Category Archives: Commentary
“The bevy of regulation since the 2008 financial crisis has weakened the banking sector to the point that another meltdown is inevitable, says private equity star J. Christopher Flowers, CEO of J.C. Flowers.
“All the stuff that has happened, and all the rules we’ve introduced have depressed profitability. And that is a real vulnerability,” he tells the Financial Times. “Nobody is going to invest in an industry with returns of 5 percent.”
While Flowers has invested in banks in the United States, United Kingdom, Japan, Germany and the Netherlands, he notes, regulators are engaged in a fool’s errand in trying to eliminate risk from the banking industry.
“How do you make something that lends money at risk a utility?” Flowers asks rhetorically…..”
“A top pro-Russia rebel commander in eastern Ukraine has given a bizarre version of events surrounding the Malaysian jetliner crash — suggesting many of the victims may have died days before the plane took off.
The pro-rebel website Russkaya Vesna on Friday quoted Igor Girkin as saying he was told by people at the crash site that “a significant number of the bodies weren’t fresh,” adding that he was told they were drained of blood and reeked of decomposition….”
“It is finally happening in full view, in unmistakable manner, in a way that the awake, the aware, and the conscious can perceive in alarming stunning terms. The central force of Europe, the industrial juggernaut, the stable core, has begun to pivot East. The Germans have had enough, fed up with destructive US activities of all kinds. For the last few months, they have been laying out their indictment, their justification, their reasons to abandon the corrupt US-UK crowd. The bank wreckage, the market rigging, the endless wars, the sanctions which backfire, the sham monetary policy, the economic sabotage, the spying, the gold gimmicks, it has finally reached a critical level.
Germany has begun to move East in full view. Only the deaf dumb and blind cannot notice, and they will probably never notice. They are fodder. The awaited signals seen by the Jackass have finally arrived. The grand stage leans East for the European players, with steps taken to the right, the weight having shifted, the messages suddenly more angry, more filled with disgust, more loaded with open confrontation. The commercial forces aligned with Russia are coming to the fore. The departure after a recent re-election by Chancellor Merkel should serve as the final slam of the hammer. She stood in the wrong camp, the banker and politician camp. They do not run Germany.
The marriage is over, the glow gone, the lawyers in the room, the bitterness in the open. Those exciting Saturday nights with the Germans and French enjoying a good ride with Mustang Sally are over. The once vivacious peppery exhilarating relationship with steamy back room sessions has turned ugly, old, nasty. She has lost her appeal, and worse, has turned vicious and destructive. Sally has stolen the jewelry, wrecked the credit lines, undermined the day job, and backstabbed the neighbors. As time passes, more joint accounts are seen as drained. Sally must go. The once thrilling tosses replete with the excitement of a bucking mare have turned into a kick to the head, a broken bed, as the acidic Buck has fallen from grace and burns holes everywhere. The lascivious flow has turned blood red, hardly a monthly matter. The only thing holding the relationship and tight liaison together is the heavy narcotics flow through NATO bases and major European banks. Regardless, Sally must go. Her devious devices, tools, ploys, nasty friends, and antics threaten to wreck the European industry supply lines and heated homes. The nation’s accounts are depleted. Sally must go. Her ride is more like a kicking old hag with warts where a sexy smile once resided. Her trust is nowhere. She is wrecking the European house. Sally must go. When Germany turns away from Sally, and shows her the door, it will be clear in the global country club that Sally is gone. Then eastern winds will blow some fresh air on the putrid parlors.
BERLIN INDICTMENT CHARGES
Berlin is outraged by clear USGovt spying, and in process of conducting a Gold audit among their population. Germany is building motives to split from the Euro Monetary Union (common Euro currency) by forging stronger open ties with Russia & China. The justification is becoming plainly laid out, in four perceived indictment charges. The Jackass believes Germany will break from US/UK and its USDollar fiat currency regime over four primary thorny issues. The four are major indictments, all extremely serious, all indicative of a decayed system and morally bankrupt leadership. The charges are coming into view, highlighting fundamental commercial, philosophical, and ethical conflicts that distinguish the two nations (considering US/UK a single entity). The issues center on the following key differences:
- Good relations with Russia and continued energy supply from Gazprom
- Displeasure over planned Draghi Euro Central Bank bond monetization
- Disgust over NSA espionage by USGovt, with benefit for US corporations
- Damage to German population from gold price suppression.
