While his recent warnings about a return to market turbulence may have fizzled as a result of another unprecedented recent round of central bank intervention, by both the BOE and BOJ, who expanded their asset purchase programs to corporate bonds and doubling ETF monetizations, respectively while scapegoating Brexit, the period of calm is ending, and moments ago JPM’s head quant Marko Kolanovic has released a new report, according to which the recent period of eerie, record calm across asset classes is about to end, warning that “we expect a significant increase in realized volatility, correlations and tail risk in September and October.“

According to Kolanovic while a driver of the recent market stability the “relatively stable macro data and a seasonal decline in trading activity” he explains that “a significant driver of the volatility collapse was derivatives hedging effects, also known as pinning”, as well as the near all-time high leverage for Volatility Targeting and Risk Parity strategies. However, “this is all about to change as a number of important catalysts materialize this month (ECB, BOJ, Fed meetings), seasonals push market volatility higher, and leverage in systematic strategies and option positioning provide fuel for volatility.“

His full thoughts:

As market volatility plummeted, investors added to option protection and moved (struck) it closer to current price level. The market would need to move only 1-2% lower for option hedging to push volatility higher (as opposed to suppressing it, which was the case past 2 months). Given the low levels of volatility, leverage in systematic strategies such as Volatility Targeting and Risk Parity is now near all-time highs. The same is true for CTA funds who run near-record levels of equity exposure. Our estimate of equity exposure for these strategies is shown in Figure 1.

 

 

 

Record leverage in these strategies and option hedging could push the market lower and volatility higher, if there is an initial catalyst to increase volatility. In fact, we may not even need a specific catalyst, apart from the seasonal increase in market volatility which is typical for September and October. Figure 2 above shows that equity volatility tends to increase by ~20-30% in September and October  (September also tends to be the worst performing month, with an average -1% return). This seasonality is also present after removing prominent outliers (e.g. 2001, 2008, 2011, and 2015). When it comes to deleveraging of systematic strategies, even this seasonal increase in realized volatility would produce outflows of ~$100bn, which could push the market lower.

 

It seems that equity long-short investors are already anticipating a potential weak September, as their equity exposure (equity beta) declined over the past month. The low exposure of long-short hedge funds, and the fact that equity momentum would only turn fully negative below ~2000 on the S&P 500, are the only two positives we see for the market going into September.

It’s not just the threat of a quant-deleveraging, noted recently by Bank of America, that keeps Kolanovic on his toes. He says that “a more troubling development would be if data from central banks (ECB, BOJ and Fed) signal monetary policy tightening” noting that “this could result in a significant selloff across asset classes.”

We believe that CBs will stay accommodative (e.g. no September Fed hike, accommodative ECB/BOJ) and hence this negative scenario will likely not materialize. To look for indications of such negative developments, many investors started monitoring cross-asset correlations. These correlations recently increased to near-record levels (Figure 3, and for a primer please see our report Rise of Cross-Asset Correlations). We want to make few observations about cross-asset correlations that perhaps make this recent rise less alarming. First, most cross-asset correlation measures incorporate bond-equity correlation with a negative sign (equivalently, rate-equity correlation has a positive sign, i.e. correlation spikes in risk-off events when bonds and equities move in opposite direction). A potential tail event driven by central banks would happen if bonds and equities drop together. Also, cross-asset correlation measures are backward looking – the current near-record level of cross-asset correlation can in part be explained by a sharp move of risk assets (and bond rally) during Brexit. Indeed, over the past few weeks, cross-asset correlations have started declining.

The risk of risk-parity deleveraging as a result of a spike in cross-asset corrlations was discussed one month ago by BofA, in an article we wrote explaining “What Would Prompt Another “Risk-Parity” Blow Up” with Kolanovic piggybacking on this theme. But there’s more:

More concerning than the level of cross-asset correlations, is how quickly they have been changing over recent past months. This large instability of correlations makes it harder to forecast and hedge risk for a multi-asset portfolio and strategies such as risk parity. For example, rate-equity correlation spiked on Brexit to +90%, and then dropped below 0 (with resurfacing fears of CB normalization). High levels of rate equity correlation help strategies like risk parity and volatility targeting, and negative correlation is harmful. Similarly, correlation of FX to equities (e.g. EUR/USD vs. S&P 500) spiked to +75% on Brexit and then quickly dropped to -60%. Average stock correlation spiked to +70% on Brexit and then declined to only 10% in August. These record swings in the levels of cross-asset correlation point to a high level of macro uncertainty which makes asset allocation difficult.

