Headlines Like These are Why Trump Isn’t Worried…

Via The Daily Bell

What does desperation look like? This:

The weird thing about trees is that someday, like all of us, they die.

This tree was on its way out. In fact, the tree was removed in order to protect anyone standing under it from danger. Who usually stands under it? The press. Melania was trying to protect the same press that now attempts to skewer her over landscaping.

(Of course, if the tree broke and killed a member of the press, then they could all have a field day reporting that Trump is responsible for killing a journalist.)

The tree will actually be removed on the advice of the National Arboretum. It is only held in place by an intricate maze of cables. And Melania actually made sure they saved cutting from the tree to replant.

I felt very silly writing the past few paragraphs because the issue is so trivial. This is not important news. The media that originally reported this story (starting with CNN) should be laughed out of town. And in one way or another, they will be.

It’s not so much the reporting of this non-news that is a problem. I suppose it may be of some interest to someone somewhere. Perhaps a side link, or maybe a half page in Arborist Monthly. But the headlines! That is what really does it.

You know, the tree was actually planted by Andrew Jackson. So the media could have said, “Melania Orders Removal of Symbol of Racism,” or “Two-Hundred Year Old Monument to the Trail of Tears to Be Cut Down.”

The substance of the article missed an opportunity too. The White House had to call in tree experts, who made a report which was delivered to Melania, who sat down with the arborists and staff to thoroughly explore every option before making the call to remove the tree.

If that’s not a metaphor for the government, I don’t know what is! A dying tree, being held up by cables to preserve some remnant of a long-gone past. The desperate bid to save a symbol, to hold onto something rotting and dangerous. And then the intricate process, bureaucracy, time, and money that it takes to just cut down the freakin tree!

The media is absolutely desperate to criticize the Trump administration over anything they can get their hands on. Except that this is exactly the type of coverage Trump relishes in. Big nothing-burgers which keep his name in the news, but don’t hurt him in the least. Only anti-Trump zealots will latch on to a story like this. The rest of us, not even just the Trump supporters, will roll our eyes and stop paying attention.

And that is the dangerous part of these types of stories. What are they masking?

Did you hear about Trump’s terrible picks for the Federal Reserve Board?

Or about how Trump’s Justice Department settled the old IRS Tea Party targetting lawsuits for peanuts?

While this story played out, and Trump was “caught” golfing by CNN, here’s some other stuff that happened:

Did the FBI Conspire to Stop Trump?

Ironically the FBI investigation into the Trump Russian collusion charges has done a 360 and now points to the Democrats and FBI agents as the real criminal manipulators. But they are in too deep and have overplayed their hand.

But how bad has this government gotten that this sort of corruption at the FBI is considered boring? The FBI has long been a political tool of suppression.

Police in China Target Bloggers and Profile Communities for DNA Collection

China is a big red flag to the rest of the world on how not to govern. They intimate journalists and dissidents and monitor every aspect of their citizens’ lives. A “social credit” system has even started to score citizens based on things like patriotism and neighborliness.

But Melania approved a tree getting cut down, and that is just too fun an opportunity for the media to ignore! It fits the scorched-earth-Republican narrative too well.

She also ordered all the tree’s progeny uprooted and burned. As for the tree itself, she plans to fashion a throne, from which she will rule for a thousand years.

The War On Gold Intensifies: It Betrays The Elitists" Panic And Coming Defeat - Part 1

Authored by Stewart Dougherty via InvestmentResearchDynamics.com,

Dictatorship (noun):  Definition #3:   absolute power or authority (Websters);
Def. #2:   absolute, imperious or overbearing power or control (Random House);
Def. #3:   Absolute or despotic control or power (American Heritage);
Def. #3:  Absolute or supreme power or authority (Collins English Dictionary);
Def. #1:  A type of government where absolute sovereignty is allotted
to an individual or small clique (Wikipedia).

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained, you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” Sun Tzu, The Art of War

In recent weeks, the War on Gold, which is a subset of the broader War on Human Freedom, has sharply intensified, with massive, multi-billion dollar naked short price raids now being launched on a weekly and even daily basis by the criminal, state-sponsored price manipulators. This escalation proves the supreme importance to the Deep State financial elite of the maintenance of their gold price dictatorship, which is a vital component of their long term, systemic campaign of financial plunder.

The elitists have no problems whatsoever with stratospheric stock and bond prices; 5,000 year low interest rates; $450 million Da Vinci’s; $250 million private homes; $50,000,000 annual salaries for circus masters, whose role in keeping the masses distracted and dumb is vital; $1.9 million Aston Martins; $100,000 Air Jordan sneakers, or any of the other prices that have now gone into outer space.

But there is one thing they will not accept: an honest, free market price for gold. Because while all debauchery under the sun is permitted and encouraged in the Castle of Fraud and Corruption they have constructed and in which they revel, one thing is strictly prohibited: the utterance of truth. Being monetary truth when free to speak, gold is their deadliest enemy. Therefore, it is silenced, in the same way truth tellers are silenced in all dictatorships.

The vast majority of people, aside from a small, enlightened minority who refuse to poison their minds by ingesting mainstream media (MSM) fake news, propaganda and brainwashing, do not yet realize what they are up against in the wars that have been declared against them, and are therefore at serious risk. For those who wish to survive the wars, there has never been a greater need to know the enemy and know yourself.

As the gold price war becomes manic, so has the MSM’s anti-gold propaganda campaign, with their attempts to smear gold now a clinical obsession.

In a prime example of their over-the-top anti-gold propaganda, on 10 November 2017, the Financial Times, a long-time Deep State bullhorn and puppet, ran an article entitled, “Gold is the new cocaine for money launderers.” In this screed, the author beat the dead horse of the NTR Metals gold import scheme. This operation, whose total dollar yield was an infinitesimal fraction of the massive sums stolen by the financial Deep Statists in their forty year gold price manipulation crime, was already the subject of an over-dramatized Bloomberg Businessweek propaganda piece published on 9 March 2017, entitled “How to Become an International Gold Smuggler.” Apparently, the MSM is running so short of new material with which to try to demonize gold, that it is now forced to recycle old, stale non-stories to keep the smear machine going.