The damage began with the refusal to repatriation German official gold by the New York Fed. The damage ends with the USGovt NSA espionage. Germany is very angry, sufficiently motivated to part ways with the US/Anglo camp. The plan to make distance from the British & Americans appears to be well along in execution. The critical stake in the ground was the prosecution, investigation, and forced actions during the Deutsche Bank actions. The trained eye and informed view notices the intense activity for the last two years, as closing all the back doors from the gold halls. Some major eruptions can no longer be brushed aside as simple anomalies. The boils, open sores, and deep rashes are visible everywhere. The London Fix is being abandoned, Deutsche Bank forfeiting its seat, regulatory bodies in the deeply corrupted London Centre concluding nothing askew and all is well. The LIBOR scandal has some German ignition points, with no prosecutions anywhere in sight. The FOREX and Gold derivatives are under intense scrutiny, again with a German hand to unwind the corrupted arenas, with massive naked short raids continuing in the last two weeks.
EXIT USDOLLAR, ENTER GOLD STANDARD
The plan seem obvious for Germany, to exit the USDollar, but first to embrace the Euro as a caretaker currency platform before the Eurasian Trade Zone comes together and offers a gold-backed continental currency with broad shoulders. All of Europe will rally around the Euro flagpole, hunker down during the other financial HAARP-like storm (bearing Weimar nameplate), and ride the storm until the Russian-Chinese hard asset currency arrives. The BRICS have invaded the mainstream Western stage and hold a banner for all to see. The stage has been altered, its weight shifted, leaning to the East. Tremendously important historical events are occurring. The King Dollar is wounded mortally, having fallen off the throne, looking weakened, haggard, and ashen. Sympathy for the US-UK corrupt violent vindictive crew has vanished. Next comes the assaults on the European Commission, that corrupt den.
The path to the Gold Trade Standard is becoming visible, the key break being the divorce between Germany and the US/UK fascists. It complements the divorce between the US and Saudis which has occurred since March. That break has been detailed in public Jackass essays. The German break is the new event, with current episodes absolutely mesmerizing for their importance and shock. Some US press sources are awakening. The United States Govt has treated France and Germany like adversaries, even enemy camps. The BNP Paribas case was atrocious for its devious ploys, giving old line Europeans a kick to the head. The US rats have infiltrated with organized networks of espionage agents. The press prefers to describe them as merely eavesdropping. In reality they are gathering information on Germany strategic planning, on Germany corporate contracts in development, and on German political functions. The consequence is a coordinated indictment taking shape which will result in the final steps coming to pass in the Global Paradigm Shift. The USDollar will be chucked into the dustbin of history, but first, it will be kicked to the used car scrap heap where it awaits finally processing. That processing consists of the conversion of USTreasury Bonds into Gold bullion on a massive scale at numerous offices. The BRICS Banks are ready to do business. They are two, the Development Bank and the Contingency Reserve Arrangement (CRA). In time the CRA will be known as the New IMF for its function, while the Development Bank will be known as the Central Bank housing gold.
ESPIONAGE AGAINST ALLY
The attention has gone from Sally to Ally, the relation turned quietly hostile. Not the queer conversion of GMAC into an empty bag lending institution, but rather the key Central European Ally in NATO. In the past Hat Trick Letter essays, items #1 and #2 have been addressed, focus having been on the deteriorated Ukraine situation and the antagonistic Bundesbank position. The US fictional output from destructive fracking and deceptive shale projects has been pledged to Europe, in a massive ruse that is vacant on its face. Huge 95% writedowns of shale oil reserves like by Monterey in California, combined with departures of fracking firms like Medallion in Western Pennsylvania, testify to the fact that the USGovt strategy is a ruse with empty tube. The German central bank has challenged the Draghi EuroCB not to embark on destructive unsterilized bond monetization. In the past, the EuroCB policy disagreements on phony bond patches and bond monetization have been the source of great conflict, even with German high court rulings against the EuroCB. The LTRO (Long Term Refinancing Operation) is but another device from the same Weimar laboratory, a mere banker con game with super seniority rights to favor the elite investors.