So what is Marko’s recommendation for those who wish to avoid what may be another significant spike in volatility?

Clients who want to hedge levels of cross-asset correlation can invest in gold – over the past 10 years, gold returns were ~45% correlated to changes in cross-asset correlation (Figure 3).

To be sure, there is one simple alternative that would once again collapse the volatile scenario envisioned by the JPM quant: all it would take, is for central bankers to not engage in any risky, renormalization, which is the core catalyst that would topple the house of cards over.

Which is why Kolanovic concludes with this simple prediction:

“even a simple analysis shows that any benefit from higher yields would be more than offset by negative price impacts on bonds and other risky assets. Given these considerations, we think that central banks will not move towards normalization any time soon (e.g. no Fed hike in September)“

Of course, this also means that central banks are effectively forever “trapped” into pushing risk assets forever higher, with the increasingly unpalatable social side effects of rising violence, discontent and general revulsion at a system that has become clear to all caters to just the narrowest, and wealthiest, subset of the population.

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

Submitted by Alex Christoforou via TheDuran.com,

Call it “Plan B”…It’s all being laid out, right at our feet . On Google and Facebook, during US late night shows, through CNN, MSNBC, the Washington Post and New York Times.

It will be the final death of whatever was left of American democracy.

The test run was accomplished with few casualties during the Democratic primaries, where Hillary Clinton and the DNC assured victory by rigging the entire voting process.

Debbie Wasserman Schultz lost her job as DNC Chair, but found a better job with the Clinton Campaign, and then won her Democratic primary Congressional District in Florida with little difficulty.

Bernie Sanders, who had the election stolen right from under his feet, fell quickly in line with his masters, and pathetically kissed Hillary’s ring in an embarrassing display of beta manhood.

Now we are all being prepared for the ultimate con. The Ocean’s Eleven of heists. The Presidency of the United States of America. The preparation is well underway.

The entire Democratic party is in on it. No one in the party speaks poorly of Clinton, no one questions her “careless” behavior, if not completely illegal and treasonous crimes.

The main stream media is all in on it. They censor Hillary fuck ups daily. The hide her obvious health issues. They ask her softball questions like “how was your labor day weekend?”…that is when they can actually get an audience in front of the recluse candidate.

Hollywood is all in on it. Late night TV stars bash Donald Tump relentlessly, and leave Hillary untouched. George Clooney, Will Smith, Leonardo DiCaprio, Justin Timberlake…all the big name A list stars are #WithHer.

Alternative news media sites are also in on the it. The Young Turks was a heavy Sanders supporter, now they gush at Hillary and have mounted a massive Youtube campaign against Trump.

Even the FBI is in on it. What was a slam dunk indictment turned into a total farce. New email releases show just how complacent the FBI was during its Hillary questioning. They let her walk. Any other American who had committed half of what Hillary had done would be locked up for life.

And Barack Obama is in on it. Last week we were all teased with the news that the Obama administration and the Department of Homeland Security were considering a seizure of state election infrastructure before the ballots open in November.

Plan B is in full effect. The polls are tightening…and tightening fast.

Hillary’s August cushion has completely evaporated. Hillary spent August in hiding. People asked questions. “Where is Hillary?”  When she did appear it was a disaster.

She coughs without end. When she does manage to string two sentences together all she can do is toss around blame for her utter incompetence, on other people and shadowy entities (“Alt-Right?”).

The “things” that Clinton talks about, that derail her holy liberal ascendance to the thrown, is Plan B in full effect…and everyone is in on it.

Russia. Vladimir Putin. Manchurian candidate Donald Trump. Breitbart. Election hacking.

Plan B was unnecessary in August, but now the numbers coming in have unnerved the establishment. It is time to make Hillary’s presidency a 100% guarantee.

