When many American traders went to bed last night, China was tumbling, the euro was in trouble, and US equity futures were notching lower. Then, as former fund manager Richard Breslow scoffs, it appears the world "reconsidered" and everything rallied to erase any sign of discontent or uncertainty by the time everyone woke up…

Via Bloomberg,

Apparently, the word of the day is “reconsider.”

Across a whole host of assets, we got somewhat violent moves early in the 24-hour trading cycle that managed to unwind themselves over the course of the day.

I kept being told that the euro, Chinese equities, U.S. equity futures, gold, bond yields, Eurostoxx 50, and so on, all reversed their opening, sometimes gap, moves after the market reconsidered what it all meant.

Of course, that’s being a bit too kind. It would be more accurate to say things turned around when traders actually considered things for the first time. But this all matters more than just a collection of knee-jerk reactions that have come to naught as another trading region came in.

 

North America isn’t being asked to break the tie and decide who was right. They are being told that they can afford to ignore the news that propelled things in the first place. After all, we’re right back where we started. No harm, no foul. That would be a mistake, as once again we keep muddling-up short-term and long-term information as if they should be discounted by the same rate and assuming we should trade without benefit of context.

 

 

Chinese equities opened lower leaving gaps from last Friday’s close.

 

 

Big swings: the Shenzhen dropped a quick 2.1% before staging a relentless rally throughout the day to finish up by 0.9%. No leap on the close, just a steady rally.

 

 

The commentary at the lows was as dire as the dismissive tone was at the close.

 

The PBOC proposed additional regulations to curb the run-away shadow banking industry. What was described in the morning as policies that would cause a flood of outflows from various short-term investments were later described as likely to attract foreign inflows. Wait, we’re not collapsing through the last lines of support any more? What a gift — buy!

 

The message from this is that, once again, the PBOC is delivering on what they have warned about and promised to address. Perhaps instead of trying to deconstruct the “real” Chinese intentions based on outmoded epigrams, we should start to listen to what they’re actually saying. And accept that regulation isn’t bad by definition. Sometimes a healthier Main Street can actually be good for equities–the old-fashioned way. But it would be folly to decide these new regulations must not be all important because of the day’s price action.

 

European shares and the euro were hit early on the German coalition talks collapse.

 

 

What began as “markets are being roiled” quickly turned to markets “shrugged it off.” Hardly. They recovered on the very fortuitously timed announcement that Volkswagen was going to spend an additional EU25B over the next five years on its core brand. That’s hard and good news. May even help out with Germany’s hopelessly flat Phillips curve.

 

 

But don’t think, Chancellor Merkel on her back foot isn’t something with negative possibilities that make it foolish to dismiss. Just hard to enumerate the immediate implications.

As Breslow concludes, the mirage of markets' ignorance does not mean anything is solved.

Some of the other realities to keep factoring into your analysis and avoid being lulled into ignoring include:

• Brexit wasn’t solved because today’s headline was upbeat, it’s serial noise;
• you’ve no way of handicapping Nafta as each debating point is aired;
• no one has a firm handle on the Middle-East;
• and U.S. tax reform may end up just stoking the debate of whether a bad deal is better than no deal.

Don’t ever let someone tell you the really big news is the ones you can afford to ignore

And it appears we're gonna need more 'help'…

via http://ift.tt/2zSXYey Tyler Durden

Authored by Charles Hugh Smith via OfTwoMinds blog,

As long as this is business as usual, it's impossible to slash costs and boost widespread prosperity.

It's easy to go down the wormhole of complexity when it comes to figuring out why our economy is stagnating for the bottom 80% of households. But it's actually not that complicated: the primary driver of stagnation, decline of small business start-ups, etc. is costs are skyrocketing to the point of unaffordability.

As I have pointed out many times, history is unambiguous regarding the economic foundations of widespread prosperity: the core ingredients are:

1. Low inflation, a.k.a. stable, sound money

2. Social mobility (a meritocracy that enables achievers and entrepreneurs to climb out of impoverished beginnings)

3. Relatively free trade in products, currencies, ideas and innovations

4. A state (government) that competently manages tax collection, maintains roadways and harbors, secures borders and trade routes, etc.

Simply put, When costs are cheap and trade is abundant, prosperity is widely distributed. Once costs rise, trade declines and living standards stagnate. Poverty and unrest rise.

These foundations characterize stable economies with widely distributed prosperity across time and geography, from China's Tang Dynasty to the Roman Republic to the Byzantine Empire to 19th century Great Britain.

