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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…

Saxo Bank Quarterly Outlook: End of a Cycle Like No Other

Saxo Bank’s provides an ominous economic outlook in its second quarter report.

What follows below are snips from a 35-page report by Saxo bank. I condensed the report for readability. Any emphasis in italics is mine. Until the final paragraph what follows are snips from various Saxo Bank analysts.

Enjoy.

End of a Cycle Like No Other – Steen Jakobsen – CIO

We are nearing the end of the largest monetary policy experiment of all time, and ascendant nationalism, staggering inequality, and a widespread loss of hope among the younger generation are among its varied fruit. The good news? Things only change when they absolutely must.

Q1’s brief volatility spasms notwithstanding, today’s capital markets are in a zombie-like state, with low volatility and extreme valuations in all assets with no net increase in growth and productivity, and a massive increase in inequality.

The benefits from the globalised system and particularly from the central bank’s asset-pumping response accrued near-entirely to the already wealthy, while the average economic participant lost out. This is the process that drove the advent of Brexit and Trump.

So now we have our first great new showdown since the Cold War, which saw the victory of capitalism over communism. Now comes the fight between nationalism and globalism. Nationalism is winning big, as country by country the outlook is turning inwards, with an increase in placing the blame on external forces from immigrants to the real and imagined misbehaviour of trade partners. Talk of trade policy and protectionism is now labelled “trade wars”.

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

Opinion Nearly Unanimous: Inflation Has Arrived

Opinion is nearly unanimous. Inflation is coming and it won’t be short-lived.

Inflation proponents are coming out of the woodwork. Here are some examples.

Inflation is Building

DiMartino: Inflation Is Building And The Fed Will React. “Former Fed insider Danielle DiMartino knows the Fed will be out of bullets at the next recession. Even so, its Chairman Jay Powell is now desperately trying to create as much runway as possible.”

Inflation is Back, Say a Prayer


Inflation is back: 25% of firms reported to the NFIB that they plan to raise prices, a ten-year high…say a prayer for Jay Powell


50-50 Odds Core Inflation Hits Three Percent

The core CPI was as expected at +0.2%, but the YoY trend did jump to 2.1% from 1.8% in Feb. There is going to be a price to be paid for last year’s string of wireless-induced 0.1% prints which are falling out of the YoY math. I see 50-50 odds of 3% core inflation by year-end.


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

China Eyes Yuan Devaluation in Trade Dispute

Finally, we have a story that makes retaliatory sense vs. the widely believed “nuclear” treasury dumping theory.

The widely-circulated “nuclear” theory suggests China would dump US treasuries in a trade war with the US. That theory never made any sense. Such a move would tend to strengthen the yuan, making Chinese exports more expensive. Thus, it would be precisely what the US would want.

The Real Nuclear Option

The real nuclear option would be a devaluation of the yuan, making Chinese goods less expensive to the US.

China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in a trade spat with U.S. President Donald Trump that has roiled financial markets worldwide.

Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China devalues the yuan to offset the impact of any trade deal that curbs exports.

While a weaker yuan could help President Xi Jinping shore up China’s export industries in the event of widespread tariffs in the U.S., a devaluation comes with plenty of risks. It would encourage Trump to follow through on his threat to brand China a currency manipulator, make it more difficult for Chinese companies to service their mountain of offshore debt, and undermine recent efforts by the government to move toward a more market-oriented exchange rate system.

It would also expose China to the risk of heightened financial-market volatility, something authorities have worked hard to avoid in recent years. When China unexpectedly devalued the yuan by about 2 percent in August 2015, the move fueled capital outflows and sent shock-waves through global markets.

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

India’s Big Brother: Fingerprint and Eye Scans Required for Food and Medicine

India collects biometric data on 1.3 billion residents for use in a nationwide identity system called Aadhaar.

The New York Times notes Big Brother has Arrived in India.

Seeking to build an identification system of unprecedented scope, India is scanning the fingerprints, eyes and faces of its 1.3 billion residents and connecting the data to everything from welfare benefits to mobile phones.

