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Authored by Mac Slavo via SHTFplan.com,

Russia is continuing to ramp up its efforts to move away from the American dollar.  The country just shifted $100 billion of its reserves to the yuan, the yen, and the euro in their ongoing effort to ditch the dollar.

The Central Bank of Russia has moved further away from its reliance on the United States dollar and has axed its share in the country’s foreign reserves to a historic low, transferring about $100 billion into euro, Japanese yen, and Chinese yuan according to a report by RT. The share of the U.S. dollar in Russia’s international reserves portfolio has dramatically decreased in just three months between March and June 2018.  The holding decreased from 43.7 percent to a new low of 21.9 percent, according to the Central Bank’s latest quarterly report, which is issued with a six-month lag.

The money pulled from the dollar reserves was redistributed to increase the share of the euro to 32 percent and the share of Chinese yuan to 14.7 percent. Another 14.7 percent of the portfolio was invested in other currencies, including the British pound (6.3 percent), Japanese yen (4.5 percent), as well as Canadian (2.3 percent) and Australian (1 percent) dollars.

The Central Bank’s total assets in foreign currencies and gold increased by $40.4 billion from July 2017 to June 2018, reaching $458.1 billion. –RT

Russian and others have been consistently moving away from the dollar and toward other currencies.  Economic sanctions, which are losing their power as more countries move from the dollar, and trade wars seem to be fueling the dollar’s uncertainty.

Peter Schiff warns that as the supply of dollars is going to grow and grow, the demand for the American currency can fall, while the US Fed will be unable to stop the dollar’s demise. Schiff says that what is coming for Americans, is massive inflation.

“Eventually, what’s going to happen is it’s going to be the demand for those dollars is going to collapse, not the supply. And when the demand for dollars collapses, then the price of the dollar collapses. You get massive inflation. That is what is coming.”

Russia began its unprecedented dumping of U.S. Treasury bonds in April and May of last year. Russia appears to be moving on from the rise in tensions with the United States. The massive $81 billion spring sell-off coincided with the U.S.’s sanctioning of Russian businessmen, companies, and government officials. But Russia has long had plans to “beat” the U.S. when it comes to sanctions by stockpiling gold.

The Russian central bank’s First Deputy Governor Dmitry Tulin said that Moscow sees the acquisition of gold as a “100-percent guarantee from legal and political risks.”

As reported by RT, the Kremlin has openly stated that American sanctions and pressure are forcing Russia to find alternative settlement currencies to the U.S. dollar to ensure the security of the country’s economy. Other countries, such as China, India, and Iran, are also pursuing steps to challenge the greenback’s dominance in global trade.

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As stock markets plunged in December, asset-gatherers and commission-takers (and politicians) rushed on to every media outlet to reassure everyone that the fundamentals are “solid”, “extremely strong”, “very positive” … pick your spin.

The only problem is that top-down, the fundamentals are dismally disappointing…

And bottom-up, the fundamentals are almost as bad as they have ever been as analysts take the ax to their outlooks…the number of analysts’ global earnings downgrades exceeded upgrades by the most since 2009.

And don’t try and claim that the US is the cleanest shirt in the dirty laundry pile of global markets, it’s not!! (@biancoresearch)

Oh, and one more thing – if everything’s so awesome, why is The Fed panic-jawboning away from its tightening policy trend?

Hey, don’t worry, it’s probably nothing…

“Analysts are always late to the party,” said Timothy Graf, head of macro strategy for Europe, Middle East and Africa at State Street Global Markets. “I don’t necessarily see this as a sign of more doom and would guess that quite a lot of bad news is already accounted for in prices.”

“If you’re going to get earnings downgrades, it’s more likely to be the more normal corporate-led pullback rather than a financial crisis like you saw in 2007,” said said Mike Bell, a global market strategist at JPMorgan Asset Management.

“You’d expect a much smaller decline in the stock market than you saw in 2000.”

…and besides, The Fed is about to entirely u-turn on its multi-year narrative that everything is awesome and shift to an easing tone to soothe the beating heart of all those investors who ‘deserve’ their fair share of stock market returns.

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Authored by Charles Hugh Smith via OfTwoMinds blog,

Those households, enterprises and organizations that have no debt, a very low cost basis and a highly flexible, adaptable structure will survive and even prosper.

The coming recession will be unevenly distributed, meaning that it will devastate many while leaving others relatively untouched. A few will actually do better in the recession than they did in the so-called “recovery.”

