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Belief in Inflation (And 4 or More Rate Hikes in 2018) Picks Up

Investors Increasingly believe the Fed may hike four or more times in 2018. The inflation scare is picking up steam.

Due to Federal Reserve Beige Book regional reports, investors increasingly believe the Fed will go on a rate hike spree this year.

CME Fedwatch sees things this way.

Talk of $100 Oil


Commodities rocket on $100 oil talk, metals stress http://www.reuters.com/article/us-global-markets/commodities-rocket-on-100-oil-talk-metals-stress-idUSKBN1HQ02S 

Commodities rocket on $100 oil talk, metals stress

Talk that Saudi Arabia has its sights on $80-$100 a barrel oil again ignited a fierce rally in commodities and resource stocks on Thursday, though the potential boost to inflation globally put some…

reuters.com


Fun New Narrative

…click on the above link to read the rest of the article…

Doug Duncan: Even US Government Economists Predict Trouble Ahead

Doug Duncan: Even US Government Economists Predict Trouble Ahead

Fannie Mae forecasts an economic slowdown by 2019

Doug Duncan is not your average beltway economist.

The chief economist for Fannie Mae is surprisingly outspoken about the troublesome outlook for the US economy. He’s worried about the rising cost of debt service as outstanding credit continues to mount at the same time interest rates are starting to ratchet higher, too.

He predicts the US will enter recession within a year, concurrent with a topping out of America’s real estate market. It wouldn’t surprise him to see the stock market falter, too, as central banks around the world begin a coordinated tightening of monetary policy and — similar to the thoughts recently expressed within our podcast with Axel Merk — Doug expects Jerome Powell to be much more reluctant to intervene in attempt to support asset prices. Having met personally with Powell, Doug thinks the Fed is now happy to see some of the air come out of the Everything Bubble (just not too much and not too fast) — a market change from past Fed administrations:

Our forecast definitely sees slowing economic activity, particularly in the second half of ’19. Part of it has to do with the length of the expansion. Just because an expansion is long doesn’t mean it’s going to end; but they all have eventually ended, and this one is getting pretty old. I think if it’s not the second longest, it’s getting to be the second longest that we’ve ever had shortly.

The tax bill was viewed differently by different parties, but the capital markets initially took that — plus the $300 billion agreement to get past the expiration of government funding plus the budget agreement — they took all those things as inflationary.

…click on the above link to read the rest of the article…

The Central Bank Crisis on the Immediate Horizon

While the majority keep bashing the Federal Reserve, other central banks seem to escape any criticism. The European Central Bank under Mario Draghi has engaged in what history will call the Great Monetary Experiment of the 21st Century – the daring experiment of negative interest rates. A look behind the scenes reveals that this experiment has been not just a failure, it has undermined the entire global economic structure. We are looking at pension funds being driven into insolvency as the traditional asset allocation model of 60% equity 40% bonds has failed to secure the future with negative interest rates. Then, the ECB has exceeded 40% ownership of Eurozone government debt. The ECB realizes it can not only sell any of its holdings ever again, it cannot even refuse to reinvest what it has already bought when those bonds expire. The Fed has announced it will not reinvest anything. Draghi is trapped. He cannot stop buying government debt for if he does, interest rates will soar. He cannot escape this crisis and it is not going to end nicely.

When this policy collapses, forced by the free markets (no bid), CONFIDENCE will collapse rapidly. Once people no longer believe the central banks can control anything, the end has arrived. We will be looking at the time at the WEC. We will be answering the question – Can a central bank actually fail?

Jerome Is The New Janet: Tie, Trousers And Same Old Keynesian Jabberwocky

Jerome Is The New Janet: Tie, Trousers And Same Old Keynesian Jabberwocky

The election of 2016 was supposed to be the most disruptive break with the status quo in modern history, if ever. On the single most important decision of his tenure, however, the Donald has lined-up check-by-jowl with Barry and Dubya, too.

That is to say, Trump’s new Fed chairman, Jerome Powell, amounts to Janet Yellen in trousers and tie. In fact, you can make it a three-part composite by adding Bernanke with a full head of hair and Greenspan sans the mumble.

The overarching point here is that the great problems plaguing American society—scarcity of good jobs, punk GDP growth, faltering productivity, raging wealth mal-distribution, massive indebtedness, egregious speculative bubbles, fiscally incontinent government—-are overwhelmingly caused by our rogue central bank. They are the fetid fruits of massive and sustained financial repression and falsification of the most import prices in all of capitalism—–the prices of money, debt, equities and other financial assets.

