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

If Not-QE Is QE, Then Is Not-A-Blowoff-Top A Blowoff Top?

Courtesy of ZeroHedge View original post here.

Authored by Charles Hugh Smith via OfTwoMinds blog,

Can $300 billion, or $600 billion, or even $1 trillion continue to prop up an increasingly risk-riddled, fragile $330 trillion global bubble in overvalued assets?

When is "Not-QE" QE? When Federal Reserve Chairperson Jerome Powell declares QE is not QE. We can constructively recall the story that Abraham L...



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Phil's Favorites

NY Department of Welfare Announces Increased Subsidies for Primary Dealers, Thank God!

 

NY Department of Welfare Announces Increased Subsidies for Primary Dealers, Thank God!

Courtesy of , Wall Street Examiner

Here’s today’s press release (11/14/19) from the NY Fed verbatim. They’ve announced that they will be making special holiday welfare payments to the Primary Dealers this Christmas season. I have highlighted the relevant text.

The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released the schedule of repurchase agreement (repo)...



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Lee's Free Thinking

NY Department of Welfare Announces Increased Subsidies for Primary Dealers, Thank God!

 

NY Department of Welfare Announces Increased Subsidies for Primary Dealers, Thank God!

Courtesy of , Wall Street Examiner

Here’s today’s press release (11/14/19) from the NY Fed verbatim. They’ve announced that they will be making special holiday welfare payments to the Primary Dealers this Christmas season. I have highlighted the relevant text.

The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released the schedule of repurchase agreement (repo)...



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The Technical Traders

VIX Warns Of Imminent Market Correction

Courtesy of Technical Traders

The VIX is warning that a market peak may be setting up in the global markets and that investors should be cautious of the extremely low price in the VIX. These extremely low prices in the VIX are typically followed by some type of increased volatility in the markets.

The US Federal Reserve continues to push an easy money policy and has recently begun acquiring more dept allowing a deeper move towards a Quantitative Easing stance. This move, along with investor confidence in the US markets, has prompted early warning signs that the market has reached near extreme levels/peaks. 

Vix Value Drops Before Monthly Expiration

When the VIX falls to levels below 12~13, this typically v...



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Insider Scoop

WeWork Could Leave Thousands Without Jobs

Courtesy of Benzinga

Co-working space startup WeWork could lay off more than one-third of its total workforce as soon as next week, the New York Times reported on Sunday.

What Happened

More than 2,000 people employed in WeWork’s core business of subletting working space will lose their jobs, according to the New York Times.

Another 1,000 employees will be laid off as the startup shuts down its other businesses, including a private school it runs i...



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Biotech

Why telling people with diabetes to use Walmart insulin can be dangerous advice

Reminder: We are available to chat with Members, comments are found below each post.

 

Why telling people with diabetes to use Walmart insulin can be dangerous advice

A vial of insulin. Prices for the drug, crucial for those with diabetes, have soared in recent years. Oleksandr Nagaiets/Shutterstock.com

Courtesy of Jeffrey Bennett, Vanderbilt University

About 7.4 million people ...



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Chart School

Dow Jones cycle update and are we there yet?

Courtesy of Read the Ticker

Today the Dow and the SP500 are making new all time highs. However all long and strong bull markets end on a new all time high. Today no one knows how many new all time highs are to go, maybe 1 or 100+ more to go, who knows! So are we there yet?

readtheticker.com combine market tools from Richard Wyckoff, Jim Hurst and William Gann to understand and forecast price action. In concept terms (in order), demand and supply, market cycles, and time to price analysis. 

Cycle are excellent to understand the wider picture, after all markets do not move in a straight line and bear markets do follow bull markets. 



CHART 1: The Dow Jones Industrial average with the 900 period cycle.

A) Red Cycle:...

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Digital Currencies

Is Bitcoin a Macro Asset?

 

Is Bitcoin a Macro Asset?

Courtesy of 

As part of Coindesk’s popup podcast series centered around today’s Invest conference, I answered a few questions for Nolan Bauerly about Bitcoin from a wealth management perspective. I decided in December of 2017 that investing directly into crypto currencies was unnecessary and not a good use of a portfolio’s allocation slots. I remain in this posture today but I am openminded about how this may change in the future.

You can listen to this short exchange below:

...



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Kimble Charting Solutions

Silver Testing This Support For The First Time In 8-Years!

Courtesy of Chris Kimble

Its been a good while since Silver bulls could say that it is testing support. Well, this week that can be said! Will this support test hold? Silver Bulls sure hope so!

This chart looks at Silver Futures over the past 10-years. Silver has spent the majority of the past 8-years inside of the pink shaded falling channel, as it has created lower highs and lower lows.

Silver broke above the top of this falling channel around 90-days ago at (1). It quickly rallied over 15%, before creating a large bearish reversal pattern, around 5-weeks after the bre...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

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