by ilene - October 19th, 2014 11:33 pm
Courtesy of Mish.
The ECB has been concerned about falling consumer prices. I propose that’s 100% stupid, yet that’s the concern.
When the euro declined vs. the US dollar, the ECB was happy that inflation would inch back up. The fear now is that falling oil prices will take away the alleged gain of a falling euro.
With that backdrop, credit the Financial Times for the absurd headline of the week: Eurozone Fails to Benefit from Weak Currency as Oil Price Slides.
Pity the policy makers given the job of rescuing the eurozone from deflation.
The unorthodox steps the European Central Bank has taken since June – including a programme of private-sector asset purchases – have caused a steep fall in the euro. The single currency is down 8.4 per cent against the dollar and 4.75 per cent on a trade-weighted basis from its peaks this year.
The weaker exchange rate will ease pressure on the ECB in its fight to raise inflation back to its target of just below 2 per cent. Mario Draghi, the central bank’s president, has said the currency’s earlier strength explains 0.4 percentage points of the fall in inflation since 2012. In that year, prices were growing 2.7 per cent a year.
But just as this depreciation is starting to fuel inflation, the ECB must contend with a fall in oil prices that all but wipes out the effect of a sliding currency. A weaker euro should swiftly raise the cost of imported energy. Instead, Brent crude has fallen 9 per cent in euro terms this month alone. This is the main reason why eurozone inflation fell again in September to 0.3 per cent, a five-year low – a figure confirmed by data on Thursday.
“The drop in oil prices is a problem for the ECB,” says Marco Valli, an economist at UniCredit, adding, however, that the situation would have been far worse without the single currency’s fall.
“The impact on inflation is already visible and significant – if you still had the euro at 1.40 to the dollar, eurozone inflation would probably be zero.”
Pity the Keynesian Fools
Financial Times writers Delphine Strauss and Claire Jones say “pity the policy makers.” I say pity the fools who believe the thesis of their article.
by ilene - October 19th, 2014 1:19 pm
1. The good:
The US consumer is not only about to benefit from materially lower gasoline prices (see chart), but also from cheaper heating oil.
With wages suppressed, the savings could be quite impactful, particularly for families with incomes below $50K per year.
Merrill Lynch: – … consumers will likely respond quickly to the saving in energy costs. Many families live “hand to mouth”, spending whatever income is available. The Survey of Consumer Finances found that 47% of families had no savings in 2013, up from 44% in the more healthy 2004 economy. Over time, energy costs have become a much bigger part of budgets for low income families. In 2012, families with income below $50,000 spent an average of 21.4% of their income on energy. This is almost double the share in 2001, and it is almost triple the share for families with income above $50,000.
|Source: Merrill Lynch|
Furthermore, with gasoline prices lower, it is unlikely that consumers will be buying significantly more of it than they have been. Historically when oil prices fell, gasoline consumption in dollar terms also fell. Dollars saved on fuel will be redirected elsewhere in the economy.
Moreover, suppressed oil prices will, at least in the near-term, keep inflation expectations lower. That means lower short-term rates for longer (see chart) and therefore lower home equity and adjustable rate mortgage monthly payments. It
by ilene - October 19th, 2014 12:37 pm
Oil prices (along with prices of many other commodities) have fallen dramatically since last summer. Some observers are waiting to see if Saudi Arabia responds with significant cutbacks in production. I say, don’t hold your breath.
When oil demand fell in the 1981-82 recession, the Saudis cut production by 6 million barrels a day in an effort to soften the decline in oil prices. They also cut production in response to lower demand in the 2001 recession and the most recent recession. On the other hand, the kingdom boosted production quickly beginning in August 1990 and January 2003 in anticipation of lost production from Iraq in the two Gulf Wars. This historical behavior led many observers to believe that Saudi Arabia would always play the role of a swing producer to stabilize the price of oil.
Monthly crude oil production from Saudi Arabia, January 1973 to June 2014, in thousands of barrels per day. Data source: EIA. Shaded regions correspond to U.S. economic recessions.
But that’s hardly an accurate characterization of what happened during 2005-2007, when Saudi production declined even as prices skyrocketed. If that production decline was intentional, it was a dramatic departure from previous patterns. I think a better interpretation is that the market moves after 2005 became too big for the Saudis to control, and they gave up trying. I remain skeptical of the claim that Saudi Arabia is ever going to produce much in excess of 10 mb/d, regardless of what’s going on in the market.
Last week I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy.
As far as Libya is concerned, the politics on the ground remain quite unsettled. It makes sense to wait and see if anticipated production gains are really going to hold before anybody makes major adjustments.
In terms of
by ilene - October 19th, 2014 12:25 pm
Courtesy of Mish.
