Entries Tagged as 'Banking'

The Fed’s “Debt Monster” Is Calling the Shots

The Fed’s “Debt Monster”

Bill Bonner calls our attention to the danger:

You know our prediction: The Fed will never willingly lead interest rates to a neutral position.

It can’t. The FED  has created a debt monster. It must feed this Frankenstein with easy credit.

This time last year, the Fed began its “rate-tightening cycle.” That is, it began raising short-term interest rates.

It pledged to continue to do so in 2016. But then it diddled and dawdled, fiddled and fawdled… claiming to be on top of the situation… watching its “data” come in like a fisherman’s wife waiting for the return of the fleet… and not wanting to admit she was already a widow.

What it was really waiting for was a place to hide.

The Fed can raise short-term rates. But it will have to follow, not lead. It will have to hide in the shadow of rising consumer prices, staying “behind the curve” of inflation expectations.

That way, the expected real interest rate – the rate of return on your money above the rate of consumer price inflation – never really returns to neutral.

Already, the price of a barrel of crude oil – a key input into prices across the economy – is twice what it was 10 months ago. Leading business-cycle research firm the Economic Cycle Research Institute says the inflation cycle has turned positive.

And already, foreign nations are talking about retaliating against Team Trump by canceling orders and imposing new tariffs in their own versions of “better trade deals.”

This, too, is bound to raise prices.

Forget speculating on stocks, options, or other risky, low-probability moneymaking schemes. This wealth-building formula is the most reliable way to make seven figures in seven years or less in today’s uncertain economy…

Funny Money Antics

But if consumer price inflation were really a concern, the bond market would race ahead of the Fed, imposing its own regimen of rising yields.

The Fed’s increases would be too little and too late to have any real effect on the outcome.

Bondholders don’t care much about nominal rates. If consumer price inflation were to rise to the Fed’s 2% target, for example, bondholders might clamor for a 4% yield to give them a positive 2%.

That is a big increase over the 52-week low of 1.32% the yield on the 10-year Treasury note hit on July 4.

But you don’t get that kind of seismic shift without cracking some flower pots.

Much of the world’s $225 trillion in debt is calibrated to borrowers who will have a hard time surviving a 3% interest rate world, let alone a 4% one.

This is an economy that can stand a lot of grotesque and absurd “funny money” antics. It can survive a bizarre financial world; it can’t survive a normal one.

As inflation expectations increase, investors do not sit still and watch their retirements, their savings, and their fortunes get broken by inflation.

They don’t wait for the Fed’s policy-setting committee to meet. They don’t reflect calmly as the Fed’s wonks collect their “data” and create their “dot plots.”

Instead, they act out. The monster gets mad and starts throwing things.

First through the window are the bonds. They get chucked out before inflation manifests itself fully… and long before the Fed increases its key short-term rate.

Then, the “boom” turns quickly into stagflation… as higher borrowing costs pinch off growth even as consumer prices continue to rise.

But more likely, inflation is not really surging… Not yet.

And most likely, it will be the painfully apparent when the U.S. economy goes into recession next year.

Then, it will be stocks’ turn to get tossed out, while bonds sneak back in through the side door.

It will also be apparent that the Fed has taken another false step… that the recovery was a sham… and that it’s the debt monster calling the shots, not Janet Yellen.

Regards,

Bill Bonner

What does the new frontier of negative interest rates in the global arena mean for investors?

What does the new frontier of negative interest rates in the global arena mean for investors?

What does the new frontier of negative interest rates in the global arena mean for investors?

 

Cindy Yeap / The Edge Malaysia discusses “What does the new frontier of negative interest rates in the global arena mean for investors?”

“For RHB Research Institute executive chairman and chief economist Lim Chee Sing, NIRP “can only be seen as a temporary expedient to hold up financial markets”, albeit one that has little room to push for more economic growth in this relatively mature stage of the growth cycle.

“That means rising investment premiums and heightened market volatility will likely be the order of the day in the days ahead. Portfolio investors may have no choice but to build some degree of defensiveness into their portfolios to balance out the risks. This implies rising appetite for high-yield stocks,” Lim says.

“Even dividend stocks have caveats in the days ahead, largely due to their rich valuations vis-à-vis tougher conditions to grow at the same rate as before. For example, sin stocks might have to contend with higher taxes; the fees for telecommunications spectrum refarming have yet to be revealed; and consumer stocks have to contend with the possibility of a further tightening of consumer spending. Then, there is the higher labour cost.

“The focus should be on stocks with an improved business model, reasonable earnings visibility, strong cash flow, a dividend policy and, thus, sustainable dividend payments. Of course, one cannot ignore valuations but rich valuation stocks are still susceptible to a selldown should the global economy take a turn for the worse,” Lim adds.