In the article, the MSM propagandist states such things as: 2017 has seen, according to his one time Goldman Sachs source, a “dramatic crash in [physical gold coin] demand,” that interest in gold coins is linked to “political conservatism, or anarcho-libertarianism” and “end of the world right wing sentiments,” that gold has been implicated in a “conspiracy to commit money laundering,” that gold is “financed by people in the narcotics trade,” that it comes from “illegal mines and drug dealers in Peru, Bolivia and Ecuador,” that “the federal authorities assume the NTR Metals [case] represented only a fraction of illegally sourced and financed gold,” that therefore the US attorney is broadly investigating the gold industry, that gold is “produced by exploited workers,” that “crude [gold] extraction techniques create serious and lasting environmental damage,” that gold plays an important part in “tax evasion,” that it is related to American gun sales, which the author abhors; that “drug dealers [use] gold imports as a way of laundering their proceeds,” and that “they came to realize that illegal gold [is] an intrinsically better business” than drug dealing; to name but a few of the aspersions cast against gold in the short article. As we can see, when it comes to their smear jobs, the MSM flings at the wall all the mud it can fit in its hands, hoping that some of it might stick.

As is always the case with the MSM’s consistently negative, biased and dishonest reporting on gold, no mention was made in the article of the Deep State financial elite’s criminal gold price manipulation fraud that has been perpetrated non-stop for nearly forty years and that has resulted in a massive, $1,000,000,000,000.00+ theft from its victims. This is because the MSM is the Deep State’s in-house public relations agency, whose job is to whitewash the elitists’ crimes, no matter how egregious they are.

But buried in the article was an important clue that the Deep Statists are concerned they are losing the War on Gold, which we will further explore later in the article. It turns out that the Deep Statists’ paranoia about and rage toward gold might be entirely justified, because more than ever in the past 37 years, gold is poised to tell the world what it knows, and this will absolutely annihilate them.

Many people are completely baffled as to why, with so many serious fiscal, financial, monetary, economic, social, and geopolitical problems in the world, the Deep Statists remain so mono-maniacally fixated on demagogically denigrating gold and controlling its price.

The answer is that the Deep Statists cannot, under any circumstances, allow the price of gold to replicate the surging price of Bitcoin and other cryptocurrencies. If the gold price genie were to get out of the bottle, becoming international news in the process no matter how much the MSM might try to suppress it, it would spur a gold buying stampede that would cause a flood of money to pour out of bank accounts and into physical precious metals. $325+ billion worldwide now resides in cryptocurrencies, a highly specialized and complex product class. In the right set of circumstances, many multiples of that amount could incrementally flow into gold, a simple product that has been innately understood for millennia by human beings all over the globe.

Already fragile, the banking system cannot withstand a large scale withdrawal of funds. Being finite and in short supply, incremental demand for physical gold would result in immediate and sustained price gains, creating a positive feedback loop in the market place. As people watched the price go up, more and more of them would want to jump on the band wagon and participate in the gains, which is exactly what has happened in the cryptocurrency market.

If interest in gold goes mainstream, then basic supply fundamentals indicate the price would have to rise by thousands of dollars per ounce to even approach what might be considered overbought and/or bubble territory. Which is exactly what has happened to Bitcoin, whose price has exploded to over $10,500 as of today, 29 November 2017.

In the United States, the latest Federal Reserve Board tally of Household and Non-profit Organization (much of which is private) wealth totals $96.2 trillion. If a miniature, 1% sliver of this amount, $962 billion, attempted to find its way into the physical gold market, it would represent incremental demand, at $1,300 per ounce, of 740 million ounces. Not even a small fraction of this incremental demand would be available in the physical gold market at this time, given that it already operates at a supply / demand equilibrium. The gold price would have to surge in order to flush out supplies from current gold owners, whose hands have proven to be, and are likely to remain strong. We believe it would take years for incremental demand of this magnitude to be filled, even at much higher prices. Please keep in mind that this example relates to the United States, alone; there are additional, vast stores of private wealth all over the world, all of which would almost certainly be activated in unison by a run to gold.

With the right spark, the same viral, Social Media-enhanced demand that has come to cryptocurrencies could come to gold. The Deep Statists know it, and the ghostly whites of their eyes now glow eerily and blinkingly across the dark battlefield of Liberty, in the senseless war they provoked and are going to lose.

While there are now hundreds of cryptocurrencies, physical gold is physical gold, and cannot be replicated or conjured out of nothing. There will be no endless stream of new ICOs for genuine, physical gold, because gold is what it is and always will be. This means that funds flowing into gold will be forced into the one and only physical gold market that already exhibits tight, inflexible supply. This further means that the upward price pressure on gold could become volcanic if a run starts.

A steadily increasing number of people will want to get in on the “new Bitcoin,” a bizarre paradox given that gold is as old as time, and will soon realize that gold possesses virtues Bitcoin does not, given that it is real, not digital and abstract; that owners can personally possess and store it in physical form; that it will survive any kind of electric grid or Internet disruption that might occur; that it cannot ever be hacked; that it is the epitome of private, quiet wealth; that it is actually quite beautiful to behold; and that it was not and cannot be made by man, only by God, who does not appear to have any interest in making any more of it.

To date, in order to prevent a surge in physical gold demand from happening, the Deep Statists have created various forms of transparently fake gold, such as electronic gold futures, options and non-auditable ETFs and EFPs. These fake gold products have siphoned funds away from real, physical gold, which cannot be created out of the nothing the way the imposter electronic gold products can be. Increasingly, people are learning that there are no substitutes for physical gold.

