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The morning of the FOMC announcement on Wednesday (Oct 28) gold was up $14 overnight, close to $1080 and the cartel’s dreaded 200 day moving average. The “premise” was that the market was expecting another rate hike deferral.

I friend called me that morning and I told him to not get excited because when the FOMC policy decision hits the tape, they will annihilate gold and push the S&P 500 up toward 2100. I was only 10 pts off on the S&P call, as the S&P 500 closed at 2090, up an absurd 24 points. Gold was taken to the cleaners:

What’s incredible is not one mainstream media analyst or reporter questions this market action. If the premise behind the gold sell-off was a “hawkish” FOMC statement and the threat of a rate hike in December (yawn), then the exact same premise should have cause a big sell-off in stocks. Since when does the threat of tighter monetary policy not hit the stock market?

Just to recount the play-by-play in gold, the moment the FOMC announcement hit the tape, the Comex computer system was bombarded with sell orders. At this point in the trading day, the ONLY gold/silver market open is the Comex computer Globex system. In the first 30 minutes 29.6k contracts were unloaded – 2.6 million paper ounces. In the entire hour after the announcement 50.5k contracts were unloaded – 5.1 million ounces. Note that the Comex is showing around 200k ounces to be available for delivery.

The blatant, unfettered manipulation and intervention in the gold and silver market is sponsored by the Fed and the U.S. Treasury, executed by the big bullion banks and fully endorsed by the CFTC.

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

Peak Debt, Peak Doubt, & Peak Double-Down

October 20, 2015

Peak Debt, Peak Doubt, & Peak Double-Down

Time to Hike Rates
It makes little sense to me why the market is only pricing a 6% probability of a rate hike at the October meeting, 30% for December, and only a near 50/50 probability all the way out to March 2016. The statutory mandates of the Fed as stated in the Federal Reserve Act are “maximum employment, stable prices, and moderate long-term interest rates”. All three have been fully realized.

The unemployment rate is 5.1% (full-employment). Core CPI has been stable for years and printed 1.9% yesterday; remarkably close to the Fed’s self-imposed target of 2%. For a few years, Treasury rates have been stable at near-historical low levels. In addition, the 4-week moving average of Unemployment Claims fell to its lowest level since 1973. The most recent employment report was a bit weaker than expected, but it fell within a standard margin of error. Yet, the Fed continues to remain at the emergency rate of 0.0%.

At the September meeting, the FOMC talked up the economy, but refrained again from hiking rates, citing “international developments”. By making this decision, the Fed has to be careful it does not also provide an ‘emerging markets put’.

As the October meeting approaches, international developments have settled down. Emerging market stocks indexes and currencies have bounced since the September FOMC meeting. Chinese markets in particular have calmed down and have traded higher. The US stock market is higher. The trade-weighted dollar is lower. Credit spreads are tighter. The arguments for a hike at the October or December meeting should have increased not decreased.

The recalibration in rate hike probabilities could be the result of the “data dependent” language which has never been adequately defined. It is suspect to believe that monetary policy for an $18 trillion complex global economy is being determined by a backward looking piece of monthly economic data.

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

Game-changing 19-minute video: Fed transcript proves open criminal admission of fraud worth trillions

October 14, 2015

Game-changing 19-minute video: Fed transcript proves open criminal admission of fraud worth trillions

John Titus, engineer and lawyer, writer and producer of Bailout, with YouTube channel of BestEvidence,read the latest Federal Reserve Open Market Committee meeting transcript (always delayed for five years), and discovered full admittance of financial fraud by the Fed in trillions of dollars. John explains:

BestEvidence’s newest film, “They Come from Planet Klepto,” undertakes an intensive examination of the transcript and exhibits from the Fed’s June 2009 FOMC meeting held during the first few critical months of the most ambitious monetary experiment of all time, which the Fed falsely swore was temporary in nature. As it turns out, the Federal Reserve never intended to unwind the radical balance sheet expansion it began 7 years ago at all, as one of the central purposes of the Fed programs—aside from enabling broke banks to erect an illusion of solvency big enough to justify bonuses—was to cover up the very Wall Street crimes that caused the meltdown of 2008 in the first place.

