Tag: news

Via Global Macro Monitor,

Money Fueled Bubble

Speculative manias gather speed through expansion of money and credit. Most expansions of money and credit do not lead to a mania; there are many more economic expansions than there are manias. But every mania has been associated with the expansion of credit. –Kindleberger & Aliber

M2 Money Supply Growth

Social Movement 

Stock prices are likely to be among the prices that are relatively vulnerable to purely social movements because there is no accepted theory by which to understand the worth of stocks….investors have no model or at best a very incomplete model of behavior of prices, dividend, or earnings, of speculative assets. – Robert Shiller

Galloway attributed part of Tesla’s (TSLA) meteoric rise to the buying influence of “mostly young men, mostly spending their stimulus checks, levering up their purchases and juicing the stocks.”  – Yahoo Finance

Know Thy Marginal Buyer

This person willing to pay top dollar is called the “marginal buyer”. Most of us don’t really think about him [her] much, but he (or she) is very, very important.

Why? Because the marginal buyer not only determines price levels, but also their stability and degree of volatility. The behavior of the marginal buyer, as well as the degree of competition for his/her “top dog” spot, sets the prices of nearly every asset class held by today’s investors.  – Peak Prosperity 

Crazy Town Valuation

This Time Is Different

• The central bankers, policymakers and investors involved in every financial bubble are utterly convinced that, in terms of economic events, “this time is different.”

• Otherwise-savvy people ignore the telltale signs of a bubble when they are in the grasp of “this-time-is-different syndrome.”

• Even brilliant thinkers like former Federal Reserve Chairman Alan Greenspan fall victim to this syndrome.

• Bankers and economists in the ’20s predicted that wars would not recur and the future would be stable.

• From 2003 to 2007, conventional wisdom said central bankers’ expertise and Wall Street innovations justified soaring home prices and rising household debt.

• In fact, rising home prices and financial innovation are strong indicators of a bubble.

• Currency debasement was common for centuries. In the past 100 years, inflation has replaced debasement.

• Financial crises have occurred regularly over the past two centuries. 

–  Reinhart & Rogoff

As Fed Chair Powell appears to be somewhat disappointing investors with his lack of enthusiasm for driving inflation higher fast.

As Bloomberg Intelligence Chief U.S. Rates Strategist Ira Jersey notes:

“With Chair Powell’s prepared remarks at Jackson Hole short on details, the markets appear concerned that the Fed won’t dramatically shift policy as was expected. While it’s still possible for the final framework release to create a bear steepening of the curve, today’s reaction appears to be a reversal of some positions that would have benefited from longer-term inflation and growth expectations rising.”

The markets are reacting ominously with the dollar being dumped…

Stocks kneejerking higher…

But, bonds are bid…

breakevens tumbling..

and gold surging…

Evercore ISI’s Dennis DeBusschere calls this excerpt the “money paragraph”:

“Our new statement explicitly acknowledges the challenges posed by the proximity of interest rates to the effective lower bound. By reducing our scope to support the economy by cutting interest rates, the lower bound increases downward risks to employment and inflation. To counter these risks, we are prepared to use our full range of tools to support the economy.”

It would appear credibility is fading fast.

*  *  *

Full Fed Statement:

Following an extensive review that included numerous public events across the country, the Federal Open Market Committee (FOMC) on Thursday announced the unanimous approval of updates to its Statement on Longer-Run Goals and Monetary Policy Strategy, which articulates its approach to monetary policy and serves as the foundation for its policy actions. The updates reflect changes in the economy over the past decade and how policymakers are taking these changes into account in conducting monetary policy. The updated statement is also intended to enhance the transparency, accountability and effectiveness of monetary policy.

“The economy is always evolving, and the FOMC’s strategy for achieving its goals must adapt to meet the new challenges that arise,” said Federal Reserve Chair Jerome H. Powell. “Our revised statement reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities, and that a robust job market can be sustained without causing an unwelcome increase in inflation.”

Among the more significant changes to the framework document are:

• On maximum employment, the FOMC emphasized that maximum employment is a broad-based and inclusive goal and reports that its policy decision will be informed by its “assessments of the shortfalls of employment from its maximum level.” The original document referred to “deviations from its maximum level.”
• On price stability, the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time.” To this end, the revised statement states that “following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”
• The updates to the strategy statement explicitly acknowledge the challenges for monetary policy posed by a persistently low interest rate environment. Here in the United States and around the world, monetary policy interest rates are more likely to be constrained by their effective lower-bound than in the past.