“Gerald Ambrose, CEO of Aberdeen Islamic Asset Management Sdn Bhd, too, noted expensive valuations after a good run in recent years.

“We are keeping a close eye on notable high-yield companies, like the cellular phone companies, the brewers, tobacco companies and the REITs (real estate investment trusts). We’re currently about halfway though the 4Q2015 results season and to be honest, a lot of the better-managed companies have been able to find efficiencies to enable dividend payout to remain high. However, after outperforming for over a year, a lot of the high dividend yield companies are hardly cheap,” he says.”

BOTTOM LINE: Focus your strategy on yield and gold. Gold is an alternative when interest rates are negative adjusted for taxes and inflation.

The Difference Between a Good Analyst and a Great Analyst

I came across this piece from Quandl and it got me thinking about about politics and experts and analysts. Quandl is a data site that offers information on thousands of stocks, with historical data going back decades and futures data to help you forecast trends. They created this graphic to help novice analysts get ahead in the industry.
the Difference Between a Good and a Great Analyst

I love to talk politics. My dad and I conversed and analysed and argued about the Vietnam War and every other thing that was worth discussing. Sometimes they were heated. College was a disappointment. I thought there were would be more conversations in depth much like the ones between dad and me. Sadly, that only occurred in the classroom … infrequently. In my adult life, once in a while there is a conversation I look back on with fondness. Those conversations  with new friends or in depth conversations over a fine dinner. Today, it is hard to have conversations when each participant is holding on to biases and attaching their ego to those opinions.

I want to have conversations with great analysts.

When I was a broker, I made the most money for my clients when I could analyse the facts, and draw conclusions from those facts that were outside the norm. If you saw The Big Short you saw great analysts reach conclusions that were farseeing. The consequences of their conclusions were far reaching.made them huge piles of money.

It is one thing to develop a story about the future of Germany or Cuba if you are a citizen, another thing altogether to draw the conclusion that being Jewish in Germany is existential; it is another thing to be Cuban and realize that the door to Spain is the only escape and it will close soon.

To stand in a place and observe that a country that spends more than it takes in and builds up debt to the point that they can barely pay the interest is a good analyst. To be a great analyst it takes courage to conclude that this cannot stand and it’s time to leave.

Great analysts tell stories that are believable and motivate others to take action. Strive to become a great analyst.

How to Play the Situations In China and Greece

The following is an excerpt from Private Wealth Advisory...

Stocks are rallying today because of:

1)   Hype and hope of a Greek deal.

2)   China has stopped trading of 49% of stocks and threatened to arrest anyone who is short-selling the market (talk about a backstop!).

Regarding Greece, no deal has been made. Greek PM Tsipras has submitted a proposal for a new deal… which is almost EXACTLY the same as the deal that 61% of the Greek population rejected via referendum last week.

Tsipras has completely backed himself into a corner. He used up a lot of goodwill with EU officials when he let Greece default by staging a referendum for Greek voters AFTER the due date on Greece’s debt.

The voters obviously voted “No” on the EU’s deal… so Tsipras has had to come up with a new proposal. The only thing he can suggest that would possibly sit well with Greek voters is “debt forgiveness,” which Germany has stated it is absolutely opposed to.

So now Tsipras must decide… does take a bad deal (the same one voters said “no” to last week), which will force a popular revolt in Greece (and likely his expulsion from office) or is he the man who takes Greece out of the Eurozone?

 

His finance minister has already quit his post… and doesn’t seem too upset about it. Perhaps Tsipras will follow suit, Greece will elect another PM and the whole charade can start all over again?

Finance.jpg

The Greek drama has engaged in “extend and pretend” for five years now. It’s highly likely that it will continue this time around with Greece accepting a bad deal and plunging further into economic collapse until the next debt problem emerges.

As for China…

Anyone who bothered to look at the actual data coming out of China (the un-massaged data, not the fictitious GDP numbers), knew the China economy was in collapse. It was only a matter of time before its stock bubble joined suit.

Sure enough, the bubble burst, and the Chinese stock market has erased over $3 trillion in wealth in the space of three weeks.

The Chinese Government, which we are told is moving towards free market capitalism, has thus far dealt with the crisis by halting 49% of stocks from trading and threatening to arrest (and likely “disappear”) anyone caught short-selling stocks or somehow promoting market “instability.”

The market is bouncing on this… it’s now coming up against the first line of resistance (blue line) established by the uptrend from late 2014. If we break above that we could even bounce to retest the longer-term bubble bull market trendline (green line).

However, after that we’re heading DOWN in a big way. The bubble has burst. Bubbles NEVER reflate after bursting.

7-10-15-1.png

Crises never unfold in straight lines. Investors forget that when the Tech Bubble burst, stocks were a roller coaster with over EiGHT moves of 16% or greater in the span of six months.

