Category: zerohedge

WTF!

While other 'soft' survey data has been disappointing recently, The Richmond Fed  Manufacturing Outlook did not… in fact, against expectations of a 14 print, following a 12 print in October, November printed 30! – 16 standard deviations above expectations.

 

This is an all-time record high for the survey…

 

Despite a major spike in 6 of the 8 sub-indices (with shipments and new orders and workweek soaring), Wages tumbled? Perhaps the reason is simple – Shipments and New Order Volume expectations for six months ahead tumbled.

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Anxiety appears to be building in the Treasury Bill market once again as the yield spread between 12/7 and 12/21 widens to 12bps after President Trump cast doubt on whether he and congressional leaders can agree to keep the government funded.

As AP reports, Trump is meeting with Democratic and Republican congressional leaders at the White House on Tuesday to discuss budget and immigration issues.

But, in a tweet, Trump cast doubt on whether they can agree to fund the government beyond a Dec. 8 deadline.

Says Trump: “I don’t see a deal!”

Trump says Democrats “want illegal immigrants flooding into our Country unchecked, are weak on Crime and want to substantially RAISE Taxes.“

Meeting with “Chuck and Nancy” today about keeping government open and working. Problem is they want illegal immigrants flooding into our Country unchecked, are weak on Crime and want to substantially RAISE Taxes. I don’t see a deal!

— Donald J. Trump (@realDonaldTrump) November 28, 2017

Better add this potential event risk to the reasons to sell vol…

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Just two weeks after President Donald Trump announced that Fed Governor Jerome “Jay” Powell would be his pick to succeed Janet Yellen as chairman of the Federal Reserve, he is appearing today before the Senate Banking committee in a confirmation hearing that’s viewed as a virtual certainty.

The hearing begins at 10 am ET. Watch it live below:

However, while Powell’s chances of approval are high – given that he’s been twice confirmed as a Fed governor – Business Insider’s Pedro Da Costa points out that Powell – a former private equity executive – has commented fairly sparsely on monetary policy and regulatory matters despite serving as a Fed governor since 2012, so there are lots of unanswered questions about his views. As Reuters points out, Powell – once one of the FOMC's more hawkish members, has recently moderated his position to more closely resemble Yellen's dovish approach.

Also, Powell's record isn't without blemish: In the past, however, Powell has been more cautious about the risks posed by such an expansive approach. In his first months at the Fed, Powell was among those who pressured then chair Ben Bernanke for more clarity on when the central bank would start scaling back its bond buying. When Bernanke made those plans public it triggered a “taper tantrum” spike in market interest rates in the summer of 2013, forcing Bernanke, Powell and others to do damage control.

This could precipitate a lively Q&A session as senators try to get to the heart of exactly what they can expect from the reticent central banker.

According to media reports and analysts’ assessments, Trump’s logic in choosing Powell (over both Kevin Warsh, John Taylor and Powell’s current boss, Janet Yellen) is that, being a lifelong Republican, Powell has a slightly more permissive stance on regulation than Yellen. However, he also shares Yellen’s dovish tendencies, and it’s widely believed that interest rates and the Fed’s balance-sheet unwind will proceed cautiously under his leadership.

During the hearing, da Costa posits that Powell faces two principal tasks: Flesh out his views on monetary policy, regulation and how they differ from those of his predecessor.

Here are a couple hypothetical questions that, if da Costa were a senator, he would ask:

1. Do you intend to continue raising interest rates in December and next year despite below-target inflation, and what factors are you considering in making that decision?

Part of Powell’s early mission on this front will be establishing himself as a leader and developing his own way of communicating on major policy issues, many of which he has touched upon only sparsely as a Fed governor.

 

Powell should be pressed on his lack of economics training – he’s the first Fed chair in decades to lack a doctorate in the field – and how he will use his staff and the expertise of his colleagues to help guide decision making.

 

Powell is expected to maintain the more committee-centered approach that began under Ben Bernanke, who wanted to move away from Alan Greenspan’s cult of personality, and continued under Yellen.

 

The Fed has raised interest rates four times since December 2015, to the current 1% to 1.25% range. The central bank has also started to gradually shrink a $4.5 trillion balance sheet that expanded sharply in response to the Great Recession of 2007-2009.