More, we find it interesting that while there have been certain highly publicized condemnations of cryptocurrencies, such as J. P. Morgan Chase CEO Jamie Dimon’s comment that Bitcoin is a “fraud,” the financial authorities in the west have done little to nothing to shut down the crypto market. They seem to be just fine with $10,500 Bitcoin, but will stop at nothing to prevent $1,300 gold. Today’s (29 November) market action is a case in point.

The reason is that monetary elitists fully approve of cryptocurrencies, because this the new form of fiat currency the western banks intend to issue. Mass adoption of cryptocurrencies is the necessary forerunner to the elimination of cash, a well-known and important agenda for the financial elite. By issuing their own cryptocurrencies, and/or co-opting Bitcoin and other private cryptos via regulation and edict, central bankers can continue their tradition of controlling the money supply. A population that has learned the value of owning and become adept at trading physical gold would prevent central banks from continuing to use fiat currencies as economic, political and societal control mechanisms. It should be no surprise that they loathe gold so much; in its honesty and integrity, it is the exact antithesis of everything they stand for, are, and do.

Some people argue, “Even if people run to gold, their funds will still remain within the banking system, so the bankers aren’t worried about this happening.” In our opinion, this is wrong.

Fiat currency used to buy precious metals will move from personal and business bank accounts, to gold dealer accounts, to gold wholesaler accounts; and then to a variety of sovereign mint, gold precious metals refiner, gold miner and other gold supplier accounts, a large percentage of which are international.

A bank that hosts a deposit account used to purchase physical gold has no assurance whatsoever that the buyer’s funds will transfer into another personal or business account managed by it. In all likelihood, the funds will disappear from the host bank and not return. Ultimately, the likelihood is also high that a portion of the funds, potentially significant, will disappear from the country’s banking system altogether, given the global nature of gold mining, refining, minting and fabrication. Therefore, bankers regard a run to gold as a severe, direct threat to them, which is why they do everything in their power to discredit it and crush its price. They are attempting to prevent a run on their banks.

Over the past several years, the Deep Statists have gone to extraordinary lengths to internationally legalize bank “bail-ins.” They did not do this casually, by accident, or for fun; they did it because they know that when the system fails, a time-bomb guaranteed to detonate given the system’s very design, they will be able to make an unprecedented fortune by expropriating customers’ deposits via the elaborate bail-in mechanism they have engineered. They will use the phony pretext of “rescuing” and “resetting” the financial system for the public good to justify this action. If, before they spring the bail-in trap, depositors have already withdrawn their funds to purchase physical precious metals held outside the banking system, those funds will no longer be available for bail-in looting. The bankers cannot steal bank balances that have disappeared.

The cryptocurrency phenomenon, now an international sensation, has stunned them into the awareness that people all over the world have a deep, abiding, instinctive desire to own honest money of limited supply that will serve as a reliable store of value, and that cannot be hyper-inflated into oblivion for the private gain of plunderers and profiteers, the chief problem with corrupt, endlessly counterfeited fiat currencies controlled by self-interested, opportunistic, predatory central bankers and their controllers, the Deep State financial elite.

*  *  *

Due to the length of this article, we have divided it into two parts. This ends Part 1. In Part 2, which is already written and will be released in a few days, we will share with you important clues indicating the Deep State’s concerns about losing the War on Gold, despite the unprecedented intensification of their attacks. We will also discuss how the United States Federal Reserve is outright warning that new threats to financial and economic stability are on the horizon.

What Central Banks Have Done Is What They"re Actually Good At

Authored by Jeffrey Snider via Alhambra Investment Partners,

As a natural progression from the analysis of one historical bond “bubble” to the latest, it’s statements like the one below that ironically help it continue. One primary manifestation of low Treasury rates is the deepening mistrust constantly fomented in markets by the media equivalent of the boy who cries recovery.

That narrative “has ruffled a few feathers,” BMO Capital Markets strategists Ian Lyngen and Aaron Kohli wrote in a note last week.

 

“Growth is moving at a solid clip and the labor market is ostensibly at full employment — so why aren’t we in an environment with a steeper curve and higher yields?”

If solid growth plus full employment equals a steeper yield curve and higher long rates, and they do, then a flatter curve at lower nominal rates must then equal what?

The answer is far easier than the media makes it out to be. In what is pure Aristotelian sophistry, they try very hard to ignore their own logic where the answer to this “conundrum” is clearly choppy, lackluster growth that has left the (global) economy considerable hangover slack.

That’s what the yield curve continues to say, the only thing it has said for many years now.

It’s amazing that after more than a decade now of these markets (UST’s, eurodollar futures, swaps, FX, etc.) declaring that “something” is wrong how easily it is for these people to simply set it all aside because their highly optimistic view on the economy, derived exclusively from central bank forecasts and actions, just has to be right. They are actually saying that markets need to conform to their opinions without evidence, and without recognizing the market prices are evidence, as if theirs is the only correct possibility.

Time plays a significant component of that backwards view because it is extremely hard to believe the global economy could ever be stuck in such an awful place for so long.

It just seems so impossible, completely out of our own experience. Even if by random luck you would think enough would have gone right in just monetary policy by now that what is claimed for the economy in the mainstream might actually have come true. But this set of circumstances is not absent from all experience, just the modern one.

The point of failure is right where it shouldn’t be. That’s what’s making it so difficult. Even the bond market (as eurodollar futures and the rest) is declaring this to be the case. The issue is central banks and central bankers who have done nothing right, failed to achieve any positive offsets, and left the global economy to stand naked against the intermittent forces (three so far) of negative monetary decay.

So the real problem in the mainstream is over who to believe; the central bank technocrats who most people have been thoroughly schooled to trust without question, or these markets where actual discipline is the order of operation?