John’s main points, as best I see them:

2009 Fed transcript reveals that the original “bailout” of $700 billion claimed as “troubled asset relief program” to buy toxic mortgage backed securities (MBS) was a LIE because they discussed how to make the public think they had an “exit plan” while not having one. The “bailout” climbed in value to $1.7 trillion, then to $16 trillion in “short-term loans.” US banks used the money to pay bonuses and buy competitors. PuppetGov documents this point at the closing 8-minute video.
The Fed created and transferred $1.7 trillion to insider banks to purchase MBS at more than full value when publicly sold at $.05/dollar (5% of full value). These MBS pooled loans were claimed as AAA, and were BBB at best. This fraud with sub-prime loans were hidden by appreciating home values, but when home values fell with job losses, MBS fire sales were at 5 cents/dollar. These mortgages destroyed title, were not really mortgages, and were sold more than once.

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

Why NIRP may trump QE4

October 3, 2015

Why NIRP may trump QE4

The Fed unsurprisingly chickened out from the much touted September hike. International conditions and a disapproval from Mr. Market was enough to unnerve an increasingly bewildered FOMC board.

Less well known is the fact that the FOMC gave a strong, and unexpected, signal to the Pavlovian world of central bank front runners. Dovish hold as the enlightend call it. It is all about managing expectations – see Goebbelnomicswhere we said

As the Keynesian revolution was merged with the models of Robert Lucas, it eventually morphed into something called neoclassical economic thought. The general gist was that economic agents can be tricked into changing their behaviour through surprises in monetary policy, which yes, has somewhat miraculously become the mainstay of central bank economists… … the academic transition led to the “economics of money shifting to economics of psychology”.

With this in mind it seem untenable that the radical change in the dot-plots is due to a rogue, independent minded FOMC member. On the contrary, everything coming out of the Federal Reserve is well coordinated and is there to signal to the rest of the world where the Fed would like speculators to place their bets, or in this case, should not put their money.Source: Federal Reserve, Bawerk.net

With the probability of the Federal Reserve’s funds rate going negative in 2016 suddenly much higher, the one way bet on a stronger dollar (and hence emerging market crash) is put into question. Investors will thus think twice before sending their money into the dollar from now on. This is obviously a desperate move from the FOMC in a futile attempt to stem the emerging market capital exodus.

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

From ZIRP to NIRP

October 1, 2015

From ZIRP to NIRP

The sudden end of the Fed’s ambition to raise interest rates above the zero bound, coupled with the FOMC’s minutes, which expressed concerns about emerging market economies, has got financial scribblers writing about negative interest rate policies (NIRP).

Coincidentally, Andrew Haldane, the chief economist at the Bank of England, published a much commented-on speech giving us a window into the minds of central bankers, with zero interest rate policies (ZIRP) having failed in their objectives.

Of course, Haldane does not openly admit to ZIRP failing, but the fact that we are where we are is hardly an advertisement for successful monetary policies. The bare statistical recovery in the UK, Germany and possibly the US is slender evidence of some result, but whether or not that is solely due to interest rate policies cannot be convincingly proved. And now, exogenous factors, such as China’s deflating credit bubble and its knock-on effect on other emerging market economies, are being blamed for the deteriorating economic outlook faced by the welfare states, and the possible contribution of monetary policy to this failure is never discussed.

Anyway, the relative stability in the welfare economies appears to be coming to an end. Worryingly for central bankers, with interest rates at the zero bound, their conventional interest rate weapon is out of ammunition. They appear to now believe in only two broad options if a slump is to be avoided: more quantitative easing and NIRP. There is however a market problem with QE, not mentioned by Haldane, in that it is counterpart to a withdrawal of high quality financial collateral, which raises liquidity issues in the shadow banking system. This leaves NIRP, which central bankers hope will succeed where ZIRP failed.