2. What is your view of the post-crisis financial rules and how willing would you be to roll them back, in particular capital requirements for big banks and consumer protections now under challenge?
 

Many investors and public advocates worry that weaker rules could lead banks to again take wild risks and put consumers and workers at undue risk. Powell, a former Carlyle Group executive, has plenty of financial market experience, but some might worry he is ideologically too close to the sector to supervise it closely.

 

Both Yellen and the recently-retired vice chair, Stanley Fischer, have spoken in unusually blunt terms about the dangers of rolling back financial rules.  

 

Powell has been friendly to the idea of letting financial institutions roam more freely, albeit within limits, according to The New York Times. Indeed, Powell's industry-friendly stance probably didn't hurt his chances of landing the job.

 

A political squabble that started last week over the leadership of the Consumer Financial Protection Bureau is just a small taste of all the political blowback that is likely to ensue from Republican efforts to undo post-crisis financial regulations. These include much higher capital requirements for the largest Wall Street institutions, because these are the ones that brought the financial system to the brink of failure in 2008.

 

Another big regulatory issue facing the Fed is how to regulate so-called “shadow banks,” which range from hedge funds to private equity to the money market industry — essentially firms without a banking charter that perform banking-like functions.

 

Before the financial crisis, investment banks were part of the shadow banking world, and the lack of regulatory scrutiny on their activities was a major culprit of the crisis.

 

Given the massive and lingering costs of that debacle in the form of lost jobs, wealth and productivity, Americans should hope Powell places the burden of proof on the need for any rule rollbacks on the industry, and even then, assesses their assertions with a giant grain of salt.

In his prepared remarks – released last night – Powell said he expected the central bank to continue raising its benchmark interest rate and trimming its balance sheet under his leadership, but had some pointed comments over deregulation, economic stability, and the plunge protection team…

Chairman Crapo, Ranking Member Brown, and other members of the Committee, thank you for expeditiously scheduling this hearing and providing me the opportunity to appear before you today. I would also like to express my gratitude to President Trump for the confidence he has shown by nominating me to serve as Chairman of the Board of Governors of the Federal Reserve System. The Federal Reserve has had a productive relationship with this Committee over the years, and, if you and your colleagues see fit to confirm me, I look forward to working closely with you in the years ahead.

 

Before I continue, I would like to introduce my wife, Elissa, who is sitting behind me. I would not be here today without her unstinting love, support, and wise counsel.

 

As you know, I have served as a member of the Board of Governors and the Federal Open Market Committee (FOMC) for more than five years, contributing in a variety of capacities, including most recently as chairman of the Board's Committee on Supervision and Regulation. My views on a wide range of monetary policy and regulatory issues are on the public record in speeches and testimonies during my service at the Fed. The Congress established the Federal Reserve more than a century ago to provide a safer and more flexible monetary and financial system. And, almost exactly 40 years ago, it assigned us monetary policy goals: maximum employment, meaning people who want to work either have a job or are likely to find one fairly quickly; and price stability, meaning inflation is low and stable enough that it need not figure into households' and businesses' economic decisions.

 

I have had the great privilege of serving under Chairman Bernanke and Chair Yellen, and, like them, I will do everything in my power to achieve those goals while preserving the Federal Reserve's independent and nonpartisan status that is so vital to their pursuit. In our democracy, transparency and accountability must accompany that independence. We are transparent and accountable in many ways. Among them, we affirm our numerical inflation objective annually and publish our economic and interest rate projections quarterly. And, since 2011, the Chairman has conducted regular news conferences to explain the FOMC's thinking. Additionally, we are accountable to the people's representatives through twice-a-year reports, testimony, oversight, and audited financial statements. I am strongly committed to that framework of transparency and accountability and to continuing to look for ways to enhance it. In our federated system, members of the Washington-based Board of Governors participate in FOMC deliberations with the presidents of the 12 regional Federal Reserve Banks, which are deeply rooted in their local communities. I am a strong supporter of this institutional structure, which helps ensure a diversity of perspectives on monetary policy and helps sustain the public's support for the Federal Reserve as an institution.

 

If confirmed, I would strive, along with my colleagues, to support the economy's continued progress toward full recovery. Our aim is to sustain a strong jobs market with inflation moving gradually up toward our target. We expect interest rates to rise somewhat further and the size of our balance sheet to gradually shrink. However, while we endeavor to make the path of policy as predictable as possible, the future cannot be known with certainty.