Moreover, the worst of it is that the Fed is overwhelmingly the province of an unelected politburo that rules by the lights of its own Keynesian groupthink and by the hypnotic power of its Big Lie. So powerful is the latter that American democracy has meekly seconded vast, open-ended power to dominate the financial markets, and therefore the warp and woof of the nation’s $19 trillioneconomy, to a tiny priesthood possessing neither of the usual instruments of rule.

That is to say, never before in history has a people so completely and abjectly surrendered to an occupying power—even though its ostensibly democratic government already possessed all the votes and all the guns.

…click on the above link to read the rest of the article…

What to Expect From Central Bankers

  • The Federal Reserve continues to tighten and other Central Banks will follow
  • The BIS expects stocks to lose their lustre and bond yields to rise
  • The normalisation process will be protracted, like the QE it replaces
  • Macro prudential policy will have greater emphasis during the next boom

As financial markets adjust to a new, higher, level of volatility, it is worth considering what the Central Banks might be thinking longer term. Many commentators have been blaming geopolitical tensions for the recent fall in stocks, but the Central Banks, led by the Fed, have been signalling clearly for some while. The sudden change in the tempo of the stock market must have another root.

Whenever one considers the collective views of Central Banks it behoves one to consider the opinions of the Central Bankers bank, the BIS. In their Q4 review they discuss the paradox of a tightening Federal Reserve and the continued easing in US national financial conditions. BIS Quarterly Review – December 2017 – A paradoxical tightening?:-

Overall, global financial conditions paradoxically eased despite the persistent, if cautious, Fed tightening. Term spreads flattened in the US Treasury market, while other asset markets in the United States and elsewhere were buoyant…

Chicago Fed’s National Financial Conditions Index (NFCI) trended down to a 24-year trough, in line with several other gauges of financial conditions.

The authors go on to observe that the environment is more reminiscent of the mid-2000’s than the tightening cycle of 1994. Writing in December they attribute the lack of market reaction to the improved communications policies of the Federal Reserve – and, for that matter, other Central Banks. These policies of gradualism and predictability may have contributed to, what the BIS perceive to be, a paradoxical easing of monetary conditions despite the reversals of official accommodation and concomitant rise in interest rates.

…click on the above link to read the rest of the article…

What a Hoot: Fed Chairman Powell Says “Growth Has Picked Up”

In his first non-FOMC speech, Jerome Powell stresses growth and jobs.

Inquiring minds are investigating Jerome Powell’s speech on his Outlook for the U.S. Economy presented today at the Economic Club of Chicago, Chicago, Illinois. Here are a few key quotes.

  • After what at times has been a slow recovery from the financial crisis and the Great Recession, growth has picked up. The labor market has been strong, and my colleagues and I on the Federal Open Market Committee (FOMC) expect it to remain strong.
  • Trends in participation have been more pronounced in the United States than in other advanced economies.
  • There is no consensus about the reasons for the long-term decline in prime-age participation rates, and a variety of factors could have played a role. Research suggests that structurally-oriented measures–for example, improving education or fighting the opioid crisis–also will help raise labor force participation in this age group.
  • The balance sheet reduction process is going smoothly and is expected to contribute over time to a gradual tightening of financial conditions. Over the next few years, the size of our balance sheet is expected to shrink significantly.
  • The FOMC’s patient approach has paid dividends and contributed to the strong economy we have today.
  • My FOMC colleagues and I believe that, as long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals
  • It remains the case that raising rates too slowly would make it necessary for monetary policy to tighten abruptly down the road, which could jeopardize the economic expansion. But raising rates too quickly would increase the risk that inflation would remain persistently below our 2 percent objective. Our path of gradual rate increases is intended to balance these two risks.

…click on the above link to read the rest of the article…

The Next Crisis Will Be The Last

The Next Crisis Will Be The Last

It is an interesting thing.

Throughout the last four decades there is a direct link between the actions of the Federal Reserve and the eventual economic and market outcomes due to changes in monetary policy. In every case, that outcome has been negative.

The general consensus continues to be the markets have entered into a “permanently high plateau,” or an era in which asset price corrections have been effectively eliminated through fiscal and monetary policy. The lack of understanding of economic and market cycles was on full display Monday as Peter Navarro told investors to just “buy the dip.”