Zerohedge points out that…

Just a few short weeks after Hillary Clinton’s convention propelled her to an 8-point lead among registered voters in an early-August CNN/ORC Poll, Clinton’s lead has largely evaporated despite a challenging month for Trump, which saw an overhaul of his campaign staff, announcements of support for Clinton from several high-profile Republicans and criticism of his campaign strategy. Hillary on the other hand, has suffered from the latest FBI document release Snafu, which has further dented her credibility, while concerns about her health continue to spread among the general public.

 

Just days after the latest Reuters/IPSOS poll showed Trump jump to a surprising lead, and wiping away what some had said was an “insurmountable” Hillary lead, moments ago the first post-labor day poll by CNN/ORCshowed that Donald Trump and Hillary Clinton start the race to November 8 on essentially even ground, with Trump edging Clinton by two points among likely voters, and the contest sparking sharp divisions along demographic lines in a new CNN/ORC Poll.

 

Trump tops Clinton 45% to 43% in the new survey, with Libertarian Gary Johnson standing at 7% among likely voters in this poll and the Green Party’s Jill Stein at just 2%.

 

Even more alarming for Hillary Clinton…the difference in independent support.

Among those likely to turn out in the fall, both candidates have secured about the same share of their own partisans (92% of Democrats back Clinton, 90% of Republicans are behind Trump) but independents give Trump an edge, 49% say they’d vote for him while just 29% of independent voters back Clinton. 

 

POLL: Trump leading independents by 20 points http://pic.twitter.com/nm3xxO4bT1

— FOX & Friends (@foxandfriends) September 6, 2016

 

Numbers never lie, and the recent polling numbers (tweak them as much as you want), show Trump surging, and Hillary imploding. Plan B time.

When Donald Trump wins the US Election, the Russian hacker narrative will be disseminated on to the dumbed down, conditioned public. Media, internet, social…full on distribution. The title is already in place…

“Russian hackers, under the control of the evil Vladimir Putin, have the capability to hijack US election systems, in order to secure a victory for Russian controlled candidate Donald Trump,” unnamed NSA officials said to CNN.

Barack Obama will spring into action and declare the entire US election process “may have been” hacked.

Evidence is not needed, and can always be given in the form of tweets and FB posts, without having to actually disclose hard facts (those will be marked “C” for classified).

Obama then suspends the election results.

The NSA, FBI, CIA begin investigations into the possible hack as disclosed by unnamed sources. The Justice Department, under the always reliable Loretta Elizabeth Lynch, certifies all findings from the investigation.

Hillary Clinton is declared the winner.

Priority number one, Russian aggression. Syria no-fly zones are imposed to challenge Russia’s strength in the Middle East. US Secretary of State Victoria Nuland activates neo-nazi terrorists cells to stir up false flag in Ukraine. Sanctions are ramped up. The bankrupt and corrupt European Union leaders do as President Hillary commands.

America’s cancerous internal problems are washed away under an all out economic, military, and cyber attack against Russia. China, is next.

Don’t think for even one minute that the plan to steal the US election, when Donald Trump wins, has not already begun.

Russia is being positioned to kill two birds with one stone. Hand Hillary the election victory, and then give the new President the casus belli to confront Vladimir Putin. A final Hollywood showdown between good and evil…distracting the American public from the mounting problems at home.

Zerohedge lays out how Plan B is quickly unfolding…

Hillary is now joining in on the “fear mongering tour” telling a rally in Illinois that there is “credible evidence” for U.S. intelligence officials “to pursue an investigation into Russia’s efforts to interfere with our election.” Per NBC News, when asked recently whether she thought Putin was interfering with U.S. elections in an effort to help Trump, Hillary responded with her favorite, folksy, Arkansas saying:

 

“If you find a turtle on a fence post, it didn’t get there by accident.  I think it’s quite intriguing that this activity has happened around the time Trump became the nominee.”

 

Isn’t she just so down to earth and relatable?  For some reason we’re suddenly reminded of another saying that involves glass houses and stones.

 

Hillary continued with the usual rhetoric painting Trump as just another of Putin’s “useful idiots.“

 

The Democratic nominee told reporters on her plane that Trump has “urged the Russians to hack more, and, in particular, hack me, and he has generally parroted what is a Putin-Kremlin line.”

