Posts Tagged ‘ZIRP’

2011 – What’s Coming

Courtesy of Bruce Krasting

Oh boy is 2011 going to be an exciting year! Some things that I think might happen:

  • -Volatility is going up across the board. If you have the stomach for the swings that are coming across all markets there is a ton of money to be made; balls and timing are all that are necessary. The markets will create dozens of opportunities to make and lose.
  • -There will be 50 days with a swing in the S&P greater than 1%. There will be 10 days where gold swings $50. There will be two days with a drop greater than 100 bucks. Most of the big moves will be down moves. Bonds will not be spared the volatility.
  • -Gold will be higher a year from now but off its peak. At some time in the fall, gold will be near 1,800 and the New York Times will do a front-page story that gold is on its way to 2,000. That will be the high point of the year.
  • -Copper will continue to rise. This metal will benefit as the poor man’s gold. Why buy an ounce of something for $1,600 when you can have a whole pound of something else for only $5? The logic is compelling only because there is no logic. Increasingly, it will become understood that money does not hold value. Copper will do a better job of storing value then a Treasury Bond.
  • -The US bond market is in for a heck of a year. The 30-year will trade at BOTH 3% and 5%. Higher rates will come early in the year, then the deflation trade will come back into vogue.
  • -Spain will be the next sovereign debtor that falls prey to the market. This will happen before the end of the 1st Q. The package to bail them out will exceed $500b. This will exhaust the EU resources. There will be very high expectations that contagion will then move to Italy. That will not happen in 2011 (2012?) The European Central Bank will step up to the table (finally) and support the market for Italy. Sometime between March and June Italian bonds will be a great buy.
  • -The IMF will contribute $125b to the Spanish bailout. The US portion


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Where We Are Today: Interest Rates ‘Too High,’ Double Dip on Deck, the Failure of Economics

Key point: "Reform is the only solution that is sustainable. Austerity or stimulus without reform are worse than useless." I post many articles discussing virtues and vices of more stimulus vs. the benefits and evils of austerity measures.  But I think Jesse has it precisely correct. – Ilene 

Where We Are Today: Interest Rates ‘Too High,’ Double Dip on Deck, the Failure of Economics

Courtesy of JESSE’S CAFÉ AMÉRICAIN

David Rosenberg of Gluskin Sheff is a daily read of mine. His most recent breakfast message does a remarkably concise job of summarizing the US financial markets.

The reason for the gold market rally is obvious; declining production in the face of record monetization and increasing demand. The same financial engineers in the central banks that ruined the economy had been suppressing the price of gold through managed sales for almost thirty years in a desperate reaction to the Nixon assault on Bretton Woods in 1971. And now we see the fruits of their long contrivance, and its inevitable failure. The world will have to develop a replacement to this incredible farce we call globalization and world trade based on arbitrary and easily manipulated values.

At the same time, Dave points out that according to the Taylor Rule the Fed is overly tight, even with ZIRP! We have spoken about this in the past, in making a distinction between quantitative and qualitative easing. This also speaks to the massive deformity which the US economy had become under first Greenspan and then Bernanke, and a financial sector turned outsized predator, with little connection to real market discipline of supply and demand thanks in large part to the proliferation of derivatives.

Ben could adjust somewhat this with the interest payments on reserves which the Fed is now paying. I suspect at some point he will, even taking them negative if necessary. But the Fed’s first priority is the insolvent Wall Street firms, and the continued charade that allows them to still pay outrageous bonuses while the nations suffers between the hammer of unemployment and the anvil of a toxic disaster in the Gulf and the collapse of its local economies. The first policy failure was in not nationalizing the insolvent US banks like Goldman and liquidating them. The second policy error is the failure to engage in serious financial reform, severely curtailing the derivatives market to something more resembling a well…
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The NY Fed's Trading Desk Head Laments The End Of Stupid Leverage And Wants His Derivatives Back (Or Why We Are Stuck With ZIRP For A Long, Long Time)

The NY Fed’s Trading Desk Head Laments The End Of Stupid Leverage And Wants His Derivatives Back (Or Why We Are Stuck With ZIRP For A Long, Long Time)

http://media.photobucket.com/image/leverage%20elaine%20supkis/ElaineSupkis/WTF.jpgCourtesy of Tyler Durden

In a video conference before the ACI 2010 World Congress in Sydney, Australia, the head of the FRBNY’s trading desk, aka, the busiest daytrader over the past year, Brian Sack, demonstrated once again that Fed members are either completely clueless about ongoing market dynamics or are so good at octuple re-reverse psychology, that they make the squid pale in shame and squirt ink in envy.