The Committee first adopted a framework statement in 2012.

This first public review of the FOMC framework was announced by Chair Powell in November 2018, and involved three distinct components. First, the Federal Reserve hosted a series of 15 Fed Listens events across the country to engage with employee groups and union members, small business owners, residents of low- and moderate-income communities, retirees, and others to hear a wide range of perspectives about how monetary policy decisions affect their communities. A report summarizing all of those events is available here: https://www.federalreserve.gov/publications/files/fedlistens-report-20200612.pdf.

Second, the Federal Reserve in June 2019 convened a research conference at which prominent academic experts addressed economic topics central to the review. That conference program, links to the conference papers and presentations, and links to session videos are available here: https://www.federalreserve.gov/conferences/conference-monetary-policy-strategy-tools-communications-20190605.htm.

Finally, the Committee explored the range of issues that were brought to light during the course of the review in five consecutive meetings beginning in July 2019. Analytical staff work put together by teams across the Federal Reserve System provided essential background for the Committee’s discussions. Minutes of those meetings are available here: https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm and a collection of those papers is available here: https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-system-analytical-work.htm.

The FOMC reported it would continue its practice of considering the Statement of Longer-Run Goals and Policy each January and that it intends to undertake a public review of its monetary policy strategy, tools, and communication practices roughly every 5 years.

Federal Reserve Chairman Jerome Powell is expected to reveal the conclusions of the central bank’s review of its monetary policy framework, and announce new measures to ‘control’ inflation – so-called “Inflation Averaging” at his annual speech on the U.S. central bank’s policy approach during the ‘Virtual’ Jackson Hole symposium this morning.

As Shard Capital’s Bill Blain notes, “this is going to be a profoundly significant moment” for all the Fed-Watchers who have spent years deciphering every syllable and nuance for signs of what policymakers will do next, because “this is basically the end of everything they have have been doing…”

“Although The Fed is going to continue with its 2% inflation target, instead of worrying about its price stability mandate, if inflation looks likely to go above their target, then ‘inflation averaging’ enables The Fed to ‘not’ react.”

Instead, Blain explains, “it will allow inflation to remain higher, for longer, i.e. averaging for the periods that it’s been sub-target.”

This is just words, Blain concludes, “it’s the meaning that’s more important – it means The Fed can ignore inflation and it is signaling that to the market… whioch means The Fed won’t hike rates if and when the economy overheats and inflation rises.

Simplifying:

‘Inflation Averaging’ means “don’t worry about rate-hikes, or any normalization of rates, we are so desperate for inflation we are going to encourage it and we want markets to love it… it’s a way of reassuring markets that there’s never going to be another interest rate rise!”

All of which leads to Blain’s final words – “hedge! …with gold… for the inevitability of this all going wrong!”

And Powell is doing this despite a Fed study earlier this year warned that adopting a higher inflation target raises the risk of getting caught in “never-ending monetary accommodation even when real economic activity is strong or when financial stability risks accumulate.”

As Bloomberg’s Laura Copper adds, this time around, it’s central bank credibility that will be at stake with such a policy shift.

We saw this with the Bank of Japan in January 2013, when it adopted a higher inflation target in an effort to end chronic deflation — only to be met with disappointment.

Other potential pitfalls could revolve around policy mechanics. In a working paper published earlier this month on average inflation targeting, the San Francisco Fed noted that it will be challenging to determine how much inflation the central bank would want to see to consider it on target.

There’s also uncertainty over the extent that the Fed is willing to let inflation run hot and for how long — all of which could send mixed signals to the bond market and spur investors to demand greater compensation.

As Blain said – this won’t end well – got gold?

So, without further ado, watch Jay Powell live (starting at around 0910ET) explain how higher inflation for years to come is ‘good’ for America!!

Full Speech:

Powell 20200827 A by Zerohedge

Abbott Labs has become the focus of Thursday’s rolling coronavirus coverage, as the FDA’s approval – coming just days after the whole patient plasma approval controversy – of Abbott’s 15-minute rapid COVID-19 test – which will be priced at just $5 a pop – has quelled fears about falling testing numbers along the sun belt. Now, parts of the country where test turnaround times still lag finally have a solid chance of getting up to speed.