In extreme focus in the past month is item #3, the nefarious NSA espionage. Those who call it eavesdropping miss the point. It is not about catching juicy information on politician affairs. It is not to grab a lead on Merkel’s next luncheon for tabloid display. It is to seize information on Russian and Chinese developments and plans, on the commercial front and financial sector respectively. It is to infiltrate the German computer systems and communication systems, probably to plant Trojan Horses for later leverage in blackmail at the state level. The Berlin officials are well aware. The entire NSA espionage chapter appears to be exploding on the scene. In fact, word has come that Russian Intelligence offices tipped off the Berlin officials about the USGovt NSA activity before arrests were made last week. The Snowden files are being used in important ways. The Central European source stated briefly, “The comical part in all this is that Russian intelligence FSB and GRU tipped the German authorities off by providing the leads.” The Germans followed up quickly, so quickly that a divorce is the conclusion. In the meantime, the German-Russian cooperation with trust develops while the German-Anglo trust withers away. The break between the Germans and the Fascists from US-UK-EU may be closer than ever, as history is turned on its head since World War II. The entrenched Fascists on the global financial war front are the Americans and British accomplices, the big corrupt banks being the pillboxes. They will be abandoned, or toppled. At risk is the NATO Alliance. If and when Germany pivots fully eastward, the NATO membership will be rendered empty chair with a speaker phone attached.
GOLD ROOM CRIME….”
“It took just a little over an hour for Vladimir Putin to respond to the latest, most provocative and toughest round of US sanctions yet. The response, appropriately enough, came just after the BRICS summit in Brazil, where the world’s developing countries yesterday announced the formation of both a BRIC bank and a $100 billion currency reserve to provide a liquidity alternative to the insolvent developed world’s central banks. Here Vladimir Putin was asked to comment on the new package of sanctions against Russia announced just minutes earlier by Obama.
Putin’s response: “We aren’t the ones introducing sanctions, you should ask them.”
“Sanctions have a boomerang effect and without any doubt they will push U.S.-Russian relations into a dead end, and cause very serious damage, and it undermines the long term security interests of the US State and its people.” he said to reporters while elaborating that said he needed to see the details of the sanctions to understand their full scope Reuters added.
And as was largely expected, Putin’s next jab was right where it hurt: energy.
“This means that U.S. companies willing to work in Russia will lose their competitiveness next to other global energy companies.”
Putin said the sanctions will hurt Exxon Mobil Corp which has been given the opportunity to operate in Russia. “So, do they not want it to work there? They are causing damage to their major energy companies,” he said.
While we don’t know for sure, we are confident that following the press conference Putin sat down with the rest of the BRICS, which command a population of just over 3 billion not to mention the world’s fastest growing economies, and realized that for all the posturing, it is really a game of reserve fiat vs energy, with the US controlling the former, while the BRICS, and especially Russia, dominating the latter…..”
“The economy is recovering from a harsher-than-normal winter, but the pace of growth for the balance of this year and next will not create nearly enough decent jobs for the millions unemployed and recent graduates working at venues like Starbucks.
It’s easy for President Obama to blame Republicans in Congress, and vice versa, and for both to put their hopes in the Federal Reserve’s stewardship of monetary policy, but decades of bad trade, energy and education policies pursued by both parties have torpedoed prosperity.
A succession of trade agreements has opened U.S. markets to foreign manufacturers in Asia, whose governments continue to erect high barriers to competitive American products. Meanwhile, federal policies limit oil and gas development off the Atlantic, Pacific and Eastern Gulf Coasts.
The United States has chosen to pay its way in the world with exports of knowledge-intensive services, but the math doesn’t work. The annual international trade deficit on manufacturers and oil is approximately $615 billion, whereas the surplus on services is well less than half that amount.
Although knowledge-intensive juggernauts like Google and Citigroup create high-paying jobs in science-based disciplines and finance — and America still has notable knowledge-intensive manufacturers in industries like pharmaceuticals — those simply don’t create the growth and numbers of high-quality jobs lost to the surge of imported cars, coffee tables and computers.
