVE INTEREST RATES is so insane and focuses solely on trying to stimulate borrowing. This is undermining pensions for the elderly and creating the economic storm of the century that is on the horizon that will be far worse than the Great Depression of the 1930s. Even the Japanese 10-year bond has gone NEGATIVE, demonstrating the total collapse in CONFIDENCE.
Why, you ask? Because this time, the defaults will engulf all governments at all levels. Like a drunk who just won the lottery, all is always lost in a matter of time.
Bankers in German and Italian banks are looking rather pale in the face. The question is: will the ECB bail out Deutsche Bank or let it fall?
They will probably blink and this will be part bailout/bail-in. They have no way out of this mess created by the euro without surrendering their own power. We are looking at a European credit crunch beginning in the periphery and spreading to the core, just as we are looking at the emerging market debt imploding and spreading to the rest of the world.
The Fed now sees the external threat as systemic and is considering abandoning domestic policy objectives for international policy objectives precisely as they did in 1927, which created a major crisis.
It was just two days ago when we laid out what could be "the trade of the year": namely, going long Chesakeapke's $500MM 3.25% bonds of March 15, which were then trading at 80 cents on the dollar in anticipation of a Chesapeake bankruptcy, yielding a whopping 299%.
This is what we said:
... yes, Chesapeake will default, but the question is when. For those who think the company will somehow survive for a more than a month without filing Chapter 11 or arranging some prepackaged bankruptcy, and actually repays the $500 million issue, this could be the trade that makes someone's full year, because with a yield of 299%, and a cash on cash return of 25% (being paid par on March 15 for a bond that can be purchased today for 80 cents), it does look somewhat attractive, especially if hedged with a short on CHK stock, which at last check was trading at an implied market cap of $1.3 billion.
Fast forward barely 48 hours later, when we get this:
- CHESAPEAKE SAID PLANNING TO PAY $500 MILLION DEBT DUE IN MARCH
This is what Bloomberg added:
Chesapeake Energy Corp. is planning to pay $500 million of debt maturing in March, using a combination of cash on hand and other liquidity that may include its credit line, according to a person with knowledge of the matter.
The second largest natural gas producer in the U.S. is also considering selling assets to shore up its capital so it can address more than $1 billion of debt coming due in 2017, said the person, who asked not to be named because the matter is private.
With the bonds trading as low as 55 on Monday, and at 80 cents on Tuesday, there was clearly a substantial short overhang in the name just waiting for the company to roll over and die.
Not so fast: even the mere hint that the company would make the bond payment (it may, it may not: a lot will change in the next month) has unleashed a furious short squeeze and sent the 3.25s soaring, and as the latest bond run indicates the bonds which were offered at 80 on Wednesday, are now marketed 92-94, and just traded at 93 for a yield of just over 100%.
We would hit that 92 bid, pocket the tasty 15% cash on cash bond return in 2 days, and close the trade out, which is further juiced by the 15% drop in the stock assuming one put on the equity short leg, because while the bonds have soared, the equity is down 15% since the "recommendation" for an all in return of 30%.
And now we sit back and await for more "Top Trade Recommendations" by Goldman Sachs to do the opposite, and to generate risk-free returns for the rest of the year.
Authored by Steve H. Hanke of The Johns Hopkins University.
Since the Great Recession, politicians have obsessed over bashing banks and bankers. According to Pols of all stripes, bankers caused the 2008-09 crash and ensuing slump. To make the world safe from banks, the “all-knowing” have given us Basel III, Dodd-Frank, and a plethora of banking regulations. This has, among other things, provided Bernie Sanders and his ilk with an open field.
Analyzing the effects of bank bashing requires a model of national income determination. A monetary approach is what counts. The link between growth in the money supply, broadly determined, and nominal GDP is unambiguous and overwhelming. The accompanying chart for the G20 countries makes this clear.
So, why has the post-crisis recovery floundered? Because the growth in broad money has remained well below its trend rate. Indeed, Divisia M4, which is reported by the Center for Financial Stability in New York, is only growing at a 4.0% year-over-year rate. Since the crisis, the policies affecting bank regulation and supervision have been massively restrictive. By failing to appreciate the monetary consequences of tighter, pro-cyclical bank regulations, the political chattering classes and their advisers have blindly declared war on bank balance sheets. In consequence, bank money, which accounts for 80% of broad money in the U.S., has contracted since the crisis (see the accompanying chart). Since bank money is the elephant in the room, even the Fed’s quantitative easing and the ensuing surge in the growth of state money has been unable to fully offset the tightness that has enveloped banks and bank money growth.
Looking at the U.S., there is a ray of hope: credit to the private sector has finally started to grow above its trend rate, and the 4.0% Divisia growth rate is higher than it was in 2014 and the first half of 2015. The accompanying chart shows where we are. The growth rate for nominal final sales to domestic purchasers, which is a good proxy for nominal aggregate demand, and the growth rate for broad money are depicted. It is clear that the U.S. remains in a growth recession. The economy is growing, but at less than its post-1987 average rate.
Since early 2013, however, the growth rate of broad money has accelerated. If this continues, nominal aggregate demand growth rates should remain roughly where they are at present. The biggest risk we face is that the relentless attacks on banks continues and intensifies.
On Friday, we got confirmation of what everyone already knew: the Greek economy is still mired in recession. GDP contracted 0.6% in Q4 after shrinking 1.4% in Q3.
We also found out that Greek farmers have most assuredly not calmed down since they parked their tractors in the middle of the street blocking traffic late last month.
Why are the farmers mad, you ask? Well, they’re not particularly enamored with the idea of having their social security contributions tripled and their income tax doubled as part of PM Alexis Tsipras’ push to satisfy creditors in Brussels who, six months after the country’s third bailout program was agreed, aren’t satisfied with the pace of fiscal consolidation.
So what do you do when you’re an angry farmer from Crete hell bent on demonstrating just how frustrated you are with a government which just a little over a year ago, swept to power with promises to roll back austerity? You grab your shepherd's crook and some tomatoes and you storm the Agriculture Ministry in Athens.