Before we get into the meat of Sacks’ lament, it bears refreshing on Paul McCulley’s letter from yesterday. While Paul may have been merely pushing his book in an attempt to convince readers that rates will (or should) stay mega low for years and years (and Greenspan will be more than happy to admit that low rates have nothing, nothing, to do with asset bubbles), he did have one great observation, namely that the explosion in various forms of shadow credit: derivatives, securitizations, etc., were all dictated by the need to leverage a relatively flat yield curve.

When the 2s10s is in the 40-50bps range, financial institutions needed to find a way to leverage the long-dated end of the curve: if the Fed would not cooperate in bringing the near-end lower, well, demand for, and application of financial innovation, resulted in the multi-trillion shadow banking system. This extremely simple observartion is of remarkable consequence: securitization was not predicated on extra supply of cheap credit but arose out of bank demand for synthetic steepness: instead of capitalizing on the unlevered curve steepness, banks decided to go the volume route, making credit a way of life for everyone, thus allowing them to go all in on a massively-leveraged curve trade. The key implication is that in the current Fed-dominated environment, where the 2s10s is at record levels of almost 300 bps, banks have no need for shadow banking! Another way of saying this is that what financial institutions needed a multi trillion shadow system for, when the curve was flat, they can achieve now with the curve being as steep as it is and without shadow banking. The big banks simply do not have a need for shadow banking: ergo the demand pull side. And no…
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GOLD REPRESENTS THE MASSIVE RISKS IN THIS MARKET

Is gold risky?  At least Pragcap thinks so, in contrast to many other’s predicting much higher prices.  Here’s why. – Ilene

GOLD REPRESENTS THE MASSIVE RISKS IN THIS MARKET

Courtesy of The Pragmatic Capitalist

Goldbeater producing

There is no doubt a bubble forming in gold prices. In my opinion, the price of gold perfectly reflects the irrationality across many major markets, most notably, the equity markets. Despite no signs of inflation gold is up over 70% in the last year.  As we’ve long opined, this is nothing more than the irrational money chasing that the Federal Reserve has once again created via their magically destructive printing press

The Fed is effectively forcing investors into risky assets as they give investors no other choice to support their retirement/income needs via their ZIRP.  The price of gold has gone nearly parabolic in recent weeks and I would now classify gold as the riskiest of risky assets to own.  This move down in the dollar and up in gold has come to epitomize the failure of Fed policy to reflate markets back to normality.   As we’ve said before, there are only two outcomes from the Fed printing policy: more bubbles or utter failure.  For now, it looks like we’re in store for the former and that means there are more busts in our future.   I think monetary and fiscal policy are currently making our macro problems even worse, but how bad these problems become has yet to be seen.

 GOLD REPRESENTS THE MASSIVE RISKS IN THIS MARKET

 


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Strong Dollar Lies & More On Lies – Strong Dollar

More On Lies – Strong Dollar

Courtesy of Karl Denninger at The Market Ticker 

South Korean Economy Boosted As Won Jumps To New High

10 handles came off the S&P 500 in less than 30 minutes (a 1% move) when the dollar strengthened by about two tenths of 1%.

What would be the impact of the dollar moving higher by 10%?

This is the problem with the carry trade.  The leverage that gets deployed, once it gets going, is typically in the range of 5:1, 10:1 or even more compared to the equity markets. (Absolute leverage in the FX markets is frequently 100:1 – in fact, even retail traders can run 100:1 leverage at most FX brokers!)

