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Via ChicagoStockTrading.com,

In December’s article “The Yellen that Stole Christmas”, the point was to show how buyers in the SP500 were caught above 2040, and needed a Yellen rescue.  The market attempted to breakout to start December, however the rug was pulled from underneath as Yellen reiterated a rate cut later in the month.  After bluffing the market for 2 years on this rate cut, the call fell on many deaf ears. 

So it was. Buyers were left caught at higher prices, betting on a “Santa Claus Rally” only to be hoping for Yellen to save Christmas.  For the first time in 6 years and exactly 3 years from December 2012’s FOMC that placed a 6.5% target on NFP for a decision on Fed Funds rate, the FOMC reset the market and hiked the Fed Funds rate by a quarter point.  Bulls did not get what they were looking for and saw the market fall back to retest 1982 support.  The level barely held on December 18^th, as the market rallied back for Christmas holiday and the “Santa Claus Rally” was actually a gift from Yellen for stuck longs above 2040 to “breakeven”, or as we like to call it “get out of jail free card”.  

The bounce back to retest the FOMC high gave these buyers their opportunity to exit at breakeven.  As new buyers failed to step in and carry the ball above the FOMC high, remaining longs that became stubborn and did not take the breakeven out, were left to close the year lower at 2035.  They say fear turns to greed at break even.  The SP500 started the year of 2016 with no holds barred as it flushed to run stops below 1982 to punish greedy and trapped buyers above 2040, giving way for the market to retest the August low and fill the gap down to 1940.  Attempt to hold this level was seen, before falling into next gap at 1875 where once again the market fought to hold.  Both levels eventually failed as the overhead supply gave way for the market to breach the 2015 low of 1831 and take out the 2014 low of 1813.  Lows of 1804 were made in the month of January, before bouncing back to retest old support at 1940 and finding the level to turn into new resistance. 

Remember it was the BOJ that stepped in October of 2014 at 1970, and again in October of 2015 at 1970 again.  The Japanese bought Yellen a year of time, and gave her a market of 2070 to hike rates.  Now that the market has fallen back to the August low, it is the BOJ who has turned their monetary policy to negative rates.  What does this tell the market? That after attempting to pump it twice above 1970, with the market at 1870 they have switched to negative rates. Sign of desperation? So far the market is not buying it.  An attempt to rally was seen, only to find old support at 1940 turn into major resistance as the market double topped.  Going forward, failure to recover above 1870, gives room for the market to push into next major support at 1750 to retest the 2014 low of 1732.  Buyers must recover through 1890 for a retest of 1940 resistance in attempt to retrace back to the failure at 1980.  Yellen is expected to testify today, and once again bulls are in trouble and looking for help.  Even if she mentions negative rates, remember it will not be the first time. It was Yellen that said “Negative rates are not on the table right now” on October 22^nd which many also did not notice, was another factor in the upside squeeze.  Did the BOJ copycat the move?  What we know is our central bank has moved into a hiking position, while other central banks are trapped and have gone negative. 

This is the great reset, because 3 years ago when 6.5% was placed as a target for unemployment, the SP500 was trading at 1400, gold at 1700, and the 30 year bond at 148.  In the year of 2013 we saw the SP500 run away as it freighted toward 2100, whilst gold and the bonds dropped lower.  What have you noticed take place after this rate hike?  The SP500 has changed course lower, while gold and the 30 year bond market have reversed higher. 

Gold fell from 1700 down to 1200 from December of 2012 to January of 2014 when 6.5% NFP target was met.