As hard as it may be to believe, I once gave central bankers the benefit of the doubt, too (though perhaps not as stridently as some still today). I had come to expect in early 2007 that the Fed, though clearly behind the curve, would catch up and fix the problem before it got out hand. Greenspan’s reputation had lost a lot of luster in my eyes as a result of lingering unanswered questions about the dot-com era and “jobless recovery” after that (mild) recession, but surely he wasn’t grossly incompetent. He couldn’t have been, could he?

It was really difficult to accept that it was all smoke and mirrors, one of those viral kind of things where you tend to believe something is true simply (solely) because everyone else does. It becomes such hardened “fact” that to even think about challenging it makes people wonder what’s wrong with you. The wisdom of the crowd is perhaps just as often that sort of mass delusion wrapped in an impenetrable bubble.

Then August 9 happened, and similar days happened afterward in repeating fashion. Then 2008. That should have been more than enough to dispel any notions of competence on any subject related and not; monetary as well as economic. The panic itself and the enormous global economic consequences should have ended Economics.

They really don’t know what they are doing. They never have. The central bank holds only one specialty to which it is any good, a capability that Milton Friedman pointed out in one of the last interviews he ever gave more than a decade ago just prior to the onset of all this trouble.

The difficulty of having people understand monetary theory is very simple - the central banks are good at press relations. The central banks hire people and the central banks employ a large fraction of all economists so there is a bias to tell the case - the story - in a way that is favorable to the central banks.

But the Great Depression was such a major event and such a disaster that there was no way in which you could talk it away, although they tried to do so. If you read the annual reports of the Federal Reserve Board or its testimony before Congress, you will find that as late as 1933, at the very depths of the depression, it’s talking about how much worse things would have been if the Fed hadn’t behaved so well. [emphasis added]

Central bankers simply did it again.

What was Ben Bernanke’s message at the end of 2008? He was no longer talking about prevention, as had been standard up until Lehman, and accounting for what he had done prior.

Bernanke simply began speaking and writing and televising exclusively about “jobs saved”, what the Fed was going to do in the future to cushion the blow that was then some devious, exogenous factor no reasonable person could ever think to blame monetary officials about. No longer would there be much about the past, what they had done prior. All the world’s central banks were suddenly victims, too.

And like the thirties, it was all BS.

But “we” let them off the hook to write their books, revise the official history of the crisis so that somehow they come off the heroes when they were seriously, perhaps criminally, as well as obviously (when you look), derelict. The degree of gross incompetence was absolutely staggering – and it never ceased. You require no special training to easily understand that if as a central banker you “need” a second QE (let alone a third or fourth) the whole thing just doesn’t work (how can it be “quantitative” if you don’t know the right quantity?)

 

Central banks are the epitome of PR and media manipulation. And that’s all they are, certainly no money in monetary policy. They’ve done such a masterful job of it that even today no matter how much market data disagrees, people just refuse to believe it.

Why Doesn't Janet Yellen Resign?

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

You would think, certainly if you were as naive and innocent as I am, that when you get offered the job of Chair of the Federal Reserve, you must be sure, before accepting, that you have the credentials and the knowledge required. If you don’t, it looks as if you don’t take the job seriously. Janet Yellen, who’s been Chair since January 2014, doesn’t seem to agree.

In a speech Tuesday for the National Association for Business Economics Yellen ‘honestly’ admitted that she doesn’t understand inflation, control of which is the Fed’s no.1 task (it’s debatable whether that’s a good idea). She doesn’t understand a bunch of other issues either. Those are her own words, not mine. Here are these own words:

“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation..”

Clear enough, you would think. But she didn’t offer her resignation. And for an important post like Fed chair, that is a major problem. As she undoubtedly does. So why is she keeping her job? Doesn’t she realize that when you don’t understand the issues you deal with, you’re prone to make disastrous mistakes?

Yellen and her colleagues work with models, and the models are wrong. The Fed’s predictions for things like inflation are ridiculously off, all the time. That may be news to her, but it’s old hash for many people in her field. So that she’s surrounded solely by people who don’t understand these things either is not an excuse.

So what does she expect now? That she will start to understand them all of a sudden, after years and years of not being able to? That reality will change to comply with her models? We can discount the option that she will suddenly begin using entirely different models, they’re all she has. But what then?

Under her predecessor Ben Bernanke, who never conceded he had no idea either but still didn’t, the Fed lowered interest rates to near zero Kelvin and bought trillions of dollars in bonds and securities. Now Yellen for some reason thinks it’s time to get rid of the stuff.

But on what basis does she make such a decision, if she self-admittedly doesn’t even understand the fundamental forces in play? How is that different from handing a box of matches to a 3-year old? Isn’t she really simply an academic dropped in a casino? From CNBC:

Yellen said a regular pace of rate hikes ahead is likely still warranted, though Fed officials are looking closely at the assumptions underlying those projections. While conceding that the Fed may need to slow the removal of accommodation, she also said the central bank “should also be wary of moving too gradually.”

There comes a point when naive innocent me starts asking: what does that even mean? Rate hikes are warranted but we don’t know why? Accommodative policies have been going too fast but they shouldn’t be too slow? Based on what? It can only be based on models that have proven faulty, can’t it, because they have no others.

*  *  *

Here are a few pointers for the occupants of the Marriner S. Eccles Federal Reserve Board Building.

Inflation is money velocity multiplied by money and credit supply. MV = PY. M is money supply, V is velocity, P is price level and real GDP is Y.

Velocity of money means consumer spending. 70% of US GDP is consumer spending. But American consumers are neck deep in debt and have very little money left to spend. Much of what they spend, they must borrow.78% of Americans live paycheck to paycheck. So forget about money velocity.

Moreover, as for the Fed’s second mandate after inflation, full employment, they don’t get that one either.