 

The allegation against Russia by U.S. intelligence officials “raises further questions about Trump,” Clinton added, “and I think those are questions the American people should be asking and answering.”

 

The Republican nominee, she said, has “very early on allied himself with Putin’s policies … And he furthermore has praised Putin, he seems to have this bizarre attraction to dictators, including Putin.”

 

Ironically, Hillary’s comments came just hours after the Washington Post joined in on the accusations on “Russian plan[s] to disrupt November elections.”  The report came despite a U.S. intelligence official cautioning the Post that there is no “definitive proof of such tampering, or any Russian plans to do so.”

 

U.S. intelligence and law enforcement agencies are investigating what they see as a broad covert Russian operation in the United States to sow public distrust in the upcoming presidential election and in U.S. political institutions, intelligence and congressional officials said.

 

The aim is to understand the scope and intent of the Russian campaign, which incorporates ­cyber-tools to hack systems used in the political process, enhancing Russia’s ability to spread disinformation.

 

A Russian influence operation in the United States “is something we’re looking very closely at,” said one senior intelligence official who, like others interviewed, spoke on the condition of anonymity to discuss a sensitive matter. Officials also are examining potential disruptions to the election process, and the FBI has alerted state and local officials to potential cyberthreats.

 

The official cautioned that the intelligence community is not saying it has “definitive proof” of such tampering, or any Russian plans to do so. “But even the hint of something impacting the security of our election system would be of significant concern,” the official said. “It’s the key to our democracy, that people have confidence in the election system.”

 

Seems that Hillary is more than willing to allege fire when it is politically expedient and despite no “definitive proof” while dismissing the many plumes of smoke surrounding her various personal scandals as mere “conspiracy theories” conjured up by “alt-right” nut jobs.

 

Certainly, any credible threat aimed at undermining the confidence of the American electorate in the election process is something that should be taken very seriously.  However, propagating rumors and speculation of such a serious threat against our democracy without any “definitive proof” is wildly irresponsible.

via http://ift.tt/2ct3Xss Tyler Durden

 

 

 

Bill Gross just called out Janet Yellen as the penultimate market manipulator.

Gross, former head of PIMCO and current manager of Janus funds, recently echoed Rick Rule, assigning blame to the Fed for deferring short-term pain at the expense of long time gain. Mr. Gross’s comments are timed as the Fed continues to debate whether to raise interest rates after years of keeping them anchored in an effort to stimulate the economy and generate inflation. Instead, Gross said, the Fed has merely inflated asset prices while actually harming the economy.

His solution for investors? Avoid stock and bonds, move toward gold and tangible assets.

We’re glad Mr. Gross has finally caught up.

But as this has been an ongoing narrative for gold investors since 2011, we asked Rick Rule what has changed in the gold story.

Rick explains: “In 2011, there was an entire narrative around the gold market, when gold was at $1,900, and that narrative was partly about U.S. markets; that is, higher incomes in places like India and China that had historic cultural affinity to gold. But, the other part of the discussion was really about the ability of U.S. Treasury securities and the U.S. dollar to retain the degree of hegemony as savings instruments that they had always enjoyed. The narrative in 2011 was that U.S. Federal Government on-balance sheet liabilities, at $16 trillion, were unsustainable, and worse, the off-balance sheet liabilities of $55 trillion were similarly unsustainable (and those numbers didn’t include state and local debt or pension obligations or stressed individual corporate balance sheets).”

Today, on-balance sheet liabilities are no longer $16 trillion. They are estimated at $19 trillion.

And investors somehow seem more sanguine at that higher level. Off-balance sheet liabilities, similarly, have moved from $55 trillion to $90 trillion.

The perception of sustainability is partly explained by the ongoing strength of the US dollar, which was all too uncertain in 2011. Rick
explains, “I would suggest to you that is not a consequence of the strength of the U.S. economy or our collective balance sheet, but rather the weakness of the competition. I don’t think I have to recount the difficulties that emerging and frontier markets have faced, or the difficulties that Japan and Euro-zone face.”

In terms of the macro case for gold, its market dominance has eroded. In the 1980s, at the peak of that manic bull market, gold and gold related equities enjoyed an 8% market share of investable assets among U.S. savers and investors. The median and mean converge over the last three decades at about 1.5%. The current percentage is 0.33%.