With the objective met, the gold market attempted to reverse course as it rallied up to 1392.  The market failed to take out its prior high of 1434, keeping the bearish trend in control and as the market found the FOMC was not going to hike rates, this gave way for gold to wind down again.  Since these highs the market has coiled lower, making new lows for the year of 2015 in December at 1045 just before Yellen’s rate hike. After her hike, the low was retested and held, and gold has since then been in reverse as the news is being sold (in this case bought). Gold has taken out its prior high of 1191 from October 2015 to stop some shorts.  The U turn gives room for an attempt to build a base and try to target next major resistance against 1270. Gold remains in a downward trend, however the recent U turn, gives room for an attempt to build a base and target next major resistance against 1270. Pullbacks are to be defended down to 1120-1080, with stops below the year low of 1061.  A breach of the 2014 high at 1307 squeezes out the short side to give the market room to retrace back to 1550, from where the market broke down in January of 2013 from the FOMC decision.  

The bond market also front running the 6.5% objective as it traded down from 148 to 127 in January of 2014 as the 6.5% unemployment target was met. 

The bond market in contrast to gold, sp500, and the yen, called the FOMC’s bluff on not raising rates, and rallied all the way to take out the 2012 highs to make new highs up to 16627.  Since this high and pullback to the 2012 level of 148, old resistance turned into new support as the market consolidated into Yellen’s 2015 rate hike.  As we see, the bond market not only front ran this rate hike, but has continued to march higher following the decision.  The uptrend in 2016 being fueled recently by panic buying as investors see Japans negative decision as a bull trap in stocks and use bonds to hedge positions.  This panic buying, has given way to take out the 2015 high as the market has gone parabolic.  Continuation of the move sees next resistance against 171.  Failure to expand above new highs sees sell stops below 16228 for a retest of the February lows of 16015. Breach of this level is needed to trap panic buyers above to give way into 156 to test major support off the year low of 15309.  Pullbacks should be defended, and a break of the year lows is needed to create a double top. 

A rounded top and a failed breakout in December, giving way for the move down to retest August lows.

January pushed down to take out the lower vol window at 1869 before bouncing back and rejecting the 6 month pivot at 1922.  Hold below 1869, gives the market room down to next support at 1750, and ultimately a retracement of the breakout from December of 2012 down to 1420.  Recovery through 1870 will have the market working against major resistance being the 6 month pivots, with room up to 1980 to retest old support.  The “Great Reset”, gives the market room to retrace down to 1400 of where the market broke out.  One thing is that many of the bulls that were dismissive in January and laughed at the bears, are laughing no more and have actually turned bearish themselves.  This can give way for the continued bear market rips we have seen, as well as panic selling as the perma bulls are forced to come to the realization that the party is over.  Once again however, bull awaiting Yellen to save the day…

via Zero Hedge http://ift.tt/1TeWwa9 Tyler Durden

It appears by the total lack of coverage that the utter collapse of Europe’s banking system is entirely irrelevant to the “fortress-like” balance sheets of US banks… but it is not. Once again today, US financials saw bonds dumped across the senior and subordinated segments…

 

…and while US financial stocks have fallen hard year-to-date, if credit is right – and it usually is on a cyclical basis – US bank stocks have a long way to go (as believe in book values is battered).

 

Of course, the CEOs will all tell investors there is nothing to worry about – just as David Stockman warned…

“in my experience is that when the crunch comes, bank CEOs lie”

via Zero Hedge http://ift.tt/1Ke8GNF Tyler Durden

After yesterday’s strong 10Y auction few were expecting ugliness in today’s final for this week 30Y issuance: after all with markets crashing, the flight to safety and duration surely would mean strong demand for the long-end of the curve.  Only that wasn’t the case.

Yes, the high yield of 2.50% (allotted 37.52% at the high) was the lowest since January 2015, but this came at a huge concession to the 2.467% When Issued, which resulted in a whopping 3.3 bps tail, the biggest in over three years. Furthermore, the Bid to Cover, plunged to just 2.092, down from the 2.288 last month, and the lowest going back to May 2014, as well as one of the lowest on record.

Perhaps the saving grace was that both Directs and Indirects took down a comparable amount of the final allotment as they did last month, at 10.3% and 31.7% respectively. This means that despite the weakness on the top, the Indirects ended up with a very strong 58%, which as can be seen in the red bar on the chart below, was quite respectable despite the overall poor tone to the auction.