The "Secret Sauce" of the Byzantine Empire: Stable Currency, Social Mobility (September 1, 2016)

The Lesson of Empires: Once Privilege Limits Social Mobility, Collapse Is Inevitable (April 18, 2016)

I have estimated the realistic cost of a conventional middle class lifestyle, and found that only the top 20% can afford a middle class lifestyle. Needless to say, this destroys the notion of being "middle."

The squeeze on households comes from both the soaring cost of big-ticket items such as childcare and healthcare and from the stagnation of wages/income.

Why the Middle Class Is Doomed (April 17, 2012)

Priced Out of the Middle Class (June 28, 2012)

The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016)

Inflation Isn't Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs (May 25, 2017)

The Disaster of Inflation–For the Bottom 95% (October 28, 2016)

About Those "Hedonic Adjustments" to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service (October 11, 2017)

So your new TV cost $100 less but your healthcare costs $10,000 more: the big expenses are soaring, costing households tens of thousands of dollars more while cheap TVs and clothing decline a few bucks.

Labor's share of the economy keeps stairstepping down: every boom/bubble benefits the financier and technocrat class, but labor's share of the economic "boom" flatlines for a few years and then tanks in the inevitable unwinding/recession.

The third dynamic is the dominance of anti-competitive cartels and state guilds which are no longer accountable or competent. (The two are related, of course; when accountability is lost, there's no way to identify or weed out graft and incompetence.)

This report on the causes of the decline of New York's subway system reads like a summary of the entire U.S. economy: the politicization of public services, corruption that evades the legal definition of corruption, self-enriching guilds, cartels and elites and gross incompetence enabled by zero accountability.

How Politics and Bad Decisions Starved New York’s Subway (New York Times)

As long as this is business as usual, it's impossible to slash costs and boost widespread prosperity.

*  *  *

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. Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.

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1-year ago this month, the Transports/S&P 500 ratio peaked and has been heading lower, reflecting that Transports have been diverging against the broad market. Below looks at the performance of the S&P to Transportation ETF (IYT)-

CLICK ON CHART TO ENLARGE

The chart above highlights that IYT and underperformed the S&P 500 by nearly 10% in the past 12-months, with a good deal of underperformance taking place the past few weeks.

Below looks at the pattern of IYT over the past few years-

CLICK ON CHART TO ENLARGE

IYT is testing rising support, which could be a support test of a bearish rising wedge pattern. At this time the trend is up, despite the year-long divergence.

What IYT does at (1), could send an important ST message to the key sector. Sometimes in history, how this key sector does, can send an important message to the broad market.

We humbly feel what IYT does at (1), could end up sending an important intermediate message to the sector and the broad market.

 

Why you see chart pattern analysis with brief commentary:   

There is a ton of news and opinions about markets and stocks that make
the decision-making process more difficult than it needs to be.    

I believe the Power of the chart Pattern provides all you need to see what is taking place in an asset and
determine the action to take.  

This approach
has worked well for me and our clients and I encourage you to test it for
yourself. 

 

 

Send an email if you would like to see sample research and take me up on a trial of our Premium or Weekly Research where I provide actionable alerts on breakouts and reversals in broad market indices, sectors, commodities, the miners and select individual stocks 

 

Email services@kimblechartingsolutions.com  

Call us Toll free 877-721-7217 international 714-941-9381 

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Theresa’s May’s government is poised to concede an improved Brexit settlement offer to gain EU approval to move the negotiations on to the next stage.

May reportedly has the backing of senior ministers ahead of a critical cabinet meeting on Monday afternoon. The list of senior ministers is thought to include chancellor, Philip Hammond, Brexit secretary, David Davis, environment secretary, Michael Gove and weakened foreign secretary, Boris Johnson, who famously said in July that the EU could “go whistle” over a divorce settlement. Hammond said at the weekend “we’ve always been clear it won’t be easy to work out that number, but whatever is due, we will pay”. Press reports suggest that the UK will formally offer about 40 billion Euros, versus the previous 20 billion. The news caused Sterling to rise more than half a percent to a two and a half week high of 1.3272, its strongest level since 2 November 2017. According to Bloomberg.

