iftttwall

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.”

via http://ift.tt/2vLIFU2 Tyler Durden

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.

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

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

In 2008, Zimbabwe suffered the second most severe case of hyperinflation in modern history. Its annual inflation reached 89.7 sextillion (1023) %. Prices were doubling each day, making the currency almost worthless. The government was forced to scrap the local Zim dollar when Zimbabweans simply refused to use it. Subsequently, the government implemented a multicurrency system based on foreign currencies. But, the U.S. dollar became the coin of the realm. Indeed, even the government accounts became denominated in U.S. dollars in 2009. As a result of this spontaneous dollarization, along with the installation of a new national unity government, the economy rebounded and international trust in Zimbabwe began to be restored. 

When President Mugabe’s party, ZANU-PF, regained control in 2013, economic instability ensued and government spending surged along with public debt (see chart below). With the central bank’s inability to finance the government (read: print Zim dollars), Zimbabwe resorted to monetary trickery and mischief. 

In conventional terms, the value of 1 USD is uniform throughout the world; however, Zimbabwe has pulled every trick in the book in an attempt to disprove that truth. For example, what the Zimbabwean government terms a U.S. “dollar” — a New Zim Dollar (NZD) — is in reality only worth 50% of a real dollar anywhere else in the world. So, how is this mischief possible? 

The answer lies in the government’s creation of the NZD (read: a phony dollar). It has four major components: physical U.S. dollars, bond notes, electronic real time gross settlements (RTGS), and Treasury bills (T-bills). Apart from physical USD, the additional three components have acted to massively increase the money supply in Zimbabwe, broadly measured.

T-bills are issued by the government to finance government deficits. These T-bills are unloaded onto local commercial banks that are “coerced” to buy them. It’s no surprise that bankers are anxious about the convertibility of these bonds into real USD at par. Indeed, the bonds maturing from 2019-2020 are already being traded at huge discounts of around 40%. And bankers are not the only ones who are concerned. In April 2017, economist and Zimbabwe Parliamentarian Eddie Cross stated, “This situation is of great concern, the market is discounting TBs by 30 to 40%…There is simply no way the Ministry of Finance or the RBZ [Reserve Bank of Zimbabwe] can redeem this paper or meet interest bills.” In fact, T-bills are currently being redeemed using the RTGS system; however, this policy appears unsustainable.

With commercial banks becoming increasingly fearful, and rightfully so, about the potential for T-bill default, banks have smartly preferred to hold onto physical USD, limiting weekly individual withdraws to only $100. Indeed, cash needed for daily transactions is as scarce as hens’ teeth. Also, with new accounting procedures under the IFRS 9 rules that will take effect on January 1, 2018, T-bills face further potential mark downs. These mark downs just might throw the entire banking system into insolvency (at least in terms of real USD). This would lead to further liquidity shortages and monetary contraction, resulting in a severe economic slump. In an effort to increase liquidity (read: increase money supply) the government has turned to the next two components of the NZD: bond notes and RTGS.

Electronic real time gross settlement transfers (RTGS) are the most common unit used in day-to-day transactions for individuals, accounting for approximately 78% of the total value of electronic and plastic transfers in 2016. Like the treasury bills, the RTGS “dollars” trade at a discount of 15-20% to real USD. The RBZ manages the balances in the RTGS system, but offshore RBZ accounts are seemingly no longer backing RTGS with real USD. The RTGS system has become overburdened, with incredibly long transfer times. Indeed, some transfers have even been reported to take up to two weeks. Not surprisingly, RTGS has not solved Zimbabwe’s liquidity problems. If anything, they have aggravated it. 

The most recent attempt by the government to increase liquidity (the money supply, measured broadly) was the introduction of bond notes in November 2016 (see accompanying chart). Incidentally, in conversations I had with Dr. Kupukile Mlambo, Deputy Governor of the RBZ, in May of 2016, I strongly opposed the introduction of bond notes, indicating that they were inconsistent with orthodox dollarization and would result in a complete disaster. 