I realize many of the concepts floated here are cryptic and need a fuller explanation: the impact of owning differing kinds of capital, fragmentation, asymmetry, opacity, etc. ( 2019: Fragmented, Unevenly Distributed, Asymmetric, Opaque).

These dynamics guarantee a highly uneven distribution of recessionary consequences and whatever rewards are generated will be reaped by a few.

One aspect of the uneven distribution is that sectors that were relatively protected in recent recessions will finally feel the impact of this one. Large swaths of the tech sector (which is composed of dozens of different industries and services) that were devastated in the dot-com recession of 2000-02 came through the 2008-09 recession relatively unscathed.

This time it will be different. The build-out of mobile telephony merging with the web has been completed, social media has reached the stagnation phase of the S-Curve and many technologies that are widely promoted as around the corner are far from profitability.

Then there’s slumping global demand for mobile phones and other consumer items that require silicon (processors) and other tech components: autos, to name just one major end-user of electronics.

The net result will be mass layoffs globally across much of the tech sector.Research is nice but it doesn’t pay the bills today or quiet the restive shareholders as profits tank.

The public sector is also ripe for uneven distribution of recessionary impacts.Local government and its agencies in boomtowns such as the SF Bay Area, Seattle, Los Angeles, NYC, etc. have feasted on soaring tax revenues and multi-billion dollar municipal bonds.

The Powers That Be in these boomtowns are confident that the good times will never end, and so the modest rainy-day funds they’ve set aside are widely viewed as immense bulwarks against recession when in reality they are mere sand castles that will melt away in the first wave.

A $1 billion reserve looks impressive in good times but not when annual deficits soar to $10 billion. Local governments depend on various revenue streams, and most rely on a mix of property, sales and income taxes, both wages (earned) and capital gains (unearned). All of these will be negatively impacted in the next recession.

Local governments are especially prone to The Ratchet Effect, the dynamic in which expenses move higher as revenues climb but the organization is incapable of shrinking, i.e. it only knows how to expand. This defines government as an organizational type.

Inefficiencies (including low-level corruption and fraud) pile up and are offset with higher revenues. When revenue crashes, the system is incapable of eliminating the inefficiencies or reducing benefits and headcount.

I call the endgame of The Ratchet Effect the Rising Wedge Model of Breakdown:

The Ratchet Effect is visible in organizations of all scales, from households to sprawling bureaucracies. The core of the Ratchet Effect is the ease with which the cost basis of an organization rises and the extreme resistance to any reduction in funding.

The psychology of this resistance is easy to understand: everyone hired in the expansion will fight to keep their job, regardless of the needs of the organization or the larger society. Every individual, department and division will fight with the fierceness of a cornered animal to retain their share of the budget, for their self-interest trumps the interests of the organization or society.

Since each “ratchet” will fight with desperate energy to resist being cut while those attempting to do the cutting are simply following directives, the group that has pulled out all the stops to resist cuts will typically win bureaucratic battles.

Broad-based cuts trigger Internecine Warfare Between Protected Fiefdoms as entrenched vested interests battle to shift the cuts to some politically less favored fiefdom. Bureaucracies facing cuts quickly shift resources to protecting their budget, leaving their mission on auto-control. (The Lifecycle of Bureaucracy December 2, 2010)

These dynamics create a rising wedge in which “minimum” costs continue to rise over time even if modest cuts are imposed from time to time. The eventual consequence is a cost basis that is so high that even a modest reduction collapses the organization.

In other words, incremental reductions and reforms have zero impact on the endgame. The organization has become so brittle that any structural reform triggers a breakdown.

Those households, enterprises and organizations that have no debt, a very low cost basis and a highly flexible, adaptable structure will survive and even prosper. Those with high debt loads, high fixed expenses and inflexible responses will find incremental reductions and reforms will have little impact on the endgame of breakdown and collapse.

This is one of the core topics of my latest book, Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic.

Here’s a household example of the type of organization that won’t just survive but thrive in the recession: a household with $100,000 in revenues from multiple income sources and fixed expenses of $35,000, no debt and a management team (the spouses/adults) that’s willing to implement radical changes in lifestyle, expenses and work at the first disruption of revenues. The household that doesn’t just survive but thrives sees crisis / disruption as an opportunity, not a disaster to be mitigated with denial and wishful thinking.

