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Mario Draghi surprised even the doves with his bold new stimulus plan. It won’t help one iota.

The Wall Street Journal reports ECB Reverses Course With New Stimulus Measures.

The European Central Bank made a major policy reversal Thursday, unveiling plans for fresh measures to stimulate the eurozone’s faltering economy less than three months after phasing out a €2.6 trillion ($2.9 trillion) bond-buying program, making it the first rich-country central bank to ease policy in response to the global slowdown.
The ECB said it would hold interest rates at their current levels at least through the end of this year—months longer than previously signaled—and announced plans for a fresh batch of cheap long-term loans for banks. The first loans will be launched in September, each with a maturity of two years.
Despite the new stimulus, ECB President Mario Draghi said that the risks to the economy remain prevalent, though the likelihood of a recession is very low. Thursday’s decision was unanimous, he said at a press conference. “Given the complexity of the package, I think this is a very positive sign,” he added. The ECB also slashed is forecast for gross domestic product growth this year to 1.1% from 1.7% in December. It lowered its inflation projection to 1.2% from 1.6%, further below the ECB’s target of just under 2%.
Still, the ECB refrained from more extreme measures such as restarting its bond-buying program or cutting its deposit rate further from minus 0.4%. These options weren’t discussed, Mr. Draghi said. “In a dark room, you move with tiny steps,” he said.

Bold New Plans

Please consider ECB’s Draghi Surprised Colleagues with Bold Stimulus Plans.

European Central Bank President Mario Draghi caught even dovish rate-setters off guard by pushing on Thursday for unexpectedly generous stimulus after forecasts showed a large drop in economic growth, four sources familiar with the discussion said.

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

Stupidity Well Anchored: Absurdity of Inflation Expectations in Graphic Form

February 24, 2019

Stupidity Well Anchored: Absurdity of Inflation Expectations in Graphic Form

The amount of sheer nonsense written about inflation expectations is staggering.

Let’s take a look at some recent articles before making a mockery of them with a single picture.

by Mish

Expectations Problem

On July 17, 2017, Rich Miller writing for Bloomberg proclaimed The Fed Has an Inflation Expectations Problem.

Expectations matter because they shape how households and companies act and thus can go a long way in determining where inflation actually ends up. Consumers accustomed to meager inflation will resist paying up for goods and services.
“Lower inflation expectations make it all the more difficult for the central bank to achieve its inflation objective,” Charles Evans, president of the Chicago Fed, said in remarks posted on the bank’s website on July 14.

Key Element

The Business Insider says The Fed is missing a key sign of economic weakness coming from American consumers.

Andrew Levin, a career Fed economist who was a special adviser to Fed Chairman Ben Bernanke, told Business Insider he was worried by a noticeable decline in inflation expectations, both as reflected in consumer surveys and bond-market rates.
“The reality is that the longer-term inflation expectations of consumers and investors have shifted downward by about a half percentage point. Thus, even with the economy moving towards full employment, it’s not surprising that core PCE inflation remains about a half percentage point below the Fed’s inflation target,” he said, referring to a closely watched reading indicator that excludes food and energy costs.
“If the FOMC continues to ignore the downward drift in inflation expectations and simply proceeds with its intended path of policy tightening, actual inflation is likely to keep falling short of the Fed’s target and might well decline even further,” he said.

Janet Yellen Yesterday

In a brief speech following yesterday’s FOMC announcement Janet Yellen made these statements.

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

China Trade Data is Nail in the Coffin of Global Economy

January 14, 2019

China Trade Data is Nail in the Coffin of Global Economy

Chinese exports and imports even though China’s trade balance with the US rose.

Eamonn Sheridan at Forex Live has some interesting comments on China’s December Trade Balance.

The export figures are a focus and they are poor indeed. But save some space in the barf bag for the import results, they are terrible – huge miss on these.

Demand in China has been showing evidence of slowing. This is a nail in the coffin.

