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The following reader comment, posted originally in the FT is a must read, both for the world’s lower and endangered middle classes but especially the members of the 1% elite because what may be coming next could be very unpleasant for them.

Elites have lost their healthy fear of the masses

 

Sir, Martin Wolf (“The losers are in revolt against the elite”, Comment, January 27) and Andrew Cichocki (“Elites are listening to the wrong people”, Letters, January 29) skirt the key issue: global elites have lost a healthy sense of fear.

 

From the time of the French Revolution until the collapse of communism, what successive generations of elites had in common was a sense of fear of what the aggrieved masses might do. In the first half of the 19th century they worried about a new Jacobin Terror, then they worried about socialist revolution on the model of the Paris Commune of 1871. One reason for the first world war was a growing sense of complacency among European elites. Afterwards they had plenty to worry about in the form of international communism, which remained a bogey until the 1980s.

 

With the collapse of the Soviet Union and the spread of global capitalism, today’s elites have lost the sense of fear that inspired a healthy respect for the masses among their predecessors. Now they can despise them as losers, as the aristocracy of ancien régime France despised the peasants who would soon be burning their châteaux. Surely today’s elites are going to learn how to fear before we see any reversal of the recent concentration of wealth and power.

Is it time for pitchforks to restore the natural orders of fear yet?

h/t @WallStCynic

via Zero Hedge http://ift.tt/1mehAz6 Tyler Durden

Another day, another Goldman prediction fiasco, and no, we are not talking about the stop out of the firm’s Top Trade for 2016, namely the long USDJPY, short EURUSD (although that should happen any minute) – we are talking about that perpetual permabull, Jan Hatzius, just admitting the economy is in far worse shape than expected (if only by him), and as a result he just “revised” his Fed rate hike call, no longer expecting a March hike, instead now forecasting that the first rate hike will be in June and “and see a total of three rate increases this year.”

Of course, come December Hatzius, like the Fed, will be forced to admit that not only will there be no more rate hikes but everyone will be asking, if not begging for the Fed to cut.

From Goldman:

• We are revising our Fed call, and now expect the FOMC to keep policy rates unchanged at the March 15-16 meeting. Incoming economic data continue to look broadly consistent with the committee’s outlook, but financial conditions have tightened meaningfully, and officials sound inclined to take more time to gather data and observe market developments. We therefore expect the next rate increase in June, and see a total of three rate increases this year.
• Even after this change, our forecasts remain well-above market pricing, which now shows only about a 50% chance that the Fed raises rates at all this year, and a 25% chance that the committee lowers rates. The first full rate hike is not priced in until about August 2017.

We are revising our Fed call, and now expect the FOMC to keep policy rates unchanged at the March 15-16 meeting. Incoming economic data continue to look broadly consistent with the committee’s outlook at the time of the December meeting. However, financial conditions have tightened meaningfully, and recent public comments suggest Fed officials see greater risks to the outlook from these changes than we previously had thought. We now expect the next rate increase at the June FOMC meeting, and see a total of three rate hikes this year. Even relative to our revised baseline forecast, risks are tilted to the downside—it is still easier to see the committee slowing down the rate of increases then speeding them up.

 

* * *

 

… developments in financial conditions have clearly not cooperated with our year-end outlook. Our Financial Conditions Index (FCI) has tightened by about 50 basis points (bp) since the December FOMC meeting, implying a hit to growth of about 40bp over a one-year period, if the tightening proves persistent (Exhibit 3). Before the last week, we were unsure about how policymakers would react to recent market volatility; officials may have expected some tightening in financial conditions after liftoff, and their threshold for responding was therefore unclear. However, recent comments suggest that policymakers see the tightening in financial conditions as excessive, with potential implications for growth and the path for policy later this year.

 

 

* * *

 

… San Francisco Fed President Williams said in Q&A after remarks last week, “These developments in financial markets abroad, I think, have caused me to lower a small amount my forecast for GDP, and lower my forecast for core inflation.” He added that recent developments, “tell me we will probably have a little bit more monetary stabilization than I was thinking in early December.” Similarly, Dallas Fed President Kaplan said, “When you put all that together I think there is good reason to be patient (and) take more time to assess the impact on the U.S. economy.” When asked about the path for the funds rate in new projections at the March FOMC meeting, he said: “It’s not going to be any steeper.” Earlier today, New York Fed President Dudley said in an interview, “One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting.” And he said he interpreted the last FOMC statement as conveying that “things have happened in financial markets and in the flow of the economic data that may be in the process of altering the outlook for growth and the risk to the outlook for growth going forward” (Source: Market News via Bloomberg). Lastly, Governor Brainard told the Wall Street Journal, “Recent developments reinforce the case for watchful waiting.”

 

Fed officials are thus understandably uncertain about current market conditions, and inclined to be patient in order to gather more data and observe market developments—not unlike the committee’s reaction to market volatility in August and September 2015. Although there are six weeks to go before the March FOMC meeting, we expect that the committee will not have enough information in hand to determine that the tightening in financial conditions “left little permanent imprint on the economy”—as Vice Chair Fischer said this week about market turbulence last year. A second rate hike in June looks more realistic; action at the April 26-27 meeting could be an outside possibility if market conditions improve significantly. Even after this change, our forecasts remain well-above market pricing, which now shows roughly a 50% chance that the Fed raises rates at all this year, and a 25% chance that the committee lowers rates. The first full rate hike is not priced in until about August 2017.

* * *

In other words, the crack Goldman economists are now only 3 weeks behind the Fed Fund futures.

