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Via DataTrekResearch.com,

Federal Reserve Chair Jay Powell seemed quite comfortable today during his testimony in front of the US Congress’ Joint Economic Committee. His prior public appearances this year have not always gone as smoothly, of course. But his prepared remarks were clear and he managed the Q&A session reasonably well.

Markets endorsed his comments, signaling that they believe Fed policy is well calibrated to their expectations of the near-term US economic environment:

• Just after Powell’s session wrapped up, Fed Funds Futures for December tightened up even further around the belief that the Fed will not move rates at the next meeting. The odds now (96.3%) versus yesterday (95.6%) show almost complete conviction on this point.

• Looking out through Q1 2020, Fed Funds Futures put 74.3% odds that the Fed will not move rates through this period, up from 71.9% yesterday.

• The same message of “no further Fed action” even holds through Q2 2020, with futures now pricing 65.7% odds of rates remaining unchanged from today. Yesterday, they were 61.9%.

• You have to go all the way to November/December 2020 to find essentially coin-flip odds that the Fed will cut rates (49% in each month).

• Even 2-year Treasuries mirror this sentiment that rates are “just right”, with a yield of 1.63% that sits right on top of today’s effective Fed Funds rate of 1.55%.

Three issues during Chair Powell’s testimony did, however, perk up our ears:

#1: A question about the relationship between rising US industrial concentration and slower than expected wage growth at this late point in an economic cycle. We have been highlighting the work of NYU professor Thomas Philippon on rising industry concentration. This is an important and growing political narrative, and not just tied to “Big Tech” companies.

Chair Powell said rising industry concentration may be one explanation, but other factors also play important roles. Specifically, he cited:

• Lower US worker productivity

• Remaining slack in the labor market, as evidenced by still-rising participation

• The effects of rising levels of automation and globalization

• Lower unionization levels

• Neutral interest rates that may be lower than where the Fed thinks they are

Takeaway: the issue of industry concentration is clearly top of mind in DC, with lawmakers/regulators concerned that the US economy’s “commanding heights” have too few occupants.

#2: There were 2 questions about a recent Columbia University paper about “Inflation Inequality”. Chair Powell said he was familiar with the work. Here is a brief summary (paper link at the end of this section):

• Poverty rates use the Consumer Price Index to adjust for inflation over time. This has been the approach to determine household need for programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP, aka “food stamps”) for decades.

• The CPI, however, may not accurately reflect the change in prices for the basket of goods and services consumed by lower-income households. One academic paper (Jaravel 2019) calculated that CPI under-reported inflation for this cohort by 0.44 points annually from 2004 – 2015.

• By extension (but not in the paper), the Fed’s symmetrical 2% inflation target may serve to exacerbate income inequality, since those at the bottom of the income scale are seeing larger price increases than more affluent demographic cohorts.

Takeaway: while this issue is unlikely to change the Fed’s dual mandate, Chair Powell seems keenly aware that future political independence will require the central bank to be responsive to social issues like income inequality. At the margin that means Fed policy could drift more dovish than neutral, for reasons we explain in the next point.

#3: Chair Powell mentioned several times that the US has lower levels of labor force participation (LFP) among prime-aged (25 -54 year old) workers than most wealthy economies. This is quite true, as data from the OECD shows (link below for more):

• The US prime aged LFP was 82.1% in 2018.

• Among the G-7 countries, only Italy is lower at 77.9%.

• Other major economies all show higher levels that are 4 – 6 points higher: UK (86.3%), Japan (87.4%), Germany (87.7%) and France (88.1%).

Takeaway: like the prior point, this is another spot where social issues intersect with how the Fed considers its policy mandates. Chair Powell constantly reiterates what seems to be his key observation from recent “Fed Listens” events: that a “hot” economy pulls workers into the labor force, and that’s a desirable outcome. By comparing the US LFP rates to other wealthy economies, his implicit message is that as long as inflation remains contained the Fed will focus on improving US labor force participation.

Summing up: for the first time in what seems like years the market and the Federal Reserve agree that current interest rate policy is correct. Yes, there is some bias in Fed Funds Futures to believing the next move will be a cut. But that’s more likely to come in the second half of 2020 rather than at the next few meetings. Given Chair Powell’s more expansive view of what constitutes “full employment” and the lack of general price inflation, assuming the Fed remains in “stealth dove” mode is reasonable.