 

So we must retain the flexibility to adjust our policies in response to economic developments. Above all, even as we draw on the lessons of the past, we must be prepared to respond decisively and with appropriate force to new and unexpected threats to our nation's financial stability and economic prosperity–the original motivation for the Federal Reserve's founding.

 

As a regulator and supervisor of banking institutions, in collaboration with other federal and state agencies, we must help ensure that our financial system remains both stable and efficient. Our financial system is without doubt far stronger and more resilient than it was a decade ago. Our banks have much higher levels of capital and liquid assets, are more aware of the risks they run, and are better able to manage those risks. Even as we have worked to implement improvements, we also have sought to tailor regulation and supervision to the size and risk profile of banks, particularly community institutions. We will continue to consider appropriate ways to ease regulatory burdens while preserving core reforms – strong levels of capital and liquidity, stress testing, and resolution planning – so that banks can provide the credit to families and businesses necessary to sustain a prosperous economy. In doing so, we must be clear and transparent about the principles that are driving our decisions and about the expectations we have for the institutions we regulate.

 

To conclude, inside the Federal Reserve, we understand that our decisions in all these areas matter for American families and communities. I am committed to making decisions objectively and based on the best available evidence. In doing so, I would be guided solely by our mandate from the Congress and the long-run interests of the American public.

 

Thank you. I would be happy to respond to your questions.

The hearing is expected to last until noon ET.
 

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Right on time, a heavy volume seller struck the precious metals complex right as the US equity market opened…

 

 

Of course the real driver of this is the JPY-pair that is pumped higher to juice the equity open…

 

And Silver was slammed back below $17.00…

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Late November is a great time of year for a variety of reasons…there is the crisp fall air, the gatherings with your extended family for Thanksgiving that begin innocently and end with restraining orders and death threats and, of course, Senator James Lankford’s annual report on government waste.  And, just like last year, the 2017 report on “Federal Fumbles” is filled with truly infuriating examples of government waste that are sure to get your blood boiling…here are a couple of examples:

First up is a $30,000 grant awarded by the National Endowment for the Arts for a play, dubbed “Doggie Hamlet” by Lankford, that entailed a group of “artists” running around a field in New Hampshire apparently taunting a group of presumably very confused sheep.

As evidenced in previous editions of Federal Fumbles, the American public’s love for William Shakespeare has sometimes translated into unusual and unnecessary federal expenditures. For instance, tens of thousands were spent to support a production of Silent Shakespeare in 2015. However, the strangeness of those fumbles pales in comparison to a $30,000 NEA grant to support a production of Doggie Hamlet.

 

Doggie Hamlet actually includes humans yelling or running toward very confused sheep and dogs. The production, which does not include any actual lines from Hamlet, is conducted outdoors in a 30-by-50-foot field in New Hampshire. The play is described as “a beautiful and dreamlike spectacle weaving instinct, mystery, and movement into an unusual performance event.”

 

Many people view art subjectively, and there are likely many who would enjoy watching this play. However, with $20 trillion in national debt, it is difficult to explain to taxpayers in Oklahoma or Montana—even the people who work with sheep daily—why $30,000 was spent for a few people to run around a field yelling at sheep. The NEA should refocus its efforts and its support on grants that advance the arts and our national interests.

And then there is a $75,000 grant provided to a university to allow for the creation of “digital puppets.”

Generations of young people grew up watching The Muppets and Sesame Street with famous puppets like Kermit the Frog, Miss Piggy, and the indomitable Cookie Monster. These shows and puppets have shaped millions of lives throughout several generations. But does that influence translate into a federal obligation to spend taxpayer dollars to create 3-D, electronic versions of puppets so more people can play with them?

 

Earlier this year, the NEH provided $74,851 for a university to utilize 3-D technology to create electronic versions of puppets so viewers can “manipulate and ‘play,’ through game-like technology, with a puppet or other performative object held in a digital archive.” The funding will be used to scan up to 15 puppets into a system that will enable viewers to control puppet functions and facial expressions either on a desktop computer or virtual reality device.4

Of course, the examples above are small programs which Liberals will undoubtedly tell you should simply be dismissed as they have no impact on the overall budget…which is precisely how most American households manage their finances…’sure, it’s just $40 Junior so you go right ahead and buy that digital sack of acorns on your Ice Age Village app…no problem’.