Since the beginning of this century, the economy has grown 1.7 percent annually and created only 6 million jobs, compared with 3.4 percent growth and 41 million jobs during the Clinton-Reagan prosperity.
Also, the knowledge economy requires workers with very different skills than the industrial age did. It places a premium on specialized technical expertise and a capacity for self-directed learning, permitting workers to jump from employer to employer as new technologies create and destroy industries and jobs. Compared with 25 years ago, consider how many web designers and how few print journalists we have today.
What jobs the economy creates are either in the well-paying knowledge economy or in low-paying activities like restaurants, residential cleaning services and the produce aisle at Whole Foods.
Our educational system produces enough great scientific minds but not nearly enough technically sound folks with old-fashioned “get up and go”….”
“By Mohamed A. El-Erian
Some major questions stand out as Federal Reserve Chair Janet Yellen heads to Capitol Hill for her semi-annual testimony to Congress: particularly, when should the Fed start raising interest rates, and are its unconventional stimulus efforts contributing to a financial bubble?
Unfortunately, neither Yellen nor anyone else is in a position to provide decisive answers at this stage.
Watching for Bubbles
With the unemployment rate falling faster than the Fed expected, and with the end of the extraordinary bond-buying program (known as quantitative easing) currently slotted for October, some officials — including Philadelphia Fed President Charles Plosser, St. Louis Fed President James Bullard and, more surprisingly, San Francisco Fed President John Williams — have publicly wondered whether the central bank should move more quickly to start raising interest rates. They worry that failing to do so would increase the probability of problems down the road, particularly when it comes to inflation.
Others, including Yellen, note that significant “slack” remains in the job market: A historically low percentage of the population is participating in the labor force, and too many people are working part time for lack of better options. These Fed officials also want to do whatever they can to counter the risk that long-term unemployment will become even more entrenched, eroding the economy’s productive capacity and its responsiveness. Given the still-anemic growth in wages, they don’t see inflation as an imminent threat.
A related issue has to do with the impact of all of the Fed’s unconventional policies not only on the economy but also on financial markets — or what former Fed Chair Ben S. Bernanke called the balance of “benefits, costs and risks.” The experimental policies are intended to push up the prices of stocks, bonds and other financial assets to high levels, in the hopes that the resulting optimism among consumers and companies will cause economic fundamentals to catch up.
Some within the Fed think that the risk of bubbles in financial markets has become too great — that they have gone beyond what the economy will be able to justify. Their concerns extend beyond the high valuations and low volatility of all sorts of assets, including hard-to-trade ones. They also worry about the behavioral changes that come with excessive financial laxity, such as complacent lending with too-lenient conditions, irresponsible bond issuance and the excessive use of borrowed money — or leverage — to boost returns.
Again, Yellen is among those who appear less concerned at this stage. While aware of the risk of bubbles, they think that the problems are isolated: Most would be alleviated by a stronger economic recovery, and the rest could be mitigated by so-called macro-prudential policies designed to improve the resilience of the financial system.
Ideally, Yellen could use her congressional testimony to narrow the differences between the two camps. But Fed chairs typically don’t employ the occasion to dissipate new ideas that haven’t already been discussed at a high level in the central bank and, more important, there still isn’t enough evidence to make a conclusive analytical case for either side…..”
“Last week, I listed concerns of a stock market correction in the U.S., including high valuations and a weaker-than-expected economy. Investors seemed to acknowledge those risks, as stocks drifted steadily lower on the week.
At the same time, European equities had a shock as the solvency of a major Portuguese bank was called into question. Shades of the 2011 European debt crisis spooked investors, and stocks across Europe slid.
With trouble in developed markets and yields on interest-bearing assets still paltry — and perhaps threatening to drift even lower given recent trends with the 10-year Treasury — then where is an investor to turn?
I say go global — and start staking out a position in emerging markets. The valuations are much cheaper, the momentum is much better and there are some very attractive ETFs that allow you to play the upside potential in these volatile regions but with enough diversification to reduce your risk significantly.