Civil libertarians are horrified, viewing the program, called Aadhaar, as Orwell’s Big Brother brought to life. To the government, it’s more like “big brother,” a term of endearment used by many Indians to address a stranger when asking for help.

Prime Minister Narendra Modi and other champions of the program say that Aadhaar is India’s ticket to the future, a universal, easy-to-use ID that will reduce this country’s endemic corruption and help bring even the most illiterate into the digital age.

The poor must scan their fingerprints at the ration shop to get their government allocations of rice. Retirees must do the same to get their pensions. Middle-school students cannot enter the water department’s annual painting contest until they submit their identification.

The Modi government has also ordered Indians to link their IDs to their cellphone and bank accounts.

Although the system’s core fingerprint, iris and face database appears to have remained secure, at least 210 government websites have leaked other personal data — such as name, birth date, address, parents’ names, bank account number and Aadhaar number — for millions of Indians. Some of that data is still available with a simple Google search.

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

War Proponents, Democrats Included, Want Trump to Hit Syria

With not an ounce of evidence the world once again points a finger at Syria.

In response to a clear false flag event in which Assad is alleged to have gassed his own people, unthinking fools on the left and right want Trump to do something.

Guradig writer Matthew d’Ancona moans Don’t Expect the West to Act on Syria’s Latest Horror.

Conscience has become the mayfly of our era: here today, gone tomorrow. For the moment, the world is transfixed by the horrific images from Douma, near the Syrian capital, Damascus. Dozens have died, and hundreds lie injured after what was quite clearly a chemical weapon attack.

Dead children, their mouths flecked with foam, chide us through our screens. Condemnation, calls for action, a global spasm of what Martin Amis calls “species shame”: the pattern of response to the long Syrian catastrophe has become almost ritualised.

Another Rush to Judgement

Fools like d’Ancona demand action, with no evidence as to who did what.

And curiously, this attack happened right as Trump announced he was pulling out of Syria.

Evidence?

Who needs evidence? Warmongers don’t need no stinkin evidence. On the rare occasions they decide evidence is necessary, they make it up or plant a false flag.

War Cries

Media Misses the Point

Before jumping the gun, please consider Another Chemical Attack In Syria: But Why Is The Corporate Media Missing Crucial Points?

…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…

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…

Australia’s Housing Bubble Finally Popped?

Australia’s mining towns are getting crushed. Not even Sydney is immune.

Perth Investors Fear the Worst

West Australia property investors are suffer as the mining slump lingers. Nearly One-Third Losing Money on Resale.

A report from property research firm CoreLogic shows one-third of investors in Perth property lost money on resale in the December quarter.

The figure of 33.6 per cent was equal with Darwin as the highest proportion of loss-making resales nationally.

In regional WA, the situation was even worse — 47.5 per cent of resales by investors made a loss in the quarter.

80% of Gladstone Homes Sell at Loss

Five years ago, investors from all over Australia scrambled to snap up a property in Gladstone. Today, you have to pay to get out. More than 80 Percent of Gladstone Homes Sell at a Loss.

SITTING at the southern tip of the Great Barrier Reef, and famed for being one of the nation’s industrial powerhouses, is the central Queensland city of Gladstone.

Four decades ago, Gladstone was a tiny port town best known for its fishing industry and boasting easy access to the southern reaches of the reef.

A decision to build a liquefied natural gas plant was made — encouraging thousands of construction workers to fly into the already prosperous town in an attempt to score a piece of the plant pie. By 2012, the LNG plant was built, the construction workers were getting laid off and the city started to experience a severe downturn. Six years later and things are no better.

In the last December quarter, more than 80 per cent of Gladstone homes sold at a loss, according to new data released by CoreLogic. That rate is the highest in Queensland and second highest in Australia, based on the average home price more than halving in the past five years.

…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.

Venezuela Knocks Three Zeros Off Its Currency to Halt Hyperinflation

Redenomination is Venezuela’s sorry story of the day. It won’t work.