December 2018 Data – Yuan Terms

China trade balance comes in at CNY 395bn, expected CNY 345bn, prior was CNY 306bn
Exports 0.2% y/y, expected 6.6%, prior was 10.2%… BIG MISS
Imports -3.1% y/y, expected 12.0%, prior was 7.8% … even bigger miss

December 2018 Data – US Dollar Terms

China trade balance USD 57.06bn, expected $51.6bn, prior was $44.7bn
Exports -4.4% y/y, expected 2.0%, prior 5.4%
Imports -7.6% y/y, expected 4.5%, prior was 3.0%

Tariff Man

Brad Setser on Twitter

“Let’s start with the backward looking data. The bilateral deficit with China has increased by about $60b in Trump’s first 2ys. …

twitter.com

Brad Setser on Twitter

“The trailing 12m sum is a lagging indicator. It replicates the y.y data at the end of the year so it covers developments over the…

twitter.com

Chinese Investment in the US Slumps to 7-Yr Low

The Financial Times reports Chinese Investment in the US Slumps to 7-Yr Low

Including $13bn in US asset divestitures by Chinese investors, China’s net US investment actually shrank by $8bn in 2018.

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

World Seriously Needs to Tell Trump “Go to Hell”

January 13, 2019

World Seriously Needs to Tell Trump “Go to Hell”

The US threatens German companies with sanctions if they continue with Nord Stream 2. This is not our place.

Neither the US nor President Trump should not be the sole decider of global sanctions. If the EU wants to do business with Russia to secure natural gas, that is EU business.

Nonetheless, U.S. Warns German Companies of Possible Sanctions Over Russian Pipeline.

U.S. President Donald Trump has accused Germany of being a “captive” of Moscow because of its reliance on Russian energy and urged it to halt work on the $11 billion gas pipeline. U.S. Ambassador Richard Grenell addressed the issue in a letter sent to several companies, the U.S. Embassy said on Sunday.

Juergen Hardt, foreign policy spokesman for Merkel’s conservatives in parliament, was scathing in his criticism of the U.S. move.

“That the U.S. ambassador is now turning to German companies with direct threats is a new and unacceptable one-sided tightening of the tone in the transatlantic relationship,” Hardt said. “If the U.S. president thinks he has to publicly show he is getting tough on Russia in view of the many question marks regarding his relationship with Moscow, he should not thereby impair the relationship with his most important ally.”

“The letter reminds that any company operating in the Russian energy export pipeline sector is in danger under CAATSA of U.S. sanctions,” the embassy spokesman said, adding that other European states also opposed the planned pipeline.

CAATSA

CAATSA stands for Countering America’s Adversaries Through Sanctions Act.

Imagine Europe passing a CEATSA and directly threatening US businesses. That’s how arrogant and wrong this policy is.

A Bloomberg Nord Stream 2 Editorial gets it correct.

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

Europe Likely in Recession Now: Germany, France, Italy Production Collapsed

January 12, 2019

Europe Likely in Recession Now: Germany, France, Italy Production Collapsed

German, French, and Italian industrial production collapsed in November. Italy GDP is negative for 3rd Quarter.

Italy GDP

Italy’s GDP was negative for the third quarter. Gross domestic product (GDP) in the euro zone’s third largest economy fell by 0.1 percent in July-September due to weaker domestic demand, statistics bureau ISTAT said, the first decline since the second quarter of 2014.

Based on industrial production, Germany and France will soon follow.

Germany Industrial Production

Analysts actually expected German IP to rise. Go figure.

German industrial output fell unexpectedly by 1.9 percent month-on-month in November 2018, missing market expectations of a 0.3 percent rise and following an upwardly revised 0.8 percent drop in October.

France Industrial Production

France’s industrial production fell 1.3 percent from a month earlier in November 2018, reversing an upwardly revised 1.3 percent growth in October and missing market expectations of a 0.2 percent gain.

Italy Industrial Production

Italy’s industrial production slumped 1.6 percent from a month earlier in November 2018, much worse than market expectations of a 0.3 percent decline and following a meager 0.1 percent gain in October.

Brink of Recession or Already In Recession?

The Telegraph asks Is Germany – and the Eurozone – On the Brink of Recession?

The water levels of the Rhine are low and Germany may be flirting with recession. The two are connected, many argue. The Rhine is a key artery for the transport of many goods into and through the country, particularly for the chemicals and energy industries.