*  *  *

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print): Read the first section for free in PDF format. My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF). My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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Biggest short-squeeze since March 2009 lows and best 10-day rally since 2008 following Mnuchin’s invocation of the PPT? This just seemed appropriate…

 

Terrible inflation data from China overnight sent stocks lower after an initial jump (bad news is good)…

 

European stocks opened ugly after France IP unexpectedly plunged…then were panic-bid back to the highs of the day…

 

In the US, all eyes and ears were on Powell, he started well with “patient” being pushed but spooked stocks when he said the balance sheet would be “substantially” lower… of course that will never do and dip-buyer ran in quickly to rescue the record rebound…

 

 

By the close all the major US equity indices were up almost exactly the same amount on the day (probably nothing right?)…

 

Small Caps are now up 14% from the Mnuchin Massacre lows on Xmas Eve…

 

Macy’s puked (record drop) in the punchbowl of the consumer’s recovery and smashed retailer and department store stocks…

 

American Airlines crashed – also ruining the party that airline stocks had been having…but dip-buyers ran in aggressively…

 

Despite the ongoing compression in credit markets, this is the longest the market has gone without a junk bond issue in two decades…

 

And HYG started the day off ugly but was ebullient by the close…

 

Treasury yields surged on the day with the long-end dramatically underperforming after a dismal 30Y auction…

 

Notably, 30Y Yields are now back up to pre-Fed rate-hike levels…

 

Interestingly BE’s actually fell today despite oil’s gains…

 

The dollar rebounded modestly from yesterday’s dovish FOMC statement drop…

 

Ugly day for cryptos, slamming most of the majors into the red for 2019…

 

Dollar strength weighed on PMs, dismal China data dropped copper, but crude extended gains…

 

WTI extended gains pushing up towards $43…

 

Finally, a chart to consider before you buy another fucking dip…

Which makes you wonder if “you are here”…

And in case you needed a “worse since Lehman” chart, viola..

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Who would have possibly thought that after the Fed created the biggest asset bubble in history when it first, and then other central banks, purchased almost $10 trillion in assets after the financial crisis, ballooning the Fed’s balance sheet from under $1 trillion to over $4 trillion, that the market could possibly be concerned about the ongoing unwind of the Fed’s balance sheet?

Not Chicago Fed president Charles Evans, that’s for sure.

Speaking to reported after a speech in Milwaukee, Evans was discussing concerns in financial markets about the Fed’s balance sheet wind down, and said what could be the most patently stupid line in Federal Reserve history: “This is interesting and perhaps I’ve been a little bit slower to appreciate the concerns that some expressed from the financial sector.“

Yes, one of most powerful people in the room just said he was “a little bit slower” to appreciate the market’s concern that after the Fed quintupled its balance sheet, the reverse process could be a problem.

But wait, it gets better, because his very next line was… well – here it is: “Apparently what financial institutions and commentators are pointing out is that there’s a different dimensionality to liquidity provision and how they go about doing a bunch of things that maybe the balance-sheet runoff is interfering with. I don’t know.“

Yup, he doesn’t know… but “I think it’s noteworthy. I think it’s something that we need to pay attention to. Exactly what level concerns about how the economy is performing would have to rise to in order to make an adjustment, I can’t say I know, but I’m certainly more open-minded.“

Behind this barrage of hollow rhetoric was his admission that he is “certainly open-minded” about what level the S&P would have to fall to in order to “make an adjustment” in the Fed’s balance sheet reduction.

But wait, there’s even more, because apparently while everyone at the Marriner Eccles building was focusing on interest rates, they forgot about the elephant in the room: the unwind of trillions and trillions in bond purchases, to wit:

“I still think that changes in our policy interest rate instrument are going to be adequate for a while, but it’s something to think about.”

Yet just moments after admitting he doesn’t really know what is the appropriate level for the Fed’s balance sheet, he said he is confident that “we’re still a bit of a way from actually having to make final decisions on that.”

Just like the Fed has no idea what the actual neutral rate is, but is confident that the Fed Funds rate is below it… or on top of it, or above it, or something…

Finally, conceding that the balance sheet unwind may end far sooner than most expected (i.e., the start of 2020), Evans said that “an operating environment that has somewhat abundant reserves a little closer to a floor system would serve us well. I think it has a number of advantages, but we’re still having discussions about how that should play out.”

