Entries Tagged as 'USD'

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

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.

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

2015: THE YEAR OF GLOBAL DOLLAR DANGER

By Ambrose Evans-Pritchard at To the Point News
Guest Authors
Thursday, 01 January 2015

America’s domestic economy can handle a surging dollar and a fresh cycle of rising interest rates. Large parts of the world cannot. That in a nutshell is the story of 2015.

Tightening by the US Federal Reserve will have turbo-charged effects on a global financial system addicted to zero rates and dollar liquidity.

Yields on 2-year US Treasuries have more than doubled from 0.31% to 0.74% since October, and this is the driver of currency markets.

Since the New Year ritual of predictions is a time to throw darts, here we go: the dollar will hit $1.08 against the euro before 2015 is out ($1.21 on 12/31), and 100 on the dollar index (already at 90 at year’s end).

Sterling (the British pound) will buckle to $1.30 ($1.57 on 12/31) as a hung Parliament prompts global funds to ask why they are lending so freely to a country with a current account deficit reaching 6% of GDP.

There will be a mouth-watering chance to invest in the assets of the BRICS and mini-BRICS at bargain prices, but first they must do penance for $5.7 trillion in dollar debt, and then do surgery on obsolete growth models. What are the odds for either?

Emerging Markets

Emerging markets

Emerging markets

Wikipedia defines emerging markets as “The four largest emerging and developing economies by either nominal or PPP-adjusted GDP are the BRIC countries (Brazil, Russia, India and China). The next five largest markets are South Korea, Mexico,Indonesia, Turkey, and Saudi Arabia...”

Martin Armstrong warns, “The emerging markets have issued debt in dollars which is a currency they cannot print and do not control. This hard-currency debt has tripled in the last decade and is split between $3.1 trillion in bank loans and $2.6 trillion in bonds. This will ripple through the banks causing massive new losses just as the Cyprus banks held Greek debt. This time, it will be the debt of all emerging markets. We are looking at a drastic scale of the biggest cross-border lending sprees of the past two centuries.

“A large portion of this emerging market debt was taken out at real interest rates of 1% on the implicit assumption that the Fed would continue to flood the world with liquidity for years to come. This has made the emerging markets vast borrowers dollars so in a trading position they are “short dollars”. This is the greatest short-position on a currency on the boards and when the dollar RISES, they will face the margin call from Hell itself. This will set off another banking crisis for bankers always buy the high and sell the low. They have NEVER learned even once from any economic crisis.”

Read more at Coming Emerging Market Debt Meltdown

 

Putin Loses Control

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By , International Business Editor

Vladimir Putin has lost control of Russia’s economy and may be forced to impose Soviet-style exchange controls after “shock and awe” action by the central bank failed to stem the collapse of the ruble.

“The situation is critical,” said the central bank’s vice-chairman, Sergei Shvetsov. “What is happening is a nightmare that we could not even have imagined a year ago.”

The currency spiked from 71 to 98 against the euro yesterday (12/16) in the biggest one-day drop since the default crisis in 1998 as capital flight gathered pace, despite a drastic rise in interest rates to 17% the day before (12/15) intended to crush speculators and show resolve. It closed at 87, and at this writing today (12/17) is at 83.

Yields on two-year Russian bonds spiraled to 15.36%, while credit default swaps are pricing in a one-third chance of a sovereign default. The shares of Russia’s biggest lender, Sberbank, fell 18%.

Neil Shearing, from Capital Economics, said the spectacular failure of the rate shock may bring matters to a head. “If a rise of 650 basis points won’t do the job, we are near the end. That means stringent capital controls,” he said.

In Washington, the White House said it had no intention of easing pressure on Russia to halt the freefall. “It is President Putin’s decision to make. The aim is to sharpen the choice that he faces,” said White House spokesman Josh Earnest yesterday.

After years of bluster and suggestions by Mr. Putin that the US is a paper tiger, the Kremlin is now coming face to face with the cataclysmic consequences of what it has done by invading Ukraine and changing Europe’s borders by force.

Continue article…

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.


THERE’S A STORM COMING

I received this email from a respected friend:
I’ll try to make this short and simple, but you know better. I really hope some of you argue with me, because if we all agree I’m more likely wrong.

THERE’S A STORM COMING!!!!! AND WE NEED TO PREPARE.

Is it Katrina, or a polar vortex, an average winter storm, or the perfect storm?

Don’t know. I don’t need to predict or know what winter will be like in detail to believe that winter is coming.

Why do I think this? And plan to get prepared.