– See more at: http://www.cobdencentre.org/2015/09/from-zirp-to-nirp/#sthash.Qb02oWjj.dpuf

“Everyone’s Praying But No One’s Believing” – The ‘Fed Put’ Is Dead

September 26, 2015

“Everyone’s Praying But No One’s Believing” – The ‘Fed Put’ Is Dead

Chalk Outline

Yellen’s detailed speech initially triggered an out-sized market reaction. Unfortunately, it was mainly due to shallow market depth and weak-hand positions. The ‘risk-on’ trades that ensued seem driven by positional unwinds from short-term traders. These markets will likely reverse back to lower prices once those initial trades are digested.

Yellen’s speech should quickly begin to hurt over-priced financial assets. The stellar performance of financial prices over the past several years has primarily been driven by central bank accommodation. The double digit average returns (15%+) of the S&P 500 from 2009-2014 was not driven by economic strength, but rather by massive global central bank actions. There is simply a poor correlation between economic activity and the S&P 500 in any given year.

Since the Fed’s balance sheet flat-lined in 2014 (with the policy rate locked at 0%) risk assets have chopped side-ways-to-lower. Therefore, a sooner (than priced-in) removal of accommodation should be hurting, not helping, risk assets.

The looming 2015 rate hike, threatened by Yellen and other FOMC members, is desirable and plausible in their eyes due to several factors:

1) confidence that the US economy is on firmer footing and has moved materially away from crisis conditions;

2) a sense of desire and urgency to move off the ‘zero lower bound’;

3) anxiety about not having any ammunition during the next economic downturn;

4) fear of missing the business cycle and with it the opportunity to move off of zero rates, and;

5) as stated in Yellen’s speech, the potential that holding rates too low for too long “could encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability”.

Yellen’s speech was the first time I can ever remember a Federal Reserve Chairperson commenting that inappropriate risk-taking might be undermining financial stability. This is explicit confirmation that the Fed’s aim of lifting asset prices in the hopes they bolster broader economic activity has reached the end of its useful life. Barring a financial or economic disaster, the ‘Fed put’ has been put out to pasture.

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

From ZIRP to NIRP

September 26, 2015

From ZIRP to NIRP

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

Confusion in Fantasy Land

September 22, 2015

Confusion in Fantasy Land

Triangle Breakout Failure?

The stock market’s initial reaction to the FOMC announcement was interesting, to say the least. After receiving the umpteenth excuse as to why rates can still not be raised, coupled with a promise that they eventually will be, the market initially rallied on Thursday. And why wouldn’t it? More free money is good for stocks, right?

800px-Marriner_S._Eccles_Federal_Reserve_Board_Building The Eccles Building, home of the FOMC – Meetings

Photo credit: AgnosticPreachersKid

The rally only lasted for one hour though. In the final hour of trading, the market sold off and closed in negative territory. On Friday, the sell-off intensified somewhat. By Friday’s close, the SPX had lost more than 60 points from its Thursday intra-day high, a sizable chunk over such a brief time period. Below is a chart showing the triangle from which it initially broke out to the upside (ahead of the announcement) and a Fibonacci grid – resistance was encountered right between the traditional 50% and 61.8% retracement levels.

S&P 500 Index, daily: the breakout from the triangle seems to have failed – click to enlarge.

As we are writing these words on Monday, the index is rallying again from the apex of the triangle to which it had returned as of Friday. So one cannot be certain yet that the breakout attempt will really turn out to be a failure – a clear break below the apex would however strongly indicate that a retest of the August lows was likely in the cards (at a minimum).

A Case of Cognitive Dissonance

Anyway, we have tried to come up with an explanation to the market’s sudden reassessment of the FOMC announcement. What is driving market psychology at the moment? One obvious point is technical: When major indexes return to the vicinity of a previously broken support level, some selling pressure will tend to emerge from traders/investors who were caught by surprise when the break below support originally occurred.

