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No “Poloz Put?” Ignore BoC Warning At Your Peril
No “Poloz Put?” Ignore BoC Warning At Your Peril
Governor Stephen Poloz’s warning last week that the Bank of Canada wouldn’t backstop fluctuating stock markets drew little attention.
“Is there a Poloz Put?” the central bank head asked rhetorically. “No.”
At first glance, the fact that only one BNN Bloomberg producer and a few smaller media picked up the story is hardly surprising.
Canada is a mere bit player in global central banking and financial markets, and the opinions of any Canadian official generally carry little weight outside of local circles.
However, in December 2017 Poloz provided investors a similar warning about Bitcoin, then trading near its all-time high, but which subsequently fell by more than 80%.
Investors would thus be foolish to ignore him now.
Consider:
One of the Fed’s main policy tools
First, a little background. The idea that governments are key drivers of stock prices may appear ludicrous to those who believe that Western economies are free markets.
However, as Moody Analytics notes, higher asset prices and resulting wealth effects are one of the Federal Reserve’s main policy tools for achieving its inflation and economic growth targets.
For U.S. stock traders operating today, most of whom have never seen a crisis that government hasn’t bailed them out of, the Fed’s most important manipulation is the existence of a tacit “put,” which ensures that asset prices won’t fall too far.
Former Federal Reserve Chairman Alan Greenspan, Ben Bernanke and Janet Yellen all intervened to boost asset prices at key points when the heavily-indebted U.S. economy appeared set to implode.
The Bank of Canada’s policies are less overt. While the central bank claims that it “does not target asset prices,” asset price manipulation is clearly direct “collateral damage” resulting from its other policy objectives.
…click on the above link to read the rest of the article…
When The U.S. Stock Market Crashes, Buy Gold – David Brady
When The U.S. Stock Market Crashes, Buy Gold – David Brady
While we wait for news on the 25% tariffs on $200bln or 40% of Chinese exports to the U.S.—and with the threat of the same on the remaining ~$300bln to follow—I want to outline the endgame for the dollar and the likely beginning of the explosive rally for Gold.
Simply put: When the U.S. stock market crashes, buy Gold.
To be more specific: when the S&P 500 has fallen 20-30%, buy Gold, in my opinion, because the ‘Fed Put’ will soon be exercised at that point. The Fed will reverse policy to stimulus on steroids. The dollar rallied from April 2008 and peaked in March 2009, when stocks bottomed out—the same time the Fed announced QE, or QE1 as we now know it. Then the dollar fell. It is not unreasonable to expect the same to happen this time around. Gold bottomed out in October 2008, as stocks plummeted and then soared 280% to greater than 1900 over the next three years, as QE1 and QE2 were underway.
The coming crash in the U.S. stock market is the catalyst for the Fed’s reversal in policy, so why do I expect a crash?
Quantitative Tightening and Budget Deficits
Lee Adler pointed out several weeks ago that as the budget deficit soars, Treasury bond issuance is increasing by around $100bln per month. At the same time, the Fed is increasing its balance sheet reduction, or “QT” program, to $50bln a month in October, a run-rate of $600bln per year. That means $150bln of additional demand for U.S. Treasuries is required every month.
…click on the above link to read the rest of the article…
The West Continues to Rot at the Core as it Obsesses Over the Short-term
The West Continues to Rot at the Core as it Obsesses Over the Short-term
The stock market, by and large, is a farce.
This is not to say that it does not have a purpose, because undoubtedly it does. This cannot and will not be denied, except by those who identify themselves as having anarchist traits.
Yet, it is still a farce. It is corrupt, it is short-sighted and it is riddled with problems. But in our “semi” capitalistic system, it is what we have. And we have to make the best of it.
This, however, does not stop us from striving to improve it. In fact, I believe this should be a major goal of Western society as a whole. The stock market, in tandem with the free market, has led to the most powerful economic engine this world has ever seen. Even if it is now riddled with disease, it is and will be for the foreseeable future a juggernaut in the economic landscape.
