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


continue reading


Tags: , , , , , , , , , , , , , , , , , , , ,




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…
continue reading


Tags: , , , , , , , , , ,




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…
continue reading


Tags: , , , , , , , ,




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

 


Tags: , , , ,




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


continue reading


Tags: , , , , ,




 
 
 

Phil's Favorites

This Time It's Different: Maybe? ...John Street Capital Joins Me On Panic With Friends

 

This Time It’s Different: Maybe? …John Street Capital Joins Me On Panic With Friends

Courtesy of Howard Lindzon

(Originally posted on July 10, 2020)

This made me laugh yesterday…

In the shoulda, coulda, woulda department today…a $500,000 investment in the Amazon IPO would be worth $1 billion today if you held it.

Onwards&helli...



more from Ilene

Biotech/COVID-19

How deadly is COVID-19? A biostatistician explores the question

 

How deadly is COVID-19? A biostatistician explores the question

The number of confirmed and probable deaths from COVID-19 in New York City was 23,247 as of July 10, which is more than eight times the number who died in the 9/11 attack. Angela Weiss / AFP via Getty Images

Courtesy of Ron Fricker, Virginia Tech

The latest statistics, as of July 10, show COVID-19-related deaths in U.S. are just under 1,000 per day nationally, which is down from a peak averag...



more from Biotech/COVID-19

Zero Hedge

Taleb: Tail-Risk Hedges Are Now A Necessity

Courtesy of ZeroHedge View original post here.

Authored by Michelle Jones via ValueWalk.com,

Tail risk hedges are designed to only pay off when the markets suddenly plunge, so many investors don’t have the stomach to carry them. However, one expert on tail risk funds advises investors not to be in the market right now if they aren’t using a tail hedge.

No V-shaped recov...

more from Tyler

Digital Currencies

Chainlink Crypto Surges To A New All-Time High - Here's Why...

Courtesy of ZeroHedge View original post here.

Authored by Joseph Young via CoinTelegraph.com,

Surging volume, price discovery, and new partnerships pushed Chainlink price to a new all-time high at $8.48...

image courtesy of CoinTelegraph

...

more from Bitcoin

The Technical Traders

Gold & Silver Measured Moves

Courtesy of Technical Traders

The next few weeks are certain to attract much attention to precious metals.  Hardly anyone can argue that Gold has not experienced an incredible upside price rally over the last 12+ months.  Recently, Gold closed above $1800 for the first time since 2011.  Our researchers believe the next target is $1935.  Keep reading to learn why we believe this is the next major price target for Gold.

Gold Weekly Price Analysis

Over the past 18+ months, Gold continues to develop price patterns that seem to be replicating going forward.  This pattern consists of an advance in price followed by consolidation/rotation in price to set up a new momentum base.  The example of this price advance ...



more from Tech. Traders

ValueWalk

How Banks Can Mitigate Credit Losses

By David Donovan. Originally published at ValueWalk.

Without question, the economic impact caused by COVID-19 has rocked companies and consumers across the globe. Big companies are drawing heavily on credit lines. Mom and pop shops are struggling to stay afloat, despite the government funding small business loans to the tune of $659 billion, of which $130 billion is still unclaimed. Companies are now trying to figure out how they can proactively address high risk borrowers to avoid massive defaults that will inevitably putting banks in an even stickier predicament.

Q2 2020 hedge fund letters, conferences and more

With more than 40% of the econo...



more from ValueWalk

Kimble Charting Solutions

Commodity Index Price Reversal Raises Hope for "Double Bottom"

Courtesy of Chris Kimble

It’s been a rough decade for commodities… but there may be light at the end of the tunnel.

As you can see in today’s chart, the Equal Weight Commodity Index made new decade lows this spring at (1).

In general, this is bearish. BUT, prices reversed higher with a little attitude. Precious metals has been strong and crude oil is well off its lows.

This has given life to a potential double bottom pattern, as this year’s lows came in and around the 2009 financial crisis lows.

Is it possible that Commodities have created a long-term double bottom at (1)? Poss...



more from Kimble C.S.

Chart School

Dow 2020 Crash Watch - Update

Courtesy of Read the Ticker

Like 1929 the markets have bounced. This time it is on the back of the FED $6.5T money printing.

Previous Post: Dow 2020 Crash Watch 

But can the FED blow $6T every time the market rolls down to test support.

Yes, maybe before the US 2020 elections the FED will do 'what it takes'. But post elections not so much, the year 2021 is a long way from the next election (presidential or congress) and defense of the markets may not be so supportive at $6T or $10T per market smash. The FED may hesitate, and that will be window for stocks to break lower.

The 36 month simple moving a...

more from Chart School

Lee's Free Thinking

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

 

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

Courtesy of  

The COVID 19 pandemic is, predictably, worsening again in much of the US. Only the Northeast, and to a lesser extent some Midwestern states, have been consistently improving. And that trend could also reverse as those states fully reopen.

The problem in the US seems to be widespread public resistance to recommended practices of social distancing and mask wearing. In countries where these practices have been practi...



more from Lee

Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



more from Our Members

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.
...

http://www.insidercow.com/ more from Insider

Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

...

more from Promotions

Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

more from M.T.M.





About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>


As Seen On:




About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.