“I’m thinking the smart money is certainly going to buy on the dips here because the economy is as strong as an ox.”

I urge you not to fall prey to the “This Time Is Different” thought process.

Despite the consensus belief that global growth is gathering steam, there is mounting evidence of financial strain rising throughout the financial ecosystem, which as I addressed previously, is a direct result of the Fed’s monetary policy actions. Economic growth remains weak, wages are not growing, and job growth remains below the rate of working age population growth.

While the talking points of the economy being as “strong as an ox” is certainly “media friendly,” The yield curve, as shown below, is telling a different story. While the spread between 2-year and 10-year Treasury rates has not fallen into negative territory as of yet, they are certainly headed in that direction.

This is an important distinction. The mistake that most analysts make in an attempt to support a current view is to look at a specific data point. However, when analyzing data, it is not necessarily the current data point that is important, but the trend of the data that tells the story.

…click on the above link to read the rest of the article…

Bank of Japan Buys Record Amount of Equity ETFs: Once Upon a Time

The Japanese stock market fell, so the Bank of Japan bought more equity funds.

After cornering the bond market, the Bank of Japan has its sight on the stock market with a Record Buying Binge in March.

The Bank of Japan spent 833 billion yen ($7.8 billion) on exchange-traded funds tracking the country’s shares last month, the largest amount ever according to data back to 2010. The BOJ stepped in as the Japanese market slumped and its benchmark Topix index inked its first back-to-back monthly declines since the start of 2016. Haruhiko Kuroda’s bank is now ahead of its scheduled goal to spend about 6 trillion yen a year on ETFs. “If the market keeps on falling, there will be the problem of what they do next,” said Kazuyuki Terao, chief investment officer for the Japan arm of Allianz Global Investors.

Problem? What Problem?

Just buy them all. 100% of every ETF. Given the Bank of Japan has cornered the bond market, it’s simply the logical next step.

Once Upon a Time

Once upon a time, I seem to recall central banks discussing and setting monetary policy in a very strange way.

For those of you not old enough to remember, the Fed and other central banks actually discussed the growth rate of money supply at monetary policy meetings.

How peculiar, to actually discuss money at monetary policy meetings. Those silly days are gone.

New Normal

  • Central banks now sponsor negative interest rates, something that could never happen in the real world.
  • The Bank of Japan and the Swiss National Bank are playing roulette with the stock market.
  • The Fed embarked on three rounds of QE to force bond yields lower.
  • The ECB is still at it, in a clear attempt to keep Italy on life support.

…click on the above link to read the rest of the article…

The Risk of the Fed’s Continuous Rate Hikes

The Risk of the Fed’s Continuous Rate Hikes

jerome powell raises rates

This past week, the Fed raised interest rates by 0.25%. The effective Fed fund rate is now 1.63% – the highest since the big market crash of 2008.

However, it could get as high as 3.375% by 2020. The decade 2020 – 2029 could see a high-tech version of the early-1980’s when home loans fetched interest rates up to 18%.

It was only a couple years ago when raising rates seemed like a “boy who cried wolf” idea. Now we’re seeing one rate hike after the other, with two more expected for 2018.

Does the Fed have something up their sleeve, or are they hanging on to false hope?

The Fed is Either in Denial or Misleading Us About the Economy

While the Fed’s decision to raise rates was predictable, the rest of their announcement wasn’t.

In the recent FOMC report the Fed paints a rosy picture about the state of our economic situation. They stated the outlook has “strengthened in recent months.”

Then they claimed a better unemployment rate at 4.1%. And it is, if you’re only reporting the statistics that make things look good.

We know that rate is misleading for one simple fact…

Anyone who is not looking for work is not considered part of the calculation.

As more and more people leave the workforce altogether, and give up looking for work, they get culled from the calculation reported in the media which skews the statistic.

The truth is, the unemployment rate is much higher than the media reports. It’s actually closer to 8.2% as of February 2018.

So is the Fed in denial about the state of our economy? Is it telling white lies? Or a combination of both?

 

…click on the above link to read the rest of the article…

Stocks Post WORST April Start Since The Great Depression

Stocks Post WORST April Start Since The Great Depression

The S&P 500 closed down more than 2.4% Monday and the broad market index posted its worst April start since 1929.  This slide in the markets caused the worst start since the Great Depression, sparking fears we are on the same path.