The U.K. could be about to improve its financial offer to the European Union ahead of a crucial meeting of the bloc’s leaders in December. Members of Prime Minister Theresa May’s divided cabinet will consider Britain’s divorce from the EU at a meeting Monday afternoon of the Brexit sub-committee that could be key to unlocking the most controversial matter in the negotiations — money. Britain is “on the brink of making some serious movement forward” and starting to break the “logjam,” Chancellor of the Exchequer Philip Hammond told the BBC on Sunday. While Hammond is among the most pro-European members of cabinet, his suggestion follows Brexit Secretary David Davis’s hint from Berlin on Friday that more details on a financial settlement would be presented within weeks. With businesses clamoring for clarity and the departure just 16 months away, pressure is mounting to break the impasse.

The impact of a 40 billion Euros settlement offer is hard to judge as it likely to fall short of the EU’s demands, while it might enrage a substantial proportion of the British public. Bloomberg continues.

The EU is pushing for Britain to pay at least 60 billion euros ($71 billion) to cover budgetary commitments and future liabilities such as pensions for EU civil servants. So far, May has said she will make 20 billion euros of budget payments after Brexit, and is going through the other items line by line. The Times said that while the government wouldn’t put a figure on it, it was likely to add another 20 billion euros to what it’s already agreed to. There’s a risk that might not be enough to unblock talks. It’s also unlikely to go down well domestically. “If we start saying that we’re going to give 40 to 50 billion to the EU, I think the public will go bananas, absolutely spare,” Robert Halfon, a Conservative lawmaker and former minister, said late Sunday in a BBC radio interview. “That is going to be very difficult if it is going to be that sum, amount of money.” Halfon has a point: one of the main messages of the pro-Brexit wing in last year’s referendum was that it would put an end to sending large sums of money to the EU, and polling shows the British public are adverse to paying a large exit bill. A YouGov poll in September found that even a bill of 20 billion pounds was unpalatable to 63 percent of voters surveyed.

Time is running out for the financial settlement to be agreed if it is to be approved at the next EU Council meeting in mid-December. After meeting Prime Minister May on Friday, EC President Tusk indicated that early December was the deadline. As Bloomberg explains.

“We are waiting for a substantial offer from the British,” Dutch Foreign Minister Halbe Zijlstra said on Monday.

 

“It has to be concrete and on the table instead of in the press”…

 

Time is pressing on Britain to come up with an improved offer after EU President Donald Tusk said early December would be “the latest” for additional concessions on the bill if talks are to advance beyond the divorce and on to future trading arrangements after a mid-December summit. “We will make our proposals to the European Union in time for the council. I am sure about that,” Hammond said in an interview with the BBC on Sunday. Asked if time was running out for the U.K. to make an improved offer on its exit payment, he replied that “the council is in three weeks, so, yes.”

With the deadline approaching, the posturing by both sides is ratcheting up and an agreement – or otherwise – will probably go down to the wire.

The process has been complicated along the way by what sometimes looks like a game of brinkmanship. In an interview with the BBC, Davis insisted that Britain has “made all the running” and that now “I want them to compromise,” meaning the EU. Tusk responded by saying he found that position laughable: “I really appreciate Mr. Davis’s English sense of humor.”

Another point is that success or failure could well be decided at the highest political levels and relatively last minute. In Berlin on Friday, Davis said “we’ll make some decisions, political decisions, later on.” The stalemate in Brexit talks is dragging on as EU leaders refuse to discuss a future trade deal with the U.K. until sufficient progress is made on money, guaranteeing rights of citizens, and the Irish border.

Ahead of today’s cabinet meeting, an MP from May’s party warned her not to “play Santa Claus” to the EU. As the BBC reports.

The UK government cannot afford to "play Santa Claus" to EU bosses by handing over billions of pounds, a Conservative MP says. Nigel Evans accused the EU of demanding "ransom money" from Theresa May to move Brexit negotiations forwards. He was speaking ahead of a meeting between Mrs May and senior ministers to try to make progress on the stalled talks.

This was May leaving church with her husband in a red coat on Sunday.

It’s been clear that EU bureaucrats were determined to extract the maximum possible settlement to punish the UK for leaving. However, the sudden weakening in Merkel’s position, after her failure to negotiate a new coalition government, might shake Brussels’ hardline approach enough to get a compromise deal over the finishing line.

We never fully bought into the “Merkel is May’s ally” narrative, but time will tell.

via http://ift.tt/2jGtQx2 Tyler Durden

Things just went from bad to worse for embattled Minnesota Senator Al "Frankenstein" Franken.