7-10-15-2.jpg

China’s bubble was even larger than the Tech Bubble. The price volatility will be even more severe… but the bubble has definitively burst… and the market will be heading lower in the coming weeks.

In short… the two biggest reasons for the markets to be rallying today (Greece and China) are simply temporary issues. They will resolve, very likely for the worse, in the coming weeks. Smart investors should be using this bounce to prepare for the next wave of the Crisis.

If you’re looking for actionable investment strategies to profit from this trend we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

The Next Currency Crisis Has Begun

According to Graham Summers of Phoenix Capital Research The Next Currency Crisis Has Begun. 

Stocks have been boring for months now. They’ve gone almost nowhere since the start of the year.
The REAL action is in the currency markets.
The biggest news is the breakdown of the Japanese Yen. Normally it’s a big deal if a currency breaks a trendline that is over five years long.
The Yen just broke a 30 year trendline.

Image

The significance of this cannot be overstated… one of the major world currencies has broken support dating back to the mid-80s. This sets the stage for a collapse to 60 if not 40 in the coming months.
The Yen collapse represents a 33%-50% currency collapse. It is nothing short of a hyperinflationary event.
The impact will be felt around the globe, most notably in Asia where other currencies will be in absolute chaos.
However, the Yen also is a major currency partner with the US Dollar and the Euro… and a Japanese currency collapse will be felt in those regions as well. Stocks will be the last asset class to “get it.”

Charging Clients on Deposits

Banning cash transactions and then charging for deposits seems to be our future. Now this is the latest:

HSBC has become one of the biggest global banks to say it will begin charging clients on deposits in a basket of European currencies to prevent its profit margins from being crushed in a record low-interest rate environment. The unusual steps come after the ECB became the first big central bank to announce a negative deposit rate – in effect a penalty on banks parking their surplus cash – last year. HSBC -0.5% premarket.

Largest Bank In America Joins War On Cash

Largest Bank In America Joins War On Cash

I have cautioned investors for many years not to store gold and silver in safe deposit boxes, now Largest Bank In America Joins War On Cash. I said you may not be able to gain access to your box when you really need it. Now look what the largest bank in the U.S. is doing. Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes. In a letter to its customers dated April 1, 2015 pertaining to its “Updated Safe Deposit Box Lease Agreement,” one of the highlighted items reads: “You agree not to store any cash or coins other than those found to have a collectible value.” Whether or not this pertains to gold and silver coins with no numismatic value is not explained.

OBAMA’S PLAN FOR A FASCIST AMERICA

Dr. Jack Wheeler
Behind The Lines
Friday, 13 March 2015

Americans are welcome now in Vietnam, where so many people speak English because it’s required to learn it in school as a second language. Vietnamese have embraced capitalism with a vengeance, even while they are ruled by the same Commie Party we fought in the 60s, the Hammer & Sickle flies everywhere and Ho Chi Minh is pictured on their currency.

The days of America being Hanoi’s enemy are long gone. China is the enemy today as it has been for over two thousand years of Vietnamese history, against which Hanoi needs America as an ally. The tides of history ebb and flow. America’s greatest enemy today is not external but within.

A far more mortal danger to our country than Putin Russia, Chicom China, or Reconquista Mexico is a Hate America White House with the clear goal of creating a Fascist America.

Government control of all of our major institutions and industries is taking place right before our eyes in broad daylight. If we have any chance of reversing it, we must begin by identifying exactly what is going on. The first step is to call what is going on by its accurate name: fascism.

The Left loves to use the term as a pejorative sneer for anything lefties don’t like. But as an economic theory it has a specific meaning.

Socialism is government ownership of businesses and industries, with everyone in the economy – workers, managers, executives – being an employee of the State. In Castro’s Cuba until recently, even shoeshine boys had to belong to a state cooperative.

Fascism, by contrast and far more dishonestly, is government control of ostensibly private business and industry, the owners and executives of which can do nothing without bureaucratic regulatory approval. This is the economy Zero is determined to achieve. He is doing so with astonishing rapidity – and with Chicago gangsterism and corrupt thuggishness, hallmarks of any fascist regime.

So rapid and thuggishly thorough it leaves the Marxist agenda of the Frankfurt School’s “march through the institutions” – both economic and cultural – of the 20th century in the dust. It is a 21st century blitzkrieg of fascism. Let’s itemize it.

*Healthcare. This is the most obvious. Obamacare is a fascist federal takeover of the entire scope of health and medical care in the US, from insurance to hospitals to physicians.

*Banking. Less obvious is the extent to which the Dodd-Frank Act, named after two of the most corrupt crooks ever in Congress, gives federal regulators unlimited arbitrary control over the entire banking industry in the US.

