Don’t Show Bill Dudley This Chart

The Fed’s Bill Dudley just unleashed the most cognitively dissonant statement of his career. That superlative is highlighted by theses two headlines:


Try telling The BoJ’s Kuroda that!!



Nope – no consequence at all…

Yet again his comments confirm The Fed’s utter confusion…






via Zero Hedge Tyler Durden

More Bad News For European Banks? ECB Leaks “Firm Support For A Deposit Rate Cut”

After starting out strongly this morning, with DB stock trading just shy of $17/share, European banks have seen some weakness in the past hour following a report from Reuters, in which sources were cited as saying that there is “firm support for a deposit rate cut within the European Central Bank’s Governing Council.” While a year ago this would have sent European stocks soaring, this is no longer the case as explained by none other than Deutsche Bank last weekend:

  • Declining bond yields have been robustly associated with larger inflows into bonds at the expense of equities. Though a large over allocation to fixed income at the expense of equities already exists as a result of past Fed QEs and a lack of normalization of rates, further easing by the ECB and BOJ that lower bond yields globally will only exacerbate the over allocation to bonds;
  • Asynchronous easing by the ECB and BOJ while the Fed is on hold risks speeding up the dollar’s up cycle, pushing oil prices lower and exacerbating credit concerns in the Energy, Metals and Mining sectors. It is notable that the ECB’s adoption of negative rates in mid-2014 which prompted the large move in the dollar and collapse in oil prices, marked the beginning of the now huge outflows from High Yield. These flows out of High Yield rotated into High Grade, ironically moving up not down the risk spectrum. The downside risk to oil prices is tempered somewhat by the fact that they look cheap and look to be already pricing in the next leg of dollar strength;
  • Asynchronous easing by the ECB and BOJ that is reflected in the US dollar commensurately raises the trade-weighted RMB and increase the risk of a disorderly devaluation by China. The risk of further declines in the JPY is tempered by the fact that it is already very (-29%) cheap, but there is plenty of valuation room for the euro to fall.

This explicit warning is one additional factor why European banks have plunged by 30% in recent weeks, and as noted earlier, have suffered such an abysmal start to the year it makes 2008 seem tame by comparison.

This perhaps also explains why Reuters adds that while a rate hike is in the works, “appetite for more radical action is still limited, conversations with policymakers indicate a month before the March rate decision.

Following DB’s line of logic, one can see why Mario Draghi should be concerned: any more unconventional easing could have an increasingly more dramatic impact on bank profitability as yield curves invert ever more.

And yet the ECB has to do something (hence the problem duly noted by DB this morning): “With long-term inflation expectations falling, the ECB will probably have to act and frame the rate cut as part of broader a package, with some measures involving changes to the bank’s flagship asset-purchase program, policymakers told Reuters.

But with no consensus yet about which further measures to take and Europe’s modest economic recovery still broadly on track, some of those spoken to cautioned against radical action. They noted, however, that their view could still change if recent market turmoil proved lasting, posing a risk to the real economy.

Turmoil resulting from the ECB’s radical actions.

More from Reuters:

ECB President Mario Draghi has said the bank would review and possibly recalibrate its stance in March to fight persistently low inflation. Markets now price at least two rate cuts, taking the deposit rate to -0.55 percent by the end of the year from -0.3 percent. 

Doing nothing in March is very unlikely,” the governor of one of the euro zone’s 19 central banks told Reuters. “Monetary conditions have tightened, long term inflation expectations are falling and credibility is at stake. I think a deposit rate cut is fairly undisputed.”

And herein lies the rub: conditions have tightened in large part due to the ECB’s actions, which means Draghi’s credibility is not only at stake, but will be further reduced no matter what he does.

Finally, if NIRP is off the table, will the ECB do something else? Quite possible:

But based on the current outlook, including the increased market volatility, moving the deposit rate alone does not appear to be enough for some policymakers.


“The chance of a rate cut is high,” said another governor, who spoke on condition of anonymity. “It wouldn’t do enough and it would be a mistake to signal that we’re relying on conventional policies when we’re going to be in the unconventional sphere for years to come.”


“Quantitative easing is our key policy tool and I think any package needs to have a QE component,” the policymaker added.