Here are three such emerging market ETFs I’m watching now:
iShares MSCI Taiwan Index ETFEWT -0.31%
• 60-day return: 11%
• 2014 return: 13%
• Net assets: $3.3 billion
• Expense ratio: 0.62%, or $62 on every $10,000 invested
Many emerging market stocks and ETFs have picked up nicely since their May lows, outperforming the S&P 500 in that period. But one region that has actually outperformed all year long is Taiwan…..”
“Wall Street’s latest worry: The current state of the American consumer.
Despite a blockbuster June employment report, buffeted by positive auto sales and same-store retail sales numbers, many investors and strategists worry that American consumers just don’t have the cash, or the willingness to spend it, that is required for the recovery to continue.
In a filing released on Thursday, Rent-A-Center CEO Robert Davis said that “Macro-economic pressures continue to burden our financially constrained consumers contributing to softer than expected demand in our U.S. business segments. Consequently, revenue and earnings for the second quarter 2014 will not meet expectations.” (In response, the stock dropped by more than 10 percent on Friday.)
Some on Wall Street are ringing the alarm bell as well.
Nicholas Colas, chief market strategist at ConvergEx Group, warned on Friday that there’s a chance stocks will get rattled by “a shallow U.S. recession starting early next year,” caused by “slack consumer spending and a slower labor market,” due in part to the Federal Reserve reducing its stimulative measures.
“From a jobs perspective, things are slowly healing. But I do think that the desire to spend is still somewhat sketchy,” he told CNBC.com. “We’re still at low levels of confidence compared to other recoveries.”
Betting on the consumer has not been a great call this year. The S&P 500‘s consumer discretionary sector is up less than 1 percent in 2014, compared with a 6 percent rise for the index as a whole, making it the single worst-performing sector. (Of course, this comes after several years of outperformance.)
Some light on the consumer should be shed this week….”
“Gary Tanashian writes: The following is an excerpt from NFTRH 298′s 38 pages of hard hitting, no b/s market analysis, which also included extensive work on the precious metals along with commodities, currencies, global markets andmarket sentiment.
Stock Markets – US
Happy Independence Day America! Your markets are bullish… and over bought, over loved and running on increasing momentum.
Courtesy of SlopeCharts
The graph tells a story of the end of the Greenspan era’s commercial credit inflation, which was resolved in 2008, and the beginning of the Bernanke era and official credit inflation, which is ongoing.
1) The bubble in mortgage and high risk commercial products (notice how official monetary base was in essence flat) began to fade in 2006 as corporate profits began to roll over, soon followed by the S&P 500.
2) The 2008 liquidation of the Greenspan era excesses brought with it all manner of official bailout operations, including QE’s 1, 2 & 3. Notice how each QE was instituted after a flattening of money supply.
3) But ultimately it is corporate profits that conventional market analysts are paid to respect (paying no attention to that man behind the policy curtain) and they have generally been strong.
4) As we noted last week, profits are rolling just a bit. Meanwhile money supply and the stock market continue upward. But there is a thing called ‘QE tapering’ in play and that could eventually flatten out the money supply as happened in 2010 and 2011/12.
5) They are tapering in an effort to gently manage an exit from the latest round of market and economic manipulation AKA official inflationary operations.
It will end badly because it was created through manipulation, not productivity. The current operation makes Greenspan look like child’s play. He had plausible deniability because it was the evil entities on Wall Street that took his policy ball and ran with it, slicing and dicing up all sorts of investment vehicles to sell to an unsuspecting public.
This time, there is no middle man. The Fed is more honest about its inflation as it expands its own balance sheet for all to see. And yes, the balance sheet is still expanding albeit at a tapered pace. Add in Zero Interest Rate Policy (ZIRP-Infinity?) and the Bernanke Fed has been celebrated as heroic because the majority perceive that they successfully did what they had to do to save the financial system.
But what the sycophants always seem to forget is that they had to do it because a different flavor of the same inflationary Fed policy fomented bubbles and brought on the big bust to begin with.
We remain in the age of Inflation onDemand and of boom/bust, which is much different from the pap that the happy idiots pumping today’s bullish environment would like to believe. Right now we are on a boom and that should not be denied. But understanding the framework within which the boom exists is important in managing risk.
What look like stellar technicals right now could continue to an upward blow off because that is how booms usually end. But if we are correct on the boom/bust nature of policy driven markets, the bust is gonna be a doozy. So please keep that on radar as well.