Below, find the dramatic footage of farmers gone wild.
— Savvas Karmaniolas (@SavvasKarma) February 12, 2016
— Savvas Karmaniolas (@SavvasKarma) February 12, 2016
Hell hath no fury like a farmer taxed.
The morning of the New Hampshire primary, Donald Trump, being interviewed on “Morning Joe,” said that he would welcome his “friend” Michael Bloomberg into the presidential race.
Which is probably the understatement of 2016.
The three-term mayor of New York and media mogul whose fortune is estimated at $39 billion, making him one of the richest men on earth, told the Financial Times on Monday he is considering a run.
Bloomberg had earlier confided he was worried about Hillary Clinton’s ability to turn back the challenge of Bernie Sanders, regards Trump’s rise with trepidation, and is appalled by the pedestrian character of the campaign rhetoric.
“I find the level of discourse and discussion distressingly banal and an insult to the voters,” said Bloomberg; the public deserves “a lot better.”
This haughty disdain calls to mind the late Adlai Stevenson. Yet, if Bloomberg runs, his electoral vote tally would likely make Adlai, by comparison, look like Richard Nixon on his 49-state romp in 1972.
Republicans should give Mayor Mike every encouragement to enter the race. For though he threatens to spend a billion dollars of his own money to buy the presidency, his name on the ballot as a third-party candidate could send the Democratic nominee straight down to Davy Jones’s locker.
With Bloomberg siphoning off millions of liberal votes, Democrats would not only lose red states they customarily write off, winning solid blue states would require a far steeper climb.
Third Party candidates have played crucial roles in presidential politics. Ex-President Theodore Roosevelt killed the re-election hopes of his successor President William Howard Taft in 1912, by running as the Bull Moose candidate and delivering the nation to Woodrow Wilson.
Strom Thurmond carried four Deep South states in 1948 and George Wallace carried five Deep South states in 1968. Both sought to throw the election into the U.S. House. Neither succeeded.
Ross Perot got 19 percent of the popular vote in 1992 and 8 percent in 1996. Though he did not carry a single state either time, as a candidate of the populist center-right, Perot peeled off a third of the votes George H. W. Bush had won in 1988 — to sink Bush in 1992.
Why would Bloomberg, who has great wealth and is willing to part with it, not be able to beat Trump, or another Republican nominee, if he plunged a billion dollars into his campaign?
Though he may be a pioneer in modern media and a man with a golden touch, Bloomberg is 74 years old this week, uncharismatic, and does not fill up a room the way the Donald does.
He lacks a common touch and is a social liberal, pro-abortion and pro-same-sex marriage.
Moreover, he is a compulsive nanny-stater who outlawed smoking in New York bars, restaurants and public places, prohibited the sale of cigarettes to anyone under 21, forbade trans-fats in restaurants, sodas larger than 16 ounces, chain restaurant menus without calorie counts, cellphones in school, non-fuel-efficient cabs, greenhouse gas emissions, and non-hurricane-proof buildings in coastal areas.
While not well-known nationally, Bloomberg is a zealot about tougher gun control laws and his candidacy would produce a deluge of contributions to the National Rifle Association. This obsession, along with his social views, would sink him in Red State America.
Nor is Bloomberg, despite three straight victories running for mayor, a great political athlete.
In his last race, as the Republican and Independent candidate, Bloomberg spent $102 million to defeat an underfunded Democrat comptroller, but managed to win only 51 percent of the vote.
If Clinton, or even Sanders, were at the top of the Democratic ticket in New York State, either would crush Bloomberg in his home town, especially with the GOP nominee, say Trump, siphoning off all of the Republican-conservative votes Bloomberg received to become mayor.
Now only would Bloomberg lose the Big Apple, his statewide vote would come mostly from the Democratic nominee, giving Republicans the best opportunity to carry the Empire State since Ronald Reagan coasted to re-election in 1984.
By spending a billion dollars, Bloomberg could blanket the nation with ads. But once Republican oppo research groups defined him for Middle America, perhaps 4 in 5 of his votes would come out of the basket upon which Democrats rely.
For example, as a Jewish-American, Bloomberg might do well in the Dade-Broward-Palm Beach County corridor, taking votes that Clinton or Sanders would need to carry Florida. Yet, where would Bloomberg get the rest of his votes to win the Sunshine State?
Clearly, Bloomberg is envious of the success of the Donald, since he descended on that escalator at Trump Towers on June 16.
The problem for Bloomberg is that, while this is the year of the outsider, with populist revolts breaking out in both parties, Sanders and Trump caught the lightning early, while he was restructuring his media empire. And, to be candid, Michael Bloomberg is no barn burner.
So all together now: “Run, Mike, Run!”
In the aftermath of the BOJ's stunning NIRP announcement in late January, virtually everyone had an opinion on what this move of sheer desperation means.
Actually scratch the "virtually" part: as we reported one week ago, none other than famous baseball slugger Jose Canseco opined when he tweeted that "Negative interest rates in Japan is blowing my mind", rhetorically asking "Who is advising Japan? Forcing banks to lend all ¥ will not get 2% inflation. It creates loanees market with even lower rates. Dumb move" and slamming the BOJ: "Bank of Japan should call them willie wonka bonds "YOU GET NOTHING. yOU LOSE!""
A few short days later, Jose took a firm stance on JPM's forecast that NIRP could go as low as -4.5% in Europe (as well as -3.45% in Japan and -1.3% in the US).
@zerohedge udder lunacy
— Jose Canseco (@JoseCanseco) February 10, 2016
Today, this latest and perhaps most popular entrant to financial twitter took on a topic that is even more sensitive, and divisive, to the financial arena: gold.
This is what he tweeted moments ago:
not a surprise but everyone should be in gold
— Jose Canseco (@JoseCanseco) February 12, 2016
$1500+ by Memorial dAY
— Jose Canseco (@JoseCanseco) February 12, 2016
Mock him? Sure go ahead, but with an opinion validated by such commentary...