So, for those focused on the larger examples of government waste, how about this massive upgrade to the Air Force’s Air Operation Center that was eventually scrapped due to cost overruns and “complexity issues,” but only after $745 million was already spent.

In 2007, the world welcomed the fifth Harry Potter movie and the iPhone and said goodbye to the great singer Luciano Pavarotti. At the same time, the US Air Force began a 10-year project to upgrade its Air Operations Center, a control hub where air, space, and cyberspace operations around the world are overseen by the Joint Forces Air Component Commander. Unfortunately, delays and cost overruns led to the termination of the uncompleted project in 2017 after the Air Force estimated spending $745 million.

 

In 2013, the Air Force estimated to Congress that the upgraded Air Operations Center would be operational in 2016 at a total development cost of $374 million. Late in 2016, the Air Force updated its estimates and projected completion in 2019 at nearly double the original cost. According to the DOD’s IG, the cost and time delays occurred because “Air Force officials underestimated the complexity of the program” and the contractor did not have enough trained employees to do the job. On top of that, the IG found the contractor made things worse by using “a time consuming, error-prone” method of building the necessary software manually, instead of using an automated system.

 

Like many government problems, this sounds more complex than it really is. The Air Force needed to update a system, but due to its own poor planning and contractor mistakes, American taxpayers spent hundreds of millions on a system that was eventually scrapped.

With that, below are 97 other examples of government waste in 2017 that are sure to cause a slight spike in your blood pressure…

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Authored by Mike Shedlock via http://ift.tt/2wOif0B,

114 Italian banks have non-performing loans that exceed tangible capital. Ratios above 100% are signs of severe stress...

In 2012, the Dallas Fed did an article on the So-Called Texas Ratio.

 

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via http://ift.tt/2hYULjK Steve H. Hanke

As the latest housing data shows an uptick in sales, Case-Shiller's 20-City Composite index surged 6.19% YoY in September – the fastest rate of gain since July 2014.

As Bloomberg notes, the residential real-estate market is benefiting from steady demand backed by a strong job market and low mortgage rates. The ongoing scarcity of available houses on the market, especially previously-owned dwellings, is likely to keep driving up prices.

Eight cities have surpassed their peaks from before the financial crisis, according to the report.

All 20 cities in the index showed year-over-year gains, led by a 12.9 percent increase in Seattle and a 9 percent advance in Las Vegas (slowest gains in Washington area at 3.1 percent, Chicago at 3.9 percent)

In the past few years, growth in property values has been consistently outpacing wage gains, crimping affordability for younger, first-time buyers.

That could eventually become a headwind to faster price appreciation. For now, though, rising property values are also helping to boost home equity and support consumer spending, the biggest part of the economy.

“Most economic indicators suggest that home prices can see further gains,” David Blitzer, chairman of the S&P index committee, said in a statement.

 

“One dark cloud for housing is affordability – rising prices mean that some people will be squeezed out of the market.”

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Authored by James Stafford via OilPrice.com,

Cryptocurrency may be one of the biggest threats to governments, security and the entire financial system that we’ve ever seen.

It can help fund terrorism and its anonymity makes it almost impossible to track. Most importantly, it is poised to revolutionize global finance and banking.

But our new Enemy No. 1 can’t be fought; it can perhaps be controlled. Banks have figured that out and are bringing crypto currency into the fold.

The superpowers—U.S., China and Russia–will have to face the new reality. They love to hate it and hate to love it. Regardless, if they don’t embrace it, they won’t be able to control it. An enemy you don’t control is a much bigger threat.

So, welcome to the new balance of power, funded by cryptocurrency.

“This will ‘uberize’ banking to the extent that the major banks are spending billions to get into this Blockchain, says Frank Holmes, legendary gold investor, CEO of US Global Investors and Chairman of HIVE Blockchain Technologies (TSX:HIVE.V), the first public company where investors can participate in the build-up and infrastructure of crypto-mining.