What’s more, testing that’s rapid, plentiful and cheap is the centerpiece of what many experts have embraced as a “sustainable” alternative to lockdowns: Regular testing. Even if the rapid tests aren’t as accurate, the logic goes, teachers and students and co-workers will be tested so regularly that nearly all positive cases should be caught before becoming contagious.

Abbott shares are soaring on the triumph, though the FDA has approved other testing innovations like at-home testing kits.

Abbott’s product, BinaxNOW, works without laboratory equipment, and involves using a nasal swab and a small reactive card, which will deliver the result within minutes akin to an at-home drug test. The test can be administered by a range of health-care workers, including, crucially, pharmacists, at almost any location.

Moving on, experts rejoiced on Thursday as the latest batch of global data showed outbreaks in the US and Brazil continuing to slow, while new hotspots in Argentina and elsewhere simply aren’t spreading fast enough to make up for the falling case numbers in the world’s biggest outbreak zones.

Deaths have been declining, too, with some experts proclaiming that the downward trend seen over the past two weeks is likely to hold.

In the US, the average number of new deaths over the past week dipped below 1,000. Perhaps the irony is that the US is now technically worse than Brazil in terms of cases/population.

The US remains no. 1 in practically every other aspect.

US is now worse than Brazil for cases per 1 million people. pic.twitter.com/22lPgGok6A

— Jim Edwards (@Jim_Edwards) August 27, 2020

Jared Kushner spoke to the press Thursday morning following news of a new deal with AstraZeneca for the Oxford/Astrazeneca vaccine that the US is on track to keep its promise of having 100 million doses of a vaccine by the end of the year.

But perhaps the biggest news in the Americas is that Argentina’s outbreak has now overtaken Iran’s.

Argentina has overtaken Iran in ranking of most cases. pic.twitter.com/Y5H73jeADb

— Jim Edwards (@Jim_Edwards) August 27, 2020

Across the US, the outbreak is solidly in decline.

Africa Centers for Disease Control and Prevention’s John Nkengasong reported some optimistic news on Thursday. Fears that Africa’s outbreak was on the cusp of a major escalation have abated as 23 of Africa’s 54 countries have reported a sustained decrease in new confirmed coronavirus cases over the past two weeks.

Meanwhile, in the latest testament to just how difficult COVID-19 can be to stamp out, South Korea’s parliament has closed after a photojournalist covering the governing party tested positive on Wednesday. The closure comes as the country reported 441 additional coronavirus cases (prev. +320). Health officials urged businesses to ask employees to work from home as the new cases were the largest single-day tally since March, the latest in a series of multimonth highs recorded in recent days.

Finally, India recorded another single-day record of new coronavirus cases with 75,760 new infections reported over the past 24 hours. The Indian health ministry also reported 1,023 deaths, pushing the country’s death toll from the pandemic to 60,472.

Authored by Michael Maharrey via SchiffGold.com,

It’s easier to understand gold’s record-breaking move up if you look at it from the other side of the equation. The dollar is now at its all-time low compared to gold. In simple terms, the dollar is losing value and dollar debasement is driving up the price of gold.

This isn’t a narrative you don’t typically hear on the mainstream financial networks, but there seems to be a growing awareness that the dollar and the system based on it might be in trouble – even in the mainstream investment world.

We’ve seen Warren Buffett make a bet on gold, and Goldman Sachs recently warned that the dollar could be in danger of losing its reserve status.

Now, Wells Fargo has weighed in, warning in a report that the bull run in gold signals “a growing lack of trust in the world’s monetary system.”

Wells Fargo head of real asset strategy, John LaForge, penned the report, noting that gold has been on a strong three-year run with the price up about 35% in 2020 alone. He outlined three primary reasons gold has gone up.

1. Low real long-term interest rates.

2. Excessive global money printing (quantitative easing).

3. A weakening US dollar.

LaForge goes on to offer a fourth ”meta” reason for gold’s bull run that he called “the elephant in the room.”

It’s called ‘trust.’ Trust in money, over the very long term, has been a fickle thing. No paper money has survived time, while gold has. Gold is history’s trusted ‘store of value.’”

LaForge isn’t ready to perform last rights on the dollar-based monetary system just yet. He wrote that it is working today and is largely trusted. But he does think that trust is beginning to fray around the edges.

The recent rise in gold prices and cryptocurrencies may be a sign that a small, but growing, contingent is questioning the world’s monetary system.”