With gold minus storage cost becoming greater than cash returns could be a long rally. what else is there, bitcoins? think about it
— Jose Canseco (@JoseCanseco) February 12, 2016
... it is clear that the famous baseball slugger has done far more homework than 90% of the anti-gold crowd.
His conclusion is one we, and incidentally JPM's head quant Marko Kolanovic, wholeheartedly with:
Plus Psychology For Gold index growing with euro bank mess, nirP, falling oil, tanking stock markets, yellens slowdown hints.
— Jose Canseco (@JoseCanseco) February 12, 2016
Will Jose be right? And can this sport celebrity stir up "animal spirits" among the population and force a rush into physical gold ahead of NIRP's arrival in the US?
We'll find out, but for now, this is what Jose being right would look like.
Japanese stock markets have crashed 15% (the "most since Lehman") and USDJPY plunging (most since 1998) since Kuroda unleashed NIRP and are down 11% since QQE2 was unveiled to save the world from an absent Fed. So with NIRP and QE (and jawboning) now 'useless' for Japanese monetary policy, there is only one option left - Yentervention.
Suddenly it all stopped working..
As Central Banker faith falters...
Overnight saw some hints at this beginning to happen, as Bloomberg reports,
The BOJ made “rate-check” calls to some banks with implicit questions on whether they planned to buy more yen, Sassan Ghahramani, head of SGH Macro Advisors, wrote in a note Thursday. Checking rates is sometimes intended to send a signal to markets that intervention may be on the way.
Aso declined to comment Friday on whether authorities have already intervened.
Japan hadn’t bought or sold currency to sway the yen’s price since a record intervention in 2011 helped stop its advance after reaching a post-World War II record.
Japan has spent the equivalent of between $8b and $117b in the past four episodes to check undue strength in the yen. The currency gained between 2% and 9% in the three months before interventions; the yen has strengthened 9.1% in the past 90 days. The BOJ has typically come into the market around 9-11am Tokyo time.
Oct. 31-Nov. 4, 2011
Yen strengthened to an all-time high of 75.35 on the first day of intervention
Then Finance Minister Jun Azumi said on Oct. 31 he ordered intervention at 10:25am Tokyo time, saying “speculative moves” of the currency failed to reflect Japan’s fundamentals
MOF sold 9.09t yen to buy $116.3b
Yen had risen 4.5% in the three months through Sept. 30; it weakened 3.1% through the intervention and gained 0.8% through the remainder of November
Aug. 4, 2011
MOF sold 4.51t yen to buy $57.2b
Yen rose to 76.30 per dollar on Aug. 1, the strongest since a previous record
Three days later, Japan intervened; then Finance Minister Yoshihiko Noda confirmed intervention at around 10am Tokyo time, saying decisive action was needed against speculative and disorderly currency moves
Yen had climbed 5.8% in the three months through end of July; it fell 2.3% on Aug. 4 and strengthened 2.9% in the remainder of August
March 18, 2011
MOF sold 692.5b yen to buy $8.6b
Yen soared to 76.25 per dollar on March 17, what was then a record, in the aftermath of a magnitude 9 earthquake that struck Japan six days earlier
Noda confirmed that intervention was conducted at 9am Tokyo time
Other G-7 members also sold yen in joint intervention, saying the step was in response to recent movements in yen associated with tragic events in Japan, and at the request of Japanese authorities
The current surge in Yen is the largest since 1998 and suggests intervention may be overdue...
“The yen is all about risk-uncertainty, which could encourage Japanese investors to pull out of overseas assets and retreat to the safety of home,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “Of late, it’s been a case of capital preservation rather than return. The authorities have been making plenty of noises about this unwanted strength and I see 110 as a potential line in the sand for intervention.”
The only problem is - the last 3 mini Yenterventions failed miserably to spike USDJPY...
And traders doubt The BoJ's ability...
“The stronger rhetoric and speculation about intervention or further monetary policy easing will likely create some volatility in the near term, but there’s going to be a lot of interest in selling the dollar if it goes back up against the yen,” Barclays’s Shinichiro Kadota, a foreign-exchange strategist in Tokyo, said by phone. “The market’s questioning the impact of and scope for further easing.”
Which is very clear from the size of bets on a stronger Yen...
“For intervention to turn around dollar-yen permanently, the BOJ would also need to ease domestic monetary policy further and -- more importantly -- the Fed to raise rates,” Mohi-uddin said. “Until the Fed is able or willing to raise rates further this year, dollar-yen is likely to trend lower, punctuated by any intervention Tokyo undertakes.”
This article was written by Michael Snyder and originally published at his Economic Collapse blog.
Editor’s Comment: It is all just a matter of time, but so clear that so many foreboding financial events are converging into one giant disaster. Things are so far gone at this point, that the system can’t even hold back the gold price, though it obviously still remains suppressed and undervalued.
How much more time is there, and are you ready to brace for impact? If you haven’t set aside plenty of back up funds, and diversified them in the cash-under-the-mattress account, and the hidden/buried/stored gold-and-silver account, then it is well past time. But until the whole thing crumbles, it still isn’t too late.
Global Stocks Continue To Crash As Oil Plummets And Gold Skyrockets
by Michael Snyder
Stock markets around the world continue to collapse as this new global financial crisis picks up more steam. In the U.S., the Dow lost 254 more points on Thursday, and it has now fallen for five days in a row. European stocks continued to get obliterated, and financial institutions are leading the way. But this week what is happening in Japan has been the most sobering. After falling 918 points the other day, the Nikkei plunged another 760 points early on Friday. The Nikkei has now fallen for seven of the past eight days, and investors in Japan are in full panic mode. Overall, global stocks are well into bear market territory, and nearly 17 trillion dollars of global stock market wealth has already been wiped out.
As panic rises, investors are seeking alternative investments. On Thursday, the price of gold hit $1,260 an ounce at one point before settling back a bit. But even with the fade at the end of the day, it was still the biggest daily gain in more than two years. Overall, gold is having its best quarterly performance in 30 years.