In a worthless attempt to halt hyperinflation, Venezuela Deletes Three Zeros From Its Failing Currency.

Socialist Venezuela is going through a crisis that has left people struggling to pay for food and find medicines. Prices are being influenced by a black-market exchange rate that rises by the day and is currently five times the nearly inaccessible official rate.

President Nicolás Maduro late Thursday briefly outlined his monetary rescue plan. In a country where a dozen eggs can cost 250,000 bolivars ($5) amid worsening inflation, he would chop three zeros off the currency — arguably bringing the price for those eggs down to 250.

By June 2, under Maduro’s plan, new bolivars with lower denominations would be circulated — but old ones, with denominations as high as 100,000, would remain valid. It would leave vendors charging two prices — one for old bills, the other for the redenominated bolivar.

Empty Shelves

Merchants are arrested if they charge too much for food. The result is no food.

Loot or Die

The Guardian reports ‘We loot or we die of hunger’: food shortages fuel unrest in Venezuela.

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

Consequences of Replacing the Gold Standard with the PhD Standard

In 2011, Jim Grant chastised the Fed about replacing the Gold Standard with the PhD Standard. Our “reward” is coming up.

Here is the pertinent video clip of James Grant.

“The 2007-2009 real estate debacle is the monetary equivalent of a chain reaction on a foggy California freeway. The trouble with our monetary mandarins is they [the Fed] believe impossible things. They have persuaded themselves that the central bank can pick the interest rate that will cause the GDP to grow, payrolls to expand, and prices to levitate by just two percent a year, as they measure it. It is impossible as experience and common sense attest. Yet, they hold it to be true. … William F. Buckley famously and persuasively said that he would rather be governed by the first 400 names in the Boston phone directory than by the faculty of Harvard. Unaccountably, this Congress has entrusted the value of the dollar that we own, that we transact to an independent committee dominated by monetary scholars. In one short generation we have moved to the PhD standard from the gold standard.

Grant is correct. The result has been a series of economic bubbles with increasing amplitudes over time.

The Alps Precious Metals Group commented on Grant in its latest monthly letter.

We’re Smarter Now

​>Jim Grant is spot-on in his description of what has transpired: “We have replaced the Gold Standard with the PhD Standard”.

Consistent with our post-Modern zeitgeist, we have traded the wisdom of old for the cockiness of what I call the “We’re much smarter now” syndrome. Hence the propensity of Western governments over the last 50 years to deplete their supplies of the “barbarous relic” as Gold’s time “has passed”.

Tulips, South Sea and Florida Real Estate ventures, Roaring ‘20’s stocks bought at 10x leverage as a norm, as well as innumerable investment ideas since 1971 when Nixon closed the Gold window are all examples of investments based solely on confidence, the ebb and flow of which resulted in volatile “risk on and off” episodes.

The last material loss of confidence in the system was in 2008/early 2009; which resulted in a series of experiments whose 9-year anniversary is upon us.

What happens when Common Knowledge changes and moves over to something else that “everyone knows that everyone knows”? Not unlike the ferocious tornados which rip across the American continent when winter turns to spring, the change may be rapid and violent.

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

 

 

Peak Gold? No: Peak Gold Production? Perhaps

Some claim we have reached peak gold. It depends on what one means by the term. Perhaps we have reached peak production.

Last September, Bloomberg reported We’re Reaching Peak Gold.

The world may have already produced the most gold in a year it ever will, according to the chairman of the World Gold Council.

Production is likely to plateau at best, before slowly declining as demand rises, especially given global political risks and robust purchases by consumers in India and China, Randall Oliphant said in an interview Monday.

“It’s not clear how the whole U.S. political system will play out,” said Oliphant, an industry veteran who’s been an executive at some of the world’s biggest gold miners. “All this uncertainty seems very fertile ground for people to get into gold.”

We’re not going to fall off a cliff in the near term, but in the same time it’s really hard to see how we’re going to produce enough gold to meet all this demand,” Oliphant said.