*Communications. The recent ruling of the FCC now makes the Internet a federally regulated utility, giving Zero’s bureaucrats unlimited power for stifling innovation, competition, and websites they disapprove of. Add to this, of course, Zero’s NSA that has unlimited power to spy on the private communications of all Americans.

*Energy. The excuse of imaginary man-made global warming as a rationale for Climate Fascism to control energy production has so far failed – thanks to fracking and global cooling. But not for lack of trying, as climate fascists become ever more hysterical in their demands and hatred for anyone who denies their lies.

*Education. Common Core is the Department of Education’s takeover of local and state education on steroids. There is no constitutional authority for the very existence of the federal Education Department, much less its Anti-American history propaganda of Common Core or Mrs. Zero’s fascist school lunch starvation program.

*Defense. The combination of the homosexualization of the military, massive defense cuts, and the promotion of officers who are merely politically correct bureaucrats in uniform is reducing the Pentagon to Zero’s Poodle.

Add to this the treating allies like Israel with contempt, the refusal to defend America from Moslem barbarianism, and helping Iran to acquire nuclear weapons.

*Family and Culture. Homofascism, same-sex “marriage” now morphing to homopolygamy, the unceasing attempts to racially divide America and demonize whites as racist (witness Zero’s latest: “Slaves built the White House”).

*Economy and Unemployment. Crony capitalism, mass unemployment and disability payments to gain mass dependency on government welfare. People dependent on you vote for you.

*Justice and the Rule of Law. Two words define the most corrupt federal justice system in US history: Eric Holder. Add to this Zero’s blizzard of unconstitutional edicts (Executive Orders and Memorandums), and the blackmailing of Chief Justice John Roberts (and how many other judges?) to rule as demanded.

*Democracy. The purpose of Zero’s Amnesty for millions of illegal aliens is to enable them to illegally vote to place Democrats in permanent power.

Put this all together, and you see it is a fully comprehensive across-the-board plan to create a Fascist America. The only way to stop it is to start pulling it out by the roots.

E.g., Dodd-Frank and Obamacare must be repealed, FCC net neutrality reversed, every Zero EO undone, the EPA and the Department of Education must be fully defunded and eliminated, no welfare of any kind for illegals… the list of what must be done is very long.

None of this can be done, however, without achieving the first priority: explaining exactly why Zero is a fascist, why Dems are fascist, why the Left is fascist – and refusing to support, donate money to or vote for any Pub politician who won’t do so.

Zero, the Dems, the Left’s Grievance Industry, and their propagandists pretending to call themselves “journalists” have got to be put on the defensive. They have to be labeled for what they in fact are: fascists advocating smothering (and unconstitutional) national government control over every major business and institution in America.

Thus the most critical issue of our day is Freedom vs. Fascism. The 2016 contest for Congress and the White House must be framed in this context.

“Are you for freedom or are you for fascism?” is the question to ask any politician. “Are you for liberating America’s businesses and institutions from Obama’s fascist controls or not?”

Freedom in America is dying, but it is not dead yet. It can still be rescued and revived – but not unless we correctly diagnose what is killing it. Only then can radical surgery be performed to remove the cancerous tumor of Obama Fascism causing its impending demise.

Exposing Obama’s Plan for a Fascist America is where we must start. Let’s get started.

From To The Point News

This Is What Gold Does In a Currency Crisis

by John Rubino on December 16, 2014

To say that gold is in a bear market is to misunderstand both gold and markets. Gold isn’t an investment that goes up and down. It is money in the most basic store-of-value sense. Most of the time it just sits there, and when its price changes in local currency terms that says more about the local currency than about gold.

But when currencies collapse, gold shines.

Consider the above from the point of view of a typical Russian. The ruble is tanking (no need to understand why — all fiat currencies go this way eventually and the proximate cause is almost irrelevant). Russians who trusted their government and kept their savings in, say, a bank account, are losing their shirts. But those who own boring, doesn’t-pay-interest, in-a-bear-market gold have seen their capital appreciate in local currency terms by about 60 percent in just the past month. They’re not “making money,” but they are preserving wealth.

Russian gold price Dec 2014

This is how it has gone always and everywhere when governments have destroyed their currencies. In the Roman Empire, revolutionary France, revolutionary America, most of Latin America in the 20th century, and now big parts of the developing world, local currencies evaporate but gold just sits there, buying the same amount of stuff as ever, impervious to the games governments play.

It won’t be long before this chart is replicated in a whole lot of other places. But by then it will be too late to prepare. The gold will be gone and those who trusted their governments will have to make do with promises.


Two Buddies

 

Laugh it up boys!

Laugh it up boys!

The mandate from the 2014 election doesn’t matter as long as these two are buddies.


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