Whenever a financial crisis happens, investors seek out safe havens such as gold that can help them weather the storm. In particular, demand for physical gold is going through the roof all over the planet. Just check out the following excerpt from a Telegraph article entitled “Investors ‘go bananas’ for gold bars as global stock markets tumble“…
BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.
Rob Halliday-Stein, founder and managing director of the Birmingham-based company, said takings today had already surpassed the firm’s previous one-day record of £4.4m in October 2014.
BullionByPost, which takes orders of up to £25,000 on the website but takes higher amounts over the phone, explained it had received a few hundred orders overnight and frantic numbers of phone calls this morning.
Meanwhile, the price of oil continues to drop to stunning new depths. On Thursday U.S. oil dropped as low as $26.21, which was the lowest price in 13 years. Not even during the worst parts of the last financial crisis did oil ever go this low.
And remember, the price of oil was sitting at about $108 a barrel back in June 2014. Since that time it has fallen about 75 percent.
Needless to say, this crash is having some very serious consequences for the energy industry. Previously, I have reported that 42 North American energy companies have gone into bankruptcy since the beginning of last year.
But I just found out that the true number is much worse than that.
According to CNN, “67 U.S. oil and natural gas companies filed for bankruptcy in 2015″…
Bankruptcy filings are flying in the American oil patch.
At least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, according to consulting firm Gavin/Solmonese.
That represents a 379% spike from the previous year when oil prices were substantially higher.
With oil prices crashing further in recent weeks, five more energy gas producers succumbed to bankruptcy in the first five weeks of this year, according to Houston law firm Haynes and Boone.
A lot of people tend to think that my writing is full of “doom and gloom”, but the truth is that I often understate how bad things really are. I’ll often report one number and find out later that an updated number is even worse than the one that I originally reported.
What we desperately need is for the price of oil to go back up.
Unfortunately, the International Energy Agency says that isn’t likely to happen any time soon…
The International Energy Agency said earlier this week that it expects the global oil glut to grow throughout the year.
“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its monthly report.
And of course all of this is incredibly bad news for financial institutions all over the world.
During the boom times, the big banks showered energy companies with loans. Now those loans are going bad, and the big banks are feeling the pain. The following comes from CNN…
It’s never a good sign when the country’s financial lifelines are under stress. Large U.S. banks JPMorgan Chase (JPM) and Wells Fargo (WFC) that helped bankroll the energy boom are already setting aside billions to cover potential loan losses in the oil industry. Investors are worried about imploding energy loans for European banks like Deutsche Bank (DB). High yield bonds in your investing portfolio wont be looking good either — Standard & Poor’s warned that half of all energy junk bonds are at risk of defaulting.
Speaking of Deutsche Bank, their stock price continued to plummet on Thursday, as did the stock prices of most other European banks.
Things were particularly bad for France’s Societe Generale. Their stock price plunged 12 percent on Thursday alone.
This is what a global financial crisis looks like. It began during the second half of last year, and now it is making major headlines all over the planet.
At this point, things are already so bad that the elite are starting to freak out about what this could potentially mean for them. I want you to carefully consider the following two paragraphs from an editorial that I came across in the Telegraph earlier today…
We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.
The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so-all encompassing that it would threaten the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences.
I think that the author of this editorial is correct.
I do believe that another financial crisis on the scale of 2008 would trigger “a cataclysmic, uncontrollable backlash”.
In fact, I believe that is what we are steamrolling toward right now.
We can already see the anger of the American people toward the establishment being expressed in their support of Bernie Sanders and Donald Trump.
But if the financial system completely collapses and it becomes exceedingly apparent that none of our problems from the last time around were ever fixed, the frustration is going to be off the charts.
Many people believed that this day of reckoning would never come, but now it is here.
The “coming nightmare” is now upon us, and this is just the start.
The rest of 2016 promises to be even more chaotic, and ultimately this new crisis is going to turn out to be far worse than what we experienced back in 2008.
If you want to know what is coming and what you can do to prepare, read his latest book Get Prepared Now!: Why A Great Crisis Is Coming.
"The last duty of a central banker is to tell the public the truth."
- Alan Blinder, former Federal Reserve Board Vice Chairman
The Federal Reserve Board finds itself back in a quandary of its own making. When Fed chair Janet Yellen pushed through an interest rate hike this past December, she confidently cited an "economy performing well and expected to continue to do so."
The Fed set the stage for more rate hikes in 2016. But something went awry along the way – namely, the Fed's upbeat forecast.
Official pronouncements of optimism don't square with the economic realities now unfolding. Since the Fed's rate hike, warning signs of a looming recession have rapidly accumulated. Industrial production is slumping. Global bulk shipping rates are in the dumps. The number of people without full-time jobs is growing. Corporate earnings are weakening. The junk bond market is melting down, and the stock market appears to be following suit.
Most of these warning signs were flashing back when the Fed decided to hike. The stock market was still positively diverging from economic indicators, but now that the Dow Jones Industrials too is rolling over, the Fed is back-tracking on rate hikes.
The Fed's next move could be to cut rather than raise rates – perhaps even pushing them into negative territory as central banks in Europe and Japan have done.The Fed Has a Remarkable Track Record of Failed Forecasts
Federal Reserve policymakers can be counted on to react to market developments, because that's all they can do. Time and again, they have shown that their forecasting models don't work. The Fed doesn't actually prevent financial crises from occurring. It just comes in after the fact to try to clean up the mess its loose money policies helped create – the 2008 financial crisis being the latest example.
Fed officials won't admit publicly that they're just making it up as they go. But that's the reality. As James Rickards explained in an interview with Mike Gleason, "I've spoken to Fed governors, I've spoken to Regional Reserve presidents, I've spoken to a lot of senior officials at the Federal Reserve, and insiders there. They don't know what they're doing. They won't say it publicly but they do say it privately."