The Dow Jones industrial average fell 1.9 percent (or 458 points) as China’s retaliatory tariffs against United States agricultural goods stoked fears of a global trade war. Dow stocks with large international markets now exposed to global tariffs such as Boeing and 3M, led the decliners.

Many market analysts have predicted we will live through another Great Depression,and Peter Schiff says this next one will be far worse than one our ancestors lived through. “The bad news is, we are going to live through another Great Depression and it’s going to be very different. This will be in many ways, much much worse, than what people had to endure during the Great Depression,” Schiff says. “This is going to be a dollar crisis.”

“The Fed thinks they create economic growth…by [saying] ‘let’s jack up the stock market and then the economy’s going to grow and people are going to go out and spend more money.,’” says Schiff. “It’s actually doing damage. If you create a bunch of phony wealth, and people end up spending money that they otherwise would have saved, you are undermining economic growth.”

And Schiff, who accurately predicted the 2008 recession, has now predicted the dollar crisis.  The dollar is now in a downward spiral thanks to China’s petro-Yuan.

Bespoke Investments Co-Founder Justin Walters, who also noted the historic nature of the close, said in an email that equity fears aren’t likely to abate until earnings arrive. “Based on recent market action, the bears clearly have control right now,” Walters wrote. “The path of least resistance is lower until something comes along to reverse that trend.”

…click on the above link to read the rest of the article…

Wolf Richter: The Era Of The Fed “Put” Is Over

It now wants lower asset prices (just not too fast)

To all those investors expecting the Fed to step in to backstop the recent weakness seen in the stock market, Wolf Richter warns: The cavalry isn’t coming.

After years of force-feeding too much liquidity into world markets, the central banking cartel is now aware of the Franken-markets it has created. And now with a new head at the US Federal Reserve, and soon at the ECB, central bankers have shifted their priority from supporting asset prices to now actively engineering lower prices.

They just don’t want prices to drop too far too fast.

Of course, the big question is: how much control do they really have? The situation may very quickly get out of their hands.

But the big takeaway is to expect lower prices across the board for nearly every “risk on” asset: stocks (including and especially the FANGS), corporate bonds and real estate. The Fed is working to reduce investor exuberance — and as many bloodied contrarian investors will warn you — Don’t fight the Fed:

Now we’re in an environment where we have an Everything Bubble, and even though there’s still a few central bankers out there that say that they can’t see the bubble, others have now acknowledged it. Of course they don’t call it a “bubble”; they say that prices are “elevated”. So they’re seeing this. In my opinion, a lot of the responses from the Fed are not really about inflation; they’re really about trying to avoid the asset bubble from getting any bigger. They’re trying to avoid a deflation of that asset bubble that could be very messy for the financial system.

…click on the above link to read the rest of the article…

Monetary Policy is a Complete Failure? Will Shutting Down the Fed Solve All the Problems?

I recently did an interview and was asked about the Federal Reserve. There is so much absolute nonsense sophistry that circulates where people think that ending the central bank will somehow cure everything. I really just laid it out plain and simple. The Fed’s balance sheet is a tiny fraction of the economy or the real money supply. Everyone blames the Fed for everything and they NEVER bother to look at (1) the fiscal policy of Congress, and (2) the banking system as a whole.

Even if you want to scream from the top of every hill that $4 trillion worth of Fed’s Quantitative Easing was pure evil and should have created hyperinflation (which it did not), the deficits created by Obama topped $1 trillion per year and those never die whereas the Fed’s QE evaporates as they do let the debt they bought mature and expire without rebuying it again, whereas Draghi and the ECB have conceded they will reinvest their holdings. Look at 2009-2012. Obama created $5.4 trillion that will never expire but will be rolled until there are no more buyers.

So let’s do the math. The entire Federal Reserve QE program was equal to 1/5th of the national debt. The ECB bought 40% of all public debt and the Bank of Japan bought 75% of new debt coming to the market. Yet all we get is dollar bashing and people actually have called the yen the safe-haven play. I really do not know if I am arguing is drunks, people with dementia, or just con-artists. All these people pushing the end of central banks because they are clueless about how the real world functions.

…click on the above link to read the rest of the article…

 

Crisis Struck 10 Years Ago: What’s Changed?

The financial crisis and the massive federal response reshaped the world we live in. Or did it?

The Wall Street Journal has an interesting infographic series of 25 charts entitled 10 Years After the Crisis.