And with all that, we’d hate to hear Evans’s answer if asked about the fact that all central banks are now actively draining liquidity from the global financial system.

Sarcasm aside, the reason why the above is stunning is that these are the views of the people who determine the day to day fate of the stock market, the US economy, and by implication, the world. Who could possibly want to buy gold in this environment…

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Authored by Sven Henrich via NorthmanTrader.com,

Intrigue

So we got the Dirty Rally I alluded to before Christmas. The imbalances I highlighted on December 23 called for a reconnect to moving averages off of the 2340 $ES zone and the 2001 analog structure suggested a 10% rally into late January. And a 10%+ rally we got, a rally even more aggressive than anticipated courtesy a suddenly dovish sounding Fed (see also The Ugly Truth.)

Example $NDX futures reconnected with their 50MA yesterday:

All good and well? Correction over? Get a China deal and all is well? Perhaps.

But there’s a signal chart that may suggest an intrigue to come. As I outlined in 2018 Market Lessons extremes become more extreme and we saw some of this in the signal charts. In my 2019 Market Outlook I highlighted the $BPSPX chart showing oversold readings in December as extreme as during the financial crisis. But it’s not the only chart that’s acting extreme.

$NYMO has gotten a lot of attention in the past few days as its extreme oversold readings reached extreme overbought readings within just 11 days.

How extreme? Well, the only other reference point again is the 2008/09 financial crisis:

+117. It’s a sample size of 1, but let’s dig a bit deeper here. What happens when $NYMO goes from over -100 to over +100 in a matter of days as it just has?

The only history we have to go by says this happens:

People may forget, but that rally from Nov 2008 into January 2009 that produced that big fat $NYMO read was an intermittent top before markets dropped 30% into 666 on $SPX by March. Except this time the $NYMO read has come much faster, but both $NYMO reads occurred in early January following a late year correction.

With a sample size of one it’s not a large enough statistical sample to give this correlation any solid predictive weight, but it is worth pointing out and something to be aware of. After all big corrections often see the initial strong counter rally fail and produce a retest with new lows:

There’s one other difference perhaps of note. In 2008 and 2009 Q1 served as the basis for the ultimate market low. Bailouts, QE, mark to market suspension, you name it, it was all part of the active measures.

All we’ve had so far is talk. QT is still happening. So for all the dovish talk by the Fed there hasn’t been any dovish action that we know of anyways. And why should there be? We’re not in a recession yet.

Which makes for an intriguing question: Where is the crisis? But if there is no crisis, why did Treasury Secretary Mnuchin hold emergency calls around Christmas? Why did Fed Chair Powell cave last week and kick this technical reconnect rally into vertical overdrive?

If there is no crisis why are they acting like there is one? One wonders. We have no overt crisis reminiscent of 2008/2009, but we have several technical signals that are acting like they did back then. And perhaps that is something worth paying attention to in the days and weeks ahead.

*  *  *

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Setting the stage for another circus-like public hearing the likes of which haven’t been seen on Capitol Hill since James Comey’s testimony in the spring of 2017, disgraced former Trump attorney Michael Cohen has agreed to “give a full and credible” account of his work for President Trump before the House next month, the New York Times reported.

While we think “credible” is a stretch (if Cohen’s own admission of guilt is to be believed), the former Trump Organization attorney pleaded guilty in august to charges of tax fraud, lying to Congress and campaign finance violations stemming from two payoffs he claims he arranged to two women who were threatening to share stories about their affairs with Trump.

Cohen, who was sentenced to three years in prison in December and is working hard to get his sentence reduced by continuing to cooperate with federal prosecutors in Manhattan and Special Counsel Robert Mueller, said he felt that appearing at the public hearing was part of his “commitment to cooperate and provide the American people with answers.”

“In furtherance of my commitment to cooperate and provide the American people with answers, I have accepted the invitation by Chairman Elijah Cummings to appear publicly on February 7,” Mr. Cohen said in a statement. “I look forward to having the privilege of being afforded a platform with which to give a full and credible account of the events which have transpired.”

Since his guilty plea, Cohen has spent more than 70 hours meeting with federal prosecutors.

Intelligence Committee Chairman Adam Schiff also said he’s hoping to arrange closed-door testimony with Cohen about Trump’s business dealings in Russia – and presumably the Trump Tower Moscow project, which was the subject of Cohen’s earlier lie to Congress.