In an explosive new allegation, a Texa woman has told CNN that Franken grabbing her butt while the two were taking a photo together at the Minnesota State Fair, a story that several members of her family who were present at the time corroborated in separate interviews. The accusation is particularly troubling for Franken because the incident in question occurred in 201, two years after he had been elected to the Senate. Previously, former Playboy Playmate and sports broadcaster Leeann Tweeden accused Franken of "kissing and groping" her during a USO tour in 2006. To support her claims, Tweeden supplied a photo depicting Franken groping her breasts while she was sleeping with a wide grin spread across his face.

Over the weekend, Saturday Night Live, where Franken made his name as a comedy writer, included a few jokes bashing the alum during its "Weekend Update" segment.

Lindsay Menz, a 33-year-old woman who now lives in Frisco, Texas, reached out to CNN on Thursday hours after Tweeden made her story public saying she wanted to share an "uncomfortable" interaction with Franken that left her feeling "gross."

According to Menz, she attended the Minnesota State Fair with her husband and father in the summer of 2010, almost two years after Franken was elected to the Senate. Her father's small business was sponsoring a local radio booth, and she spent the day meeting various elected officials, political candidates and celebrities and taking photos with them as they stopped by the booth.

When Franken walked in, Menz and her husband, who corroborated his wife's story in a conversation with CNN, recognized the senator and struck up a brief but cordial conversation. Then, as her husband held up her phone and got ready to snap a photo of the two of them, Franken "pulled me in really close, like awkward close, and as my husband took the picture, he put his hand full-fledged on my rear," Menz said. "It was wrapped tightly around my butt cheek."

"It wasn't around my waist. It wasn't around my hip or side. It was definitely on my butt," she said, recalling that the brazen act lasted three or four seconds. "I was like, oh my God, what's happening."

 

"He reached around her and kind of pulled her into him," said her husband Jeremy Menz, who didn't see what happened behind his wife. "He pulled her in and pushed his head against her head. It was over pretty quick."

Lindsay Menz told CNN that she walked away as soon as the photo was taken, without saying anything to the then-first term senator. When she reconnected with her husband moments later, she told him: "He totally grabbed my butt." Jeremy Menz described that conversation the same way to CNN.

Franken told CNN he didn't remember taking the photo with Menz, but that he felt "badly" that she felt disrespected.

"I take thousands of photos at the state fair surrounded by hundreds of people, and I certainly don't remember taking this picture," Franken said. "I feel badly that Ms. Menz came away from our interaction feeling disrespected."

 

"I felt gross. It'd be like being walking through the mall and some random person grabbing your butt," Lindsay Menz said. "You just feel gross. Like ew, I want to wash that off of me."

 

"I was upset. I wasn't happy about it in the least," Jeremy Menz said. "He was already gone and I wasn't going to confront him. But yeah — I was in shock, really."

Menz's father, Mark Brown, said he didn't witness the incident but said his daughter told him about it immediately after. Menz's mother, Jodi Brown, also told CNN that she discussed the incident with her daughter immediately after it happened.

She said she distinctly recalls her son-in-law saying to her: "Our senator just groped my wife right in front of me."

Talk of Franken's groping even made it to Menz's Facebook page.

Menz posted the photo with Franken on Facebook at the time, on Aug. 27, 2010. Her sister, Cari Thunker, commented under the photo: "Sorry, but you two aren't Bibles (sic) width apart" – a reference to how physically close Menz and Franken were in the photo. Menz responded: "Dude — Al Franken TOTALLY molested me! Creeper!" (The exchange is visible to Menz's Facebook friends.)

Menz also contrasted her treatment by Franken with that of another Minnesota politician she met that day, former Rep. John Kilne. As Menz was getting ready to take a picture with Kline, she said the congressman asked her whether they should "mutually put our arms around each other" – an interaction that struck her as being in stark contrast with what she had experienced moments ago with Franken. Kline told CNN that he had attended the fair that year, but didn't recall seeing Franken touch Menz. However, he said he always made sure to get permission before putting his arm around a female while posing for photos.

"If somebody wanted a picture, I would ask: should I put my arm on your back or your shoulder?" Kline said. He said that as a congressman, he was particularly inclined to do this when taking photos with women.

Lindsay and Jeremy Menz moved from Minnesota to Texas in 2014. Lindsay Menz is now a stay-at-home-mom of three young kids. Neither is registered with a political party and she said she has equally supported Republican and Democratic candidates while he said he has tended to favor Republicans. The couple voted last year for Donald Trump, and Menz said she has voted for Minnesota Sen. Amy Klobuchar, who is a Democrat, in the past. Menz said she believes she has voted for Franken as well, but is not sure.