Huky Guru posted a couple of interesting charts on his blog today about shrinking credit but rising percentage of nonperforming Spanish bank loans: NPLs of banks rebounded to 16.59%. Seven points higher than in the 1994 crisis.
Spanish Bank Shrinking Credit
The “real” numbers are normalized to account for a change in methodology. Today’s number is just off the all-Time high of 16.73 percent in January of 2014. The “official” high was 13.62% in December of 2013.
Both sets of numbers are “far above the crisis in 1994, when nonperforming loans peaked at 9.15%.”
The above charts provide further evidence the recovery in Spain is imaginary.
Mike “Mish” Shedlock
by ilene - October 18th, 2014 1:45 pm
Courtesy of Mish.
The Fourth Amendment to the US Constitution is crystal clear in meaning.
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
FBI Director, James Comey, an Obama appointment, does not give a damn what the Constitution says.
In a recent speech, Comey warns If Apple and Google Won’t Decrypt Phones, We’ll Force Them To
Everyone is stoked that the latest versions of iOS and Android will (finally) encrypt all the information on your smartphone by default. Except, of course, the FBI: Today, its director spent an hour attacking the companies and the very idea of encryption, even suggesting that Congress should pass a law banning the practice of default encryption.
It’s of course no secret that James Comey and the FBI hate the prospect of “going dark,” the idea that law enforcement simply doesn’t have the technical capability to track criminals (and the average person) because of all those goddamn apps, encryption, wifi network switching, and different carriers.
“Encryption isn’t just a technical feature; it’s a marketing pitch … it’s the equivalent of a closet that can’t be opened. A safe that can’t be cracked. And my question is, at what cost?” Comey said. “Both companies [Apple and Google] are run by good people, responding to what they perceive is a market demand. But the place they are leading us is one we shouldn’t go to without careful thought and debate.”
Safe That Cannot be Cracked
A safe that cannot be cracked and a door that cannot be opened except by the rightful owner is precisely what everyone should want. It’s what the Constitution explicitly states. Instead, Comey wants the right to read your papers and search your effects.
“Perhaps it’s time to suggest that the post-Snowden pendulum has swung too far in one direction—in a direction of fear and mistrust,” claims Comey.
Excuse me, but what pendulum is Comey talking about?
The privacy pendulum has not budged an inch in the right direction. Not one new privacy law has been
by ilene - October 18th, 2014 1:05 am
(October 17, 14)
Courtesy of SoberLook.com
Staying with the volatility theme, the latest jump in VIX was clearly dwarfed by what we saw in 2008 or even in 2011. However that's not true for the volatility of VIX – the so-called "vol of vol". The CBOE's VVIX Index, "an indicator of the expected volatility of the 30-day forward price of the VIX" (see description), has been comparable to or higher than what we saw during those high stress periods. The possibility of VIX doubling or even tripling ("tail" risk) does not seem outside of the realm of possibilities these days – even from the current elevated levels. And traders are willing to pay a relatively high premium to be able to take advantage of such moves.
(October 16, 14)
The recent spike in volatility has created a "dislocation" in US equity options markets. VIX, which is a measure of implied volatility for large cap shares is now higher than RVX – the small-cap equivalent. This is highly unusual, since small caps tend to be more volatile. Part of the issue is the outsized spike in the volatility of large energy shares due to the recent sell-off in crude oil.
by ilene - October 17th, 2014 5:52 pm
Courtesy of Mish.
In response to Obama's Lame Response to Ebola; No Protocols but Lots of Fearmongering one person responded that I was "over-cooking the Ebola crisis".
Amusingly, another reader accused me of "underplaying the crisis".
A third reader asked "what is the free market response?" A similar question arose in a comment to Acting Man's post The Ebola Outbreak – A Black Swan.
Before tackling the free market issue, let's first review the government's response to date.
- Airport restrictions but only at 5 airport, not all of them
- Temperature taking procedures initiated
- In spite temperature worries, a nurse self-reported to the center for disease control that she had an elevated temperature and ebola patient contact, but was told go ahead and fly
Think about the act of temperature taking. Whoever administered the test would have been in close contact with everyone on or entering the plane. Is that a good idea? Do sneezes and coughs happen?
Free Market Response
It's 100% certain the free market response would not have been the government's response to date.
And what about my proposal of flight bans from epidemic countries?
Government mandated is not free market by definition. But, it's entirely possible my solution is what the free market would have arrived at!
Three Questions I Asked Previously …
by ilene - October 17th, 2014 5:17 pm
Courtesy of Lance Roberts of STA Wealth Management
This past week investors took a blow from a sharp selloff in the financial markets. I have spilled quite a bit of ink in recent months discussing the probabilities of such as corrective event as the Federal Reserve’s current liquidity operation came to a conclusion this month.