So, in short, now that we know that banks have a revulsive reaction to more NIRP, the question is how they will react to news of more QE from a European Central Bank which has for the past year become increasingly collateral constrained. If an announcement of more QE by Draghi leads to further selling, then central banks are truly out of ammo and only monetary paradrops remain.

via Zero Hedge Tyler Durden

Americans’ “Deflationary Mindset” Has Never Been Stronger

Having already warned of a “deflationary mindset,” today’s University of Michigan Confidence data suggests Americans are falling deeper into dis-inflation territory. Today’s headline tumble in confidence to 4-month lows, with “hope” dropping to 6-month lows is dominated by the plunge in 5-10 year inflation expectations to 2.4% (from 2.7%) – a 36-year record low.



Whatever you’re doing Janet – It’s not working!

via Zero Hedge Tyler Durden

Market Analysis – Keep Your Cool (Video)




By EconMatters

Always stay calm while others are panicking – especially in financial markets. There is a lot of talking one`s book going on in the markets with incentives to create panic and hysteria in the financial markets with the media the willing accomplice in how the game is played. The world is rarely a worst case scenario – that should never be a baseline position. 




© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle

via Zero Hedge EconMatters

Business Inventories Jump, Sales Tumble Sending Ratio To Recession-Warning Cycle Highs

After some stabilization into mid-2015, the ratio of business inventories-to-sales has surged as sales have disappointed and mal-investment-driven dreams have over-stocked. Business inventories rose 0.1% MoM in December (retail up 0.4%) and sales tumbled 0.6%.

Year-over-year, Inventories are now up 1.7% (led by retailers up 5.4%) while Sales are down 2.4% (led by Manufacturers down 5.1%)



At 1.39x, the current ratio is flashing a warning that a deep de-stocking recession looms.

via Zero Hedge Tyler Durden

America’s Corrupt Media – How Reporters Took Direct Orders from Hillary Clinton’s Staff

Screen Shot 2016-02-12 at 9.04.00 AM

It is the job of the Fourth Estate to act as a check and a restraint on the others, to illumine the dark corners of Ministries, to debunk the bureaucrat, to throw often unwelcome light on the measures and motives of our rulers. ‘News’, as Hearst once remarked, ‘is something which somebody wants suppressed: all the rest is advertising’. That job is an essential one and it is bound to be unpopular; indeed, in a democracy, it may be argued that the more unpopular the newspapers are with the politicians the better they are performing their most vital task.

– Brian R. Roberts from a October 29, 1955 article in the London periodical “Time & Tide”

A newspaper is a device for making the ignorant more ignorant and the crazy crazier.

– H.L. Mencken

If you really want to know how weak Hillary Clinton is as a candidate, you merely have to appreciate that the U.S. media essentially acts as her own personal PR firm, yet the public still recognizes her as a dishonest crook. Brace yourself for the following story, it’s huge.

Earlier this week, we learned from Gawker that at least one U.S. reporter traded content in his article for information from Hillary Clinton’s staff while she was Secretary of State. In what is an almost hard to believe exchange, Marc Ambinder of The Atlantic,  agreed to insert specific words and imagery into his article in return for a copy of Hillary’s upcoming speech at the Council on Foreign Relations.

We have the exact exchange thanks to emails released from a 2012 Freedom of Information Act Request (FOIA). Gawker reports:

The emails in question, which were exchanged by Ambinder, then serving as The Atlantic’s politics editor, and Philippe Reines, Clinton’s notoriously combative spokesman and consigliere, turned up thanks to a Freedom of Information Act request we filed in 2012 (and which we are currently suing the State Department over). The same request previously revealed that Politico’s chief White House correspondent, Mike Allen, promised to deliver positive coverage of Chelsea Clinton, and, in a separate exchange, permitted Reines to ghost-write an item about the State Department for Politico’s Playbook newsletter. Ambinder’s emails with Reines demonstrate the same kind of transactional reporting, albeit to a much more legible degree: In them, you can see Reines “blackmailing” Ambinder into describing a Clinton speech as “muscular” in exchange for early access to the transcript. In other words, Ambinder outsourced his editorial judgment about the speech to a member of Clinton’s own staff.