Just remember folks, ZIRP and it’s pals are always exploited by the politicians to issue debt "free" into the markets.  But once issued that debt has to be rolled over (since governments almost never run an actual surplus allowing them to pay down that debt), which means that the issue is not whether you can make the interest payments today, it is whether you can make them tomorrow given the possible changes in interest rates.

If interest expense ever exceeds income, you’re finished, just as was the "buyer" who took out an OptionARM and then had his payment reset to more than his income.  Instant Boom.

The same thing happens to nations.

The problem is that nobody knows exactly where the line is, because that debt must be rolled, and it is the future cost of that rollover, not today’s interest rates, that determine where the wall is.

Have we reached the wall?  Probably not yet.  But if we keep issuing debt into artificially-suppressed interest rates, we will hit it with certainty, and the carry traders are betting (successfully so far) that government will not stop issuing debt (spending more than they make) and Bernanke will not pull enough liquidity to cause short rates to rise by even 1 or 2%.

dollar Better hope all those "ands" and "buts" hold up folks.

(PS, if you think they will: Sold to you.)

Strong Dollar Lies

"His lips are moving."

Geither said:

"I believe deeply that it’s very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar," he said at a roundtable discussion with Japanese reporters. "We bear special responsibility for trying to make sure that we


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Zero Hedge

Slowly At First... Then All At Once

Courtesy of ZeroHedge View original post here.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Bull markets always seem to end the same – slowly at first, then all at once.

My recent discussion on why March 2020 was a “correction” and not a “bear market” sparked much debate over the somewhat arbitrary 20% rule.

“Price is nothing more than a ...



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Phil's Favorites

Animal Spirits: The State of Residential Real Estate

 

Animal Spirits: The State of Residential Real Estate

Courtesy of 

On today’s show, we speak with Logan Mohtashami about all things related to the housing market

On today’s show we discuss:

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Politics

Supreme Court weighs voting rights in a pivotal Arizona case

 

Supreme Court weighs voting rights in a pivotal Arizona case

The Maricopa County Election Department counts ballots in Phoenix on Nov. 5, 2020. Arizona’s election laws are the subject of a pending Supreme Court decision. Olivier Touron/AFP via Getty Images

Courtesy of Cornell William Clayton, Washington State University and Michael Ritter, Washington State...



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Biotech/COVID-19

The FDA's big gamble on the new Alzheimer's drug

 

The FDA's big gamble on the new Alzheimer's drug

Do the benefits of approving a drug before confirming it works outweigh the potential costs? monkeybusinessimages/iStock via Getty Images Plus

Courtesy of C. Michael White, University of Connecticut

The Food and Drug Administration set off a firestorm of debate when it approved a new drug, aducanumab, for Alzheimer’s disease v...



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Promotions

Live Webinar with Phil on Option Strategies

 

June is TD Bank's Option Education Month, and today (Thursday, June 10) at 1 pm EST, Phil will speak with host Bryan Rogers about selling options and various option strategies that we use here at Phil's Stock World. Don't miss this event!

Click here to register for TD's live webinar with Phil.

 

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Chart School

RTT browsing latest..

Courtesy of Read the Ticker

Please review a collection of WWW browsing results. The information here is delayed by a few months, members get the most recent content.



Date Found: Thursday, 31 December 2020, 04:38:42 PM

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Comment: Biingo.. it is what it is, know the playing field



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Comment: @RaoulGMI "No, it can't be... the prices and price structure are identical...



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Digital Currencies

Crypto: Congress Dawdles as $1.7 Trillion Con-Game Goes Unregulated, Threatening Reputation of U.S. Markets

Courtesy of Pam Martens

If you want to get your hair cut outside of your home in the United States, the job has to be done by a licensed worker at a regulated business. The same thing applies to plumbers, electricians, home inspectors, real estate and insurance agents. They all require a license and are subject to regulatory scrutiny.

Likewise, commodities like corn, sugar, wheat, lumber and oil are all traded on regulated exchanges which are overseen by a federal regulator.

But, for reasons that have yet to be explained to the American people, when it comes to the $1.7 trillion cryptocurrency market – which is effectively a con-g...



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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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