But praying that the water rises and all will come good might not be enough. Just as the idea that negative growth in the third quarter was due to the temporary hit of emissions testing rules on an already troubled car industry, the one-off excuses are starting to wear a bit thin. There is a grander slowdown facing Berlin, and, as the eurozone’s economic powerhouse, potentially the rest of its members too.

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

US Electric Grid Hacked: Perpetrators Could Have Shut Down the System

January 11, 2019

US Electric Grid Hacked: Perpetrators Could Have Shut Down the System

Hackers broke into the US electric grid with spearphishing techniques targeting contractors with system access.

The Wall Street Journal has a detailed report out today regarding a sophisticated, and successful attack by hackers into the US electric grid. The hackers could have temporarily shut off power.

The Journal claims Russia is responsible. I hate such assumptions. In the absence of hard proof, the hack could have come from China, North Korea, Israel, or even the US. Even if Russian hackers did this, there is a difference between “Russian” and “Russia”.

Please consider America’s Electric Grid Has a Vulnerable Back Door—and Russia Walked Through It.

Early victims

In the summer of 2016, U.S. intelligence officials saw signs of a campaign to hack American utilities, says Jeanette Manfra, assistant secretary of Homeland Security’s cybersecurity and communications program. The tools and tactics suggested the perpetrators were Russian. Intelligence agencies notified Homeland Security, Ms. Manfra says.

Mr. Vitello of All-Ways Excavating has no idea how the hackers got into his email account. He doesn’t recall reading CFE’s websites or clicking on tainted email attachments. Nonetheless, the intrusion was part of the Russian campaign, according to the security companies that studied the hack.

On March 2, 2017, the attackers used Mr. Vitello’s account to send the mass email to customers, which was intended to herd recipients to a website secretly taken over by the hackers.

Once Mr. Vitello realized his email had been hijacked, he tried to warn his contacts not to open any email attachments from him. The hackers blocked the message.

Sneak Attack

Hackers sent bogus emails from the account of Oregon construction contractor Mike Vitello to herd recipients to a website they had secretly taken over, called imageliners.com. Hackers then used the site to seek access to contractors that do business with U.S. power utilities.

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

Story of a Gold Coin

December 28, 2018

Story of a Gold Coin

Here’s a true story of one gold coin, a 50 Pesos gold coin like that pictured above.

Earlier this month, my friend Hugo Salinas Price emailed an interesting story about a single gold coin that that he still holds dearly.

Story of a Gold Coin by Hugo Salinas Price

As I was shuffling papers in some old files, I came across a slip of paper on which I had written down the price I had paid for a Mexican $50 gold peso coin: 717 Mexican pesos.

Judging from the price, I figure that the purchase was made sometime in 1972, when the price of a Troy ounce of gold was $46 dollars. The Mexican $50 gold peso coin contains 37.5 grams of pure gold, and 37.5/31.1 grams per Troy ounce, is 1.206: so there is 1.206 times more gold in a Mexican $50 gold peso piece, that in a Troy ounce of gold.

Thus, $46 dollars per ounce x 1.206 = $55.48 dollars as the value of the gold in the $50 gold peso coin, in 1972.

The rate of exchange Dollar/Peso in 1972 was 12.50 Mexican pesos per dollar, so $55.48 US x $12.50 = 693.50 pesos. I paid 717 pesos, because gold coins are always sold for a small percentage more than the price of bullion gold; in this case, the surcharge was for 3.4%.

The international price of an ounce of gold, as of November 30 was $1,222.10 dollars. The rate of exchange was at 20.40 Mexican pesos per dollar. So today’s price of the Mexican $50 gold peso coin should be close to $1,222.10 x 20.40 x 1.206 = 30,067 pesos. The quote this morning is: 30,890 pesos.

So my investment of 717 pesos, made 46 years ago, has turned into an investment worth 30,890 pesos today. Looks like a good investment.

But there’s a lot more! Because back in 1993, our President Salinas de Gortari chopped three zeroes off the rate of exchange. So actually, the 717 pesos I invested turned into 30,890,000 of the old pesos!