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

After The Great Deformation——The Next Challenge

September 13, 2015

After The Great Deformation——The Next Challenge

David Stockman has written the finest piece of financial journalism of our generation: The Great Deformation: The Corruption of American Capitalism. It shows how we got into the mess we are in.

Blame the government. Then blame us. It is our government. We must not parrot Flip Wilson’s Geraldine: “The devil made me do it!”

Stockman has followed up his book with a website: David Stockman’s Contra Corner. He posts daily articles, not on how we slouching toward Gomorrah, but how we are being dragged toward Armageddon. He has identified the culprits: the “dirty dozen” who compose the Federal Reserve System’s Federal Open Market Committee (FOMC).

Stockman is now trapped by his own enterprise. He is going to have to write a 300-page book, along with a multi-episode YouTube documentary:Up from Armageddon. It should be released in year three of the coming recession. Trust me: it’s coming. Trust Stockman: it’s going to last at least three years.

The book/documentary should have three sections: (1) how deep in the hole we really are; (2) how we got into this hole; (3) how we can get out.

Section 3 will be this: “Rebuilding from the Ground Up.” Here, he must offer a grand design: the way things ought to be after the rebuilding. But he must also offer a practical, step-by-step strategy. As Karl Marx often wrote, but never actually delivered: “from theory to practice.”

Each chapter of Up from Armageddon should have a link back to his site: proof. No footnotes needed. (Note: the links should be shortened links:http://bit.ly.)

Will the government/Federal Reserve do any of this? Of course not. But we need a field manual on what can and should be done. When the FED responds to the crisis by doing everything wrong — count on this — he can write a follow-up, I-told-you-so book: Another Fine Mess.

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

Weekly Commentary: China Hardens Peg and Brazil Goes to Junk

September 12, 2015

Weekly Commentary: China Hardens Peg and Brazil Goes to Junk

Let’s this week begin with a cursory glance at the world through the eyes of the bulls. First, the global backdrop provides the Fed convenient cover to delay “liftoff” at next week’s widely anticipated FOMC meeting. Even if they do move, it’s likely “one and done.” While on a downward trajectory, China’s $3.5 TN international reserve hoard is ample to stabilize the renminbi. Chinese officials clearly subscribe to their own commanding version of do “whatever it takes” to control finance and the economy. One way or another, they will sufficiently stabilize growth – for now. The U.S. economy enjoys general isolation from China and EM travails. Investment grade bond issuance – the lifeblood of share buybacks and M&A – has already bounced back robustly. The U.S. currency, economy and securities markets remain the envy of the world. “Money” fleeing faltering EM will continue to support U.S. asset markets along with the real economy.

September 10 – Financial Times (Netty Idayu Ismail): “The European Central Bank will ensure its policy stance remains as accommodative as needed amid financial-market turbulence, according to Executive Board member Peter Praet. ‘The Governing Council will remain vigilant that recent volatility does not materially affect the broad array of financial conditions and therefore lead to an unwarranted tightening of the monetary-policy stance,’ Praet said… ‘It has emphasized its willingness and ability to act, if warranted, by using all the instruments available within its mandate.’”

The ECB’s “unwarranted tightening of the monetary-policy stance” comes from the same playbook as Bernanke’s (the Fed’s) “push back against a tightening of financial conditions.” In a world where financial markets dictate general Credit Availability as never before, central bankers have essentially signaled open-ended commitment to liquidity injections as necessary to counteract risk aversion. Such extraordinary market exploitation underpins the fundamental bullish view that global policymakers have things under control.