They seem to act on the presumption that any one job is just like the other. And then bleat: “My colleagues and I may have misjudged the strength of the labor market”.

But America has turned into a nation where the gig economy (the natural successor to first the knowledge economy, then the service economy), waiters, greeters and people working 3 jobs just to make ends meet have become the norm. When in the present circumstances you claim to have almost ‘achieved’ full employment, as Yellen and the Fed do, you must really be blind as a bat.

The other side of the equation is money supply. Interestingly, the Fed has issued tons of it, but handed it all to its owner banks. If they had spent it inside the economy itself, we could have been looking at a whole other picture. If those trillions would have gone to investment, manufacturing etc., instead of propping up banks and companies buying their own shares, Yellen might have actually seen some inflation.

If Americans have no money to spend, there can not be inflation. Simple. But the same stupid faulty predictions just keep coming:

So why is anybody still paying attention to Janet Yellen? Well, because she has her finger on the biggest financial trigger on the planet. No matter how shaky and uneducated that finger may be. Or do we pay attention exactly because we know what’s behind that shaky finger? Do we all put everything on red just because grandma does it too?

The craziest thing of all is that in reactions in the media to Yellen’s speech, she’s praised for admitting she has no clue what she’s doing. That takes the cake. And eats it too. Praised for admitting you’re terribly unfit for your job. That’s just great. That’s Bizarro world.

It’s well past best before time to get rid of Janet Yellen, and all the intellectual but idiots who work at the Fed. What is it, 1,000 PhDs, or was that 10,000? But the only thing that makes any real sense of course, the only thing that can save the nation, is to get rid of the Fed and its braindead mandates, interests and occupants altogether.

Hedgeye got this one painfully right:

And yeah, I know Yellen could be fired too if she doesn’t resign, but with Goldman Sachs all over the White House, what are the odds? And who would come in when she goes? She’s ideal, who’s going to get angry at a barely 5′ grandmother even is she clearly out of her depth and league?

New York Fed, Atlanta Fed, & Goldman Slash Q3 GDP Forecasts

As "hard" economic data in America crashes to its weakest since Feb 2009, so The New York Fed has slashed its economic growth forecasts for Q3 and Q4 dramatically.

The drivers of the collapse are hurricane-impacted data from Industrial production and Retail Sales this morning...

For those hoping for a "broken window fallacy" rebound in Q4, forget it!

source: NYFed

And now The Atlanta Fed has joined the downgrade party...

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 2.2 percent on September 15, down from 3.0 percent on September 8. The forecasts of real consumer spending growth and real private fixed investment growth fell from 2.7 percent and 2.6 percent, respectively, to 2.0 percent and 1.4 percent, respectively, after this morning"s retail sales release from the U.S. Census Bureau and this morning"s report on industrial production and capacity utilization from the Federal Reserve Board of Governors.

From 4% a month ago to just 2.2% now!!

source: AtlantaFed

Putting the recent data in context, here is the "Hard" economic data surprise index.

And then, the cherry on top came from Goldman Sachs which just slashed its hurricane-impacted Q3 GDP forecast from 2.0% (it was 2.8% just one week ago) to 1.6%. To wit:

Industrial production fell sharply in August, but the report explicitly indicated that Hurricane Harvey likely contributed the bulk of the decline. University of Michigan consumer sentiment declined a bit less than expected in the preliminary September report, and the survey’s measure of longer-run inflation expectations moved back up to 2.6%. Taken together, today’s real activity data represents strong evidence that hurricanes have significantly reduced the pace of US growth in the third quarter. Accordingly, we revised down our Q3 GDP tracking estimate by four tenths to +1.6% (qoq ar), on top of the -0.8pp revision we made last week. 

We believe today’s weaker-than-expected retail sales and industrial production data increase the likelihood of a meaningful drag on August economic activity from Hurricane Harvey. And given the possibility of sustained weakness in September due to Hurricane Irma, we now expect an even larger drag on growth in the third quarter. We are reducing our tracking estimate for Q3 GDP by four tenths to +1.6% (qoq ar), on top of the -0.8pp revision we made last week in anticipation of Hurricane effects. We expect some of this weakness to reverse in the fourth quarter as economic activity rebounds in storm-affected regions.

So - NY Fed Staff Nowcast Q3 2017: 1.34% (Prev. 2.1%); Q4 2017 at 1.83% (Prev 2.6%)

Which means that, if NY Fed is correct, and one adds the actual GDPs of 1.2% in Q1 and 3.0% in Q2, full year 2017 GDP Growth wil be just 1.8%! 

Just blame it on the hurricanes.

Is The Yellen Fed Planning To Sabotage Trump's Presidency?

Authored by Stefan Gleason via Money Metals Exchange,

The Federal Reserve can make or break a president.

Monetary policy influences all financial markets as well as the cycles in the economy. No president wants to have to run for re-election when the stock market and economy are turning down.

Recall that President George H.W. Bush was sitting on sky-high job approval numbers in 1991 and was expected to coast to victory in his 1992 re-election bid. But then the economy swooned toward recession, giving Bill Clinton the opening he needed.

Bush later blamed Federal Reserve chairman Alan Greenspan for his defeat. Greenspan had held interest rates too high for too long, Bush complained.

On the campaign trail in 2016, Donald Trump complained that Fed chair Janet Yellen was trying to help Hillary Clinton by keeping rates near zero and pumping up the stock market with liquidity.

“They"re keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job... It"s a very false economy,” Trump told reporters in September 2016.

Later that month in the second presidential debate, he declared, “We are in a big, fat, ugly bubble. . . The only thing that looks good is the stock market. But if you raise interest rates even a little bit, that"s going to come crashing down.”

Reappointing Janet Yellen Could Be Politically Dangerous to Trump

Now that he’s president, Trump may have become the stock market bubble’s most high-profile cheerleader. He certainly doesn’t want it to burst on his watch.