Menz said a friend encouraged her to contact a CNN reporter after seeing the network's coverage of sexual harassment in recent days. Menz said she "absolutely" would not have shared her story had Tweeden not done the same.

"I don't want to paint my story in the same light as hers," Menz said, saying she believes what happened to Tweeden is much worse.

Still, she said, "the reason I want to say something is if someone sees that I said something, maybe it would give them the courage to say something too."

After Tweeden went public with her story, Franken said he'd cooperate with a senate ethics investigation, and insisted that he "respects women."

"I respect women. I don't respect men who don't. And the fact that my own actions have given people a good reason to doubt that makes me feel ashamed," he said in a statement. "I understand why we need to listen to and believe women's experiences."

But like they say, actions speak louder than words.

via http://ift.tt/2z6DV9r Tyler Durden

Five days ago, Det. Sean Suiter, a married father of five and an 18-year veteran with the Baltimore Police, was patrolling the streets of West Baltimore around 5pm last Wednesday when he saw suspicious activity. Suiter approached a man and was shot point blank in the head, in a summary execution. He was rushed to the hospital in critical condition where he later died of his injuries.

Rest In Peace Detective Sean Suiter https://t.co/NiKIdmzbAD http://pic.twitter.com/l7vkrOKjMv

— Baltimore Police (@BaltimorePolice) November 16, 2017

In response, Baltimore Police reacted with ‘fire and fury’ turning the neighborhood where Suiter was shot into an “open-air prison”, shutting down city streets and enabling checkpoints for citizens while officers in tactical gear went door to door, according to Baltimore Brew. Residents were prohibited from entering their own neighborhood unless they showed proper identification, these extreme measures have been in place for 4-5 days.

“They’ve been to my house three times asking, ‘Did you hear anything? Do you know anything,’” said Edward Stanley, a local resident, who had to show a yellow slip before entering the neighborhood.

Baltimore Brew said, the neighborhood was tuned into “open-air prison”, as the complete lockdown was in attempt to collect evidence and search for the shooter.

Police initially said they needed to cordon off the area to try to capture the shooter. Police have said Suiter was in the 900 block of Bennett Place, investigating a previous homicide, when he was shot on Wednesday. So far, no arrests have been announced in the case. This morning, homicide detective Mike Newton told The Brew that the lockdown was necessary to collect evidence.

One community group took pictures of a checkpoint in West Baltimore.

#FreeWestBaltimore http://pic.twitter.com/P61qoDLHnq

— Baltimore BLOC (@BmoreBloc) November 19, 2017

15 @BaltimorePolice vehicles on Schroeder alone and dozens more on surrounding blocks. All the officers are just sitting in their cars. http://pic.twitter.com/M9zCCltdzK

— Baltimore BLOC (@BmoreBloc) November 19, 2017

Another twitter account describes how ‘the police declared marital law’, as one police officer with an assault rifle guards a corner.

And apparently police been standing on corners like this the last two days http://pic.twitter.com/y9Qrd2TSRe

— Pulla (@KINGDACEO) November 17, 2017

Citizens describe how their day lives have been disrupted as West Baltimore remains under police control, as per Baltimore Brew:

Two women walking down Franklin Street to get to their cars, parked blocks away because of the lockdown, complained that they had been harassed by officers.

 

“They know I live here. They’ve seen me come and go. But this one had to pat me down. He [the officer] went like this to my jacket, grabbing it,” said Shelly, 25, who asked that her last name not be used.

 

“They wanted to know where I had been. Why do I have to tell him that? It’s just me in my flip-flops trying to go to my own home.”

 

“We haven’t been able to get our mail for four days,” said the woman with her, Samantha, 50, who also asked not be identified. “Is the city going to pay the late fees on my bills?”

 

“It’s so sad what happened to the officer and I hope they catch whoever did it,” another woman said. “But this is really overboard. I’ve never seen anything like it.”

The ACLU of Maryland released a statement yesterday, who are “troubled by reports that some persons entering or leaving the area have been subject to pat down searches, and that non-residents have been barred from entering the area”.

“While the search for a killer is, of course, a high priority for the police, the limits on lawful police behavior do not disappear even when engaged in that pursuit.  And at least one federal appellate court has said that a similar police cordon and checkpoint system was unconstitutional.

 

“The residents of Baltimore, and, in particular, the residents of the affected community, deserve a clear explanation from the City as to why this unprecedented action has been taken, what rules are being enforced, and why it is lawful.  The need to secure a crime scene from contamination to preserve evidence does not, on its face, explain the wide area to which access has been restricted for days after the incident.”