Here’s eight of the 25.

Median Income Barely Up

Forget averages. The median is what counts most.

Real median wages fell in 7 out of the last 11 years! For details, please see Imaginary Wage-Inflation Conundrum.

My discussion pertains to “wages”. The WSJ referred to “household income”.

Public Debt Triples

The MMT crowd says “We owe it to ourselves”.

Credit Rating Agencies

The guys that rated everything AAA in 2007 are still in charge of things.

Fannie Mae

They promised to unwind Fannie Mae. What happened?

More Ways To Invest

More ways to invest in fewer companies. Who can possibly find fault with that? The casino is open!

Revolving Doors Still Functioning

The revolving door concept still works.

Gotcha!

Batting one out of a thousand is arguably better than expected.

Wealth Distribution Trends

Who couldda possibly thunk that might happen when you bail out the banks, lower interest rates to zero, foreclose on millions of homes, send no one to jail, and promote inflation?

No one could possibly have predicted this result.

What The Gold-Silver Ratio Says About The Future Silver Price

What The Gold-Silver Ratio Says About The Future Silver Price

In my recent youtube video, Amazing Silver Setup & Stock Market Update, I had a few comments stating the selloff of silver and rise in the stock market suggested that my analysis was incorrect.  I find this sort of short-term thinking quite interesting when I noted that the information in the video was presented to occur over the next 1-2 years.  Furthermore, in looking at my Youtube analytics of that video, the average watch time was about 10 minutes.  The video was 24 minutes long.

Unfortunately, the attention span of individuals today isn’t what it used to be.  So, even though the material is presented in detail, many people don’t even take the time to either read or watch it in its entirety.  Moreover, when someone replies that the silver price selling off since the video was produced doesn’t understand that markets trade over a LONG PERIOD OF TIME.  Anyone who is concerned with the silver or gold price on a daily basis (not including professional traders), needs to realize that TRENDS TAKE TIME.

Also, the naysayers that claim the precious metals analysts have been wrong since 2012 tend to overlook the massive money printing, the enormous increase in debt and the continued disintegration of the global oil industry.  If I am not getting my point across, let me provide the following chart that shows just how quickly things can fall apart when investors have been BAMBOOZLED by the Fed and Wall Street:

How did Bear Stearns go from nearly $90 a share down to $2 in a relatively short period?  How did the market not realize the big problems at Bear Stearns had taken place years prior to its selloff??  The market was oblivious due to the type of rubbish put out by Wall Street analyst CNBC’s Jim Cramer on March 8th, 2008 stating the following:

…click on the above link to read the rest of the article…

The Looming Mortgage Liquidity Crisis

Every 10 years or so there is a banking crisis. We are due. However, the furthest thing from most people’s minds with the Trump boom is a banking/financial crisis, except for a few folks at the Brookings Institution, who just released a paper entitled “Liquidity Crisis in the Mortgage Market.”

You Suk Kim, of the Federal Reserve Board; Steven M. Laufer, who also labors on the Federal Reserve Board along with Karen Pence, plus, Richard Stanton of the University of California, Berkeley, and Nancy Wallace, also of University of California, Berkeley, to give away the punchline from their paper’s abstract, write, “We describe in this paper how nonbank mortgage companies are vulnerable to liquidity pressures in both their loan origination and servicing activities, and we document that this sector in aggregate appears to have minimal resources to bring to bear in a stress scenario.”

John and Joan Q. Public believe the 2018 mortgage business is like George Bailey’s Building & Loan in “It’s a Wonderful Life.” People deposit money, bankers lend it out, keeping the mortgage on their books. Easy Peasy.

As the folks from Brookings point out, it’s not that easy in these dark days of financial engineering. George Bailey’s handshake, promise and maybe a few words on a document to be signed by the borrower which meant simply, “I’ll pay you back,” has become a financial instrument, to be traded and hypothecated by faceless financial bureaucrats, each one taking a sliver of profit off the top.

Everyone remembers the crash of 2008 and plenty explanations have been posited. What the writers for Brookings explain is,

The literature has been largely silent on the liquidity vulnerabilities of the short-term loans that funded nonbank mortgage origination in the pre-crisis period, as well as the liquidity pressures that are typical in mortgage servicing when defaults are high. These vulnerabilities in the mortgage market were also not the focus of regulatory attention in the aftermath of the crisis.

…click on the above link to read the rest of the article…

 

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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