On the morning of July 15, 2009, Ambinder sent Reines a blank email with the subject line, “Do you have a copy of HRC’s speech to share?” His question concerned a speech Clinton planned to give later that day at the Washington, D.C. office of the Council on Foreign Relations, an influential think tank. Three minutes after Ambinder’s initial email, Reines replied with three words: “on two conditions.” After Ambinder responded with “ok,” Reines sent him a list of those conditions:

continue reading

from Liberty Blitzkrieg

Friday A/V Club: Battle of the PBS Stars

In antediluvian times, by which I mean the 1970s and ’80s, ABC aired a series of specials called Battle of the Network Stars, where teams from different TV channels would face each other in athletic contests. In 1982, the folks at SCTV imagined what would happen if another network’s celebrities got in on the act:

A question for younger readers: How well does this translate for those of you who weren’t watching TV when the shows being spoofed here were on the air? Part of me thinks the average SCTV episode will be completely opaque to anyone who can’t decode its dense web of allusions. But then another part of me remembers that I’ve managed to enjoy Monty Python’s Flying Circus, even though friends from the U.K. tell me there are large layers of British references in it that are almost entirely invisible to me.

In any event, if you want a get your hands on the entire Battle of the PBS Stars episode—which also includes Milton Friedman and John Kenneth Galbraith competing in a Cosmos/Firing Line football game—you should go here. For past editions of the Friday A/V Club, go here.

from Hit & Run

Happy Darwin Day: Belief in Vengeful God Makes You Nicer

DarwinDayHappy Darwin Day! Around the world, folks celebrate Charles Darwin’s February 12 birthday in support of science and science education. As the press release from the American Humanist Association explains:

International Darwin Day was founded in 1993 by Dr. Robert Stephens to honor the accomplishments of Charles Darwin, whose theory of evolution continues to inform groundbreaking discoveries in biology, genetics and medicine, among other fields of research. A project of the American Humanist Association, Darwin Day also observes the contributions of scientists across the globe whose findings have advanced human progress and the betterment of our lives on this earth.

Among the other fields of research that benefit from Darwin’s insights is evolutionary psychology. A fascinating new study by researchers at University of British Columbia finds that belief in a vengeful sky-god tends to make people more generous towards strangers. From Nature:

Since the origins of agriculture, the scale of human cooperation and societal complexity has dramatically expanded. This fact challenges standard evolutionary explanations of prosociality because well-studied mechanisms of cooperation based on genetic relatedness, reciprocity and partner choice falter as people increasingly engage in fleeting transactions with genetically unrelated strangers in large anonymous groups. To explain this rapid expansion of prosociality, researchers have proposed several mechanisms. Here we focus on one key hypothesis: cognitive representations of gods as increasingly knowledgeable and punitive, and who sanction violators of interpersonal social norms, foster and sustain the expansion of cooperation, trust and fairness towards co-religionist strangers. 

The researchers tested their hypothesis using data from eight different ethnic groups around the world. They asked the participants about their beliefs and then had them play a couple of different economic games to probe their generosity toward strangers. They report:

Participants reported adherence to a wide array of world religious traditions including Christianity, Hinduism and Buddhism, as well as notably diverse local traditions, including animism and ancestor worship. Holding a range of relevant variables constant, the higher participants rated their moralistic gods as punitive and knowledgeable about human thoughts and actions, the more coins they allocated to geographically distant co-religionist strangers relative to both themselves and local co-religionists. Our results support the hypothesis that beliefs in moralistic, punitive and knowing gods increase impartial behaviour towards distant co-religionists, and therefore can contribute to the expansion of prosociality.

Somehow it seems nicely appropriate to apply Darwinian insights to the study of religion today.

from Hit & Run

Why NIRP (Negative Interest Rates) Will Fail Miserably

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

What NIRP communicates is: this sucker's going down, so sell everything and hoard your cash and precious metals.

The last hurrah of central banks is the negative interest rate policy–NIRP. The basic idea of NIRP is to punish savers so severely that households and businesses will be compelled to go blow whatever money they have on something–what the money is squandered on is of no importance to central banks.

All that matters is that people and enterprises are forced to spend whatever cash they have rather than "hoard" it, i.e. preserve and conserve their capital.

That this is certifiably insane is self-evident. If an economy depends on bringing future spending into the present by destroying savings, that economy is doomed regardless of NIRP, for eventually the cash runs out and spending declines anyway.

