Entries Tagged as 'Inflation'

Useless Advice

Useless Advice

Useless Advice

To see how misleading the Fed’s interest rate hike projections have been in recent years, have a look at the chart below.
As you can see, projected interest rate hikes compared to actual rate hikes differ drastically.

I don’t know what’s worse… the Fed’s forward guidance track record or the people who actually trade on that guidance.

Yet there I was on Wednesday night watching a Harvard-educated “analyst” on Fox News telling “Special Report” anchor Brett Baier that the most important thing investors needed to be concerned with was the Fed’s plan to raise rates three times in 2017.

That’s utterly worthless advice.

Hold on. I am being kind.

That’s moronic advice.

The data clearly shows that the Fed doesn’t do what is says it’s going to do.

Look, does anyone not sniffing bath salts believe the Fed is going to continue raising rates on schedule if the U.S. stock market craters… or if Europe implodes… or if China’s credit bubble bursts?

Please.

There are countless Fed “variables” it will use to justify altering its plan… as it has in years past.

The bottom line is the only thing of value we learned from the Fed this week is they raised rates on Wednesday.

That’s it.

What it does in 2017 has no relation to its stated projections, just as was the case in 2013, 2014, 2015 and 2016.

Worrying about the implications of the Fed’s rate hike timetable is a time-sucking charade designed to bleed you dry. The Fed and the media are never on your side.

Focus on the only truth you know, and that is the price action of all markets.

Let the price action dictate your actions, your buys and sells. That’s what winners do.

Please send me your comments to coveluncensored@agorafinancial.com. Let me know what you think of today’s issue.

Regards,

Michael Covel
Editor, Covel Uncensored

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

Unusual Meeting Today

USD 4-11-16

 

Quite the day so far. Janet Yellen calls a special meeting, the President and Joe Biden will have unusual meeting today, Gold is up fifteen dollars and the dollar is at the bottom of its range. What will happen next?

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.

Top 5 Senior Friendly Cities in USA

Senior Friendly Cities

Senior Friendly Cities

Retirement is an inevitable phase of life; one that requires decisions to be made in advance. Senior citizens look forward to spending this time in an enjoyable yet affordable location. Senior friendly cities should not only provide citizens with high quality of life but should also not put a strain on the budget. Here is a list of top 5 senior friendly cities to live in

1.Minneapolis – Minnesota

This city is ideal for citizens that are looking for health care facilities and safe environment. The city offers an excellent transportation system with low crime rates and a stable economy that offers ample job opportunities for senior citizens.

With a wide range of music and historic entertainment forums, this city provides an extremely gratifying social life to the citizens. Moreover, it offers several spiritual places that allow citizens to offer their religious prayers in sacred places.

2.Pittsburgh, Pennsylvania

With highly efficient transportation system and low crime rates, this city is suitable for citizens that are looking for security and good housing faculties. The economy of the city is also stable and study reveals that it enjoys extremely low levels of unemployment rates and offers high quality health care facilities.

The city is also known as the hub of entertainment and therefore is suitable for citizens who are looking forward at spending an enjoyable yet affordable time in the old age.

3.Boston-Cambridge-Quincy, MA-NH

Senior citizens who are looking forward to re-training or gaining further education would find this city full of opportunities as it offers more than hundred education institutes. Moreover, the city has a rich cultural heritage that allows senior citizens to visit music and historic venues and theatres that provide high quality entertainment.

The healthcare facilities within the city are of extremely high quality whereas the transportation system is also quite efficient. The city has an extremely alluring social life for citizens who want to engage with peers and friends and to visit various locations across the city. The crime rate within the city is also considerably low.

4.Provo-Orem, Utah

The city offers a healthy lifestyle to the citizens who want to age comfortably. The city offers high levels of security and safety while also provides the citizens with the ability to embark on new careers or start a business.

5.San Francisco, California

This city is ranked considerably high in the health and longevity continuum whereas the environment of the city is ranked as the best across the country and thus is ideal for citizens who want to enjoy extremely pleasant weather conditions around the year.

Apart from these factors, the city has one of the best transportation systems across the world and offers an extremely pleasing social life.  Moreover, the crime rate within the city is also not very high.

Author Bio
Andy is a keen and passionate blogger and he’s been doing it for almost five years now. His favorite topics include senior issues and healthcare. If Andy is not writing, his time is being consumed by distributing Patient Handling items and other merchandises regarding mobility.

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?

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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.

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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 Greek Drama Continues

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How Europe’s Systemic Failure Will Impact the Globe

An exclusive from Phoenix Capital Research: The Greek drama continues.