If Fed officials admitted that they couldn't outsmart the market or forecast the economy, that they don't know anything beyond what's in latest edition of the Wall Street Journal, then they'd be admitting there is no reason for them to be in charge of setting interest rates or managing the money supply.The Fed's Rarely Admitted Mission Is Psychological Manipulation
But as alluded by the unguarded comment of Alan Blinder quoted above, incompetence is not the only problem with the Federal Reserve System. Although that would be bad enough.
As much as anything, the Fed is a disinformation and propaganda machine.
A primary goal is to manipulate the public and the markets, and spewing false information is justified by a larger objective. It's all part of "managing inflation expectations" and jawboning to prop up the market. Central bankers know that perception can become reality, at least in the short run.
Of course, the whole public justification for the creation of the Federal Reserve system in 1913 was that enlightened policymakers would tame the animal spirits that drove economic booms and busts. What a farce that turned out to be.
The Fed went on to give us the Great Depression, a great stagflation in the 1970s, one asset bubble after another (commodities, stocks, housing, etc.), after another. The central bank always reinflates the system rather than allow deflation to cleanse it out completely. So the bubbles rotate from one asset class to another in perpetuity. Before the creation of the Fed, major asset bubbles were a once in a generation event. Now they are the norm.The Fed Has Unequivocally Failed in Maintaining "Price Stability"
One of the Federal Reserve's core mandates is "price stability." Yet the Fed's pursuit of stable price levels has translated into a 97% loss in the purchasing power of the U.S. dollar since 1913.
The decline in the value of the dollar accelerated beginning in 1971 – as did the frequency and severity of asset bubbles. That's no coincidence. In 1971, President Richard Nixon revoked international gold redeemability, rendering the U.S. dollar a pure fiat currency.
"We had a gold standard from the 1790s right through the 1970s, a hundred and eighty years, and it worked very well. We had the most phenomenal growth of any country in the history of the world," said Steve Forbes in a recent Money Metals podcast. "Since then we've had more financial crises, more dangerous banking crises, lower economic growth, and we see the stagnation that we have today."Negative Interest Rates and Helicopter Money Drops Are Next
How will Fed officials respond to the present stagnation if it morphs into something worse? Probably as before, with the only tool left in their toolkit: the printing press.
If 0% interest rates prove ineffectual, then they can push rates into negative territory. If negative rates don't nominally lift financial markets and economic indicators, they can always try helicopter drops (or the digital equivalent).
Or they could try the sound money approach.
They could re-link the currency to gold, allow the value of the dollar hold a constant purchasing power over time, and stand aside while markets determine interest rates and asset valuations. The major hurdle to transitioning toward sound money within the Federal Reserve System is that central bankers would have to admit markets know better than they do.
It's not in the nature or the institutional interests of people like Janet Yellen – an Obama-appointed leftist – to announce that their services aren't needed. So the path forward for monetary reformers may be to work outside the system.
Toward that end, we are helping to expose the Fed to the general public. We aim to educate the people about precious metals as real, alternative money. The more individuals who adopt their own personal gold standards, the less relevant the Fed will become.
My kids have the mental age of ten and eleven year olds, because, well, they are ten and eleven years old. So they fight pretty much constantly. When my son wants past his sister in the passage way and she’s “in the way”, he hasn’t yet formulated the reasoning to patiently wait for her to move and instead shoves past sending her into the wall. She, not having developed a cogent argument why this shouldn’t take place, whacks him.
Hard at work here are primal responses. Engaging the most developed part of our brain, the neocortex, which reasons and solves problems simply isn’t happening here.
Primal instinctive responses are the most common responses since they require almost no thought process. For instance:
- Man sees lion running at him. Man runs away.
- Man sees neighbor with new Porsche. Man wants it.
- Man sees pretty girl in bar. Man wants to get frisky.
- Man sees stock market going up. Man feels good, buys more.
- Man sees stock market going down. Man feels pain. Man sells.
The reason that asymmetry exists in the world is, I believe, in no small part due to the overwhelming majority of people in any given country at an given time operating purely at an instinctive, primal level.
This asymmetry is representative in the distribution of wealth globally. The 80/20 law otherwise known as the Pareto principle remains pretty darn constant across time, and geographies, and exhibits itself in both nature as well as human endeavours.
The easiest and fastest fortunes made in the world have been closely tied to this phenomenon.Case Study
A few weeks ago, I did what I only ever do on airplanes – I watched a movie. The Big Short. It is based on the book by Michael Lewis, which in turn is based on the story of several of the players in the creation of the credit default swap market and betting against the CDO bubble.
The story provides yet another (brilliant) example of this phenomenon.
Consider the reasoned, thoughtful, and decidedly non-primitive Michael Burry. Burry, unlike the overwhelming majority of his fellow primates realised that 1 and 1 could not equal 4 squared even it did have a ratings agencies’ bow and ribbon on it.
The overwhelming majority of the investing market, on the other hand, hadn’t thought much about it at all. As with most things which are entirely unreasonable but still accepted, the US housing boom began with sound fundamentals.
Securitizing assets and selling them is what Wall Street does. And so Wall Street did just that. They packaged up mortgages into bundles and flogged them to pension funds, mutual funds and various other mindless investors. Don’t get me wrong. Securitising mortgages isn’t a bad thing per se. Liquidity is increased, and capital can flow more easily between buyers and sellers.
The problem arose with what to do with those mortgages which were subprime or crap. No problem. The CDO squared solved this problem. Just take all the garbage that nobody wants, repackage it into new CDOs which, once blessed by rating agencies, looked just like the original “prime” CDOs and voila. The institutions, engaging their primal brain, bought them without bothering to look inside.
In the end both the debt and the equity landed up being worthless. Garbage is garbage no matter how you dress it up.
Now none of the above should be news to you.
Michael Burry made out like a bandit not because he shorted garbage but because he shorted garbage which was mispriced.
Just as my kids will thump each other instead of thinking through a reasoned response, the majority of the market will react to situations with a primal brain failing to think things through. The adult mind using only primal instincts is no different from my kids. Actually, it’s likely worse.