And with national mouth-pieces like Bill Gross suddenly remembering the benefits of gold and other tangible investments, will we see a reversion to the mean? According to Rick, “I’m not suggesting that it will immediately get back to 1.5%, but even if we got back to half of mean, that would double demand for gold and gold related equities in a market where the U.S. still counts for 24% of the world’s investable assets.”

 

Please email with any questions about this article or precious metals HERE

 

 

Written by Sprott U.S. Media

via http://ift.tt/2bYiw97 Sprott Money

While Obama has repeatedly touted the sub-5.0% unemployment rate (4.9% most recently) as confirmation his “economic recovery” has been successful, what has received far less media attention has been the unprecedented surge in Americans no longer in the labor force, which as of August stood at a near-record 94.4 million.

And while the traditional response by economic apolists and the media has been that this number is the result of a demographic change in US society, with mostly older workers no longer in the labor pool, we have over the years argued that that is misleading, and that millions of prime-aged workers have fallen out as a result of drastic changes to America’s job market, coupled with structural lack of demand for legacy jobs, which has – for example – sent the number of employed waiters and bartenders to all time highs even as the number of manufacturing workers is lower than it was in December 2014.

 

 

Overnight, NPR confirmed precisely what we have claimed for so long, when it said that while the nation’s unemployment rate is half of what it was at the height of the Great Recession: saying that the unempoyment number “hides a big problem: Millions of men in their prime working years have dropped out of the workforce — meaning they aren’t working or even looking for a job.”

Citing a recent report by Obama’s Council of Economic Advisors, NPR notes that 83% of men in the prime working ages of 25-54 who were not in the labor force had not worked in the previous year. So, essentially, 10 million men are missing from the workforce.

Putting that number in context, in the 1960s, nearly 100 percent of men between the ages of 25 and 54 worked. That’s fallen over the decades.

The condemnation of Obama’s “recovery” is dire: “One in six prime-age guys has no job; it’s kind of worse than it was in the depression in 1940,” says Nicholas Eberstadt, an economic and demographic researcher at American Enterprise Institute who wrote the book Men Without Work: America’s Invisible Crisis. He says these men aren’t even counted among the jobless, because they aren’t seeking work. According to Eberstadt little is known about the missing men, but there are numerous factors that make men less likely to be in the labor force — a lack of college degree, being single, or being black.

Why are men leaving? And what are they doing instead? An anecdote from NPR sheds some light:

They might be like Romeo Barnes. He lives in District Heights, Md., and his last job as a Wal-Mart greeter ended 11 years ago. He’s 30, black, single and has cerebral palsy.

“I have able-bodied friends who can’t find work, so it’s not just me,” Barnes says.

 

He says he has sought administrative jobs but that his disability and not having a college degree hold him back.

 

“Men are traditionally known for labor work. The lower-educated guys have to do stuff like that. And that’s being taken away because we have machines,” he says.

 

Indeed, economists say technology and overseas competition are displacing many jobs. The number of people collecting disability insurance, like Barnes, has also increased.

 

AEI’s Eberstadt says criminal records may also play a factor. Some 20 million Americans have felony convictions — the vast majority of whom are men. But, he says, it’s hard to know how big a factor that is, because the government doesn’t keep data on their employment status.

 

“Something on the order of one out of every eight adult men has got a felony conviction, and we don’t have the slightest clue as to their employment patterns,” Eberstadt says.

What the missing men aren’t doing in large numbers is staying home to take care of family. 40% of nonworking women are primary caregivers; that’s true of only 5 percent of men out of the workforce. But they do exist: take the example of Virginia Beach dad Jory Rekkedal quit his IT job a year ago to take care of his two girls — a gig he has loved.

“I wasn’t going to go back to work. It was almost going to just be a nice transition into retirement for me — a very early retirement. I mean, I’m only 36 years old,” he says.

And if he does go back to work, he worries about the prospects.

 

“Things move really, really, really quick [in IT], and I’m worried that if we can’t make it work, that I’m going to go looking for a job and they’re going to say two years out of it, ‘Sorry, brother, you don’t have what it takes to work here anymore,’ ” Rekkedal says.