These are not conventional markets.
With that said, the Dow continues to target 17,500.
Tranny is in confirmation.
S&P 500 is at the top of the channel and in a strong bull trend. The channel top marks it as a candidate for a normal corrective decline. Alternatively, a break upward out of the channel – a channel buster – would be a sign of a possible building bull climax.
Nasdaq 100 is very strong on post-corrective momentum.
The banks are relatively under performing but are bullish.
The Small Caps could either lead a market breakdown from the former channel bottom or gain some serious upside momentum. Watch the Small Caps as they are a momentum key and also because the Russell 2000 has a big picture measurement of 1378.
Is the current low relative momentum a negative divergence indicating an oncoming stock market correction (perhaps prior to new highs later in the year?) or is this index refueling to lead a big market mania blow off in a nearer term? Again, watch the Russell.
The SOX has long since proven its case as a momentum leader. Yet the reason I do not write the SOX off as a bubble index is because I do not write its biggest component (Intel) off as a bubble stock.
Monthly SOX has a target of 900.
Monthly INTC has a target over 40. The NFTRH+ chart above was created before the break through resistance, now support. I mention this so you will know that I am not simply charting or trend following. I liked Intel for its technical and fundamental potentials. Now a technical potential (long-term resistance break) has become a reality.
The information I had on Intel was to expect big improvements in their mobile chip initiatives, which have been sorely lagging for this chip giant. Instead what happened was that corporate PC demand increased (driving Intel through our projected breakout point) and the mobile chip market is still out there to be better penetrated, at least if Intel has any kind of fundamental execution coming.
Functionally what this does for me however, is to tell me to be careful about getting bearish on the SOX if I am bullish on Intel, the highest weighted component (of the iShares SOXX fund).
By extension it continues to moderate a bearish long-term stance on the stock market just yet, since the SOX has been our leading indication since January of 2013.
So the discussion on page 15 and 16 is in the realm of the theoretical, where I do not believe that a bullish backdrop is sustainable. But everything since page 16 has been bullish and you do not fight the market for what you may think you know is right with money you don’t want to lose, because you probably will lose it.
SOX leadership vs. SPX remains intact…
Talk about rebuilding momentum, check out the Biotechs…
HYG-TLT (a junk vs. ‘quality’ credit spread) turned up last week and is threatening the breakdown line. This could simply be a breakdown retest (like the 3 red arrows) to suck in a few more bulls prior to a market correction. It could also be a gateway to an upside market blow off.
VIX is comatose as market players seem to perceive no volatility problems ….”
“Americans keep hoping for a robust recovery — one that delivers better-paying jobs and decent returns on retirement savings. Changes in technology and the economy may require that never happens, and government efforts to improve conditions often multiply the misery.
In 1908, Henry Ford had a great idea — the Model T — and a novel understanding of mass production, but needed huge amounts of capital to build factories, establish dealers to sell and service mass-produced cars and maintain a large corps of managers and assembly workers.
His success inspired competitors and whole new industries making everything from agricultural implements to zippers. For three generations, those created enormous demand for capital and jobs for millions in manufacturing and supporting services.
In the closing decades of the 20th century, rapidly advancing digital technologies helped those industries use factories more efficiently and slash the numbers of managers and assembly workers needed.
Most digital companies never had quite the same appetite for capital and workers.
Google was founded in 1998 with $100,000 in seed capital, and $25 million in funding a year later. Within five years, its search engine was available to virtually every computer user around the world, and its brand was more ubiquitous than Coca Cola.
Google’s outstanding stock is worth approximately $370 billion — more than five times Ford’s stock — and it has accomplished this remarkable wealth creation on a relatively small initial investment. Today it has approximately 50,000 high-skilled employees — less than one-fourth of Ford’s workforce, which has been significantly downsized in recent decades.
Older enterprises like Ford and younger ones like Google that form the manufacturing and technology economy of the 21st century need more tech-savvy workers than universities and community colleges provide. However, even if enough liberal arts and business programs could retool to produce all the science, math, technology and engineering graduates needed, the remaining programs would still produce many more non-science, technology, mathematics and engineering graduates than the economy could absorb.