Now that the correction has occurred, at least to some degree, the question that must be answered is simply: “Is it over?”
That is the basis of this weekend’s reading list which is a compilation of reads that debate this point. The bulls remain wildly bullish, believing that this is simply a “dip” in the ongoing “bull market.” The more pessimistic crowd sees the opposite.
As I have stated previously, it is inherently important to consider both arguments to reduce the cognitive biases that lead to emotionally poor investment decisions.
Is the correction over? Maybe. Or this could be a “sucker’s rally” before a deeper decline. A big concern at the moment, as stated above, is the conclusion of the Federal Reserve’s ongoing liquidity intervention program. The liquidity pushed into the markets by the Fed has been the driver behind the markets unbridled advance since its inception in 2012. The same thing occurred in 2011, which led to a topping process as QE2 was coming to an end.
"While no two periods are ever the same what is important is the current defense of 1850 level on the S&P 500 so far. A rally from this level, which fails to attain a new high, suggests that the market will complete an important topping process in the months ahead."
I don’t have the answer, but this is what I will be “pondering” over the weekend.
1) 5 Reasons Why Stocks Are Falling by Steve Forbes via Forbes
- The U.S. Senate
- Misbehavior By The Fed
- Profit Picture Is Getting Blurry
- World Economies Are A Mess
- World Security Is Worsening
- The Yield Curve May Not Invert Prior to a Recession
- Stock Prices Appear to Be Issuing Economic Warnings
- The Signal of
by ilene - October 17th, 2014 5:07 pm
Courtesy of The Automatic Earth.
Da markets today sort of refound their – shaky – feet, oil up a dollar, EU exchanges up 3% or so, Greece even over 7%, while interestingly gold didn’t move much at all during the wild week (no safe haven), and most movement was perhaps, through all the see-saw, in bonds. To sum up the week: panic followed by plunge protection teams. And now the ‘leaders’ hope plunge protection will save another day too.
And they may. Germany sinks a bit, but Germany is strong. US housing is at least not falling further, but US consumer spending stalls and drops. The deep dark weakness has not yet hit the big economies. But the nerves are back. Volatility is back with a vengeance. As it should. And that will paint the picture going forward, plunge protection or not. Da markets will come again and again and dare central banks to plunge protect.
Well, either that or more QE, but despite whatever Bullard says the Fed will go ahead with the taper – just listen to Yellen waxing dreamily about the US ‘expansion’ -, and the ECB won’t go full QE because the member states will never agree on anything. And Merkel feels the euroskeptics breathing down her neck as much as the ‘leaders’ of Britain, Italy, France et al.
But as we’ve seen today, there’s sufficient fire power left on both sides of the pond to survive one week of mayhem. But that’s not the main lesson on this Friday. The main lesson is that Europe’s Achilles heel has been laid bare, once more, in full sight, and Europe – re: Draghi, Merkel – thinks that denial is its best defense. Big mistake.
The lofty leaders at the ECB, and Berlin, Paris, Brussels, pretend they can make everything right that’s wrong inside their toy monetary union through asset purchases, sovereign bond purchases, and anything that falls in the ‘whatever it takes’ category. But it’s all just bluff. Because, what it all boils down to, they can’t keep buying Greek bonds with German taxpayer money until the end of time.
by ilene - October 17th, 2014 4:53 pm
Apple didn't just unveil its new iPads on Thursday — it announced a separate, less advertised product that could mean trouble for wireless carriers.
With its new iPad Air 2, Apple customers will have the option of buying a cellular version loaded with the company's new "Apple SIM" card, as Dan Frommer at Quartz points out.
A SIM card is that tiny piece of plastic in your phone that allows you to connect to a carrier's wireless network.
Typically, a SIM card is programmed to work with one specific carrier. So, if you buy a phone on a two-year contract from AT&T, it'll come with an AT&T SIM card inside. If you wanted to use that same phone on Verizon, you would have to buy a SIM card from Verizon and put it in that phone.
But Apple wants to change how that model works. Apple's SIM card works with multiple carriers, so you wouldn't have to purchase an iPad or SIM card from a carrier. To be clear, this isn't like simply buying an AT&T SIM card directly from Apple instead of AT&T. With Apple's SIM card, you can switch carriers whenever you please without having to commit to a two-year contract or make any purchases directly through the carrier.
Here's how Apple explains it on its website:
"The new Apple SIM is preinstalled on iPad Air 2 with Wi-Fi + Cellular models. The Apple SIM gives you the flexibility to choose from a variety of short-term plans from select carriers in the U.S. and UK right on your iPad. So whenever you need it, you can choose the plan that works best for you — with no long-term commitments. And when you travel, you may also be able to choose a data plan from a local carrier for the duration of your trip."
Keep reading Apple SIM Card For iPad Air Announced – Business Insider.