Sources:

Columbia paper on inflation inequality: https://groundworkcollaborative.org/wp-content/uploads/2019/11/The-Costs-of-Being-Poor-Groundwork-Collaborative.pdf

OECD Labor Force Participation Data: https://data.oecd.org/emp/labour-force-participation-rate.htm

A massive earthquake has just struck off the coast of Indonesia, recorded at 7.4 magnitude and 62 km deep, according to the US Geological Survey.

It was registered in the Molucca Sea, about just over 130km northwest of the Indonesian island of Ternate, at 4:18pm local time on Thursday. Indonesian authorities have issued a tsunami alert. 

Islanders who were over 150km from the epicenter in some cases reported feeling “very strong shaking”.

The Pacific Tsunami Warning Center (PTWC) has also issued its own tsunami threat message for all coasts within 300km of the epicenter, which could impact a multiple Indonesian islands withing the next hours. 

The emergency alert message for the region reads as follows:

Months ago in July a 6.9 earthquake rocked the same area, but there were no significant reports of tsunami activity, and a prior 6.3 magnitude quake hit the island of Ternate in March.

The 2004 Indian Ocean earthquake and tsunami, known as the Boxing Day Tsunami, had registered at a magnitude of between 9.1 and 9.3, sending waves as high as 30 meters crashing into surrounding countries, killing over 227,000 people in 14 countries, making it the deadliest such event in recorded history.

Since then there have been persistent fears of another “big one” when earthquakes strike regional waters. 

developing…

Documents allegedly leaked by the Ukrainian General Prosecutor’s office to CD Media have shed light on payments from Burisma Holdings to Rosemont Seneca Bohai LLC, a corporation controlled by Hunter Biden partner (and fellow former Burisma board member) Devon Archer.

Archer was Yale roommates with John Kerry’s stepson Chris Heinz – the two of whom opened investment firm Rosemont Capital with Joe Biden’s son, Hunter. Rosemont Capital is the parent company of Rosemont Seneca Partners, LLC – the entity which receive the Burisma payments and in turn aid Biden.

The newly leaked records show 45 payments between November 2014 and November 2015 totaling $3.5 million, mostly in increments of $83,333.33. The payments correspond to Morgan Stanley bank records the New York Times reported on earlier this year. The records were submitted as evidence in a case against Archer who was convicted in a scheme to defraud pension funds and an Indian tribe of tens of millions of dollars. Archer’s conviction was overturned in November by a judge who felt that he may not have willingly participated in the scheme.

Leaked transaction and bank records indicate an influx of large payments from Ukrainian energy company Burisma Holdings Limited to Rosemont Seneca Bohai LLC, in what appears to be monthly payments of $83,333.33. pic.twitter.com/BZXi61NnOO

— Michael Coudrey (@MichaelCoudrey) November 14, 2019

What’s more, there are several payments from “Wirelogic Technology AS” and “Digitex Organization LLP” in the amounts of 366,015 EUR and $1,964,375 US based on credit agreements – while $1,150,000 went to Devon Archer and Hunter Biden.

Looking through the Rosemont Seneca Bohai bank records reveals that it was essentially a slush fund used for payments to Biden, expensive toys, an investment in the ill-fated Indian tribe scheme, and other miscellaneous expenses.

Indian Scheme

On September 25, 2014 a wire of $15,000,000 was received from Florida attorney, Clifford A Wolff. It was subsequently used to buy a $15 million bond from Wakpamni Town Center – the scheme linked to Archer’s overturned conviction.

It is unclear why Rosemont Seneca had so much skin in the game. Via the Wall Street Journal:

Hunter Biden’s work in Ukraine and China has attracted criticism from President Trump and other Republicans. In an unrelated fraud case from last year, his name was invoked as a selling point in transactions that turned out to be fraudulent, although Mr. Biden‘s lawyer said his client knew nothing about it.

 

The case involved a $60 million securities fraud based on bonds issued by an economic-development company affiliated with a Native American tribe in South Dakota, according to prosecutors’ statements in a federal trial in Manhattan last year.