 

On-the-ground information is scarce to those outside the cordon because access to residents, including by the media, has also been restricted. For that reason, we encourage anyone who has this kind of information to contact us at curtis@aclu-md.org.

WBALTV11 visited one checkpoint in West Baltimore:

West Franklin Street is back open to traffic.

Police plan to release the West Baltimore crime scene Monday morning #WBAL http://pic.twitter.com/AgyDlqjWQH

— Vanessa Herring (@VanessaWBAL) November 20, 2017

According to one citizen, ‘this is the 3rd time in less than 3 years that West Baltimore has been occupied by police’…

This is the 3rd time in less than 3 years that West Baltimore has been occupied by police:

1) April 27 – May 1 in 2015 after the funeral of Freddie Gray
2) June 27, 2016 at a street celebration of the life of rapper Lor Scoota
3) Nov. 16-???? in 2017 after Det. Suiter was killed http://pic.twitter.com/C85qSSl6Br

— T’Challa ??Ra ???? (@BmoreDoc) November 18, 2017

Baltimore Brew concludes by saying the Baltimore Police will “clear the crime scene” on Monday, so in a few hours.

Perhaps in a preview of things to come, the 4-5 day siege of West Baltimore by Police has been described by one resident as ‘Martial Law’. Readers concerned about social tensions in the US are urged to monitor events in Baltimore, which better than Chicago or Detroit now demonstrates just how the United States is marching straight into a new, Orwellian era.

via http://ift.tt/2z3XL56 Tyler Durden

 

 

The $2.4 Trillion Hidden “Fed Tax”

Written by Peter Diekmeyer, Sprott Money News

 

 

 

Jerome Powell’s support for the Federal Reserve’s low interest rate regime has long benefited investors, who reacted favorably to news that he would be Donald Trump’s nominee as its new chair.

 

Economists argue that those “unconventional monetary policies” helped the US economy avert a major depression following the 2008 financial crisis and have kept it afloat since then.

 

However, we couldn’t however find a single estimate of the costs of those policies.

 

That should come as no surprise. Free market economists have been essentially banned from academia, governments and the banking system, all of whom have a direct interest in masking the costs of public sector involvement in the economy.

 

So we did a “back of the envelope” calculation on our own, which suggests that ongoing Fed market manipulations equate to a $2.4 trillion annual wealth distribution from savers to borrowers.

 

The rest of this article is technical, and relates to the calculation of these distortions, which we refer to as the “Fed Tax”, and which the new Fed governor may, or may not address during his mandate.

 

However, the key takeaway for most readers is that this wealth redistribution (12.9% of GDP, almost as much as the $2.6 trillion Americans will pay in personal income taxes this year) is significantly hiding the scale of the US government’s involvement in the economy.

 

This in turn is making it impossible for policy-makers, researchers and voters to measure the costs and benefits of these wealth transfers.

 

*****

 

First a word of caution. These calculations were made on the back of an envelope, in a Montreal basement, by a non-economist.

 

As such, although we believe $2.4 trillion to be a useful working estimate of the Fed-managed annual wealth transfer from US savers to borrowers, considerable refinement and nuance is needed to come up with a more precise result.

 

Readers who have better ideas regarding methodology are invited to contact the writer or to comment below.

 

To determine the scale of Federal Reserve’s hidden manipulations we start by estimating what interest rates would be in a free market* and then we subtract the level they are at are right now.

 

We then multiply the difference (which equates to how much interest rates are being suppressed) by all outstanding debt in the US economy. **

 

*****

 

As we noted in a recent article, history suggests that the Fed’s and US government’s current interventions, could be depressing interest rates by at least 5.0 percentage points across the yield curve.

 

To get an idea of where interests rates would be in a free market environment (with a currency backed by gold and little inflation, credit risk or taxes on the interest), we cite the example of British consuls. As Richard Sylla and Sydney Homer note in their magisterial work A History of Interest Rates, consuls were perpetual bonds that yielded between 2.5% and 3%*** during much of the 100+ years that the British Empire was at its peak.

 

To give an idea of what 30-year US Treasuries (which have similar long-duration characteristics as British Consuls) would trade for in a free market, you’d start with the level their current yields are at (approximately 3%)**** in today’s managed economy.

 

You would add an inflation compensation premium (say 2%+, which investors would surely demand if there was no Fed money printing to buy up excess debt), a risk premium to account for the US government economy’s current record debt levels (of at least 1%) and compensation because interest payments are currently taxable (at a marginal rate of say 2% percentage points, or 25%), which they were not during the time of the British Consuls.