Tara Sinclair, chief economist for job-search site Indeed.com, says brawny jobs are being replaced by brainy ones, and that trend doesn’t favor men. “The question is, is this the new normal? Or, with the right economic conditions, the right opportunities, will those people come back into the labor market?” she says.

It gets worse: Sinclair says if men keep exiting the workforce, that could strain the social safety net and hold back economic growth. Some, like Richard Hintzke, say they hope to go back to work. He shuttered his Detroit home-appraisal business after the housing market crashed in 2009 and considered his options.

“You know, it looked like the sky was falling, so it was like, if there was ever a good time to disengage, I said, this is a good time,” he says. Hintzke, who is 53 and doesn’t have children, relocated to Austin, Texas, and has lived off income from investment properties.

 

He says he misses the camaraderie he felt while working and the feeling of contributing something. These days, he’s mulling a new career in holistic healing. But once you’re out of work for a while, he admits, it’s easy to lose momentum.

For now, however, there is little hope to get those tens of millions of inert prime-aged workers back into the labor force, and absent a substantial overhaul, coupled with reschooling of those who have been out of the workforce, the chances this troubling trend will reverse are slim to none. Meanwhile, it means that as the class and wealth divide courtesy of the Fed accelerates, the numbers of increasingly angry people who feel justifiably left out, will continue to rise, until one day not even all the government’s social safety nets will be able to prevent what comes next.

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

Submitted by David Stockman via Contra Corner blog,

In addition to the political revolt of the rubes, the establishment regime is now imperiled by another existential threat. To wit, the world’s central bankers have finally painted themselves into the mother of all corners.

Literally, they dare not stop their printing presses because the front-runners and robo-traders have taken them hostage. Recent developments at all three major central banks, in fact,  provide powerful evidence that the end of the current Bubble Finance regime is near.

Thus, today’s Financial Times carries a piece on the September 1st milestone of one trillion Euro of bond purchases under the ECB’s QE policy, and the dilemma it faces about continuing beyond next March’s end date for the program. In a word, it is running out of sovereign debt to buy, yet even a hint that it intends to stop could spook the “market” into a  drastic sell-off:

A global collapse in eurozone bond yields since Britain’s vote to exit the EU has dramatically reduced the stock of eurozone government paper standing above the yield threshold set for the ECB’s €1.7tn bond-buying project — raising concern that the ECB will have to make sweeping changes to avoid running out of bonds to buy….

 

“There are various estimates of when the ECB will hit a wall because it does not provide exact breakdowns of the bonds it already owns — but everyone agrees that it is close to reaching its limit,” said Aman Bansal, interest rate strategist at Citi. “And the bank cannot slow the pace of bond purchases without sending out a signal to the markets that something is wrong.”

The implication is startling. The ECB’s current cut-off for QE purchases is defined as bonds with a negative yield no greater than 0.4%. Yet according to the FT there will be no German bunds left to purchase under that standard by year-end.

Yes, the Germans have been the last bastion of relative fiscal rectitude on the planet, but that doesn’t mean the nation suffers for want of public debt. In fact, Germany currently has $2.0 trillion outstanding, and it hasn’t been shrinking any time this century.

So the prospect that there will soon be no eligible bunds for the ECB to purchase means that the entirety of Germany’s public debt will be buried in the sub-zero freezer. Already today the 10-year bund is trading at negative 0.09%, meaning that the whole maturity curve will soon represent the essential absurdity of the entire regime of Keynesian central banking.

To wit, there is no sane theory of economics that says any government should be paid to borrow long-term money by its investors. And that’s true even if you ignore the history of the last century in which no government has avoided the temptations of fiscal profligacy and relentless debt build-up; and also the empirical reality that  going forward Germany and every other major developed economy is saddled with a fiscal witches brew of a shrinking work force and monumental welfare state entitlements.

The fact is, there is no plausible basis for subzero bonds even in a world of fiscal rectitude and balanced budgets. That’s because even with zero credit risk long term bonds need at least a 2% real return to compensate savers for the time value of money.

Yet at a negative yield of 0.5%, for example, the general price level would have to decline by 23% over the next 10 years to make ends meet, and by 40% in the case of a 20-year bond.