The proceeds were supposed to be used to build a distribution center and other projects, but were instead diverted for the personal use of Jason Galanis, prosecutors said prosecutors said, describing him as the scheme’s ringleader. Mr. Galanis and others also sought to use the bonds to advance a strategy that involved buying up financial firms to merge them into a larger one called Burnham Financial Group, in a deal called a “roll up,” according to prosecutors.

You can flip through the rest of Rosemont’s bank statements below:

At last five people have been shot at a Southern California high school on Thursday, according to local law-enforcement officials.

WATCH #LIVE: Multiple people have been have been shot at Saugus High School in Santa Clarita, prompting schools in the area to be placed on lockdown and a massive response from sheriff’s deputies and paramedics. https://t.co/fEfbR7yJuh

— ABC7 Eyewitness News (@ABC7) November 14, 2019

The suspect, an Asian male student at Saugus High School in Santa Clarita, remains at large and a manhunt is underway according to the Wall Street Journal.

Deputies have swarmed the scene at Saugus High School, about 35 miles north of downtown Los Angeles. Students were led single file through the campus by officers. https://t.co/81af6KbPi4 pic.twitter.com/NVpV1bioEZ

— ABC News (@ABC) November 14, 2019

“If you live in neighborhoods anywhere near Saugus High, PLEASE LOCK DOORS and stay inside. If you see suspect, male dark clothing, in backyards, etc. CALL 911” tweeted the Santa Clarita Valley Sheriff’s Station.

This is still a very active situation. Reports of approximately 5 victims being treated. Parents, deputies are on scene everywhere protecting your children.

— SCV Sheriff (@SCVSHERIFF) November 14, 2019

Two patients in critical condition were reported at the Henry Mayo Hospital located approximately 5 miles from the school, while another two were en-route to the hospital as of this writing.

All local schools in the district were put on lockdown as a precaution, according to the Sheriff’s station.

Developing…

Authored by William Suberg via CoinTelegraph.com,

Bitcoin is being championed as the solution to a new payment crisis affecting the adult entertainment website Pornhub. In a blog post on Nov. 14, Pornhub revealed that payment processor PayPal had abruptly stopped servicing its models. 

image courtesy of CoinTelegraph

Pornhub hits out at attack on “livelihoods”

Previously, models throughout the world received payouts via PayPal, which has not publicly stated why it cut them out of its platform. 

“We are all devastated by PayPal’s decision to stop payouts to over a hundred thousand performers who rely on them for their livelihoods,” the blog post reads.

Pornhub is now using direct funds transfer alternatives, which models must set up themselves. The website began a deal with cryptocurrency project Verge (XVG) last year, while users can purchase products with various cryptocurrencies via Pornhub’s partnership with merchant gateway PumaPay.

Models unaware of cryptocurrency

The debacle is just the latest in a string of skittish moves from PayPal, which has become well known for its seemingly arbitrary account shutdowns. 

In each case, Bitcoin proponents highlight the benefit of using censorship-resistant cryptocurrency instead. Bitcoin transactions cannot be canceled or denied by a third party since they are peer-to-peer.

Pornhub’s problems, despite the Verge deal, nonetheless put the lack of overall knowledge of cryptocurrency in the spotlight. 

“Crypto, personal portal… LOL. I don’t understand what that even is. I’m cool with just direct deposit into my bank account,” Shyla Jennings, a prominent model on the site, responded to the news on Twitter.

Jennings added she did not use PayPal herself, as the service had had her “blacklisted for years.”

*  *  *

Discover the hottest industry trends, network with crypto experts, and meet the Cointelegraph teams from the U.S., Korea, Brazil, and Japan — all at BlockShow on Nov. 14 and 15.

While it is unclear exactly what the immediate catalysts for this shift is, it began around the European close and as Speaker Pelosi discussed USMCA. Perhaps Powell’s confirmation that policy is appropriate, not offering any dovish branch of hope was what trigger’d investors…

Having traded in a very narrow range overnight, Dow futures are breaking down…

The dollar is suddenly being dumped (as Loonie strengthens)…

Source: Bloomberg

And Treasury yields are tumbling, erasing last week’s spike (rate-locks)…

Source: Bloomberg

Gold is rising at the same time…

The market continues to lose faith in a trade deal..

