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Authored by Jeffrey Snyder via Alhambra Investment Partners,

The mainstream media is about to be presented with another (small) gift. In its quest to discredit populism, the condition of inflation has become paramount for largely the right reasons (accidents do happen). In the context of the macro economy of 2017, inflation isn’t really about consumer prices except as a broad gauge of hidden monetary conditions.

Therefore, if inflation behaves as it is supposed to after so many years of “stimulus”, then the political opposition to the status quo really is about racism and xenophobia. If, however, inflation underwhelms for now the sixth year and counting, there just might be something to this economic anxiety element of grand and growing political discord.

In many ways this isn’t a point of contention at all, merely a misreading of what policymakers are actually doing and why. The global economy really has suffered some horrible fate, but what? Inflation underwhelms because the economy does and has, but policymakers in 2017 are trying to figure out why in a way that leaves them blameless.

Any long-term GDP chart for any place shows clearly that it is small wonder political and social devastation took so long to start manifesting. That speaks to the power of Economics and the tremendous benefit of the doubt it began with, and then squandered. People largely believed Ben Bernanke when he said he knew what he was doing with QE2 (without ever accounting why he felt there needed to be a second) or Mario Draghi when he made his promise. The public did so because they wanted to believe such a big awful thing was fixable.

The media is still stuck on the idea of the economy being fixed, however, though policymakers have more than a year ago shifted to figuring out why it won’t ever be. Inflation for them is now the measure of who’s to blame, not what will happen.

Again, if inflation continues to underperform the 2% target here and elsewhere, even textbook Economics makes it a monetary reason. If it gets back to and above 2%, drug addicts and Baby Boomers would have been a legitimate structural drag, meaning QE failed because it stood no chance of ever working. You can see the stakes for central bankers as they have this year practically resorted to outright pleading, as if saying the thing over and over will increase the chances of it happening.

So it must have been some relief when earlier this year oil price base effects raised the CPI to above 2% for three months starting last December (and the HICP for only one month in Europe). It would stay above 2% for a total of five, but those last two were on the way back down again, clearly showing that it was oil not the opioid epidemic the public should turn to for answers.

Given the nature of its annual comparison, WTI was this July on an upswing whereas in July 2016 falling again. Crude oil’s contribution to consumer price inflation last month is once more significantly positive, meaning that in all likelihood on Friday when the BLS reports the CPI for July it will be accelerated from four straight months of “unexpected” weakness. There will certainly be much crowing and rejoicing.

But it won’t matter for more than just a single news cycle, not the least of which because of the bond market that policymakers and especially economists (therefore the media) just can’t (or refuse) seem to understand.

“The market has paid a lot more attention to inflation than in recent years, simply because that has the potential to be what changes the Fed’s mind on further rate hikes,” [said Gennadiy Goldberg, an interest-rate strategist at TD Securities]. This week’s report “has a pretty substantial amount of power to push rates to annual lows or getting us off those lows and pushing rates higher.”

Once again, no, no, and no. The bond market takes no cues from monetary policy except if it views that policy to be effective. Interest rates rise because of opportunity, not because the Fed attempts to command it with the federal funds rate as in 2016, 2004, or even 1994. There is no “hawkishness” or “dovishness” by itself, instead the interpretation of “hawkishness” if things are actually getting better or “dovishness” if they aren’t. This other convention where the Fed is at the center of everything just doesn’t wash.

It presupposes infallibility which has been proven not to exist. Presumably the Fed’s “hawkishness” derives from its proficiency in economic interpretation. Therefore, bond rates would rise not based on monetary policy action per se, but rather agreeing with the Fed’s interpretation of what “hawkishness” means as far as economic opportunity. To claim that the bond market must follow monetary policy is to simultaneously claim that the FOMC is always right; and further that bonds must always defer in that judgment to these economists.

 

The bond market does not do this, though it does take into consideration central bank judgment as part of its stream of information. Before the summer of 2011, the bond market largely agreed with FOMC assessments. By and large, though, ever since 2011 the bond market which is always free to disagree with them about the economy or even the state of monetary function has exercised that freedom and in convincing fashion. From 2013 forward, nominal rates should have risen and curves steepened as economists and policymakers declared QE3 a resounding success, with particular emphasis on the unemployment rate. The bond market was correct, not economists.

 

What drives UST yields or eurodollar futures prices is therefore not “hawkishness” or “dovishness”, but rather perceptions about whether “hawkishness”, “dovishness”, Trump, or even Paul Krugman’s fake alien invasion scenario will amount to anything positive and the significance of it. It is the translation of current conditions into considerations about the future, captured in prices and yields – the actual discounting of information, of which monetary policy is only a (variable) part.