 

“Bitcoin is the catalyst for crypto-mining the way emails were for the Internet. When we first heard about the Internet it was for the ‘dark world’, but with email, it exploded and became mainstream. Ethereum takes crypto-mining further with smart contracts,” Holmes told Oilprice.com

The Period of Uncertainty is Over

Russia is embracing it, with an eye to dominating it. China has banned it. The U.S. is struggling to figure out how to regulate it. But nothing can hold it back.

And now, many believe the uncertainty is over.

China tried to ban it in September, making it illegal for residents to trade in cryptocurrencies or start-ups to raise funds through ICOs, completely shutting down local cryptocurrency exchanges.

Bitcoin’s price plunged 40 percent. Then it recovered almost immediately.

This was a reminder that cryptocurrency is an autonomous system that can’t be knocked out.

"The ethos behind blockchain has been tested," Ken Sangha, COO of Open Money and the Open Project in San Francisco, told Forbes. "A central, organized and powerful authority — China — said 'no' and we all have been tested worldwide because of it. But the system flexed its muscles. It's doing what it was supposed to do."

And its muscles are the envy of tangible currencies everywhere. Bitcoin hit a record $6,000 per coin on 21 October. Naysayers came out of the woodwork to say it couldn’t possibly last, and definitely couldn’t go any higher. Wrong again. By the last week of November it was approaching $10,000 a coin.

Threats and Opportunities

The potential security threats are clear and present, but let’s put things like new avenues of terrorism funding into perspective.

At this point, terrorist groups are certainly eyeing their options with cryptocurrency, and testing the waters. In January, we saw what appears to be the first case, with the Indonesian government claiming that members of the Islamic State were transferring Bitcoin to each other.

Terrorists could create a virtual currency that is even more powerful and untraceable—one that can completely bypass the global banking system. It hasn’t happened yet, but the potential is there.

While terrorist groups may be mildly courting cryptocurrency, it’s not widespread. Speaking to Newsweek, the Rand Corp’s Joshua Baron, a cryptographer and mathematician, says he doesn’t really see Bitcoin as the “go-to currency for terrorists”—yet. “It does not offer enough anonymity.”

While terrorism is a threat to the security of all states, another threat to the U.S. is an opportunity for Russia: sanctions busting.

The rise of digital currency means that Russian officials sanctioned by the U.S. and the European Union have a way to send and receive money.

While the U.S. Treasury’s Terrorism and Financial Intelligence unit puts sanctioned individuals on a blacklist that keeps them from doing any business in U.S. dollars, cryptocurrency, which isn’t backed or controlled by any state, makes it possible to bypass the blacklist.

But even this pales in comparison to the bigger story here: Bitcoin and its fellow cryptocurrencies are challenging the foundations of the global banking system.  

Disruption of the global banking system at this point is “inevitable”, Bala Venkataraman, global chief technology officer of banking and capital markets for Computer Sciences Corp, whose sister company runs the IT backbone of the National Security Agency (NSA), told Newsweek.

“Cryptocurrencies could become the new driver of international business and financial transactions, and that would be transformative, if not revolutionary,” says Dr. Makarenko, whose consulting firm advises Fortune 500 companies.

But here’s the problem:

“If we don’t truly understand how they are operating, who is controlling them and how to avoid it being used for illicit purposes, it may inadvertently turn out to be one of the most innovative turning points in the underworld, whether it’s organized crime, terrorism financing or corruption.”

The Crypto ‘Embrace’ is All About Control

Just last year, Russia was toying around with throwing Bitcoin owners in prison, characterizing cryptocurrency as an infectious pyramid scheme.

Now, Vladimir Putin’s Russia is ready to embrace cryptocurrency – if only to control it.

The real push started in July, when a Putin aide unveiled his cryptocurrency mine: an industrial-scale server farm called Russian Miner Coin. In September, the company held an initial coin offering (ICO), raising over $43 million in Bitcoin and Ethereum.

Then came the regulatory push. After all, Russia has lost an estimated $310 million this year alone due to lack of ICO regulation.

In late October, Putin issued five presidential orders for controlling cryptocurrency. This means everything from taxing coin miners and regulating initial coin offerings (ICOs) to creating legislation for new blockchain tech and setting up a single payment space, presumably with the Central Bank.