Source: Bloomberg

We are going to need a “trade deal is close” tweet stat!!!

It was clear in yesterday’s press briefing during President Recep Tayyip Erdogan’s visit to the White House, where he didn’t actually receive much push back from either President Trump or the press (at one point Trump requested that only a “friendly” reporter from Turkey ask questions of Erdogan), that the touchy subject of Turkey’s acquirement of Russia’s S-400 anti-air system was front and center in closed door conversations. 

But Erdogan appeared unmoved by whatever pressure he may have faced in the Oval, given he later told reporters while standing next to the US president that Turkey cannot possibly discard the S-400 due to its strategic ties wit Russia, but he also added, “I’ve told Mr. Trump that we’re ready to buy Patriots.”

And according to Bloomberg, his only hint at “compromise” came in the form of offering to participate in a NATO-coordinated working group where defense officials from both sides would resolve issues of top concern for the alliance related to NATO’s second largest military deploying a Russian advanced system on its soil.

But more interesting are the details which came out of the unprecedented meeting with five Republican Senators at the White House who are lead Congressional skeptics of Turkey – unprecedented given that it was attended by Erdogan – in order to “clear the air” as the White House previously described it.

It appeared to to do anything but, as Axios reports, the whole meeting was upended took a “dark turn”:

An Oval Office meeting yesterday with Turkey’s President Erdoğan took a dark turn when Erdoğan pulled out his iPad and made the group watch a propaganda video that depicted Kurds as terrorists, according to three sources familiar with the meeting.

To be expected, what was described as a “clunky propaganda film” was unpersuasive, given that Sen. Lindsey Graham, perhaps the most vocal Republican Erdogan critic, questioned sarcastically immediately after— 

“Well, do you want me to go get the Kurds to make one about what you’ve done?”

The short film had depicted US-backed Kurdish militias operating in Syria and along the border as “terrorists”. 

According to sources privy to the meeting, a heated exchange ensued focused on Turkey’s controversial ‘Operation Peace Spring’. Per Axios: “A source in the room said Erdoğan took exception to Graham using the word ‘invasion’ and that Graham also rebutted Erdoğan when he claimed that Turkey had fought ISIS.” Erdogan later quipped that he gave Graham “a lesson” – as reported by Bloomberg.

Sen. Graham afterward said in a statement: “The Turkish narrative that they have done more to destroy ISIS, I rejected forcefully, and I let Turkey know that 10,000 SDF fighters, mostly Kurds, suffered, died or injured, in the fight against ISIS, and America will not forget that and will not abandon them.”

On the whole during the day long events at the White House Erdogan seems to have gotten his way. During the ending press conference he even ranted freely and without interruption against the Kurdish PKK and Syrian YPG. 

Later, Sen. Ted Cruz said in a statement that he took the Turkish president to task on the S-400 issue, making it “clear to President Erdoğan that so long as Turkey continues to procure or deploy the S-400 air defense system from Russia, the U.S. will not sell F-35 fighter jets to Turkey.” All the senators in the room were said to be unified on the S-400 issue. 

And Sen. Rick Scott raided the NATO issue, questioning to Erdogan “why Turkey should enjoy the protections of NATO when they’re cozying up to Russia,” according to a source cited in the Axios report. 

Submitted by Ronan Manly, BullionStar.com

For those who have at times struggled to understand the difference between COMEX inventory categories ‘registered gold’ and ‘eligible gold’, now your head can spin even more, since the CME’s COMEX has just introduced a new category – ‘pledged gold’.

This pledged category was first noticed on the infamous COMEX warehouse gold stocks report late last week by Nick Laird of GoldChartsRUs fame, with the pledged gold column intriguingly populated with an entry next to the New York vault of bullion bank, HSBC. What did this pledged column entry mean, we wondered, and where did it come from?

Pledged gold category – Newly added to the COMEX approved vault report

After some digging on the CME website, the answer was revealed. Pledged is a new gold inventory category representing COMEX gold warrants which have been deposited with CME Clearing as performance bond collateral, in other words margin collateral. CME defines performance bonds as follows:

“Performance Bonds, also known as margins, are deposits held at CME Clearing to ensure that clearing members can meet their obligations to their customers and to CME Clearing.”   