All that said, if indeed the Fed proceeds to unleash NIRP, a yield of 2.50% will seem like an unprecedented bargin in one year, when the same CUSIP will likely be trading in the low to mid 1% range, if not lower.

via Zero Hedge http://ift.tt/1Ke8Dlb Tyler Durden

A Nobel prize winning economist, former chief economist and senior vice president of the World Bank, and chairman of the President’s council of economic advisers (Joseph Stiglitz) says that the International Monetary Fund and World Bank loan money to third world countries as a way to force them to open up their markets and resources for looting by the West.

Do central banks do something similar?

Economics professor Richard Werner – who created the concept of quantitative easing – has documented that central banks intentionally impoverish their host countries to justify economic and legal changes which allow looting by foreign interests.

He focuses mainly on the Bank of Japan, which induced a huge bubble and then deflated it – crushing Japan’s economy in the process – as a way to promote and justify structural “reforms”.

The Bank of Japan has used a heavy hand on Japanese economy for many decades, but Japan is stuck in a horrible slump.

But Werner says the same thing about the European Central Bank (ECB).  The ECB has used loans and liquidity as a weapon to loot European nations.

Indeed, Greece (more), Italy, Ireland (and here) and other European countries have all lost their national sovereignty to the ECB and the other members of the Troika.

ECB head Mario Draghi said in 2012:

The EU should have the power to police and interfere in member states’ national budgets.

 

***

 

“I am certain, if we want to restore confidence in the eurozone, countries will have to transfer part of their sovereignty to the European level.”

 

***

 

“Several governments have not yet understood that they lost their national sovereignty long ago. Because they ran up huge debts in the past, they are now dependent on the goodwill of the financial markets.”

And yet Europe has been stuck in a depression worse than the Great Depression, largely due to the ECB’s actions.

What about America’s central bank … the Federal Reserve?

Initially – contrary to what many Americans believe – the Federal Reserve had admitted that it is not really federal (more).

But – even if it’s not part of the government – hasn’t the Fed acted in America’s interest?

Let’s have a look …

The Fed:

• Bailed out foreign banks … more than Main Street or the American people.  The foreign banks bailed out by the Fed include Gaddafi’s Libyan bank, the Arab Banking Corp. of Bahrain, and the Banks of Bavaria and Korea

• Offered to bail out Mexico, if it would agree to join the North American Free Trade Agreement (NAFTA)

• Threw money at “several billionaires and tens of multi-millionaires”, including billionaire businessman H. Wayne Huizenga, billionaire Michael Dell of Dell computer, billionaire hedge fund manager John Paulson, billionaire private equity honcho J. Christopher Flowers, and the wife of Morgan Stanley CEO John Mack

• Bailed out wealthy corporations, including hedge funds, McDonald’s and Harley-Davidson

• Artificially “front-loaded an enormous [stock] market rally”.  Professor G. William Domhoff demonstrated that the richest 10% own 81% of all stocks and mutual funds (the top 1% own 35%).  The great majority of Americans – the bottom 90% – own less than 20% of all stocks and mutual funds. So the Fed’s effort overwhelmingly benefits the wealthiest Americans … and wealthy foreign investors

• Is largely responsible for creating the worst inequality in world history

• Turned its cheek and allowed massive fraud (which is destroying the economy). Fed chair Greenspan took the position that fraud could never happen.   Fed chair Bernanke also falsely stated that the big banks receiving Tarp money were healthy when they were not

• Acted as cheerleader in chief for unregulated use of derivatives at least as far back as 1999 (see this and this), and is now backstopping derivatives loss

• And for subprime loans

• Allowed the giant banks to grow into mega-banks, even though most independent economists and financial experts say that the economy will not recover until the giant banks are broken up. For example, Citigroup’s former chief executive says that when Citigroup was formed in 1998 out of the merger of banking and insurance giants, Greenspan told him, “I have nothing against size. It doesn’t bother me at all”