Furthermore, when asymmetry presents itself as it did with Michael Burry, it’s human nature to seek solace in the opinions of others who may share the view. You’ll almost assuredly fail to find it. Being social creatures, it’s only human to look for kindred spirits. Being alone is not a natural tendency. Hermits are not the norm.
There are a couple of notable takeaways from the film.
Firstly, Burry and a number of other characters identified not only the fraud but the mispricing of risk which presented such asymmetry. This is, of course, how 489.3% returns (the return generated by Burry’s firm Scion Capital between November 2000 and June 2008) are achieved.
The other takeaway is that the bankers involved should all have landed up in jumpsuits, allowed out of their cells only for a moments man-love in the showers. They, of course, didn’t and instead paid themselves billions in bonuses but that’s another story.
This is how the world works. And so it’s better to look for where the 20% of the market has the highest probability of returning 80% of the returns. Hint: it’s found where asymmetry lies.
In no particular order of preference right now we are researching and interested in:
- Sovereign debt: What feels like a lifetime of central bank intervention has created a debt burden of proportions never experienced before. As we near the end of the debt supercycle this remains one of the most compelling areas for us.
- Currencies: Short yen and remnimbi. Long US dollar as the USD carry trade unwinds.
- Decimated resource markets: In particular uranium, precious metals, copper and zinc.
- Artificial intelligence: Automation of knowledge work.
- Synthetic biology: Gene sequencing really coming into its own.
- Blockchain: I’ve previously spoken about this here, here and also in our Bitcoin and blockchain report.
- Robotics: Exoskeletons, remote physical manipulations, manufacturing, healthcare and surgery, and of course basic chores and activities such as food preparation.
- 3D printing: I’ll need an entire report (or 5) to cover this one. It’s coming and fast.
- Iran: Yes, Iran.
You’ll notice that exactly NONE of these fit into “standard portfolio construction”. You’ll probably also notice that there is ZERO interest in mutual funds, indexing, or any of the nonsense preached to us in four walled institutions comically referred to as “higher education”. The 80% can gladly have all that.
If you, like us, are focused on harnessing the power of the 20%, then make sure not to miss out on our future articles on the topic.
“Truth is like poetry. And most people f**king hate poetry.” – From the Big Short movie
For those who follow the monthly consumer credit report released by the Fed there was nothing surprising in today's release of the latest Household Debt and Credit Report by the New York Fed. It reports that total household debt rose to $12.12 trillion in Q4, up from $11.83 trillion a year ago...
...mostly as a result of soaring student and auto debt, both trends we have observed on various occasions in the recent and not so recent past.
There is more in the report (a notable discussion focuses on why housing credit has stagnated as much as it has with the Fed seemingly unable to grasp that the bulk of housing purchases in the US in recent years have been by offshore oligarchs using all cash transactions to park money in US luxury housing), but what is the topic of this post is another finding by the Fed, namely that Americans in their 50s, 60s and 70s - the Baby Boom generation - are carrying unprecedented amounts of debt, a shift which according to the WSJ "reflects both the aging of the baby boomer generation and their greater likelihood of retaining mortgage, auto and student debt at much later ages than previous generations."
— New York Fed News (@NYFed_News) February 12, 2016
Incidentally, those debt "retention" are entirely thanks to the Fed which has only itself to thank for: with deposits yielding nothing, an entire generation of Americans 50 and older has been fored to resort increasingly to more and more debt, until this happens:
What this chart shows is that while per capita debt at age 30 fell by 12%; per capita debt at age 65 grew by 48%!
Worse, as the chart below show, while aggregate debt of Gen-Xers has admirably declined by 12% in the past 12 years, the aggregate debt of the average Baby Boomer has soared by an unprecedented 169%!
The biggest shocker: an 886% increase in student loan debt of Americans aged 65 and older.
Some more details from the WSJ: the average 65-year-old borrower has 47% more mortgage debt and 29% more auto debt than 65-year-olds had in 2003.
Some more observations:
Just over a decade ago, student debt was unheard of among 65-year-olds. Today it is a growing debt category, though it remains smaller for them than autos, credit cards and mortgages. On top of that, there are far more people in this age group than a decade ago.
The result: U.S. household debt is vastly different than it was before the financial crisis, when many younger households had taken on large debts they could no longer afford when the bottom fell out of the economy.
The shift represents a “reallocation of debt from young [people], with historically weak repayment, to retirement-aged consumers, with historically strong repayment,” according to New York Fed economist Meta Brown in a presentation of the findings.
Why is this a problem in a world in which cash flow is increasingly scarce? "Older borrowers have historically been less likely to default on loans and have typically been successful at shrinking their debt balances. But greater borrowing among this age group could become alarming if evidence mounted that large numbers of people were entering retirement with debts they couldn’t manage. So far, that doesn’t appear to be the case. Most of the households with debt also have higher credit scores and more assets than in the past."
Assets mostly in the form of equities and bonds, however, those assets will need to be liquidated one way or another to repay what is a record debt load as the Baby Boomer generation grows even old and ever more in debt.
For now, however, the debt repayment cliff has not been hit as banks allow creditors to roll over existing obligations. This means that while debt among the elderly is at record levels, the percentage of this debt that is in some stage of delinquency has been steadily dropping. The NY Fed founds that only 2.2% of mortgage debt was in delinquency, the lowest since early 2007. Credit card delinquencies also declined, while auto loan and student loan delinquencies were unchanged.
“The household sector looks much better positioned today than in 2008 to absorb shocks and continue to contribute to the economic expansion,” said New York Fed President William Dudley in prepared remarks.
Actually, the most debt-sensitive part of the household sector, the Baby Boomers, has never been more vulnerable, and only low rates have allowed this generation to ignore the elephant in the room; with the Fed now hiking rates, this will change drastically in the coming years.
There was some good news in the report: by contrast the overall debt balances of most young borrowers haven’t grown or have declined. The average 30-year-old borrower has nearly three times as much student debt as in 2003. But these borrowers have so much less home, credit card and auto debt that their overall debt balances are lower.