But NIRP will fail completely and totally due to another dynamic— one I addressed last month in Another Reason Why the Middle Class and the Velocity of Money Are in Terminal Decline. As correspondent Mike Fasano noted, negative interest rates force us to save even more, not less:

"People like me who have saved all their lives realize that they their savings (no matter how much) will never throw off enough money to allow retirement, unless I live off principal. This is especially so since one can reasonably expect social security to phased out, indexed out or dropped altogether. Accordingly, I realize that when I get to the point when I can no longer work, I'll be living off capital and not interest. This is an incentive to keep working and not to spend."

If banks start charging savers interest on their cash, savers will have to save even more income to offset the additional costs imposed by central banks on their savings.

A third dynamic dooms the insane negative interest rate policy: what does it say about the stability and health of the status quo if central banks are saying the only way to save the status quo is to force everyone to empty their piggy banks and spend every last dime of cash?

What exactly are we saving by destroying savings and capital? Isn't capital the foundation of capitalism? The answer is we are saving nothng but a rotten-to-the-core, parasitic, predatory banking system, coddled and enabled by corrupt central banks and states.

What NIRP says about central banks is that they have run out of options and are now in their own end zone, heaving the final desperate Hail Mary pass that has no hope of saving them from complete and total defeat.

NIRP also says the economy that needs NIRP is sick unto death and doomed to an implosion of impaired debt, over-leveraged risk-on bets and asset bubbles generated by stock buybacks and central bank purchases of risky assets.

The central bankers are delusional if they think NIRP will inspire confidence in investors, punters, households and enterprises. Rather, NIRP signals the failure of central bank policies and the end-game of credit expansion as the solution for all economic ills.

What NIRP communicates is: this sucker's going down, so sell everything and hoard your cash and precious metals. If that's what the central banks want households and enterprises to do, NIRP will be a rip-roaring success.

via Zero Hedge Tyler Durden

The Curious Case Of The “Strong” January Retail Sales: It Was All In The Seasonal Adjustment

There was hardly a blemish in today’s retail sales report: the January numbers not only beat expectations across the board, including the all important control group which printed at 0.6% or the highest since May, but the December data was also revised notably higher. At first glance, great news for those who hope consumer spending is finally getting some traction from collapsing gasoline prices.

And yet, even a modestly deeper look below the strong retail sales headline numbers once again reveals just how this “across the board beat” was accomplished.

It was all in the seasonal adjustment, something which plagued the January non-farm payrolls report as well as numerous sellside analysts lamented.

The thing about seasonally adjusted retail sales is that while they are supposed to smooth out month-to-month changes in any given data series, they should be virtually identical to the non-seasonally adjusted retail sales on a annual, year-over-year basis. After all the same “seasonal” adjustment that was applicable this January, was applicable last January, the Januarybefore it, and so on, unless of course, something changed.

To the best of our knowledge nothing changed, even though while seasonally adjusted sales rose modestly by $800 million to $449.9 billion, on an unadjusted basis retail sales actually dropped by $112.7 billion with a “B.”

And indeed, when looking at the annual change in headline retail sales data we find that, as expected, the seasonally-adjusted (blue) and unadjusted (red)retail sales series are almost identical…

… but not quite.

If one zooms in on the most recent data, one finds something surprising: a substantial rebound in SA retail sales, which according to the Dept. of Commerce rose 3.4% – the best print since January 2015 – while unadjusted retail sales rose by just 1.4% – the worst montly print since August, and hardly inspiring confidence that what is happening on a seasonally adjusted basis is indicative of what is really happening.


To isolate the problem we decided to look at only the annual (YoY) change in January data. The chart below shows the surprising finding: while virtually every January in the prior 5 years saw an almost identical change in the SA and NSA data, this January, there was a major disconnect: in fact on an NSA basis, January retail sales were mathced for the lowest increase since the financial crisis at 1.4%, a far cry from the far more respectable and adjusted 3.4%.


To show just how much of an outlier January 2016 was compared to January in prior years, here is the seasonal “adjustment ratio” for the month of January for every year since 2010 to 2016, by which we define the ratio of “seasonally adjusted” to “unadjusted” retail sales. Spotting the outlier should be easy enough.



In other words, any “strong” rebound in January retail sales was all in the seasonal adjustment factor.

We wonder if Yellen’s “dot plot” will likewise come in unadjusted and seasonally adjusted flavors from now on to reflect both the actual underlying U.S. economy and the economy the Fed would like to see when observed through the filter of the government’s politically biased Arima-X-12 seasonal adjustment model?

via Zero Hedge Tyler Durden