Although bond coins existed on a small scale since December 2014, the introduction of bond notes was significant. These notes were “backed” by a $200m facility from the African Import Export Bank (Afreximbank) — a bank that some allege is unusually close to the Zimbabwean government. Among other things, it has still failed to publish official documents regarding the bond note facility. The uncertainty surrounding these bond notes has resulted in a black market for dollars, where the bond notes normally trade at discounts ranging from 5-15%. Not surprisingly, banks have attempted to remove these notes from their books, with bank officials reportedly engaging in black market deals for large cash sums at over 20% discounts! 

As for what the bonds might eventually be worth, it is prudent to assume that they will be defaulted on. In that case, and taking other African sovereign defaults as a guide, one is left to conclude that the bonds in default would fetch 5-18¢ on the dollar. So, bond notes, which are products of Zimbabwe’s monetary mischief, are in a death spiral that will witness further significant declines in value. In that event, discounts on other elements of the NZD would also realize massive discounts. The NZD would become worthless, and with that, inflation would raise its ugly head.   

Zimbabwe has once again engaged in a fraud on the public, creating a monetary mess and hardship. 

This piece was originally published on Forbes. 

via http://ift.tt/2ulkszv Steve H. Hanke

The disconnect between hope and reality has never been so wide.

The exuberant-sounding earnings growth (thanks to depression-like base effects) are not showing up in forward-looking expectations for growth…

But, as former fund manager Richard Breslow notes – for now, forget lucky versus smart. What investors want to be is right rather than wrong.

Of course, there is nothing too new in that statement; however, Breslow thinks an inflection point looms in the great game of smoke and mirrors and doing what 'has worked' versus doing what's right.

Via Bloomberg,

We’ve hit rock bottom where traders believe with all their hearts and minds in something and then promptly go out and do the opposite. I can’t imagine telling my trading boss or one of the limited partners that I’m bearish as all get-out. But instead respond to the logical question, “Great, how many are we short?” with, “No, no, I’m long because it’s the only way I can figure out how to make money.” And that just about perfectly describes a broad swath of the money management community.

 

That’s not meant to be pejorative. What’s been working for a long, long time is making investment decisions based on following the only thing that seems to ever work.

 

Analysis be damned: investors have become fatalists.

 

Is it irresponsible to believe one thing and position in the opposite direction? No longer. Fund managers are in the asset-gathering business and simply can’t afford to sit on mounds of cash other than for short periods. By hook or crook, you need to show some returns and find any portfolio mix that generates them. Investors read cash allocation and start doing the fee math.

 

But it does raise an interesting dilemma. What will happen when those “ridiculously cheap” TIPS suddenly aren’t going begging, term premium actually begins to mean something when pricing a new issue or investors find there are credits that they don’t absolutely must have? The answer is, it won’t be pretty. And there is a preponderance of fund managers who fervently believe all of the above are coming and are praying it doesn’t happen. Certainly no time soon. And dreading the inevitable, “What do you mean we’re net neutral? You said…”

 

Which brings us to those central bankers desperately in search of inflation — with a large dollop of serene financial conditions on top. Can they have both? Unlikely, unless they remain as actively involved in influencing markets as they’ve been. There’s no going back to the halcyon days of believing the market can manage itself. “Tapering” in Europe is code for abandoning the capital key. Which would have been a lot more effective years ago.

 

And let’s face it, the orderly, fixed speed run-off of the Fed’s balance sheet will, in practice, morph into a perpetual guessing game of faster or slower with every speech or number. You’ll get to see micro-management in real time. The central bank is no more likely to go back to the days when banking was boring than the SIFIs. As Minneapolis Fed President Kashkari pointed out yesterday, their credibility, read egos, are on the line in proving they can achieve their goals. That’s also his way of reiterating Bullard’s point on pausing rate rises.

 

Investors are interpreting the central banks in the same way they do the markets. Follow what they do, not what they say, because that’s the only thing that has reliably paid off. And then they go out and sell some TIPS to buy some solid BB paper to get those returns up.

By now the world and their pet rabbit is well aware of what is truly driving asset prices higher and higher (and vol lower and lower)…

Of course – the big question is – what happens next? We suspect it won't be like "watching paint dry"…

via http://ift.tt/2vip4ru Tyler Durden