Which also explains why not only are Millennials locked out of purchasing homes, but have become the "renting generation", one where everything is based on the principle of a "sharing economy", where little to no actual asset purchases are required, and where a la carte renting of goods and services for instant needs has become the new norm.
Indeed, as NY Fed economist Meta Brown admits, this shift for young borrowers could have “consequences in terms of both foregone economic growth and young consumers’ welfare." Sadly, with few well-paying jobs for Millennials available, and with little ability to build up an asset or savings base, these trends will continue until they too hit a plateau of unsustainability.
* * *
The full NY Fed report is below (pdf link)
Andrew Maguire – Corruption, Gold’s Surge, The LBMA’s Shocking Admission & What Has Them So Terrified
Today whistleblower and London metals trader Andrew Maguire spoke with King World News about corruption, gold's surge, and an absolutely shocking admission by the LBMA as well as what has them so terrified right now.
The post Andrew Maguire – Corruption, Gold’s Surge, The LBMA’s Shocking Admission & What Has Them So Terrified appeared first on King World News.
While the S&P 500 held support at January low (1,812) yesterday (and October 2014's Bullard bounce lows), BMO's Russ Visch warns "it may not hold in the days ahead" due to weak market breadth.
Given the ongoing collapse in market breadth (now breaking well below January's lows), BMO's Visch adds...
...the probabilities still favour a breakdown in the days ahead given the continued deterioration underneath the surface in broad measures of equity participation. For example, both NYSE Advance-Decline lines (traditional and common-stock-only) have broken below their January lows.
The same is true for other indexes such as the Russell 2000 and Wilshire 5000 indexes.
Daily breadth and momentum oscillators also continue to deteriorate so the path of least resistance still appears to be to the downside here.
As we have noted in recent reports, the next major support level for the S&P 500 on a close below 1812 is the February 2014 low at 1737.
Why Yellen's Testimony Was Not Dovish Enough: Bank CEOs Told Her The 'Economy Is Stronger Than Markets Imply'
Every quarter members of the Fed meet with 12 representatives of the U.S. banking industry who comprise the Federal Advisory Council. This is what the Fed says about this specific council:
The Federal Advisory Council (FAC), which is composed of twelve representatives of the banking industry, consults with and advises the Board on all matters within the Board's jurisdiction. The council ordinarily meets four times a year, the minimum number of meetings required by the Federal Reserve Act. These meetings are always held in Washington, D.C., customarily on the first Friday of February, May, September, and December, although occasionally the meetings are set for different times to suit the convenience of either the council or the Board. Each year, each Reserve Bank chooses one person to represent its District on the FAC, and members customarily serve three one-year terms. The members elect their own officers.
Here are the 12 current "bank representative" members:
- Richard E. Holbrook, First District
- James P. Gorman, Second District
- Scott V. Fainor, Third District
- Paul G. Greig, Fourth District
- Kelly S. King, Fifth District
- O.B. Grayson Hall, Jr., Sixth District
- Frederick H. Waddell, Seventh District
- Ronald J. Kruszewski, Eight District
- Patrick J. Donovan, Ninth District
- Jonathan M. Kemper, Tenth District
- Ralph W. Babb, Jr., Eleventh District
- John G. Stumpf, Twelfth District
- Herb Taylor, Secretary
We bring this up because according to the just released records from the most recent, February 3, meeting one which came one week ahead of Yellen's congressional tesimony which on both days sent markets into a tailspin because Yellen "was not dovish enough" according to sellside commentary, she was told "the economy is stronger than the recent negative market sentiment would imply."
Specifically, this is what the Council was tasked with responding at the latest meeting:
What is the Council’s view of the current condition of, and the outlook for, loan markets and financial markets generally? Has the Council observed any notable developments since its last meeting for loans in such categories as (a) small and medium-size enterprises, (b) commercial real estate, (c) construction, (d) corporations, (e) agriculture, (f) consumers, and (g) homes? In particular, what is the likely impact of the recently issued Statement on Prudent Risk Management for Commercial Real Estate Lending on banks’ lending practices? Do Council members see economic developments in their regions that may not be apparent from the reported data or that may be early indications of trends that may not yet have become apparent in aggregated data?
And here was their main response:
The Council believes the economy is stronger than the recent negative market sentiment would imply.
Some of the other things the bank CEOs said:
- Lenders are generally still highly competitive on rates, and looser structures are becoming more common, particularly on buyout financing.
- The demand for loans is anticipated to increase moderately through 2016, consistent with a moderately expanding U.S. economy. Soft commodity pricing may reduce some demand for working capital credit.
- More stress in the energy sector and in the manufacturing sector are to be expected going forward. To date, oil and natural gas prices remain weak and show little prospect of significant increase in the near term. Ongoing low oil and natural gas prices, combined with decreasing protection from price hedges, along with tightening credit standards, will extend the current high-stress environment for many petroleum-related companies into 2016. High-level economic indicators for the manufacturing sector are also cooling down, as recent consecutive contractionary readings in the ISM manufacturing index were the lowest since the last recession. Several regional purchasing-manager surveys have also indicated contraction over the past year.
- The financial markets will be greatly influenced by the decisions of the FOMC on monetary policy, with discussion centering on the speed of the rate-increase cycle.
- Commercial real estate and construction demand is steady, with strong competition for quality credits.
- The consumer credit market remains strong, with stable-to-improved mortgage activity and increased demand from new homeowners, supported by household formation. Auto loan volumes are robust due to record auto sales and a supportive consumer sentiment.
- The strong dollar continues to weigh on commodity prices and manufacturing activity
Of the above, the bolded statment is key, which may well have solidified Yellen's rather upbeat view that the economy is strong enough to not only be able to sustain the rate hike cycle, but to neither rush in adjusting the "dot plot" lower if not horizontal for the next two years (as the market implies), but to actually proceed with another rate hike during the March meeting especially if the Atlanta Fed's Q1 upward revised forecast of Q1 GDP which just rose to 2.7%, is accurate.