Similarly innovators often don’t need a lot of money to create valuable new enterprises or expand established businesses. Consider that many young people create profitable apps and marketing platforms on their laptops, and major corporations are flush with billions in cash and too few opportunities to deploy it.
Consequently, established companies and individual investors bid up prices for young enterprises, whose owners wish to cash in on their initial success….”
“Federal Reserve Bank of St. Louis PresidentJames Bullard said a rapid drop in joblessness will fuel inflation, bolstering his case for an interest-rate increase early next year.
“I think we are going to overshoot here on inflation,” Bullard said yesterday in a telephone interview from St. Louis. He predicted inflation of 2.4 percent at the end of 2015, “well above” the Fed’s 2 percent target.
“That is a break from where most of the committee seems to be, which is a very slow convergence of inflation to target,” he said in a reference to the policy-making Federal Open Market Committee.
A drop in unemployment to 6.1 percent in June, the lowest level in almost six years, increases pressure on the Fed to raise the main interest rate sooner than most officials have estimated, Bullard said.
The St. Louis Fed chief, who calls himself the “North Pole of inflation hawks,” estimates full employment at about 6 percent. A lower level may stoke wage and price pressures, he said. The FOMC’s longer-run projection of unemployment is between 5 percent and 6 percent.
“When unemployment goes into the five range, that is going to below the natural rate,” or the level at which inflation is neither speeding up or slowing down, Bullard said.
“Inflation has been unusually low in 2013 and the first part of 2014” because of temporary circumstances such as European economic weakness.
“Those special factors are wearing off, and the economy is on the upswing,” Bullard said. “Those factors will send the inflation rate above target in 2015.”
Unemployment could drop below 6 percent in “the next couple of jobs reports,” Bullard said…..”
“A slew of financial assets around the world may have entered bubble territory, says New York Times columnist Neil Irwin.
“Welcome to the Everything Boom — and, quite possibly, the Everything Bubble,” he writes. “Around the world, nearly every asset class is expensive by historical standards.”
Among the examples Irwin cites are:
- Spanish bonds. Despite the fact that the country sports one of the weakest economies in the eurozone, its 10-year government bonds yield 2.68 percent. That’s not much above the 2.58 percent offered by 10-year U.S. Treasurys.
- The office building at One Wall Street in New York City sold for $585 million in May, only three months after one industry report estimated it would go for $466 million.
- In April, the French cable TV company Numericable executed the largest junk bond issue in history, with an interest rate of only 4.9 percent.
“We’re in a world where there are very few unambiguously cheap assets,” Russ Koesterich, chief investment strategist at BlackRock, tells Irwin….”
This is a great vid on the natural world, and why you need to have MAD RESPECT for Gaia.
We must change our thought process and find respect…..
“PORT WASHINGTON, N.Y. (MarketWatch) — When good news is good news, and bad news is good news, it’s time to take some money off the table.
Call it irrational exuberance, part two. Like old man river, the stock market just keeps rolling along. Last week it was Dow 17,000. Will this week see the market go even higher?
Before you jump on the bulls’ bandwagon, let me call to your attention a couple of salient statistics. At today’s level, the Dow industrials DJIA -0.72% are up 5% since the beginning of this year. This is on top of a 35% leap in 2013. And in case you are keeping score, the Dow is now a whopping 155% above its low back in March 2009.
All that said, there are a number of warning signs out there that suggest the party may soon be over.
For one thing the economy has not grown anywhere near as much as stocks over the past 5-1/3 years; neither have corporate profits.
Additionally, price-to-earnings ratios are well above average. Robert Shiller, the noted Yale professor, economist and author, thinks that the market today is about at the valuation it was running at in 2008, just before stocks plunged.
In the past, the stock market has managed to avoid such excesses by dropping in price. A decline of 10% (a.k.a. a correction) used to occur about once every 12 months.
This bull market has managed to avoid a correction for 33 months — far longer than average. And correction or no, the current bull market is the fourth-longest since the Crash of 1929.
If you don’t have angst yet, here is another bit of history to chew on: Stocks usually take a header late in the third quarter, as well as in October. Indeed, some of the market’s biggest declines have occurred during this period.