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

Mother of All Sucker Rallies Sends Dow 1,000 Points Higher

December 27, 2018

Mother of All Sucker Rallies Sends Dow 1,000 Points Higher

Following a brutal four days in a brutal month, stocks staged a massive rally. Alas, it won’t last.

The Wall Street Journal reports Dow Industrials Leap More Than 1,000 Points.

The Dow Jones Industrial Average surged more than 1,000 points for the first time in a single session Wednesday, rebounding after a bruising four-session selloff put the blue-chip index and the S&P 500 on the brink of a bear market.

All 30 stocks in the Dow industrials notched gains, as did each of the 11 sectors in the broader S&P. Shares of Amazon.com , Facebook and Netflix climbed more than 8%, while retailers rallied as early data on the crucial holiday shopping season appeared robust. And a nearly 9% rise in oil prices offered a respite for shares of beaten-down energy companies.

Verge of Bear Market?

The WSJ says the S&P 500 was “on the verge of a bear market”.

I disagree. I claim the S&P 500 is in a bear market.

Who’s right?

Arguably, we both are. It depends on where you measure from.

The high of 2940.91 as shown in the above chart was an intraday high. The high the previous day was 2930.75. That was also the highest close ever. On a close-to-close basis the S&P only fell 19.78%

Is the WSJ ridiculously splitting hairs? Yes.

About Bear Market Rallies

Today was a typical bear market rally. I posted some charts on December 24: S&P 500 Slips into Bear Territory on Worst Christmas Eve Trading Ever

Yes Virginia, it’s a bear market. Expect a lot more days like today, with everyone caught believing “the bottom is in”, every step of the way.

The next real bottom will not be in until everyone is totally disgusted with the stocks and gives up. Demographically-speaking it will come at the worst time for boomers.

There was one and only one thing surprising about today: Trump did not yap about it.

Japan Gives Up On Inflation, Now Wants Deflation (Sort Of) to Offset Tax Hikes

December 25, 2018

Japan Gives Up On Inflation, Now Wants Deflation (Sort Of) to Offset Tax Hikes

Today seems straight from the Twilight Zone: First the PPT and now Abenomics in full reverse.

Please consider Japan Finally Concedes Its Crazy Low Prices Can’t Be Beat.

Japan has virtually given up on reaching 2% inflation after nearly six years of trying. An argument gaining ground in Tokyo holds that the inflation goal, once seen as paramount, doesn’t matter so much after all. Inflation excluding volatile fresh food and energy prices was just 0.3% in November, and it has barely budged all year.

Mr. Abe has largely stopped discussing the dangers of deflation, and his government is actually trying to push some prices down ahead of a tax increase set to take effect in October 2019. Mr. Abe’s de facto No. 2, Chief Cabinet Secretary Yoshihide Suga, has called on mobile-phone carriers to lower fees by about 40%—a move that could knock a full percentage point off inflation, according to government estimates.

“There is no change to our stance of seeking the 2% price goal as soon as possible by patiently continuing powerful easing,” Mr. Kuroda said at a November press conference. At the same time, he has started talking more about the potential downsides of aggressive monetary easing,

Still, BOJ officials are hesitant to abandon the target altogether out of fear it could damage expectations and push the country back into deflation, said people familiar with the BOJ’s thinking.

Raising Prices

Torikizoku (Chicken Nobility), raised prices for the first time in 30 years last year, by the equivalent of 16 cents.

“Once prices went up, it wasn’t just the chickens that got skewered. Same-store sales at the chain have fallen more than 5% every month since May and profit fell 76% compared with a year earlier in the most recent quarter.”

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

Australia’s House of Cards is Collapsing: Recession Coming Up

December 14, 2018

Australia’s House of Cards is Collapsing: Recession Coming Up

Australia’s housing collapse is now in full swing. A recession will follow shortly.

Inga Ting, Geoff Thompson and Alex McDonald provide and excellent set of graphics and information on the bursting of Australia’s housing bubble at House of Cards.

Home prices in more than four out of five council areas have reached their peak and are sliding towards an unknown nadir, according to the latest figures from property market analyst CoreLogic.