The president has warmed up to Yellen’s Dow-friendly easy money policies. He even suggested he might reappoint her to the Federal Reserve in early 2018.

That would be a politically dangerous move. The Fed could help determine which party has the advantage in the 2018 mid-terms and the 2020 presidential election beyond that.

Of course, Fed officials insist they are “data driven” and don’t make policy decisions based on politics. Whether they intend to be or not, Fed policymakers are inevitably involved in politics. The members of the Federal Reserve Board are political appointees.

Yellen is a liberal Democrat, appointed by President Obama. She understands what’s at stake in the upcoming elections. She understands that Democrats are in a state of political desperation right now. They hold only 15 governorships, are a minority in Congress, and stand to be steadily replaced in the courts. But they STILL control the Federal Reserve Board.

President Trump now has the opportunity to re-shape the Fed. Three of the seven positions on the Federal Reserve Board remain vacant. Trump can fill them. More importantly, he can replace Yellen as Fed chair next year.

Fed Moves Could Crash the Stock Market, Hurting Republicans in 2018

It’s understandable that Trump is playing nice with Yellen while she’s helping keep things seemingly peachy keen in the markets. But the consequences of the Fed’s balance sheet “normalization” program may start to be fully felt next year. He shouldn’t underestimate the risks of the bubble he identified in 2016 bursting in time for the elections in 2018.

This year’s mid-terms will be of particular concern to Fed officials. Republicans have a shot at expanding their majority in the Senate and finally being able to pass conservative legislation – including potentially an audit and reforms of the Federal Reserve system.

In recent years, GOP reformers in Congress have pushed bills that would force the Fed to adhere to a rules-based formula for setting its target interest rate. That would help remove political conflicts of interest from policy decisions and make them less impactful on markets.

Right now, any major monetary reform efforts would be met with insurmountable resistance by the keepers of the center-left status quo in the U.S. Senate. Yes, despite Republicans having a nominal majority in the Senate, conservatives are in the minority. That became abundantly clear when a pair of liberal Republicans joined anti-Trump establishmentarian John McCain in voting to save Obamacare from being repealed.

Trump’s Priorities to Be Stymied Unless GOP Gains Seats

It’s likely that none of Trump’s legislative priorities – from healthcare, to immigration, to taxes – will ever make it to his desk to become law. Unless conservative/libertarian-leaning Republicans hold onto the House and gain some Senate seats in 2018.

Mid-terms typically result in net losses for the party that controls the White House. Democrats might be feeling good about their odds of winning back full control of the Senate... except for the fact they face a big structural disadvantage this time around.

Democrats must defend 25 Senate seats in 2018, while Republicans only have to put 9 on the line. GOP strategists see an opportunity to expand their majority by knocking off vulnerable Democrat incumbents in Indiana, Missouri, Montana, North Dakota, and West Virginia – states that swung heavily for Trump in 2016.

The question is: Will the economic backdrop be favorable for Republicans to campaign on the Trump agenda? That remains to be seen.

Given the stakes, Donald Trump’s hiring decisions at the Fed could make or break his presidency.

It Takes Most Students Twice As Long As They Hoped To Pay Off Their Student Loans

About 70% of college students – equal to about 44 million Americans - owe a collective $1.4 trillion in student debt. And while the standard repayment plan for federal loans suggests that they should take no more than 10 years to pay back, in reality, it regularly takes twice that long.

“Research from Citizens Financial Group suggests that 60 percent of student debt borrowers expect to pay off their loans in their 40s. Data collected at the state level supports these findings. A study from the OneWisconsin Institute finds that it takes graduates of Wisconsin universities 19.7 years to pay off a bachelor"s degree and 23 years to pay off a graduate degree.”

Meanwhile, the Fed reports that there are 6.8 million student loan borrowers between the ages of 40 and 49 and that together, these graduates hold a collective $229.6 billion in debt. That means that Americans in their 40s with student loan debt each have an average balance of $33,765, according to CNBC.

Many predict that the long-lasting effects of student debt threaten US housing prices as fewer millennials will be able to afford a home, while also delaying retirement.

“The Federal Reserve Board of Washington, D.C. found that an increase in student debt has led to a decrease in home ownership, and a study from NerdWallet predicts that students who graduated from college in 2015 will have to delay retirement until the age of 75, in part because of the increasing burden of student debt.”

CNBC points out that students should plan out how long it will take for them to pay off their loans, but this is easier said than done: Today"s graduates face an uncertain job market, which is forcing more young Americans – members of the so-called millennial generation – to live with their parents for want of work.

Perhaps, more students should consider trade schools, which are cheaper and can often lead to steady career-track work. And as we reported last week, many manufacturing companies are recruiting heavily for well-paying management jobs that don’t require a college degree.

When "Whatever It Takes" Ends

Via Global Macro Monitor,

On Tuesday,  June 27th,  Super Mario said this,

“Deflationary forces have been replaced by reflationary ones.”  – Mario Draghi

And here is how global 10-year bond yields reacted,

The German 10-year Bund yield increased 77 percent — OK, from a low base —  and bonds across the world from Canada to Australia to the United States were tattooed.

Change In Fundamentals?

Absolutely not!

Bond yields haven’t been trading on economic fundamentals for several years due to central bank financial represssion via quantitative easing (QE), ZIRP and NIRP.   We have been pounding the table on this point,

Lot’s of hand wringing these days about the flattening yield curve.  We still maintain our position that the signal from the bond market is significantly distorted due to the global central bank intervention (QE) into the bond markets.   See here and here. 

Most of what is happening with the U.S. yield curve is technical. – Global Macro Monitor,  June 22, 2017

Beach Ball Effect

The major central banks have repressed interest rates throughout the world by engineering a structural shortage of high grade sovereign bonds with their quantitative easing (QE) programs.   For example,  as we posted last week, the combined market cap of just two stocks in the U.S. — Apple and Amazon — exceeds the entire stock of U.S. Treasury notes and bonds maturing in 2027-2047 when holdings of the Federal Reserve are excluded.