Here is another tidbit: Bond prices are up…..”
“Over the weekend, I reread remarks that U.S. Federal Reserve chair Janet Yellen made last week at the International Monetary Fund and also read the transcript of her conversation with Christine Lagarde, the International Monetary Fund’s managing director.
The IMF event brought together a virtual who’s who of the international economic and financial community, and in one of her most significant policy speeches to date, Yellen seized the opportunity to address head-on some of the major questions confronting modern central bankers. Many of these center around the burden of trying to restore, almost singlehandedly, economic growth, more dynamic job creation, price stability, and durable market stability.
There are seven major takeaways from Yellen’s IMF speech. They collectively signal that the Fed will maintain a gradual policy approach for now. Markets, conditioned to expect strong and steadfast monetary support from the Fed, welcome that stance. But Yellen’s statements also point to the need for a delicate transition from policy-induced growth to more organic economic growth. If that transition is mishandled, it would trigger renewed financial and economic instability.
First, Yellen recognizes that we could well be in a world of steady-state interest rates that, in both nominal and inflation-adjusted terms, are lower than what historical experience would suggest.
Second, such rates, as Yellen noted, can “heighten the incentives of financial market participants to reach for yield and take on risk.” Indeed, she added, “such risk-taking can go too far, thereby contributing to fragility in the financial system.”
Third, financial stability cannot be divorced from the pursuit of economic well-being, because “a smoothly operating financial system promotes the efficient allocation of saving and investment, facilitating economic growth and employment.”
Fourth, this situation places even greater importance on the effectiveness of macro-prudential policies as “the main line of defense” against financial excess in the marketplace.
Fifth, while progress has been made in strengthening crisis prevention through better macro-prudential measures, more is needed at the policy level. With that in mind, Yellen stated that she “has not taken monetary policy totally off the table as a measure to be used when financial excesses are developing.” Since macro-prudential tools “have their limitations,” monetary policy should be “actively in the mix” even though it is “not a first line of defense.”
Sixth, central banks have to continue to think imaginatively about additional tools they can deploy to bolster the economy and maintain financial stability given the constraints they face in using interest rates as an effective macroeconomic tool…..”
“This week’s podcast sees the return of Mike Maloney, monetary historian and founder of precious metals broker GoldSilver.com.
Based on historical patterns and the alarming state of our current monetary system, Mike believes the fiat US dollar is in its last years as a viable currency. He sees its replacement as inevitable in the near term — as in by or before the end of the decade:
All of this is converging with the crazy experiments the Federal Reserve has done.
I absolutely believe that there are economic consequences to this that are inescapable. The Fed is not just in a box; a trap has been set. And before the end of this decade, if there is still a US Dollar around it will not be this US Dollar. It will be a dollar that is tied to a very different monetary system.
The last three shifts in our monetary system were little baby steps off of the classical gold standard where it was fully backed. We went down to a 40% reserve ratio with the Federal Reserve in the United States during the Gold Exchange Standard. Then the Bretton Woods system didn’t have a reserve ratio specified, but I believe the dollar was about 8% backed by gold by the time Nixon took us off of gold in ’71. Now, the only backing that the US Dollar has is the promise to tax us all in the future: it is US Treasury bonds, or the Fed doing its quantitative easing and buying mortgage-backed securities.
And how corrupt is the notion that you can give some entity the power to have a check book that has a $0 balance and they can go out and buy anything they want with that and it just creates currency? That is corrupt in itself.
Think about how immoral this is. First of all, the Fed whipped up that currency not out of thin air but by indebting the public. They buy a Treasury bond or a mortgage-backed security, and now they own the mortgage on your house or they own a Treasury bond that you are going to work for in the future and pay taxes to pay off. And so they give all of this currency to the banks, and then they pay them interest to not loan it out or otherwise stimulate the economy. So they are giving them the gift of interest.
By the way, any profits that the Fed has at the end of the year are supposed to get turned over to the Treasury. Well, they are paying the banks interest that reduces the amount that they give to the Treasury by exactly that amount. So in other words, the public is paying those banks interest. That’s where all of the interest comes from. We’re not seeing those profits passed on to the Treasury anymore…..”