Still, the Russian government is not entirely unified on the issue. The Central Bank thinks blockchain is cool, but isn’t keen on cryptocurrency itself. They’d like to have something like a crypto-ruble that could track transactions from cryptocurrencies into rubles.

It’s far more than a fad. Cryptocurrencies are becoming increasingly visible across Russia. Mining is becoming so pervasive, in fact, that computer stores are having a hard time keeping graphic and video cards in supply.

The Russian Finance Minister, Anton Siluanov, has even gone as far as to say that cryptocurrency will soon be treated like regular financial securities.

There’s no point in prohibiting this reality, says Siluanov.

The U.S. might be of the same mind—broadly speaking, but it’s moving at a slower pace in the race to control the world’s new currency.

And it’s its own worst enemy in this scenario, says Dr. Tamara Makarenko, managing director of West Sands Advisory, a UK-based global consulting firm. 

But Russia, for one, is much more motivated. Cryptocurrency is a great way to skirt sanctions.

 “The U.S. is rightfully concerned about cryptocurrencies, but like anything that may have a negative impact on national security, there are way too many stakeholders that need to be brought to the table to discuss, so the U.S. is not capable of acting quickly,” Dr. Makarenko told Oilprice.com.

 

“The right conversations are taking place, but at the end of the day, it is in the U.S. interest to secure the value of the global position of the dollar.”

So, while China is banning cryptocurrency and the U.S. is still trying to figure things out, Russia seeks to dominate.

But just like China’s ban will be largely ineffective, so too will Russia’s move to dominate. Cryptocurrency is stateless, and that is its real power. It can be regulated, but not enslaved.

Resilience Proven, Investors Flock to the Future

Right now, about 85 percent of the world’s bitcoin trading volume comes from China. Countries with heavily subsidized energy are obvious ether mining haunts, but now the colder countries have something to offer that has nothing to do with the government, and doesn’t involve any legal gray areas that will come under scrutiny.

With even Putin’s IT advisor getting into the great game, hoping to challenge China’s hegemony in Bitcoin mining, the race is on in full force. They’re hoping to capture 30 percent of the global cryptocurrency mining share in the future.

Japanese billionaire Masatoshi Kumagai, co-founder of giant GMO Internet, announced plans recently to invest over $90 million in a new Bitcoin mining business that will operate as a fund, partially by soliciting capital from investors and repaying them in cryptocurrency.

In North America, billionaire backing is going into HIVE (TSVX:HIVE.V), via Lionsgate Entertainment and Goldcorp (NYSE:GG) superstar Frank Giustra, a legendary mining figure known for being in the right place at the right time—and always in front of a trend.

The new Great Game is virtual reality, and while governments are busy trying to figure out how they can control it, investors are busy sinking billions into what is fast becoming a story of industrial-scale cryptocurrency mining.

Now that everyone’s seen how resilient Bitcoin is, not only are things moving to the industrial phase, but everyone’s weighing the best venues for mining. Because even though this is virtual reality, location still matters.

That’s why HIVE has set up in Iceland, where Mother Nature’s natural cooling is friendly to these massive computing facilities, and where the massive energy required to mine cryptocurrency—in this case Ether–on an industrial scale is cheaper thanks to plentiful hydroelectric and geothermal sources. First, HIVE put $9 million into Hong Kong-based Genesis Mining Ltd., which just built the biggest ether-mining facility in the world—Enigma. Genesis acquired 30% of HIVE in the deal. A second deal in mid-October saw HIVE close a $30-million bought deal financing, completing a $7-million investment by Genesis Mining, acquiring a second data center in Iceland.

And now HIVE is setting up in another ‘cold country’—Sweden—with Genesis.

From China and Russia to North America, virtual is the reality. It’s no longer a question of whether cryptocurrency will survive. It’s a question of what it will disrupt on its way to the top of the global finance chain.

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Against expectations of a 0.4% MoM rise – supporting continued growth in GDP into the fourth quarter – October saw a 0.4% plunge in wholesale inventories.

After five straight months of building inventories, October saw a big GDP-stunting slump…

The biggest drop was in Motor Vehicles & Parts Dealers which saw a 1% drop in October following a 2.4% decline in September.

We suspect Goldman, Atlanta Fed, and New York Fed GDP forecasts will slump for Q4 after this big disappointment.

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