And oil prices factor to a much higher degree than Janet Yellen for these reasons. It is oil that moves the CPI (or PCE Deflator) which is a very negative commentary on the economy tomorrow as well as today. Unless oil prices really break higher, then the bond market gives far more weight to what the FOMC members would all rather never consider – the problem really is money and economy rather than drugs and demographics.

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King Dollar hasn’t had much to brag about the past 6-months, as it has decline nearly 10% this year. The decline took it down last week to test a potential dual support point, that could be important. See support and reversal point in the chart below-

CLICK ON CHART TO ENLARGE

Last week King$ found itself testing potential dual support at (1). While testing this potential support point, it created a “bullish wick/reversal pattern.” While support was being tested at (1), weekly momentum was oversold, hitting a level not seen in years. The Euro also found itself at an interesting price point, as bullish sentiment in the Euro was hitting levels, not seen many times over the past decade. Chart from Sentimentrader.com

CLICK ON CHART TO ENLARGE

While the US$ was weak, the Euro has been strong this year. The rally in the Euro has it testing old support as new resistance at (3). At the same time the Euro could be testing resistance, is is now pretty easy to find investors bullish the Euro at (2). A few times in the past when bullish sentiment towards the Euro was high at each (1), the Euro was closer to highs than lows.

Due to the support test, momentum being oversold and Euro bulls easy to find, Premium Members took a position in this space last week, that is going against the crowd with a tight stop.

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National assembly speaker (and purported replacement) Baleka Mbete's secret no-confidence vote has failed to oust South African President Zuma.

Speaker of Parliament Baleka Mbete shocked South Africans Monday when she announced her decision to allow the vote to proceed on a secret ballot, which would allow party members to vote against their leader outside the public spotlight.

"I understand and accept that a motion of no confidence in the president is a very important matter, a potent tool toward holding the president to account," she said at a press briefing Monday in Cape Town. She did not take questions from reporters.

 

The no confidence vote, she said, "constitutes one of the severest political consequences imaginable" and her decision to allow the vote to proceed anonymously is "about putting the resilience of our democratic institution to test."

Mbete needed 201 votes (Zuma's ANC dominates the Parliament with 249 out of 400 seats and so for the motion to pass, at least 50 party members would have to defect to the opposition – something that has never happened before in a party that defeated South Africa's apartheid system and is known for its loyalty).

However, some have argued that the number is lower. If the need arises, National Assembly will seek legal opinion on whether majority in no-confidence motion on President Jacob Zuma is based on number of seats in assembly or if vacancies in NA should be subtracted, Speaker Baleka Mbete tells lawmakers in Cape Town.

• Mbete says simple majority to be calculated as 201, or 50% plus one seat of 400 seats in National Assembly.
• Democratic Alliance, which is the main opposition party, argues seats should exclude 5 vacancies, which takes total number of seats to 395 and lowers majority needed to pass the motion

South African lawmakers began to cast their votes at 1043am ET (ZAR had leaked very modestly lower into the start of the vote).

Voting finished at 1150ET and the count began (as lawmakers squabbled over constitutional details).

Counting finished at 1235ET. ZAR dropped on the riging on the 5-minute warning bells.

The result:

Total votes: Yes 187, No 198 –  Zuma survives

• *SOUTH AFRICAN PRESIDENT ZUMA SURVIVES NO-CONFIDENCE VOTE
• *ZUMA IS SAID TO DEFEAT NO-CONFIDENCE VOTE

The reaction is clear…

Zuma will now retain his position as ANC president until his tenure ends in December. His term as president of the country runs through 2019.

via http://ift.tt/2wEJk5J Tyler Durden

First thing this morning we reported that according to a 500-page report by the Japanese Defense Ministry, North Korea may now be in possession of a miniature nuclear warhead. That said, the report did not move the market because the Japanese report was largely inconclusive and did not claim with certainty that this is the case.

Now, moments ago, the exact same narrative escalated when the WaPo echoed what Japan said, only it now “confirms” that North Korea has successfully produced a miniaturized nuclear warhead that can fit inside its missiles, “crossing a key threshold on the path to becoming a full-fledged nuclear power, U.S. intelligence officials have concluded in a confidential assessment.”

As the WaPo adds, the analysis completed last month by the Defense Intelligence Agency comes on the heels of another intelligence assessment that sharply raises the official estimate for the total number of bombs in the communist country’s atomic arsenal.