Needless to say, that ain’t going to happen in either this world or the next. Nor is there even a shred of historical experience to suggest it is even possible.

Indeed, not withstanding the severe deflation of the Great Depression, the price level by 1938 was well above where it started in 1912 prior to the onset of the severe inflation of the Great War. The naïve patriots who bought Liberty bonds never got their money back in real terms.

In short, there is no bond “market” left in the world. What we have is a front-runners casino in which debt is being priced by the Big Fat Bid of the central banks. And unlike real money investors, the latter are completely price inelastic. Draghi is intent on his $90 billion per month of QE and Kuroda on achieving 2% inflation, come hell or high water.

And that’s why the central bankers have truly painted themselves into the mother of all corners. Leveraged bond speculators have had a “put” that pales into insignificance the 1990s equity “put” of the Greenspan Fed.

For example, here is the 5X gain on the Italian 10-year bond since Draghi volunteered to subjugate the ECB to the fast money speculators of London and New York with his “whatever it takes” ukase in July 2012. In round terms, the tiny sliver of equity (<10%) needed to buy these bonds on repo would have been rewarded with a return of several thousand percent.

That’s also why the euro bond trader quoted above hit the nail on the head. By destroying the bond market and touching off a front-runners gambling spree the central bankers of the world have truly taken themselves hostage. If they keep printing money at the current rate of $2.5 trillion per year collectively, they will destroy the monetary system of the world—-and apparently even they recognize that dead end.

But in their foolish resort to running their printing presses at rates never before imagined, they have generated a volcanic tower of capital gains on the trading books of speculators all over the planet. At the first sign that the Big Fat Bid of the central banks is going to be removed, the fast money will sell with malice aforethought in order to capture their gains, and get out of harms’ way before the great bond bubble violently implodes.

In that event, there will be no containing the selling pressure short of monetizing the world’s entire $40 trillion stock of sovereign debt.

This front-runners hostage situation is exactly why the madman Kuroda has once again uttered the absurdity that there is “no limit” to monetary expansion. In recent weeks the Japanese government bond market has been roiled by rumors the BOJ might pause in its massive QE campaign owing to the destructive impact it is having on the Japanese banking system and the fact that it already owns nearly 40% of Japan’s monumental public debt.

Indeed, the 30-year JGB was yielding 0.54 per cent on Monday, up from 0.04 per cent on July 6. In a sane world the 50 bps of difference would be a rounding error, but not at the zero bound. To the contrary, if you happen to have been front running the 30-year JGB all the way toward subzero land, you needed to be fast on the “sell” trigger to avoid complete annihilation after the market broke in July.

So Japan’s central bank governor again rode to the rescue, whether he wanted to or not:

Mr. Kuroda also ruled out a retreat on the monetary easing he has carried out for more than three years……”A reduction in the level of monetary policy accommodation, which is being called for by some market participants, will not be considered” in a policy review now under way, he said…Achieving his 2 per cent inflation target would have “enormous” benefits, he said. “There may be a situation where drastic measures are warranted even though they could entail costs,” he said.

Folks, Kuroda’s fanatical pursuit of 2% inflation is not simply evidence that our Keynesian central bankers have become unhinged; it’s a sign of outright mental disorder.

Anyone competent in elementary math can see that Japan’s so-called deflation problem is essentially imported and utterly beyond the capacity of the BOJ to reverse; and that’s assuming 2% inflation is economically benign, which it decidedly is not.

Japan is an archipelago of materials processors and manufactures. Its economy generates a great deal of value-added, but it supply chain starts with 100% imported minerals and other raw materials and is powered nearly 100% (aside from its remaining handful of nuclear power plants) by imported hydrocarbons.

So when its import prices drop by 28% over the past two years due to the global deflation now underway, why would anyone in the right mind expect that short-run CPI to rise by 2% annually?

And since it also means that the terms of trade are improving for Japan, why is a flattish CPI even considered to be a problem—let alone a crisis so severe that it warrants throwing out the book on all of mankind’s historical learning about money and sound finance?

Besides that, Japan’s CPI index in July posted exactly where it was in 1993. So there has been no long-term deflation during the last 23 years. What ever ails Japan is a supply side matter—-not evidence that it needs more inflation, debt and monetary madness.