This is tantamount to holding a beach ball underwater.  You know what happens when when the ball is released.  Such as when a prominent central banker unexpectedly speaks out that the days of holding that ball underwater may be coming to an end.  We just had a little taste of that this week.

Conclusion

The European Central Bank tried to walk back or dilute Draghi’s comments, but bond markets are not having it.   The train has left the station and the path toward monetary normalization is, at least in rheotric, been entered into the GPS.    The next few months shall be interesting.

Though we think the “correct” or equiblrium price for interest rates on bonds is serveral hundred basis points higher — 2-3 percent real yield plus inflation —  we don’t think they get there “by way the crow flies” or in a straight line.

Several months ago,  we cited a 2012 Federal Reserve paper estimating that yields on the 5-year note should be several hundred basis points higher if not for the recycling of reserves into U.S. Treasuries by the PBOC.   The paper didn’t even take into account the impact of QE on bond and note yields,

A paper published by the Federal Reserve Board (FRB) in 2012 estimated the impact on interest rates of the capital flow recycling into the U.S. bond market,

We find that a $100 billion increase in foreign official inflows into U.S. Treasury notes and bonds lowers the 5-year yield by roughly 40 to 60 basis points in the short run. However, our VAR analysis shows that in the long-run, when we allow foreign private investors to react to the effects induced by a shock to foreign official holdings, the estimated effect is roughly -20 basis points per $100 billion. Putting these results into context, between 1995 and 2010 China acquired roughly $1.1 trillion in U.S. Treasury notes and bonds. A literal interpretation of our long-run estimates suggests that if China had not accumulated any foreign exchange reserves during this period, and therefore not acquired these $1.1 trillion in Treasuries, all else equal, the 5-year Treasury yield would have been roughly 2 percentage points higher by 2010. This effect is large enough to have implications for the effectiveness of monetary policy. – FRB

Extrapolating the above analysis to the current stock of foreign official Treasury holdings of around $4 trillion leads to nonsensical results, such as the 5-year yield should be 800 basis points higher than it is today.   Obviously, the analysis should truncate the dependent variable – 5-year note yield — and ceteris paribus (other things being equal) does not hold in the real world.  –   GMM, March 18, 2017

Deflation is an urban myth, at least it has been in the U.S., as central banks have revealed their hand to do “whatever it takes” to fight it.  Let us not conflate relative price moves with generalized deflation.

The end game will thus be an episode of ugly monetary/debt induced inflation,  in our opinion.   Not yet, however.   Timing,  my friends.

Maybe it’s time to start looking at debt fundamentals again.

One Trader Finds A 'Better' Way To Short The Bond Market

Authored by Kevin Muir via The Macro Tourist,

This morning I have decided to write about US swap spreads. I know, you are already reaching for the delete key, but wait…

I tried to remember a time when swap spreads were exciting. I dug back into my memory, and tried to recall something that might spice up this snoozer of a topic.

And then it hit me. Swap spreads were one of the positions that bankrupted the fabled 1990’s hedge fund darling, Long Term Capital Management. So I started digging. And I will get to the swap spread portion of the story in a bit, but not until I share with you some other tidbits I stumbled across.

Did you know LTCM marketed themselves as the “Financial Technology Company?”

They actively bragged about their quantitative abilities.

What distinguishes LTCM is our remarkable talent. The quality, background and recognition of our employees is top notch. Our various strategy teams are comprised of a unique combination of specialists in trading, economics, mathematics, and computer science. They include individuals who were the major contributors to the world of finance in the last 25 years and directly involved in the development and application of many of the strategies and products traded in the market today.

The academic and professional backgrounds of LTCM’s Principals and other strategists include faculty positions at major universities, two Nobel Laureates, and service in government, including a former Vice Chairman of the Federal Reserve Board. This distinguished group, many of whom have advanced degrees, have worked together for many years, and have considerable experience in the design and implementation of large-scale trading and financial technology.

Man oh man, that sure sounds familiar to some of today’s quantitative trading darlings. And have a look at the returns of LTCM over the life of their fund.

Look at that steady rise from 1994 to 1998. Remind you of anybody?

I know today’s quantitative gurus will tell you their strategies look nothing like LTCM. And I am sure they are correct. There is no way they will make the same mistakes. Yet I wonder if they will make a whole new set of errors.

Don’t forget, once upon a time everyone was just as confident that LTCM was a new breed of hedge fund that could also do no wrong.

It makes me laugh at how much the original quantitative hedge fund marketing resembles the same narratives we see in today’s market. It’s been a while, but I am going to re-read Roger Lowenstein’s account of the LTCM debacle, When Genius Failed, this summer. And for those that want a good chuckle, I suggest you take a look at Brian Langis’ immortalization of LTCM’s marketing materials. Thanks to Brian we can see the cringe worthy pictures of another age (WTF were they thinking with page 6?). And while you’re at it, give Brian’s other posts a read - it’s an eclectic mix of pieces, but worth following.

Now back to the actual reason for this post - swap spreads. For those who complain that sometimes I get too technical, thanks for reading up to this point. But for those who are interested in maybe finding some more products to trade, soldier on.

In the mid 1990s, one of LTCM’s largest positions was short US swap spreads. Back then swaps traded at higher rates than US treasuries. LTCM viewed the extra basis points that the market demanded due to the perceived credit risk of trading against a bank versus the US government, as unnecessarily high. So LTCM shorted US government bonds and went long swaps. The US year swap spread (the difference between 30 year government rates and equivalent swaps) was trading at 43 basis points. For a while, their trade worked. They earned the extra 43 bps, and in the meantime, spreads began to narrow (like they had predicted). Their short US swap spread position helped contribute to their Madoff like returns. But then the financial world became more unstable.