“The IC [intelligence community] assesses North Korea has produced nuclear weapons for ballistic missile delivery, to include delivery by ICBM-class missiles,” the assessment states, in an excerpt read to The Washington Post. The assessment’s broad conclusions were verified by two U.S. officials familiar with the document. It is not yet known whether the reclusive regime has successfully tested the smaller design, although North Korean officially last year claimed to have done so.

The U.S. calculated last month that up to 60 nuclear weapons are now controlled by North Korean leader Kim Jong Un. Some independent experts believe the number of bombs is much smaller.

As Jeff Bezos’ paper of record adds, the findings are likely to deepen concerns about an evolving North Korean military threat that appears to be advancing far more rapidly than many experts had predicted. The “conclusion” will also accelerate US plans, already in place, to intervene “preemptive” in North Korea, just as the neo-con/warhawks in Washington desire, once again binding Trump in the process.

The WaPo report has certainly impacted the market, well the FX market if not the S&P which just keeps rising as CTAs are buying because other CTAs are buying, and the USDJPY has slumped on the news, revealing the latest divergence between it and the S&P.

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We have previously shown the chart below on countless occasions, so we are content to see that increasingly more banks are showcasing it as the biggest potential threat to the future of the market’s artificial levitation. Here is BofA’s Martin Mauro explaining why “investors may be well served by locking in some profits in US stocks.”

Central banks turning off the liquidity spigot: Among the most striking market developments in recent years has been the coordinated efforts by the world’s central banks to supply liquidity by purchasing financial assets. Investment Strategist Michael Hartnett points out that since the collapse of Lehman Brothers in 2008, central banks have bought $10.8 trillion in assets, and that liquidity has propelled financial markets all over the world.

That phase, as Citi’s Matt King warned two months ago, is ending. 

Now it appears that we are on the cusp of global synchronized monetary tightening, according to Hartnett. Central banks in the US, Canada and China have raised rates this year, while the Bank of England has stopped asset purchases and the European Central Bank is on track to end its asset purchases in 2018. Moreover, the reduced pace of re-investment that the Fed has outlined would reduce the size of its balance sheet by $2 trillion by the end of 2022.

BofA’s conclusion: “The unwind of the balance sheet could impose a strain on financial assets” and as a result BofA now believes “that investors may be well served by locking in some profits in US stocks.”

And while the unwind of the global central bank balance sheet will certainly have a dire effect on global risk assets, no matter what Bullard, Kocherlakota or the rest of the peanut gallery says (or rather, precisely because they deny it) a better question – one which Matt King asked two months ago – is whether this broken market can no longer execute its primary function: discounting the future:

… central banks still cling to the textbook model in which the market discounts all available information ahead of time, meaning that by the time they actually come to do their reduction, provided they’ve telegraphed it beforehand, the effect is already priced in. Unfortunately they seem to have neglected the textbook footnote that states that markets function this way only when they are deep and liquid. That might have been a reasonable description of pre-crisis markets; it seems a deeply unreasonable assumption for post-crisis markets in which leverage is constrained and one set of buyers have come along and absorbed virtually all of the world’s net new issuance.

The above is a major issue for Janet Yellen because while the Fed may hope the market is only “modestly” broken, and can fix itself when the liquidity support is yanked, if the market is too broken to realize that it is broken, and just keeps grinding – or surging – higher and higher, the Fed will soon have a major problem on its hands as it will have no choice but to actively intervene in equity markets on the short side, a skill which none of the Fed’s traders have after nearly a decade of only buying.

But before that, it will be the bears that will be carted out first, because even though we are late, late, late into the cycle, the following table shows the S&P returns in the year just prior to every previous market peak:

Although we are getting more cautious on equity markets, we note that some of the best returns come at the end of a bull market, which makes the case for maintaining some presence in the market. According to Subramanian, in the 12-month period preceding prior market peaks, the historical total return has average 25%. The S&P 500 is up 16% over the last 12 months, suggesting that some of those gains may have already been realized.

Good luck timing the crash.

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Because nothing says ‘panic-buy’ stocks like the worst Chinese trade data of the year.

Something ‘odd’ ocurred at 0943ET. Stocks were lower and VIX higher, when suddenly…

Nasdaq was panic-bid…

VIX was monkey-hammered…

And “Most Shorted” Stocks were squeezed higher…

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Authored by Patrick Buchanan via Buchanan.org,

That the Trump presidency is bedeviled is undeniable.

As President Donald Trump flew off for August at his Jersey club, there came word that Special Counsel Robert Mueller III had impaneled a grand jury and subpoenas were going out to Trump family and campaign associates.

The jurors will be drawn from a pool of citizens in a city Hillary Clinton swept with 91 percent of the vote. Trump got 4 percent.