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

The Endless Emergency—–Why It’s Always ZIRP Time In The Casino

September 9, 2015

The Endless Emergency—–Why It’s Always ZIRP Time In The Casino

Based on the headline from the latest Jobs Friday report you wouldn’t know that we are still mired in an economic emergency—–one apparently so extreme that it might entail moving to the 81st straight month of zero interest rates at next week’s FOMC meeting. After all, the unemployment rate came in smack-dab on the Fed’s full-employment target at 5.1%.

But that’s not the half of it. The August unemployment rate was also in the lowest quintile of modern history.

That’s right. There have been 535 monthly jobs reports since 1970, yet in only 98 months or 18% of the time did the unemployment rate post at 5.1% or lower.

In a word, the official unemployment rate is now in what has been the macroeconomic end zone for the past 45 years. Might this suggest that the emergency is over and done?

Not at all. The talking heads have been out in force insisting on yet another deferral of “lift-off” on the grounds that the economy is allegedly still fragile and that the establishment survey number at 173,000 jobs came in on the light side. Even the so-called centrists on the Fed—–Stanley Fischer and John Williams—–have gone to full-bore, open-mouth, two-armed economist mode, jabbering incoherently while they await more “in-coming” economic data.

Self-evidently, the only “incoming” information that can matter between now and next Wednesday is the stock market averages. To wit, if last October’s Bullard Rip low on the S&P 500 holds at 1867, the FOMC will declare “one and done”, at least for the year; and if the market succumbs to another spot of vertigo, the Fed will concoct yet another lame excuse for delay.

Indeed, the Fed’s true Humphrey-Hawkins target is transparent. Namely, avoidance of a “risk-off” hissy fit at all hazards.

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

Institutional Aggression, Superfluous Planners and Predictions

September 5, 2015

Institutional Aggression, Superfluous Planners and Predictions

Pretense of Knowledge

Wall Street breathlessly awaits the newest payrolls report, which is widely held to contain the information needed for the FOMC to decide whether or not it should raise the overnight interbank lending rate from zilch to zilch plus a few basis points later this month.

aggression photo via plantsbrookschool.co.uk

The payrolls report is going to be revised umpteen times after its initial release, is in many ways driven by statistical artifacts (such as the “birth-death” model) and concerns a lagging economic indicator – in other words, its “signal to noise” ratio makes it utterly useless, even if one erroneously ascribes a lot of meaning to economic statistics describing the past.

Change in monthly non-farm payrolls in 1000ds, via Saint Louis Federal Reserve Research, click to enlarge.

And yet, this utterly devoid of informational content data point is what the central planning bureaucrats are held to need to decide on their next steps in terms of interest rate manipulation! We are continually surprised by the fact that people can discuss this obvious nonsense with a straight face.

In this context we have recently come across an interesting article at Forbes, by sound money and free market advocate Ralph Benko. It is entitled “If The Fed Is Always Wrong How Can Its Policies Ever Be Right?” and is well worth the read. As Mr. Benko points out, the Fed’s economic forecasts leave a lot to be desired, primarily because they tend to be dead wrong with unwavering regularity.

He proceeds to ask how a bureaucracy that couldn’t forecast its way out of a paper bag can possibly know what policies it should implement. It seems totally absurd to expect it to be able to ever get it right, except perhaps by sheer accident.

2014-Interactions-Main_0

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

The Federal Reserve is Not Your Friend

August 21, 2015

The Federal Reserve is Not Your Friend

Fed policies disproportionately favor wealth.

Imagine that the Food and Drug Administration (FDA) was a corporation, with its shares owned by the nation’s major pharmaceutical companies. How would you feel about the regulation of medications? Whose interests would this corporation be serving? Or suppose that major oil companies appointed a small committee to periodically announce the price of a barrel of crude in the United States. How would that impact you at the gasoline pump?

Such hypotheticals would strike the majority of Americans as completely absurd, but it’s exactly how our banking system operates.