As the slump moves into its second year with little or no prospect of rebound, the downturn in capital city property markets threatens to drag down the rest of the economy.

And with a mixed outlook for the global economy, doubts are surfacing about where Australia is going to find the fuel to extend its near-record run of 27 years of unbroken economic growth.

Yearly Change in Median Dwelling Value

The graph in the article is interactive with a choice of eight cities. Sydey displayed above.

Major Declines Since 1980

Click on the graph for an even larger image.

Perth and Darwin have been clobbered. Sydney is in the works.

Every Bubble is Different

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

Trade Truce? Think Again: Canadian Authorities Arrest CFO of Huawei Technologies

December 6, 2018

Trade Truce? Think Again: Canadian Authorities Arrest CFO of Huawei Technologies

At the request of the US, Canadian Authorities arrest Meng Wanzhou, CFO of Huawei Technologies, over Iran sanctions viol

Trade Truce? Deal with China in 90 days?

Think again on both counts: Canadian Authorities Arrest CFO of Huawei Technologies at U.S. Request

A spokesman for Canada’s justice department said Meng Wanzhou was arrested in Vancouver on Dec. 1 and is sought for extradition by the U.S. A bail hearing has been tentatively scheduled for Friday, according to the spokesman. Ms. Meng, the daughter of Huawei’s founder, Ren Zhengfei, serves as the company’s CFO and deputy chairwoman.

Ms. Meng’s arrest comes amid a year-long U.S. government campaign against a company it views as a national-security threat. In the past year, Washington has taken a series of steps to restrict Huawei’s business on American soil and, more recently, launched an extraordinary international outreach campaign to persuade allied countries to enact similar curbs.

U.S. authorities have suspected Huawei’s alleged involvement in Iranian sanctions violations since at least 2016, when the U.S. investigated ZTE Corp. , Huawei’s smaller Chinese rival, over similar violations. The Commerce Department released internal ZTE documents that showed the company studied how a rival identified only as “F7” had conducted similar business.

“China will see this as an escalation against Huawei and as an extraterritorial rendition,” said James Mulvenon, general manager at defense contractor SOS International. “There will be tremendous domestic pressure in China to get her back.”

Huawei is the world’s biggest maker of equipment for cellular towers, internet networks and related telecommunications infrastructure. It is also the world’s No. 2 smartphone brand.

Some of America’s closest allies, including most of the countries in the “Five Eyes” intelligence-sharing pact among English-speaking countries, have followed the nation’s lead.

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

Promise Delivered: Macron Promised a Revolution, He Got One, Against Himself

December 3, 2018

Promise Delivered: Macron Promised a Revolution, He Got One, Against Himself

Hundreds were arrested and fires burn as the ‘gilets jaunes’ (yellow vests) protest movement against Macron escalates.

It’s rare for politicians to deliver on campaign promises. But French president Emmanuel Macron did. He promised a revolution, and got one. Unfortunately for Macron, the revolt is against his own policies.

Bloomberg comments on France’s Dangerous Yellow Vest Protesters.

The “Yellow Vests” protests now challenging President Emmanuel Macron have exposed a widening hole in the center of French politics—created by Macron himself.

It was Macron whose election in May 2017 all but obliterated the two establishment parties that had run France for 30 years. His own political movement had been launched less than a year before and his closest opponent for the presidency was from the far-right. By positioning himself as a reformer, Macron, 40, had hoped to establish a centrist consensus.

“The ‘gilets jaunes’ movement will probably peter out, but not the anger, which is likely to go on and take new forms maybe more dangerous for Macron,” said Jim Shields, a professor of French politics at Warwick University in the U.K. “It’s hard to see how he can complete controversial reforms like pensions and unemployment insurance without yet more blood on the pavement.”

A protest Saturday in Paris exploded into violence that left over 100 injured and more than 400 arrested, as well as burned cars and looted stores in the heart of the capital. Named after the colored vests motorists must keep in their cars for emergencies, the campaign began as a protest against higher gasoline taxes to reduce emissions. It’s now expanded to other demands and has the support of three-quarters of the French public, polls show.