First, history. Bear markets ALWAYS follow bull markets. Are we in the 1st or 2nd inning of the current bull? Seems unlikely. Are we in the 7th or 8th? Don’t know, but I’m pretty sure the game will end – in 9 innings, or extra innings, or due to rain.

Second, look around, at geopolitics, at valuations, at rate spreads and bond covenants, at the omnipotence of central bankers (the Fed is leveraged almost 80 to one), at IPO’s, and on and on. Do you see an environment of bottoms or tops?

Do you see an environment of sustainability, or an environment of complacency?

Third, the world has not de-leveraged in the last five years. Debt to GDP has grown. It has been shifted around with some sectors reducing debt and others increasing, but the world’s debt load is greater today than it was before the ’08/’09 crisis, and the cost to carry that debt has probably never been lower. Crisis and bear markets tend to clean out the previous excesses and produce a more robust, sound, and conservative economic environment. I suspect that has not happened.

Fourth, I think the theory that “economic and financial stability creates instability, and instability creates stability” has merit. The financial markets have been remarkably stable for more than two years. This could go on and on, but you get the point.

This is NOT a panic call to sell everything and get short, or run to gold, or cash. This is a call to get PREPARED; professionally and personally. (My wife) and I plan to review our budget and balance sheet over the next few weeks. (My assistant) and I will continue our strategies and disciplines, but with additional attention to preparation for what will eventually come next; what are the best and most secure places to store cash, what asset classes may be diverging from the markets, are we seeing a deflationary or inflationary environment developing. If one wishes to plan for the inevitable, whenever it comes, there are only three time periods one has available; before, during, or after. “After” is not terribly useful or effective. “During” is quite difficult. Now is “before”.

(My wife) asked me, “What brought this on?” Why today and not a week ago? The best answer I have is the culmination of many, many pieces of input that have finally tipped the scale to say PREPARE. Maybe it was the “alerts”, or the chart on world debt levels, or the Fed’s leverage ratio, or continued reading of “The Fourth Turning”, or the complacency of both investors and voters, or Ben Hunt’s call for a peak in central bank influence and credibility, or watching Putin play his game, or a hundred other things. It might be that I see so much benefit to preparation, and very little downside – or so much downside to not preparing. For now, that’s my story, and I’m sticking to it.

Four final thoughts:

1. I learned long ago that governments and large institutions can delay seemingly huge problems almost indefinitely. They may never fix it, but they can delay for what seems like forever. Theirs is a long game, but our game is the markets – and they do cycle.

2. When things go wrong, they often go wrong fast, but the inflection point may be long in coming. Hemmingway’s quote about going bankrupt two ways comes to mind.

3. The last few weeks seems likely to be setting up for a typical excellent buying opportunity in October, or the next bear market. I’m completely open to both possibilities.

4. Over thousands of years we humans have evolved primarily to react immediately to threats to our survival. If we didn’t act immediately we were often dead. These hard wired reactions are more often than not quite unhelpful in the markets. If one plans and prepares when there is no immediate threat, the prepared reaction is likely to be more useful – not always right, but it has a better chance of being appropriate.

Please heed my friend’s message. He takes longer than I do to reach a conclusion such as this, but his thinking is well thought out and he is risk averse.

When Real Interest Rates Fall, Gold Rises

Mike Burnick writing for Money and Markets has this informative piece:

Real Yields Sink

Historically, real interest rates (long term bond yields minus the inflation rate) have always had a very close, inverse correlation with the price of gold. In fact, it’s the single most predictive factor for gold prices.

When real rates fall, gold inevitably rises, and vice versa. As you can see in the chart below, real interest rates declined steadily after the financial crisis and Great Recession in 2008, and gold rose every step of the way.


Click for larger version

But as you can see above, real yields began rising again in 2012, which continued last year. This corresponds almost perfectly with a sharp decline in gold prices, but recently real rates stopped rising and are now rolling over again, as you can see at the far right.

While interest rates around the world are declining steadily this year, inflation is beginning to edge higher.

This is pushing real (inflation adjusted) interest rates down again … which is precisely when gold shines!

Forget the Consumer Price Index. We all know this flawed gauge of inflation is way behind the curve in measuring the true cost of living and it’s a backwards-looking indicator. Instead, focus on leading indicators of future inflation pressure: Higher commodity prices, rising wages, higher rental rates and soaring health-care and education costs … these are all pointing to higher inflation down the road.


A Drop To 80???

A drop to 80 would complete a major top leave the dollar in BIG trouble (see chart). The dollar is currently at 81.47!

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