• Argued that economists had conquered the business cycle, and that modern, technologically advanced financial markets are best left to police themselves

• Preached that a new bubble be blown every time the last one bursts

• Had a hand in Watergate and arming Saddam Hussein, according to an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the University of Texas at Austin.  See this and this

• Intentionally discouraged banks from lending to Main Street, which has increased unemployment and stalled out the economy

Moreover, the Fed’s main program for dealing with the financial crisis – quantitative easing – benefits the rich and hurt the little guy, as confirmed by former high-level Fed officials, the architect of Japan’s quantitative easing program and several academic economists.  Indeed, a high-level Federal Reserve official says quantitative easing is “the greatest backdoor Wall Street bailout of all time”. Even Fed officials now admit that QE doesn’t help the economy.

Some economists called the bank bailouts which the Fed helped engineer the greatest redistribution of wealth in history.

Tim Geithner – as head of the Federal Reserve Bank of New York – was complicit in Lehman’s accounting fraud, (and see this), and pushed to pay AIG’s CDS counterparties at full value, and then to keep the deal secret. And as Robert Reich notes, Geithner was “very much in the center of the action” regarding the secret bail out of Bear Stearns without Congressional approval. William Black points out: “Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth”

Indeed, the non-partisan Government Accountability Office calls the Fed corrupt and riddled with conflicts of interest. Nobel prize-winning economist Joe Stiglitz says the World Bank would view any country which had a banking structure like the Fed as being corrupt and untrustworthy. The former vice president at the Federal Reserve Bank of Dallas said said he worried that the failure of the government to provide more information about its rescue spending could signal corruption. “Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said.

But aren’t the Fed and other central banks crucial to stabilize the economy?

Not necessarily … the Fed caused the Great Depression and the current economic crisis, and many economists – including several Nobel prize winning economists – say that we should end the Fed in its current form.

They also say that the Fed does not help stabilize the economy. For example:

Thomas Sargent, the New York University professor who was announced Monday as a winner of the Nobel in economics … cites Walter Bagehot, who “said that what he called a ‘natural’ competitive banking system without a ‘central’ bank would be better…. ‘nothing can be more surely established by a larger experience than that a Government which interferes with any trade injures that trade. The best thing undeniably that a Government can do with the Money Market is to let it take care of itself.’”

Earlier U.S. central banks caused mischief, as well.  For example,  Austrian economist Murray Rothbard wrote:

The panics of 1837 and 1839 … were the consequence of a massive inflationary boom fueled by the Whig-run Second Bank of the United States.

Indeed, the Revolutionary War was largely due to the actions of the world’s first central bank, the Bank of England.   Specifically, when Benjamin Franklin went to London in 1764, this is what he observed:

When he arrived, he was surprised to find rampant unemployment and poverty among the British working classes… Franklin was then asked how the American colonies managed to collect enough money to support their poor houses. He reportedly replied:

 

“We have no poor houses in the Colonies; and if we had some, there would be nobody to put in them, since there is, in the Colonies, not a single unemployed person, neither beggars nor tramps.”

 

In 1764, the Bank of England used its influence on Parliament to get a Currency Act passed that made it illegal for any of the colonies to print their own money. The colonists were forced to pay all future taxes to Britain in silver or gold. Anyone lacking in those precious metals had to borrow them at interest from the banks.

 

Only a year later, Franklin said, the streets of the colonies were filled with unemployed beggars, just as they were in England. The money supply had suddenly been reduced by half, leaving insufficient funds to pay for the goods and services these workers could have provided. He maintained that it was “the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English and . . . the Revolutionary War.” This, he said, was the real reason for the Revolution: “the colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction.”

(for more on the Currency Act, see this.)

And Georgetown University historian Professor Carroll Quigley argued that the aim of the powers-that-be is “nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.” This system is to be controlled “in a feudalist fashion by the central banks of the world acting in concert by secret agreements,” central banks that “were themselves private corporations.”