And that takes us to the very bottom of the central bankers’ loony bin, which at the moment is occupied by Fed Vice-Chairman Stanley Fischer, who last week opined that the U.S. job market is “very close to full employment.”

Let’s see. Another Jobs Friday, and what did we get?  More marginal part time, low pay “jobs”,102 million adults still without employment, virtually not growth in hours worked since January and an unbroken record where it counts.

To wit, there are still 1.4 million fewer $50k “breadwinner jobs” in the US than when Bill Clinton was packing his bags to shuffle out of the White House in January 2001.

We will have more to say about this tomorrow, but the key point is this. Fischer’s declaration of “mission accomplished” in the face of a self-evidently failed main street recovery is a purely CYA maneuver.

The impending global deflation and recession will prove that 93 months of ZIRP and $3.5 trillion of QE have been a complete failure. But this insufferable Keynesian snake oil peddler has the gall to claim a roaring success moments before the greatest monetary catastrophe in recorded history begins its inexorable implosion.

The end game of Keynesian central banking is indeed nigh. The outright lunacy of Draghi, Kuroda and Fischer are more than ample warning.

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

Moments ago the BLS reported Janet Yellen’s favorite labor market indicator, the JOLTS survey, which as expected (since it tracked the far stronger than expected July payrolls) showed that in July the number of job opening rebounded from the June drop to 5.643 million, jumping by over 200K jobs to a new all time high of 5.871 million, nearly 300K more than the 5.580 million expected.

The June job opening rate (job openings as a % of total employment plus openings) rose to 3.9% vs 3.8% prior month, with the greatest number of job openings in the professional and business services sector at 1.27 million, followed by education and health with 1.078 million, and trade, transportation and utilities in third place with 1.030 million.

The number of unemployed workers per job opening has dropped to 1.35. When the most recent recession began (December 2007), the number of unemployed persons per job opening was
1.9. The ratio peaked at 6.6 unemployed persons per job opening in July 2009 and has trended downward since.

Job openings declined to a series low in July 2009, one month after the official end of the most recent recession. Employment continued to decline after the end of the recession, reaching a low point in February 2010.

 

And yet despite the record number of job openings, the pace of hiring has failed to keep up. The BLS reported were 5.2 million hires in July 2016 approaching prerecession levels. Total separations are near their prerecession levels, at 4.9 million in July 2016.

 

The number of hires has exceeded the number of job openings (measured only on the last business day of the month) for most of the JOLTS history. Since February 2015, this relationship has changed as job openings have outnumbered hires in most months, suggesting that the pace of hiring has slowed down disproportionately.

Indeed, on a Y/Y basis, the pace of hiring has clearly slowed down, prompting some to wonder if without a renewed hiring push the US labor market will not soon stagnate.

 

Quits, which are generally voluntary separations initiated by employees, continue to rise. As a result, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. The number of quits has exceeded the number of layoffs and discharges for most of the JOLTS history. During the latest recession, this relationship changed as layoffs and discharges outnumbered quits from November 2008 through March 2010. In July 2016, there were 3.0 million quits and 1.6 million layoffs and discharges.

Putting all the key numbers in context, total private job openings have increased since their low in July 2009. They returned to their prerecession level in March 2014 and surpassed their prerecession peak in August 2014. There were 5.4 million open jobs in the private sector on the last business day of July 2016. Hires in the private sector have increased since their low in June 2009 and are near their prerecession levels. In July 2016, there were 4.9 million hires. Quits in the private sector have increased since their low in September 2009 and are near their prerecession levels. In July 2016, there were 2.8 million quits.

Finally, taking a look at the distroted Beveridge Curve, which plots the job openings rate against the unemployment rate, shows that from the start of the most recent recession in December 2007 through the end of 2009, the series trended lower and further to the right as the job openings rate declined and the unemployment rate rose. From 2010 to the present, the series has been trending up and to the left as the job openings rate increased and the unemployment rate decreased. In July 2016, the unemployment rate was 4.9 percent and the job openings rate was 3.9 percent. This job openings rate corresponds to a higher unemployment rate than it did before the most recent recession.

via http://ift.tt/2c7VTMP Tyler Durden