 

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The White House has been reaching out to political allies and conservative activist groups to discuss preparations for an ailing Supreme Court Justice Ruth Bader Ginsburg’s possible death or departure from the bench, according to Politico.

Ginsburg has been absent from Supreme Court arguments this week following the removal of two malignant cancerous growths from her left lung on Dec. 21. 

The outreach began after Ginsburg, 85, on Monday missed oral arguments at the court for the first time in her 25 years on the bench. The justice, who was nominated to the court by President Bill Clinton in 1993, announced in late December that she underwent a surgical procedure to remove two cancerous growths from her lungs. -Politico

According to a source familiar with the discussions, the White House “is taking the temperature on possible short-list candidates, reaching out to key stakeholders, and just making sure that people are informed on the process. They’re doing it very quietly, of course, because the idea is not to be opportunistic, but just to be prepared so we aren’t caught flat-footed.”

The Supreme Court announced that Ginsburg had a pulmonary lobectomy, and that there was “no evidence of any remaining disease” post surgery. That said, her absence from the bench for the first time in more than 25 years is notable. The oldest Supreme Court Justice has battled cancer twice in the past, once in 1999 and then in 2009 when she underwent surgery for pancreatic cancer – neither of which kept her away from court.

On Monday, Chief Justice John Roberts said that she was “unable to be present” but would participate in oral arguments by reading briefs, filings and a transcript of the session.

Ginsburg’s departure from the Court would pave the way for Trump to nominate a third Supreme Court Justice – the most in one presidential term since Ronald Reagan nominated three judges during his second term, notes Politico.

The nine-member court is currently divided 5-4 between its conservative and liberal wings. Ginsburg’s departure would allow Trump to create the Court’s strongest conservative majority in decades, a scenario sure to bring intense opposition from Democrats and liberal activists still furious over the October confirmation of Justice Brett Kavanaugh. -Politico

“It would be a brutal confirmation,” said the Heritage Foundation’s John Malcom, who heads up the Meese Center for Legal and Judicial Studies. “The first two were not easy at all, but this would be much harder in this respect: When Neil Gorsuch was the nominee, you were replacing a conservative with a conservative. With Kavanaugh, you were replacing the perennial swing voter, who more times than not sided with the so-called conservative wing, so that slightly solidified the conservative wing.”

“But if you are replacing Justice Ginsburg with a Trump appointee, that would be akin to replacing Thurgood Marshall with Clarence Thomas,” said Malcom. “It would mark a large shift in the direction of the court.“

The White House is urging outside allies to be prepared for another bruising confirmation battle should Ginsberg’s health take a sudden turn for the worse, according to four sources with knowledge of the overtures. Outside groups, led by the Federalist Society and the Judicial Crisis Network, played a leading role in helping to confirm Kavanaugh and, before that, Justice Neil Gorsuch.

The groups have advised the Trump team on everything from potential nominees to political and media strategy, producing television advertisements and blitzing reporters with supportive messaging. Together, the conservative groups spent over $7 million on ads supporting Kavanaugh’s nomination. -Politico

Supreme Court appointments are for life, and replacements can only occur upon the death or retirement of a judge. If a judge cannot perform their duties, Congress has the option to impeach.

In December, the vehemently anti-Trump- Ginsburg told an audience that she “will do this job as long as I can do it full steam.”

During the heat of the 2016 US election, Ginsburg made shockwaves when she told the New York Times that should President Trump become President, it would be time to move to New Zealand, stating “I can’t imagine what the country would be with Donald Trump as our president,” adding “For the country, it could be four years. For the court, it could be — I don’t even want to contemplate that.”

The comments led many to suggest Ginsburg would need to recuse herself from any decisions involving Trump, with even the Washington Post noting that some “wondered what impact this might have on Ginsburg’s decision to hear cases involving Trump. – If there’s a redo of Bush v. Gore, how does Ginsburg not recuse herself, given her Trump comments?”

Trump fired back, telling The Times “I think it’s highly inappropriate that a United States Supreme Court judge gets involved in a political campaign, frankly.”

He also tweeted: “Justice Ginsburg of the U.S. Supreme Court has embarrassed all by making very dumb political statements about me. Her mind is shot – resign!”

Justice Ginsburg of the U.S. Supreme Court has embarrassed all by making very dumb political statements about me. Her mind is shot – resign!

— Donald J. Trump (@realDonaldTrump) July 13, 2016

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