Given the facts set forth above, this may be more conspiracy fact than whacko conspiracy theory.

via Zero Hedge http://ift.tt/1SjP6lK George Washington

One week before the BOJ shocked the world by adopting negative interest rates and unleashed the next leg lower in global risk assets, it warned everyone “please not to worry, all is under control“

Moments ago at least Yellen had the courtesy of “warning” market participants in general, and banks and savers in particular that legal, logistical or monetary concerns aside, the Fed is already evaluating the possibility of negative rates.

“We had previously considered them and decided that they would not work well to foster accommodation back in 2010. In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.“

As Bloomberg reported first earlier this week, a Fed staff memo posted on the central bank’s website last month showed Fed economists grappled with a number of issues related to implementation of negative rates at the time, including possible legal obstacles. Yellen said Thursday that negative rates might be legal, but the question remained open to further examination.

Among the other concerns were whether the Fed has the logistical capacity to implement NIRP:

… the Federal Reserve computer systems used to calculate and manage interest on reserves do not currently allow for the possibility of a negative IOER rate, although these systems could be modified over time if needed.

And a further concern about NIRP is the potential lack of physical cash:

DIs might opt to shift a significant quantity of their reserve balances into currency. Present Federal Reserve inventories of currency, at about $200 billion, would not be adequate to cover large-scale conversion of the nearly $1 trillion in reserve balances to banknotes.

This is what she added today:

“I am not aware of any legal restriction that would mean that we could not establish negative rates, but I will say that we have not looked carefully at the legal side of this.”

So she is “aware” without actually looked into it. That’s ironic because it just happens to be standard operating procedure for the Fed regarding pretty much everything.

And finally there was this:

“we don’t even know if payment systems will be able to handle negative rates.” 

Surely that is a minor obstacle. Ultimately the Fed will do whatever the banks tell it to do, and furthermore let’s not forget what Ben Bernanke himself said last month:

“I think negative rates are something the Fed will and probably should consider.”

We agree with him, and in a worst case scenario where Goldman and JPM decide that NIRP is not the “best option”, there is always QE4 – after all we know there are no legal or logistical issues with that.

In any case, at least one person is happy today.

via Zero Hedge http://ift.tt/1SjP6lz Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The key take-away: focus on owning income-producing assets, not a primary residence.

One truism of investing is to follow the lead of those who are building wealth. This chart reveals the foundation of the wealth of the top 1% and the next 9%; business equity, i.e. ownership of enterprises. Compare the assets boxed in red:

The wealthiest households' primary wealth is businesses and shares in businesses. The bottom 90% depend on the family residence as a store of wealth, and on debt as a means of funding asset purchases and consumption.

Primary residences were once a reliable store of wealth–a store that was accessible to working families who were willing to pinch pennies and save up a down payment.

But now that housing has been financialized and globalized, it is prone to boom and bust cycles like every other risk-on financialized asset. Unfortunately, recent history shows that many middle-class households bought homes at the top and rode the post-bubble burst down.

Those fortunate enough to own homes in bubble-prone regions may benefit from speculating in housing, but playing this speculative game requires cashing out at the top of the bubble–something few have the knack for.

Building a profitable business isn't easy. That's why many of the wealthy let entrepreneurs take the risk of starting businesses and then buy the business for a premium once it has proven to be profitable.

But many entrepreneurs refuse to sell out, preferring to hold their businesses as a family asset that can be passed on to the next generation.

It's also worth noting that the wealthiest 10% own over 90% of the securities and stocks, 84% of trusts (essentially tax havens) and almost 80% of non-home real estate (i.e. second homes and income-generating properties).

Primary residences represent a mere 10% of the wealthiest 1%'s assets.

The key take-away: focus on owning income-producing assets, not a primary residence. The second key take-away:

Don't finance your assets with debt; finance your income-producing assets with savings and sweat equity, not borrowed money.

It is not accidental that the wealthiest 1% hold very modest levels of debt.

via Zero Hedge http://ift.tt/1KIjcNf Tyler Durden