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

Competing Mortgage Headlines: Rates Barely Move vs Rates Surge Lower on Powell

December 1, 2018

Competing Mortgage Headlines: Rates Barely Move vs Rates Surge Lower on Powell

Freddie Mac says “mortgage rates barely move” but Mortgage News Daily says “rates surge lower”

Mortgage News Daily and Freddie Mac offer conflicting reports on the bond market reaction Jerome Powell’s speech yesterday.

Mortgage News Daily says Mortgage Rates Surge Lower

Mortgage rates surged lower today, falling at the fastest single-day pace in more than a year. In order to see the average lender offer lower rates, you’d need to go back to October 2nd at least. For many lenders, it would be a few weeks before that. Granted, this merely restores rates to what had been 7-year highs at the time, but you know what they say about journeys of 1000 steps and what not…

Much of the improvement was driven by an ongoing reaction to a speech by Fed Chair Powell from yesterday.

Surge Defined

A surge is 9 basis points.

Freddie Mac says rates fell 13 basis points. But note the dates.

Freddie Mac posts mortgage data weekly, on Thursdays. Thus, the data is stale. After that table was posted Freddie Mac offered a different opinion.

Mortgage Rates Barely Move

Freddie Mac says Mortgage Rates Barely Move.

November 29, 2018

Mortgage rates stabilized the last couple of months as interest rate sensitive sectors such as new auto and home sales softened the outlook for the economy. Homebuyers pounced on the stability in rates as purchase mortgage applications increased, which indicates that despite higher mortgage rates this year there are buyers on the fence waiting for the right time to buy.

Ignore that galling bit of propaganda about homebuyers pouncing on rate stability as if buyers are coming back. They aren’t. Let’s step back and put this alleged surge into perspective.

Zero Reaction

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

European Gas Stations Out of Diesel: French Refinery Strike Deepens Crisis

November 28, 2018

European Gas Stations Out of Diesel: French Refinery Strike Deepens Crisis

Diesel is in short supply in Europe. The situation is about to worsen as the biggest French refinery is shutting down.

Bloomberg reports Europe’s Diesel Woes Deepen as Strike Halts French Oil Refinery.

Total SA, France’s biggest refiner, is in the process of shutting its largest plant in the country, the 247,000-barrel-a-day Gonfreville facility in Normandy, due to a labor dispute, a spokeswoman for the company said on Tuesday. A few hundred miles away, in the Netherlands, retail fuel stations are running out of supplies because of shipping constraints on the Rhine, according to Royal Dutch Shell Plc.

Shell said Nov. 20 that it cut production at its Rheinland refining site, the biggest complex of its kind in Germany, due to low water levels on the Rhine. In a tweet on Tuesday, the company said that it was temporarily unable to supply some unmanned fuel stations in the Netherlands.

Gas stations in Germany had already been running dry due to the situation on the Rhine, a major petroleum product transportation corridor that runs northwest from the Swiss Alps all the way to the Netherlands. Switzerland released emergency fuel stockpiles because of the situation on the river.

The premium per barrel of diesel over Brent crude – another indicator of market strength – was at $15.96 on Tuesday, the highest for the time of year in six years.

Diesel Price Poised to Soar

This shutdown cannot possibly come at a worse time for French President Emmanuel Macron.

Macron is already reeling over a protest of his diesel tax.

Diesel Tax Turns Violent

People from across France went to Paris to let the president know how they feel about the taxes in general and the tax on diesel. The [Diesel Tax Protests](Diesel Protests in France Turn Violent) then turned violent.

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

Seriously Crazy Idea: Trump Proposes US State-Run News Agency

November 27, 2018

Seriously Crazy Idea: Trump Proposes US State-Run News Agency

Trump is blasting CNN again today. OK, but his alleged “solution” is seriously crazy.

Here are some counter-Tweets that I agree with:

oat on Twitter

“@realDonaldTrump Holy Christ. You’re advocating for a state-run press. This is possibly the most dangerous idea you’ve floated. And…

twitter.com

Claude Robichaux on Twitter

“@realDonaldTrump Pravda. Google it.”

twitter.com

Wow. All the “news” Trump wants you to hear and nothing more. This is truly crazy.

Having a state run news agency does not prove greatness. It proves the opposite.

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