 

So, a theoretical minimum US Treasury yield in a free market environment under rough current economic conditions would be 3% + 2% + 1% + 2% = 8%.

 

This suggests that Fed manipulations are currently depressing yields on US 30-year Treasuries by 5 percentage points (8% – 3%) throughout the yield curve.

 

If we apply that rate to all $47.9 trillion in US non-financial debt, as per the Fed’s second quarter Z.1 Flow of Funds report, that suggests that government manipulations are transferring $2.4 trillion each year from savers to borrowers.

 

*****

 

Footnotes:

* Estimation of a free market rate of interest (which would vary depending in part on how much inflation, credit risk and taxation there is in the system) implies a free US currency market. This would put constraints on the Fed’s ability to tax savers by printing money, because if they did so, savers would abandon the dollar and instead opt for alternate, sounder currencies.

This rate should in no way be confused with Knut Wicksell’s “natural” rate of interest (which refers to an economy with stable prices) or the Federal Reserve’s “neutral” rate of interest (which refers to a rate that neither is neither expansionary or contractionary in an economy with 2% inflation).

** We assume that the interest rate distortions will occur throughout the yield curve.

*** We use gross, rounded approximations in this estimate, to make the calculation easier for the laymen to grasp.

**** We are rounding here. Actual rates on the day of this was written were 2.8%, the
approximate mid-point of the rough 2.5% -3%, range of the British consuls during minimal inflation and sovereign risk periods.

 

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

 

The $2.4 Trillion Hidden “Fed Tax”

Written by Peter Diekmeyer, Sprott Money News

 

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Having first surged above $8000 overnight amid Zimbabwe's chaos, it appears uncertainty in the core of Europe has driven further demand for cryptocurrencu protection, sending Bitcoin to a new record high of $8247 – up 50% from the 'Bitcoin Cash' crash weekend lows.

image courtesy of CoinTelegraph

As CoinTelegraph reports, the latest milestone for Bitcoin, which came following news the first Bitcoin-to-Litecoin Lightning Network ‘atomic swap’ successfully debuted, caps its comeback after Bitcoin Cash volatility.

BTC currently has a market cap of almost $134 bln against a cross-crypto combined cap of just under $240 bln, both numbers representing new records.

 

Bitcoin’s dominance has also recovered over the past few days to top 56 percent of the market after struggling to maintain supremacy as BCH caused considerable fluctuations.

 

BCH itself has come down off previous highs to languish around $1,200 – around 50 percent of its best prices. Staunch proponents of the Bitcoin fork as the ‘real Bitcoin’ are currently locked in a forking battle of their own as two strands of BCH emerged last week.

 

The product of a “malicious fork,” Bitcoin Clashic now represents the original Bitcoin Cash or developers describe it, “Satoshi’s true vision.”

As major supporter Roger Ver’s Bitcoin.com continues to point new users towards BCH, however, the Bitcoin community is coming out in increasing support of naive newcomers potentially unaware that BCH is not in fact Bitcoin.

 

Welcome to Bitcoin, newcomers! Here's your FAQ:

Q: Who should I trust?
A: Nobody.

Q: When should I sell?
A: Never.

Q: Is Bitcoin dying because ____?
A: No.

Q: What have I gotten myself into?
A: Nobody knows.

Q: How do I learn more?
A: https://t.co/POqNimM4uy

— Jameson Lopp (@lopp) November 19, 2017

For once the rest of the crypto space is not being sold to fund Bitcoin buys…

“The inflation in this thing is massive,” Luke Hickmore, a senior investment manager at Aberdeen Standard Investments in London, said in an interview with Bloomberg TV.

 

“When will it collapse? Who knows. It will cause a lot of pain.”

But there are some traders who are noting the worrying divergence between price action and volume in the latest surge…

“I find it remarkable and somewhat frightening how, no matter how much Bitcoin is pummelled by sellers, it simply bounces back even stronger,” said Lukman Otunuga, an analyst at currency brokerage ForexTime Ltd.

 

“Will bitcoin hit $10,000 before year end? This is the question every investor is asking.”

A recent survey by Nicholas Colas at DataTrek Reserach, done in conjunction with Triad Securities Corp…

The results of our bitcoin survey are in! We got over 300 responses, and there are three key takeaways from the data.

First, less than half of respondents (39%) think bitcoin is a bubble.