We should constantly strive to weed out corruption within the system and work towards improving the function of the markets as a whole. However, one issue that has once again been pushed to the forefront is the fact that Western markets are incredibly short sighted.
Many legal and financial experts have argued this point for years. The stock market’s obsession over quartering reporting has pushed it to its breaking point, driving companies to overemphasize the short-term, rather than the long-term, health of the company as a whole.
This irrational way of thinking has driven many companies to the point of bankruptcy, as many CEOs and executives know they have a short term life span within any given company. This drives them to push short-term profits, hoping to beat the next quarterly consensus—driving the price of shares up, and thus their golden parachute packages along with it.
…click on the above link to read the rest of the article…
Sales of Physical Gold Explode as the Currency Wars Continue to Unfold
Trade wars are erupting, scandals are unfolding and now the United States is entering into the much prophesied currency wars that many experts have predicted was coming for years.
The United States and China, who continue to hold out against American tariffs, are entering into a quickly accelerating downward spiral.
Already the US government has ordered a massive $34 Billion worth of tariffs on Chinese goods entering into the United States, while at the same time, China has fired back shots of their own, issuing tariffs of their own kind.
As predicted, this would be far from the last that we would see, as now, we are learning today that President Trump plans on increasing tariffs by an additional 25% , up from the previous 10%.
This equates to a stunning $200 Billion worth of tariffs on Chinese goods, attempting to enter the United States marketplace.
This drastic increase in tariffs comes on the heels of a significant decrease in the value of the Yuan, which essentially has circumvented the previous tariffs placed by President Trumps administration .
These actions, and China’s willingness to devalue their currency proves just how serious they are about winning this currency war, while at the same time, so too does Trump’s acceleration in additional tariffs.
Just how low China is willing to take the Yuan is yet to be seen, as are the unintended consequences of taking such a drastic action.
Already, markets, especially those in China, are experiencing significant turbulence, as they corrected sharply lower.
Meanwhile, markets in the West were more optimistic in their ability to see this trade war through, as Apple surged higher, pulling the broader markets up, along with it.
…click on the above link to read the rest of the article…
The Volcano of Debt
Just as gravity propels the lava from Kilauea inexorably toward the sea, a mountain of public and private debt looms over today’s markets.
Earlier this week, the Boards of Trustees for both U.S. Social Security and Medicare released their latest updates on the “solvency” of the programs. The advisories can be read here:https://www.ssa.gov/oact/TRSUM/index.html
Though it’s common knowledge that these programs are vastly underfunded, the degree to which the pending crisis is accelerating should come as a shock to all Americans.
In their report, the Trustees state that the “Social Security Trust Fund” will be exhausted in 2034. Though this retirement income program is already running on fumes due to simple demographics— and the notion of a “trust fund” is really nothing more than an accounting trick —
The report that it will be insolvent in just fifteen years should come as a cold slap to the face for anyone still clinging to the belief that the funding problems plaguing this income redistribution program can be put off indefinitely. From the report:
“Social Security’s total cost is projected to exceed its total income (including interest) in 2018 for the first time since 1982, and to remain higher throughout the projection period. Social Security ’s cost will be financed with a combination of non-interest income, interest income, and net redemptions of trust fund asset reserves from the General Fund of the Treasury until 2034 when the OASDI reserves will be depleted.”
Even worse was the report from the Trustees of the Medicare program. Sharply rising healthcare costs and the increase in program participation due to aging Baby Boomers led the Trustees to project insolvency as soon as 2026. That’s just eight years from now! Also from the report:
…click on the above link to read the rest of the article…
Is the U.S. in a depression? (How John Williams became America’s most important statistician)
Is the U.S. in a depression? (How John Williams became America’s most important statistician)
America’s economy has been progressing steadily. First quarter real GDP growth came in 2.2%. The official unemployment rate is 3.8%. Inflation, according to the Fed’s preferred measure is 2%.
But how accurate are those numbers?
“Nonsensical,” says John Williams, founder of Shadow Government Statistics, who has been tracking U.S. government data for more than three decades.
Williams reckons that, using traditional calculation methodologies, true inflation is likely running above 6% and the unemployment rate over 20%.