LaForge argues that trust is the pillar of any monetary system. When that trust breaks down, the entire system can collapse. When that happens, then what? People will revert to something proven to be trustworthy. And what has been trusted as money throughout history?

Gold.

This is why gold, through much of history, has been tied to money. If history tells us anything, it is that money is only worth what someone else is willing to give you for it. If it can’t be trusted to have value, what was once money can become worthless. It seems that recent generations know little about gold and its historical role. Gold was ditched by the West as money about 100 years ago, in favor of trusting government and institutions.”

But there are plenty of reasons not to trust government and government institutions.

Since the economy crashed thanks to the governments’ shutdowns in response to the coronavirus, the federal government has borrowed trillions of dollars for its stimulus program. The June budget deficit was bigger than all but five of the yearly deficits in history. Meanwhile, the Fed is monetizing a big chunk of that debt through its government bond purchase program. In effect, it is buying up US debt and paying for it with money printed out of thin air.

Normally, the threat of price inflation would put a check on Fed money printing, but the central bankers have made it clear that they intend to let consumer prices run hot as a matter of policy. The question is if they let the inflation genie out of the bottle, will they be able to keep it under control?

I wouldn’t count on it. As Peter Schiff tweeted after gold pushed above its record price:

This record won’t last long as the dollar’s decline is only just getting started. It’s about to plunge to new depths taking the American standard of living down with it.”

If you ask me, the growing lack of trust in the dollar system is more than warranted.

For the second week in a row – as the ‘recovery’ ebbs – over 1 million Americans filed for first-time jobless benefits last week…

Source: Bloomberg

The 1.006 million print was a very modest improvement over last week’s 1.104 million but is the 22nd of the last 23 weeks where over 1 million Americans have filed.

Continuing Claims dipped very modestly from 14.758 million to 14.535 million as the rebound slows dramatically…

Source: Bloomberg

Don’t these people look at the stock market?!!

One month after the worst ever GDP print in US history revealed that in the 2nd quarter the US economy contracted by -32.9%, moments ago the BEA unveiled in its first revision of GDP that the slowdown was just modestly better than expected, coming in at -31.7%, beating expectations of a -32.5% number.

The decrease in real GDP reflected decreases in consumer spending, exports, business investment, inventory investment, and housing investment that were partially offset by an increase in government spending. Imports, a subtraction in the calculation of GDP, decreased.

The decrease in consumer spending reflected a decrease in services (led by health care) and goods (led by clothing and footwear). The decrease in exports primarily reflected a decrease in goods (led by capital goods). The decrease in business investment primarily reflected a decrease in equipment (led by transportation equipment). The decrease in inventory investment primarily reflected a decrease in retail (led by motor vehicle dealers). The decrease in residential investment primarily reflected a decrease in new single-family housing. The increase in government spending reflected an increase in federal spending related to payments made to banks for processing and administering the Paycheck Protection Program loan applications.

Looking at the 1.2% improvement in the GDP estimate from the original print, it was the result of an increase in government spending reflected an increase in federal spending related to payments made to banks for processing and administering the Paycheck Protection Program loan applications.

Some details:

• the decline in personal consumption was revised higher from -25.05% to -24.76%
• the decline in fixed investment was revised from -5.38% to -5.20%; Nonresidential fixed investment, or spending on equipment, structures and intellectual property fell 26% in 2Q
• the decline in change in private inventories was revised from -3.98% to -3.46%
• the boost from net trade was revised from 0.68% to 0.90%
• the contribution from government was unchanged at 0.82%

For those keeping tables on inflation, the GDP price index fell 2% in 2Q after rising 1.4% prior quarter; core PCE q/q fell -1% in 2Q after rising 1.6% prior quarter.

In the first look at corporate profits, the BEA calculates that profits from current production decreased 11.1% at a quarterly rate
in the second quarter after decreasing 12.0% in the first quarter. Corporate profits decreased 20.1% in the second quarter from one year ago.

Profits of domestic non-financial corporations decreased 15.0 percent after decreasing 14.4 percent.Profits of domestic financial corporations increased 9.2 percent after decreasing 8.9 percent. Profits from the rest of the world decreased 20.3 percent after decreasing 8.4 percent.

Overall, while still historic, the GDP number was largely expected within a margin of error, and the question is how far does GDP rebound in the all to key third quarter, the first look of which we will get just days before the presidential election on Nov 3.