 

Second, there are still plenty of fence sitters, with more individuals who have considered a purchase than already invested.

 

Lastly, the median estimate for where bitcoin will end the year is below where it trades today ($7,800). Apparently Santa Claus rallies haven’t reached the crypto currency world just yet.

Here is a summary of the results and our comments:

Question: Where will bitcoin close the year (2017)?

• Average response: $7,381
• Median response: $7,800
• Standard Deviation of Responses: $2,555

Our comments: As expected, we had a wide range of responses here.Overall, the wisdom of this particular crowd says bitcoin may be range-bound through the end of the year. Still, with a standard deviation of $2,500, it could top $10,000 or drop close to $5,000 and still be within one sigma of the distribution.

Question: Where is bitcoin going?

• This is a bubble – it must crash: 39.4%
• Continue to rise at a much slower pace: 27.1%
• Value doubles in the next 6 months or sooner: 16.4%
• Don’t know/no opinion: 17.0%

Our comments: we were surprised the bubble response was less than 40% given widespread commentary in that direction and the age/experience of the respondents. By age, at least, our survey takers has seen their fair share of bubbles. We were ready to see +70% responses indicate bitcoin’s price is unsustainable. Less than 40% is, well, remarkable.

“Have you ever bought bitcoin or other crypto currencies?”

• Yes, but only in the last 6 months: 14.5%
• Yes, and I have been involved for +6 months: 16.7%
• No, never: 30.9%
• No, but I have considered it: 36.3%
• No, and I am unfamiliar with bitcoin/cryptos: 1.6%

Our comments: there are still plenty of fence sitters here, with those who have considered purchasing (36%) outnumbering those that have bought (31%). The big question is if they are waiting for a pullback, or further gains?

“Would you ever see bitcoin as a safe haven similar to gold?”

• Yes: 40.7%
• No: 42.9%
• Don’t know, no opinion: 16.4%

Our comments: this may be the most surprising finding of the survey. Even with widely reported wallet hacks and other systematic challenges, 41% of respondents think bitcoin can become something akin to gold as an investment safe haven.

Do you see bitcoin as a hedge against monetary policy?

• Yes: 39.1%
• No: 43.2%
• Don’t know/no opinion: 17.7%

Our comments: almost as surprising as the gold question, these responses show a sizeable minority believe bitcoin’s algorithm-driven limited supply can act as a non-correlated buffer against central bank policy.

Have you ever participated in an Initial Coin Offering or looked at such opportunities?

• Yes, and I have invested: 7.9%
• No, but I have considered investing: 29.0%
• No, and I won’t without more regulation: 14.8%
• No, and I have not looked at these offerings: 48.3%

Our comments: over a third of respondents have looked at or invested in ICOs. Not bad for a fund raising approach that is just a few years old. And over half might consider ICOs if/when the regulatory framework improves.

If you look at ICOs, how do you assess these opportunities?

• The three most popular answers, in order: Founders/Key Employees, Total Addressable Market, and Sector Addressed
• Less popular: Token type, Deal Pricing and Time to Market

Our comments: no surprise here, with ICO investors looking at exactly the same issues as venture capitalists.

What is your level of confidence in current bitcoin custodial offerings?

• High: 9.1%
• Medium: 29.7%
• Low: 25.9%
• Don’t know/no opinion: 30.0%
• I prefer traditional custodians: 5.4%

Our comments: this is a critical issue for institutional investors. In order for crypto currencies to achieve true “Asset class” status, investor confidence in custodial solutions has to improve.

What is your level of confidence in crypto asset liquidity?

• High: 7.9%
• Medium: 39.7%
• Low: 31.2%
• Don’t know/no opinion: 21.1%

Our comments: same thoughts here as the previous point. While respondents may feel marginally better about crypto liquidity, over half rate their confidence here as low or they just don’t know enough to judge.

Our final thoughts on the data presented:

• Institutional investors are taking bitcoin/cryptos seriously. If you’ve ever run an in-depth survey, you know getting 300 responses is difficult. The fact that we got even more shows there is tremendous interest in bitcoin and crypto currencies.
• Initial Coin Offerings are getting real attention as well. Investors already understand the due diligence process here – it is the same as venture-stage investing. Custody and liquidity across the crypto space do need to improve, however.
• A sizeable minority of respondents (39 – 40%) see bitcoin as a potential analog to physical gold, both as a safe haven and a hedge against mistakes in central bank monetary policy. Until blockchain technology becomes more widespread, that is probably the best way to consider buyers’ motivation for bitcoin.

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