Most importantly, Williams’ calculations suggest that the US economy has been in a two decade-long depression. His line of reasoning is worth a look.
Underestimating inflation
Williams argues that U.S. statistical agencies overestimate GDP data by underestimating the inflation deflator they use in the calculation.
Manipulating the inflation rate, Williams argues in Public Comment on Inflation Measurement , also enables the US government to pay out pensioners less than they were promised, by fudging cost of living adjustments.
This manipulation has ironically taken place quite openly over decades, as successive Republican and Democratic administrations made “improvements” in the way they calculated the data.
These adjustments (such as hedonic adjustments to inflation calculations, or not counting people who have stopped looking for work as part of the labor force) inevitably cast the government’s numbers in a more favorable light.
However, mainstream media journalists tend to have a poor grasp of mathematics. They were thus unable to grasp the depth of the problem, let alone explain the issues to the public.
Politicians have thus been able to fudge economic data openly. For example, the chart below shows U.S. GDP growth as measured by official sources.
The following chart (produced by Williams) shows GDP growth as calculated using a GDP deflator, corrected for an approximately two percentage point understatement.
…click on the above link to read the rest of the article…
Ask The Expert- James Grant
Ask The Expert- James Grant
James Grant is an author, columnist, and founder of Grant’s Interest Rate Observer. A frequent guest on business television, including CNBC, Fox Business News and a ten-year stint on “Wall Street Week”, Jim’s writing has appeared in the Wall Street Journal, Foreign Affairs, and The Financial Times. An inductee into the Fixed Income Analysts Society Hall of Fame, Mr. Grant is also a member of the Council on Foreign Relations and a trustee of the New-York Historical Society.
We are thrilled to have him answer seven of your burning questions, including:
- Will the Fed continue hiking the Fed Funds rate?
- Can we expect a surge in inflation soon?
- What factors will lead to a stock market correction?
Get the answers to these questions, plus James’ forecast for gold prices, by listening here:
Listen to Ask The Expert on SoundCloud:
The Great Oz
For eight years (2008-2016), the US liberal media touted the brilliant accomplishments of the liberal president, whilst the conservative media groused that nothing he did was of value.
Today, the conservative US media are touting the brilliant accomplishments of the conservative president, whilst the liberal media grouse that nothing he does is of value.
So, which is it? Who is correct here? Well, actually, neither is correct.
Neither president is the great Oz. Neither one is in fact, “running the country.” Behind the scenes, the great machine of government churns along, often in complete disregard to the president or his stated policies.
However, the media credits or lambastes the president of the day as though he and he alone is in charge of the country. Whatever happens is treated as his accomplishment or failure.
And, typically, presidents play into this – taking personal credit for perceived accomplishments within the country and disavowing blame for perceived failures.
At present, the conservative media are emphasising low unemployment as an achievement, just as the liberal media did during the Obama Administration,
And yet, since the Clinton Administration, the unemployment figures have been consistently fudged. Those who work only part time are defined as “employed.” Those who have given up pursuing employment are removed from the unemployment equation. If those numbers were plugged back in, US unemployment would be in the double-digits during both the Obama and Trump presidencies.
The conservative media also tout Mister Trump for the increase in the stock market. Of course, the liberal media did the same in Mister Obama’s time. Stocks have been on the rise in both administrations.
…click on the above link to read the rest of the article…
Hidden No More, The Currency Wars Take Center Stage
Hidden No More, The Currency Wars Take Center Stage
The market stands on a sinkhole, waiting for the next feather to drop. A feather that will bring down the system and send us into another economic crisis that will make the 2008 crash look like an opening act.
For years, I and many others within the precious metals space have written about a hidden war unfolding behind the scenes. To those with wide open eyes, you can see it, you can feel it. I am speaking of the currency and trade wars that Jim Rickards has written extensively about in many of his books—and now, things have ratcheted up to a whole new level.
Over the course of the past week, the jawboning from the US government has turned into action, and they have placed a number of trade tariffs on China . This is part of a campaign promise that President Trump made, and it appears he intends to keep it, no matter how much it might “rock the boat.”