Whatever indictments Mueller wants, Mueller gets.

Thanks to a media that savages him ceaselessly, Trump is down to 33 percent approval in a Quinnipiac University poll and below 40 percent in most of the rest.

Before Trump departed D.C., The Washington Post ran transcripts of his phone conversations with the leaders of Mexico and Australia.

Even Obama administration veterans were stunned.

So, it is time to ask: If this city brings Trump down, will the rest of America rejoice?

What will be the reaction out there in fly-over country, that land where the “deplorables” dwell who produce the soldiers to fight our wars? Will they toast the “free press” that brought down the president they elected, and in whom they had placed so much hope?

My guess: The reaction will be one of bitterness, cynicism, despair, a sense that the fix is in, that no matter what we do, they will not let us win. If Trump is brought down, American democracy will take a pasting. It will be seen as a fraud. And the backlash will poison our politics to where only an attack from abroad, like 9/11, will reunite us.

Our media preen and posture as the defenders of democracy, devoted to truth, who provide us round-the-clock protection from tyranny. But half the nation already sees the media as a propaganda arm of a liberal establishment that the people have rejected time and again.

Consider the Post’s publication of the transcripts of Trump’s calls with Mexico’s president and Australia’s prime minister.

When reporter Greg Miller got these transcripts, his editors, knowing they would damage Trump, plastered them on Page 1.

The Post was letting itself be used by a leaker engaged in disloyal and possibly criminal misconduct. Yet the Post agreed to provide confidentiality and to hide the Trump-hater’s identity.

This is what we do, says the Post. People have a right to know if President Trump says one thing at rallies about Mexico paying for the wall and another to the president of Mexico. This is a story.

But there is a far larger story here, of which this Post piece is but an exhibit. It is the story of a concerted campaign, in which the anti-Trump media publish leaks, even criminal leaks, out of the FBI, CIA, NSA and NSC, to bring down a president whom the Beltway media and their deep-state collaborators both despise and wish to destroy.

Did Trump collude with Putin to defeat Clinton, the Beltway media demand to know, even as they daily collude with deep-state criminals to bring down the president of the United States.

And if there is an unfolding silent coup by the regime Americans repudiated in 2016 — to use security leaks and the lethal weapon of a special counsel to overturn the election results — is that not a story worth covering as much as what Trump said to Pena Nieto?

Do the people not have a right know who are the snakes collaborating with the Never-Trump press to bring down their head of state? Is not discovering the identities of deep-state felons a story that investigative reporters should be all over?

If Greg Miller is obligated to protect his source, fine. But why are other journalists not exposing his identity?

The answer suggests itself. This is a collaborative enterprise, where everyone protects everyone else’s sources, because all have the same goal: the dumping of Trump. If that requires collusion with criminals, so be it.

The Justice Department is now running down the leaks, and the ACLU’s Ben Wizner is apoplectic:

“Every American should be concerned about the Trump administration’s threat to step up its efforts against whistleblowers and journalists. A crackdown on leaks is a crackdown on the free press and on democracy.”

That’s one way to put it. Another is that some of these “whistleblowers” are political criminals who reject the verdict of the American electorate in 2016 and are out to overturn it. And the aforementioned “journalists” are their enablers and collaborators.

And if, as Wizner’s asserts, protecting secrets is tantamount to a “crackdown on the free press and democracy,” no wonder the free press and democracy are falling into disrepute all over the world.

By colluding, the mainstream media, deep state, and the special prosecutor’s button men, with a license to roam, may bring down yet another president. So doing, they will validate John Adams’s insight:

“Democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.”

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While the US government is busy deciding how to tag and track the millions of drones flying over populated areas, potentially jeopardizing aircraft as they take off and land, the US military just had a close encounter in the Persian Gulf, where Reuters reports that an Iranian drone came within 100 feet of a U.S. Navy warplane as it prepared to land on the USS Nimitz aircraft carrier off the coast of Iran in the Gulf. The officials said the drone forced the US aircraft to take evasive action.

As AP adds, the drone came within 100 feet below the aircraft and 200 feet to the side of the aircraft. The F/A-18 was in a landing pattern several thousand feet off the deck of the ship waiting to land.

The F/A-18 maneuvered repeatedly to avoid the Iranian QOM-1 drone. The drone did not appear to be armed.

The officials said the drone encounter was considered unsafe and
unprofessional. The US used an emergency radio frequency in the
immediate area to warn those operating the drone to back away. It did
eventually move off.

Since there is no rain over Bedminster, NJ today and Trump is out golfing, we will have to wait at least 3-5 hours before there is an official White House tweet response.

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