The Federal Reserve is literally owned by the nation’s commercial banks, with a rotation of the regional Reserve Bank presidents constituting 5 of the 12 voting members of the Federal Open Market Committee (FOMC), the body that sets targets for certain interest rates. The other 7 members of the FOMC are the D.C.-based Board of Governors—which includes the Fed chairperson, currently Janet Yellen—and are nominated by the President. The Fed serves its owners and patrons—the big banks and the federal government, while the rest of Americans get left behind.

The Federal Reserve has the ability to create legal tender through mere bookkeeping operations. By the simple act of buying, for example, $10 million worth of bonds, the Federal Reserve literally creates $10 million worth of money and adds it into the system. The seller’s account goes up by $10 million once the Fed’s monies are received. Nobody’s account gets debited for $10 million. This is a tremendous amount of power for an institution to possess, and yet the Fed shrouds itself in secrecy and is accountable to no one.

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

The Global Credit Market Is Now A Lit Powderkeg

June 28, 2015

The Global Credit Market Is Now A Lit Powderkeg

And markets are totally unprepared

The financial markets have had a bit of a tough time going anywhere this year.

The S&P 500 has been caught in a 6% trading band all year, capped on the upside by a 3% gain and on the downside by a 3% price loss. It has been a back-and-forth flurry while the stock market up to this point has simply marked time.

We’ve seen a bit of the same in the bond market: after rising 3.5% in the first month of the year, the ten year Treasury bond has given away its year-to-date gains and then some.

2015 stands in relative contrast to largely upward stock and bond market movement over the past three years. What’s different this year and what are the risks to investment outcomes ahead?

Higher Interest Rates Ahead

As I have suggested in recent discussions, the probabilities are very high the US Federal Reserve will raise interest rates this year. Yes, Ms. Yellen intimated it may come later, but remember she also canceled her appearance at the Fed’s annual Jackson Hole soiree this year, a meeting that takes place just a bit before the September Fed FOMC meeting. I think the markets are attempting to “price in” the first interest rate increase in close to a decade.

Importantly, we’re talking about the re-pricing of credit in the US financial system and economy broadly. We all know how important credit has been to underpinning the US economy for literally decades now. I believe this is a key part of the story of why markets are acting as they are in 2015. However, there are much larger longer term issues facing investors lurking well beyond the short term Fed interest rate increase to come: bond yields (interest rates) rest at generational lows and prices at generational highs – levels never seen before by investors. Let’s set the stage a bit, because the origins of this secular issue reach back over three decades.

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

The FOMC Decision – Studying the Flight of Birds and Gold

June 21, 2015

The FOMC Decision – Studying the Flight of Birds and Gold

Federal Open Yawn Committee puts Kremlinologists all over the World to Sleep …

The Fed’s monetary policy statement delivered on Wednesday was the non-surprise/yawn-inducer of the year. Readers can take a look at the trusty WSJ statement tracker, which reveals that apart from a few minor and unimportant changes, the statement was basically a carbon copy of the last one.

Not a single dissent mars this bland exercise in bureaucratese, so there isn’t even anything to report on that front. If you have trouble sleeping, reading this statement might be a very good alternative to Valium.

So did anything noteworthy happen? Well, yes. Apparently market participants believe they have to react to the forecasts of a bunch of bureaucrats who are quite likely among the worst economic forecasters in the world – and that’s really saying something.

augurs Augurs in ancient Rome, observing the behavior of hens.

The High Priests of Augury

It is widely assumed that it is the job of economists to “make predictions”. This is actually not the case. The job of making predictions is that of augurs and soothsayers. In fact, modern-day economists strike us as today’s equivalent of the caste of augurs in ancient Rome.

As Wikipedia informs us:

“The augur was a priest and official in the classical world, especially ancient Rome and Etruria. His main role was the practice of augury, interpreting the will of the gods by studying the flight of birds: whether they are flying in groups or alone, what noises they make as they fly, direction of flight and what kind of birds they are. This was known as “taking the auspices.” The ceremony and function of the augur was central to any major undertaking in Roman society—public or private—including matters of war, commerce, and religion.”

(emphasis added)

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

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