Before looking at how this relates to COMEX gold, a quick recap and some definitions are in order. Although COMEX gold futures rarely settle physically in gold, they are physically deliverable contracts which are capable of being settled in real gold. believe it or not. However in 2018, for example, COMEX gold deliveries totalled just 1.6 million ounces (51 tonnes), meaning that 99.98% of COMEX gold futures did not result in physical delivery, a Ponzi scheme if ever there was one.

But since 0.02% of COMEX gold futures do physically settle, at least by some shuffling of  warrants between bullion banks, the CME has therefore approved the vaulting facilities operated by nine vault providers in and around New York City and Delaware, which it refers to as depositories or approved warehouses, which can store gold that can be used for contract settlement. In New York, these vaults are run by HSBC, JP Morgan, Scotia Mocatta, MTB, Brinks, Malca-Amit and Loomis, and in Delaware the vaults are operated by Delaware Depository and IDS of Delaware.

Eligible – No relation

In COMEX parlance, “eligible gold” is all gold residing in an approved COMEX vault which is acceptable for delivery against COMEX gold futures contracts. This includes 100 gold oz bars and gold kilo bars, but not 400 oz gold bars. Importantly however, eligible gold just happens to be gold that is residing in the approved facilities that meets the eligibility requirements of the COMEX. It does not necessarily mean that the gold is in the approved vaults for trading purposes. Some of it may have been deposited in the vaults by owners who are trading COMEX gold futures, but other eligible gold could be deposited in the approved vaults for a host of other reasons unrelated to gold futures trading.

“Registered gold” on the other hand, is eligible gold for which a warrant has been issued by an approved warehouse. These warrants, not to be confused with equity warrants, are ‘documents of title’ issued by the warehouse in satisfaction of delivery of a gold futures contract. They confirm title to a certain quantity of gold of acceptable quality that is stored in that warehouse. A warrant will therefore specify a certain number of gold bars, the serial numbers of those bars and the refiner brands of those bars.

 

Now this is where it gets interesting as regards the new “Pledged gold” category. Starting on Monday 4 November, the CME began allowing its clearing members to deposit and use COMEX gold warrants as collateral in meeting performance bond requirements for its Base Guaranty Fund Products and Interest rate Swaps (IRS).

To reflect this change, the CME therefore needed to amend Chapter 7 of its NYMEX/COMEX Rulebook which covers “Delivery Facilities and Procedures” to reflect the acceptance of COMEX gold warrants as collateral. It did so by adding a reference to “pledged” precious metal, while defining “pledged” metal as “registered metal for which the warrant that has been issued is on deposit with CME Clearing for performance bond.”

Pledging Gold = Freezes Registered Gold

Furthermore, the amendment also added “the requirement for approved facilities to report pledged metal to the Exchange”, hence the appearance of the new pledged gold category on the COMEX daily warehouse report.

Critically, the amendment also clarified that “clearing members that have deposited gold warrants as performance bond with CME Clearing may not use these warrants to satisfy their delivery obligations.” Simply put, this will therefore mean that any registered gold whose warrants are used as collateral cannot be used to settle gold futures.

Finally, the amendment also adds that “gold warrants that are deposited with CME Clearing as performance bond cannot be cancelled without the consent of CME Clearing.” All of these changes can be seen in the recent one page CME summary titled “Addition of COMEX Gold Warrants as Acceptable CME Clearing Performance Bond Collateral”.

Prior to the acceptance of COMEX gold warrants as collateral, the CME had already been accepting “London gold bullion” as collateral for these performance bond requirements, so in effect COMEX gold warrants have now been added to the mix. What exactly this “London gold bullion” takes the form of is not clear, for example, is it real physical gold or unallocated bullion bank created book entries? If there are no fees for storing, insuring and handling any “London gold bullion” deposits, you can bet your bottom dollar that it is not physical gold.

Whatever it is, the CME is also now increasing the collateral limit from a previous $250 million per clearing member for “London gold bullion” to a new combined limit of $750 million per clearing member for both “London gold bullion” and COMEX gold warrants.