Meeting Demand

The last statement by Oliphant, the chairman of the World Gold Conference is absurd.

There is ample gold to meet demand. Unlike energy or silver, gold is not used up.

Nearly every ounce of gold ever mined is still in existence. The exchanges would not run out of gold even if production fell to zero tomorrow and stayed that way for the next decade.

What’s the Real Long-Term Driver for Gold?

Most analysts are totally clueless about gold and gold markets. They cite jewelry, mining production, central bank sales, and all sorts of other irrelevant factors in their analysis.

If you really want to understand what gold is all about, I suggest you read an interview on Gold Switzerland with Robert Blumen: “What’s really key for the price formation of gold?

Blumen discusses assets vs. consumption, mine supply, jewelry, marginal demand, the alleged (and nonexistent “gold deficit”), and sentiment.

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

Worst Case Scenario: What is It?

This article provides insight as to the way the Fed and all central banks think.

A worst-case scenario is a concept in risk management wherein the planner, in planning for potential disasters, considers the most severe possible outcome that can reasonably be projected to occur in a given situation.

The book Worst Case Scenario Extreme Edition provides hands-on strategies for surviving an elephant stampede, a 16-car pile-up, a mine collapse, and a nuclear attack. Discover how to take a bullet, control a runaway hot air balloon, break a gorilla’s grip, endure a Turkish prison, free a limb from a beartrap, chased by a pack of wolves, or buried alive.

Alas, the book does not cover worst case Fed scenarios brought about by Fed policies.

Insight into Central Bank Thought Processes

The following video explains the way the Fed thought in 2006 and thinks again today regarding “worst case scenarios”

Please play the video. It’s a real hoot.

The alleged “stress tests” in Europe and the US are bogus.

Currently, the ECB believes Italy will never leave the eurozone and the EU cannot break up.

The Fed does not believe they have blown another bubble.

The interesting thing is the Fed is the very purveyor of bubbles. They do not see it and never will.

The result is bubbles of increasing amplitude over time.

Fed Uncertainty Principle

Let’s do another flashback,. This time to April 3, 2008 to my article Fed Uncertainty Principle.

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

Quantum Computers Will Make Even “Strong” Passwords Worthless

The race is on to perfect quantum computing. It will make your bank passwords and all existing security methods useless.

The Hutch Report has a fascinating 44-page PDF on Quantum Computing.

If perfected, existing methods of encryption will cease to work. Your bank account password and passwords to cryptocurrencies will easily be hackable.

The ability to break the RSA coding system will render almost all current channels of communication insecure.

This is a national security threat.

The benefits are also huge: Quantum computers will be superior at hurricane detection, airplane design, and in searching DNA for markers to help find cures for diseases such as Autism, Alzheimer’s, Huntington’s, and Parkinson’s.

Classical Computers

Classical computers use strings of 0’s and 1’s with a single digit a “bit” and strings of bits a “byte”. A bit is either a one or a zero.

Excerpts from the Hutch report now follow. I condensed 44 pages to a hopefully understandable synopsis of the promise and problems of quantum computing.

Quantum Background

Quantum computing does not use bits, but uses qubits which can be one, zero, or both zero and one at the same time. This state or capability of being both is called superposition. Where it gets even more complex is that qubits also exhibit a property called entanglement. Entanglement is an extraordinary behaviour in quantum physics in which particles, like qubits, share the same state simultaneously even when separated by large distance.

As comparison a classic computer using bits of zero and one can only store one state at a time and can represent 2n states where n is the number of bits. In the case of two bits, this would be 2*2 which is four states: 00, 01, 10, 11.

A normal computer would require four operations to examine each state. Two qubits could store the four states at one time. When the number of states are low there is not a major processing difference. As the number of possible state combinations increases, the difference in processing time between quantum computers using qubits and a classic computer using classic bits, increases exponentially. The following chart depicts this well showing that 20 qubits can represent simultaneously over 1 million permutations of classical bits.

…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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