The process thus far has been along the following lines:

  1. Greek Prime Minister Alexis Tsipras states publicly that he is confident that a deal will be met because Greece is willing to compromise.
  2. Tsipras then refuses to compromise behind closed doors with EU officials.
  3. Tsipras tells the media and Greek citizenry that the EU is evil and is attempting to enslave Greece.

This process has been maintained for over five years now. This only further illustrates one of my central themes: everything in Europe is about politics.

Europe as a whole is socialist in nature. You will never hear a discussion of “how involved should the Government be in the economy?” in most of Europe; it is just assumed that the Government should always be involved a large degree.

The question is whether it should be a lot (the public sector accounts for 30% of jobs in Germany) or almost entirely (the public sector accounts for 56% of jobs in France).

When more than one in three people are employed by the public sector in one form or another, everything is driven by politics.

The best example of this, of course, is Greece.

Greece has been and remains a fiscal basket-case for three simple reasons:

  1. The Government attempts to employ as many people as possible even if it makes absolutely no sense to expand the Government workforce.
  2. The Government pays WAY above what the work requires (on average public sector wages are 150% of private sector wages and most employees receive pensions equal to 92% of their salary at retirement).
  3. Greek culture not only embraces, but celebrates tax evasion (so there is little Government revenue to finance all those overpaid bureaucrats).

The level of fiscal insanity goes above and beyond anything you’re likely to see.

Consider the Greek metro system. It takes in €80 million in annual ticket sales… and spends over €500 million in salaries.

There is a word for an entity that spends over SIX times its annual revenues on employee salaries… it’s bankrupt.

This sort of scam is endemic in Greece. Anyone from pastry chefs to hairdressers and other services-based sectors can retire at age 50 and receive a pension equal to 95% of their salary.

Suffice to say, the Government payouts are extreme.

Unfortunately, Greek taxpayers don’t want to fund it. Greece has a population of 12 million. Less than 5,000 of these individuals report taxable income of more than €90,000.

Put it this way, less than 0.01% of the Greek population claims they make more than €90,000 per year in salary. This for a country that has over 60,000 individuals with investments of over €1 million… and those area simply the individuals willing to admit it!

The effort that goes into this subterfuge is staggering. In 2010, the Greek tax authorities began using satellite imagery to target Athens homes with swimming pools (a sign of wealth). Only 324 Greeks claim to have such homes in Athens. The satellite study found nearly 17,000 homes with pools before an enterprising Greek began selling pool covers that look like a normal lawn.

Simply put, in Greece we have a bloated bureaucracy that pays exorbitant salaries and pensions in a culture that goes to great lengths to hide its wealth/pay taxes.

Greece however is not the REAL issue for Europe. The REAL issue concerns the derivatives trades that are backed by Greek debt.

Modern financial theory dictates that sovereign bonds are the most “risk free” assets in the financial system (equity, municipal bond, corporate bonds, and the like are all below sovereign bonds in terms of risk profile). The reason for this is because it is far more likely for a company to go belly up than a country.

Because of this, the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset pledged as collateral for hundreds of trillions of Dollars’ worth of trades.

The global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Greece… are one of, if not the primary collateral underlying all of these trades.

Greece is not the real issue for Europe. The entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.

Spain, by comparison has over €1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.

In short, the EU’s worst nightmare is a debt haircut or debt forgiveness for Greece because it opens the door to Spain or Italy asking for similar deals down the road.

And that’s when you’re talking about REAL systemic risk.

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.

Private Wealth Advisory is a WEEKLY investment newsletter that can help you  profit from the markets: we just opened seven trades to profit from the above trends in the last two weeks. As we write this, ALL of them are soaring.

Mover Mike Hit 2,000,000

After an incredible June, Mover Mike hit 2,000,000 page views. I have been blogging since 2004 and it is nice to see that more people are finding this blog. Sometimes, I have considered quitting, thinking why bother, no one reads me. However, conservative fiscally, Libertarian socially, this blog joins many others who don’t like the path the U.S. is on.

No longer can we discuss things rationally and heatedly.  Now it seems the play book says to ignore the message, savage the messenger. We are seeing that currently with Trump and we read that Hillary hasn’t answered the press questions in two weeks. AND…more and more people are considering leaving the country.

Mexico”sends” their unemployed to the U.S.. How long will 93,000,000 unemployed and under employed wait to move south? How long will the drought stricken  in the south west wait to move? What happens when the U.S. becomes like Greece and can’t feed the 43,000,000 on EBT?

Stay tuned, dear reader. I hope to cover it and provide some answers. Thanks for reading Mover Mike

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.

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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.”

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