These steps caught many investors off guard, including seasoned market veterans, as they have been so used to the government making bold statements but never following through with any real action.
Not this time. And the stock market is reflecting this new reality.
Chinese markets were sent for a roller coaster of a ride yesterday, dropping by 3-5% throughout the day, with key stocks dropping over 10% alone. A sea of red could be seen across the charts as the once-cold trade war turned hot.
Today, it is the US markets’ turn, as China fired back overnight, sending Western markets plummeting.
These actions sent the plunge protection team into full swing, resulting in this morning’s pre-open bounce . Unfortunately, I don’t see them being able to hold back the floodgates for too long, as this trade war will only accelerate from this point on. Neither side looks willing to back down.
…click on the above link to read the rest of the article…
Generation Screwed to Morneau: stop shoveling government debts on Canada’s kids
Generation Screwed to Morneau: stop shoveling government debts on Canada’s kids
Bill Morneau, Canada’s Minister of Finance, told a touching story recently about being alone while his daughters were away at university.
A poster about women’s rights that he saw in one of the girls’ rooms as he toured the empty house provided inspiration for a slew of new spending programs in his 2018-2019 budget, Morneau said.
The speech drew considerable admiration from the bureaucrats, lobbyists and lawyers gathered at the Conseil des Relations Internationales de Montreal’s event, many of whom profited directly from the extra spending.
This seasoned audience of Ottawa swamp creatures recognized the Finance Minister’s personal story as political staging.
They all knew that Morneau was leaving out the fact that his daughters’ generation will have to pay back most, if not all, of the $18.1 billion that their parents are borrowing to finance the government’s “Equality and Growth” deficit.
Politicians running up government debts in order to pay themselves raises (and shovel cash to their pals) is an old story. The good news, as we first reported two years ago , is that some millennials are fighting back.
A youth movement that preaches fiscal responsibility
“I’m not okay with Bill Morneau borrowing additional money to channel to special interest groups,” said Paige Hunter, McGill Coordinator at Generation Screwed , a youth movement that preaches fiscal responsibility. “Going further into debt isn’t in anyone’s interest.”
Renaud Brossard, Generation Screwed’s executive director, agreed. “We jokingly call this an ‘everything is fine’ budget,” said Brossard. “There is no plan to address the country’s long-term debt, and there is no recognition that there may be another recession around the corner.”
Generation Screwed has grown considerably since Brossard first joined four years ago, while still a student. The organization, which is sponsored by the Canadian Taxpayers Federation , now has 17,000 Twitter and Facebook followers.
…click on the above link to read the rest of the article…
Total U.S. Debt and Gold
After rising together through 2012, the past five years have seen a massive divergence between the total amount of accumulated U.S. government debt and the price of COMEX gold. When, if ever, will we see this correlation reappear?
After falling together through the late 1990s, the price of COMEX god and the total accumulated U.S. debt began to rise together since 2002. With the help of Nick Laird at GoldChartsRUs, we’ve been able to plot this relationship on the chart below:
As you’ll recall, and as you can see in the chart above, massive U.S. military efforts and the economic collapse during The Great Financial Crisis led to a surge in the total US debt from $6T to $15T in the ten years between 2003-2012. And what happened to the price of COMEX gold over the same time period? It moved up from $400 to $1,800 per ounce.
However, a (not so) funny thing happened in late 2012. The price of COMEX gold began to consistently fall, this despite the over $1T QE3 program that The Fed ran from late 2012 to early 2014 AND a continuing surge in total U.S. debt from $15T to $20T.
Of course, we can debate WHY and HOW this occurred, but that’s a topic for another day. For now, let’s just take another good, long look at that chart of total debt and gold.
It could be said that, beginning with The Great Financial Crisis, gold got ahead of itself. Price had consistently risen with the accumulated debt through 2009 but, by 2011, it was considerably above the established trend. In the correction that followed and ended in 2015, you might note that price fell to roughly the same distance below the established trend. Perhaps this visual aid will help?
…click on the above link to read the rest of the article…