The above also poses the question: who is it that decides the fate of the Fed's rate hikes - the Fed, or the 12 bankers on its advisory council.
The full meeting record can be found here.
Phil's article below was from yesterday morning, before today's big spike in oil prices (2-12-16). He follows up on Oil Fears Spook Investors (Again), from Monday.
Why is oil currently up almost 12%? "US crude surges as much as 12% on output-cut hopes." Hopes.
(Screenshot: Yahoo's chart)Markets Collapse as Sweden goes Negative & Oil Spills Over
Well, it's just an excuse to sell off on a 30-year auction day (happens almost every one) because it panics people into T-Bills at ridiculously low rates and makes it look like the Fed is doing its job and people really do want to lend the Government money for 30 years at 2.5% rather than do something productive with the money. Why? Because if people don't want to by 30-year Treasury Notes at 2.5% then one would have to question our Government's $19,000,000,000,000 debt load which, at 2.5%, costs $475Bn in interest payments alone to sustain and if we were to assume rates climb to 5%, then another $475Bn per year would have to be figured into the budget (without asking the Top 1% or Corporations to contribute, of course!).
On the other hand, with Sweden now CHARGING 0.5% to put money in the Riksbank, 2.5% on US debt looks like a pretty good deal, doesn't it? I already sent out an Alert this morning (tweeted too, with the hashtag #CurrencyWars) on what happened and how we're playing the Futures, so I won't rehash all that here.
Oil, meanwhile, is down another 4% this morning ($26.25) and that's on me as I told Canada that oil was not going to make a comeback on Money Talk last night – and it was not a happy conversation. We would like to play the $25 line for a bounce on /CL but we're EXTREMELY concerned about the MASSIVE overhang of FAKE!!! contracts (see Monday's post and here is a good place to say "I told you so!") with 324,000 open orders still remaining in the March contracts (but they did cancel 191,000 fake orders in 3 days, so catching up).
In fact, since I get a lot of mail from people who can't believe the NYMEX is a complete and utter scam used only to defraud the American people by creating a false demand for oil and driving up prices, let's compare the "open order 'demand'" (had to double quote demand as it's such BS) from Monday morning to yesterday's close. Here's Monday's NYMEX contract strip:
Here's yesterday's closing strip (Wednesday 2-10-16):
Updated numbers from Thursday 2-11-16:
Phil: "Oil Contracts – Looks like they ditched a healthy 66,000 yesterday. At that pace they'll get it done no problem but they'll need a new OPEC rumor every day and, eventually, it won't work well enough to get buyers to step in. Still, there's record shorts on the NYMEX (and energy stocks) so pretty easy to squeeze them, my bias is still to bet long off support lines (0.50s)."
Where did the fake orders for 191,000,000 barrels (1,000 per contract) go? We know they can't possibly be delivered since Cushing, OK can only handle 40M barrels a month (less than 10% of the fake order capacity) so what happened? Well, if you noted the next 4 months from Monday – they totaled 665,000 contracts and now, amazingly, they total 875,000 contract – that's a gain of 210,000 contracts!
In other words, there is no actual change to the fake, Fake, FAKE!!! orders at the NYMEX, they just roll them along to the next months so they can pretend there is demand there as well. Since all those trading and rolling losses are worked into the price of oil – only the consumer suffers the losses while the traders and the Banksters that work with them make Billions in fees for their barrel-rolling trick.
And I will tell you now that, as usual, 90% of the remaining 324M barrels worth of contracts to buy oil at $27 will be CANCELLED and not delivered to the US in March – in hopes of screwing you with higher prices later.
And this is the problem Canada, and the rest of the World, have now. There has been a scam, pretty much since the deadly Commodity Futures Modernization Act Revisions, which were literally signed into law the day after Bush won his Presidency in the Supreme Court (hidden inside an 11,000 page appropriations bill that HAD to be signed to avoid a Government shut-down a week before Christmas). This bill and it's repercussions are now wreaking havoc with the Global Economy for the 2nd time.
The first time, aside from Enron (Bush's biggest single donor) et al (made possible by the deregulation in the Act, which was sponsored by Enron) ripping off consumers all over the country, the unregulated trading caused oil to jump from $20 per barrel under Clinton to $140 a barrel under Bush, which ultimately broke the consumers' backs and led to our 2008 market collapse.
Now it's time for round two as the misallocation of capital towards energy projects, based on the assumption that $100 oil was a REAL price based on market demand (it's not, it's completely unaffordable) has caused MASSIVE over-production of oil all around the World and the companies and countries that borrowed money to finance that production growth AND the banks that lent them the money are now in BIG TROUBLE with oil back at it's NORMAL price of $26.50 per barrel.
As I said on BNN last night, countries like Canada, where 20% of their GDP comes from the energy sector, are going to have a very painful time adjusting to normal oil prices but the sooner they come to grips with that reality, the better.
The worst thing they can do is attempt to prop up a failing industry that is drastically in need of a consolidation wave as they are currently over-producing, according to the IEA, 1.75Mb of oil per day. That's about 2% of global production that needs to go off-line before we're even close to sopping up the GLUT of oil that has flooded Global storage facilities to near capacity.
The worst part is (for OPEC and the North American Energy Cartel – you know who you are!) is that the sanctions lifted on Iran are now going to put another 1.5Mb/d of production on-line by the end of this year (already over 500,000/day) which is accelerating the problem. OPEC has, so far, not made any moves to cut back – part of their problem is they now only control 30% of the World's oil because their previous policy of holding back production to jack up oil prices has backfired as the high prices led 60M daily barrels of competing oil to come to market and their share of the global market has fallen 50% since they held us hostage in the 70s.
And now we head towards the end game and it's the Chinese curse of living in "interesting times" indeed for oil producers. As I told Money Talk last night – don't rush to find "bargains" in the energy sector – a lot of these guys are never coming back!
This article follows Oil Fears Spook Investors (Again).