Next thing they knew, swap spreads were widening. And before the whole debacle was finished, spreads had blown out to previously unheard of wides. It was one of their biggest losses, and their theories were relished to the dustbin.

In the ensuing years, swap spreads narrowed. It took a while, but as Federal Reserve eased in the aftermath of the DotCom bust and the 9/11 tragedy, spreads returned to the levels LTCM had originally shorted.

But as the economy returned to normal, spreads bounced from those low levels, and eventually started climbing. Then as the real estate credit disaster became evident, spreads blew out to new highs. For a brief moment, it looked like we were going to experience another LTCM moment with spreads exploding higher again.

Yet instead of blowing out to new highs in the midst of the great financial crisis, swap spreads did the exact opposite! They collapsed and in the process, did what everyone thought impossible - they went negative.

It made no sense. Why would an investor enter into an agreement with a bank (that might go bankrupt - especially in 2008) for less than the rate on US government treasuries?

Yet the impossible happened.

I have written a few times about this paradox - How many other could never happens are out there? and Only for the bravest and stupidest. No need for me to rehash my theories.

I started getting long swap spreads in October of 2016. Proving once again that you are better off born lucky than smart, I was fortunate enough to bottom tick the 30 year swap spread (don’t worry, I blew all the profits on my disastrous curve steepening call).

I stuck with the position, and in April of 2017, I wrote about some reasons for the widening - The Fed has shifted (and the market has missed it).

And recently, the market is starting to wake up to these arguments. First, banks are feeling more confident under the Trump regime that they will be able to extend balance sheet without being scolded by regulators. Secondly, the idea that the Fed’s balance sheet reduction will source volatility out of the market and cause more mortgaged-backed hedging to move into the swap market might be starting to be priced in. Third, and most importantly, the idea that rates might no longer be headed lower could be slowing down the demand for swaps.

For whatever reason, the swap market anomaly is finally drifting away. Granted, it is a slow drip, but it’s happening.

Bit by bit, the stupidity of negative spreads is disappearing. Now, maybe this piece is about to top tick the swap spread move. After all, I know next to nothing about this space. But it sure seems like a trade that might end up as a surprise win that few are watching.

You are probably wondering how to execute this trade. Well, Goldman rejected my ISDA application, so for mopes like me, we need to stick to the listed futures market.

But don’t let that stop you. It’s quite easy. Dial the two symbols in your Bloomberg terminal, and type PDH2 to get the Position Hedging ratios. Here is the 30 year swap future versus the long bond future calcuation:

If you are like me, and a big fixed income bear, then you don’t even need to worry about the spread. Shorting the swap outright is 30 basis points better than treasuries. If you get a backup in yield, along with a continued widening of swap spreads, it could simply a better product to be outright short.

Although the swap spread has moved over the past year, I think there still might be more to come. Have a look at trading swap futures for a little extra pickup.

P.S.: When I wrote my last piece about swaps, a nice fellow from the ERIS Exchange contacted me to let me know about their competing product to the CME swap future. So far, I have stuck with the CME, but I thought I should include a link to their exchange. Who knows, maybe I should be switching? Let me know if you have an opinion.

Janet Yellen Discusses Global Economic Issues: Live Feed

Confused by Yellen"s direction? You"re not alone.

It"s not just a state of mind, that"s the name of the latest slideshow by the economics team at ING bank...

... which shows how much confusion there is in a market which refuses to agree with the Fed"s hiking forecast (for good reason) and which is the biggest question in capital markets these days: will the Fed continue on its aggressive tightening path even without the inflation needed to justify it, or will it do what it did the last time it laid out a tightening plan which promptly imploded in early 2016.

Conveniently, in a few minutes Janet Yellen will hopefully address all the lingering open questions when she speaks in London at a conversation forum with Nicolas Stern, who is the President of the British Academy and an economics professor. The topic is "global economic issues"

"Stern and Federal Reserve Board Chair Janet Yellen will have a wide-ranging discussion about global economic issues."

The forum will be a moderated question-and-answer session with the audience. As the Fed considers the timing of another interest-rate increase and the start of its plan to wind down its asset holdings, economists are hoping for clarity whether the Fed will remain data-independent as it has been until now (seeing the recent plunge in inflation as transitory), or will she hint that the Fed may abort the rate hiking cycle prematurely once again if the recent economic weakness accelerates.

As a reminder, Yellen’s last public remarks were at June 14 press conference in Washington, when she said growth in the U.S. appears to have rebounded.

Watch it live in the embed below (click on the link for the live feed).

Fed Chairwoman Janet Yellen discusses world economic issues with Lord Nicholas Stern https://t.co/FiZN9Lho4G

— Joe Adinolfi (@jsadinolfi) June 27, 2017

Presenting 100 Years Of Geopolitical Risk

While we can track policy uncertainty (and its decoupling from global market risk perceptions)...

And we can follow the relative level of "crisis" and the market"s complacency of it (risk perceptions collapsing as "crisis" explodes)...

Geopolitical tensions, which take many different forms, are however difficult to measure. One proxy for assessing the geopolitical environment is the news-based Geopolitical Risk Index developed by economists from the Federal Reserve Board.

And close-up...

Source: Dario Caldara and Matteo Iacoviello, Federal Reserve Board. See also https://www2.bc.edu/matteo-iacoviello/gpr.htm. The index from 1985 on counts the number of articles in 11 US, UK, and Canadian newspapers mentioning phrases related to geopolitical tensions. The index from 1900 on performs the same analysis using the archives of three newspapers, the New York Times, the Wall Street Journal, and the Financial Times. The choice of newspapers for both indices implies a measure of geopolitical risk as covered by the Anglo-Saxon press.

And looking at these charts one can only laugh at the fact that VIX had a 9 handle just days ago?