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Submitted by Mike Krieger via Liberty Blitzkrieg blog,

The last time I shared my thoughts on gold, a subject I had previously wrote about constantly, was all the way back in July of last year. That post was titled, 4 Mainstream Media Articles Mocking Gold That Should Make You Think. Here’s an excerpt:

There are many reasons why I stopped commenting on markets, but the main reason is that I started to recognize I wasn’t getting it right. In fact, in some cases I was getting it spectacularly wrong. Whenever this happens, I try to isolate the problem and fix it. In this case there was no fix, because much of why I was no longer getting it right was rooted in the fact that my heart, soul and passion had moved onto other things. My interests had expanded, and I started a blog to express myself on myriad other matters I deemed important. Providing relevant market information needs intense focus, and my focus had shifted elsewhere. I recognized that I wasn’t intellectually interested enough in centrally planned markets to provide insightful analysis, and so I stopped.

 

Years ago, Martin Armstrong was saying that nothing goes up in a straight line and that gold would experience a severe correction before beginning its real bull market. We are seeing his prediction unfold before our very eyes. What he also said is that as gold approached the $1,000 per/oz mark or even below, everyone would proclaim that “gold is dead” and start making comically bearish statements. In a nutshell, negative sentiment would plunge to levels not seen in years, if not more than a decade. We are starting to see this now.

 

I didn’t write this article to “call the bottom in gold” or anything like that. I merely want to flag these four articles due to the hyperbolic nature of some of the statements made (they are exhibiting pretty much exactly the same behavior as the gold bugs they mock do). I do think that something is happening on the sentiment front that warrants we are closer to the bottom than the mid-stages of a bear market.

Fast forward six months, and gold has been more or less flat. Nevertheless, a lot has changed in the interim and it’s time for an update. Specifically, the multi-year fundamental outlook has turned far more bullish, while sentiment remains depressed. Yesterday, following multiple back-to-back  messages about gold on Twitter, someone asked me for my bullish thesis, I wrote:

@BrianZaratzian Negative yields, central banker panic at next downturn, bearish sentiment turns bullish, cashless society calls.

— Michael Krieger (@LibertyBlitz) February 2, 2016

But there’s more to it. A lot more. First, let’s look at the improved fundamentals. Gold bugs will exasperatingly proclaim that fundamentals have been great for the past four years yet the price plunged anyway, so who cares about fundamentals? To this I would respond with two observations. First, large institutional investors and sovereign wealth funds have been anticipating a rate hike cycle for a very long time now. They didn’t know when, but they expected it. The fact that the gold bugs never believed this is irrelevant; what matters is that big money believed it, and it was perceived to be very gold negative. In their minds, this anticipated rate hike cycle would confirm that things were getting back to normal, and if things are normal you don’t need to own gold, right?

 

The problem is that this assumption is quickly being called into question. Sure the Fed hiked rates once, but it is starting to look more and more like a policy error. Meanwhile, other major central banks around the world are going in the opposite direction, toward negative rates. I am a huge believer in market psychology, and the psychology dominating the minds of most institutional investors over the past few years has been that things were slowly getting back to normal. This has weighed on institutional demand for gold in a big way, and been a meaningful factor in the bear market (manipulation aside). If this psychology shifts, the shift back into gold could be very meaningful.

While that backdrop is interesting in its own right, what may make the move into gold that much more explosive is the lack of alternative investments. Let me explain.

Very wealthy people in the Western world do not like gold. In fact, if you talk to them, most will sneer at you with a combination of disgust and bewilderment at the mere suggestion of buying physical gold. These people will scour the planet for every and any alternative they can find before buying any gold, and this bias has been evident globally over the past few years. We have seen mansion prices and luxury real estate generally soar to unforeseen heights across the globe, and we have seen tremendous bull markets in equities. Similarly, competing “safe haven assets” such as sovereign bonds have rallied to the point many of them offer negative returns. Specifically, the FT just noted that negative yielding bonds now account for one-quarter of the entire government bond universe. Think about that for a second.

So what we are looking at is a far stronger fundamental backdrop for gold, coupled with an investment landscape in which almost all the alternatives look overpriced and unattractive. While wealthy Westerners will be dragged into the next gold bull market kicking and screaming, dragged into it they will be. They may not like gold, but they like losing money even less. This will create the buying power so desperately needed for a new gold bull to catch fire, and many people will be caught off guard. Personally, I think a new bull market in precious metals will be birthed with the next 12-months, and it’ll be a big one. 

*Note: I think it is beyond obvious that all financial markets, particularly precious metals, are actively manipulated by Central Banks around the world. Recognition of this fact does not help one determine when the psychology of markets and related price action will change, which is why it was not addressed in this article.

Finally, in case you missed it the first time around, you should check out the July 2015 article: 4 Mainstream Media Articles Mocking Gold That Should Make You Think.

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

Before we start, this tweet summed up most of the desk chatter todasy…

#WallStreet traders at their desks today 😀 @ForexStopHunter @livesquawk @ForexLive @zerohedge @Schuldensuehner http://pic.twitter.com/yrfmQTwTkW

— Jakub Stasik (@kubachybas) January 20, 2016

Services economy dismal, ADP data weak, crude fundamentals horrible… rip snorting ramp in crude and stocks…

 

To be clear, today's idiotic ramp in Crude oil was nothing but an algo-induced short-squeeze just like we saw last week. Chatter of OPEC emergency meetings desparately tried to jerk headline-scanning algps higher while everything fundamentally was a disaster with inventories surging across the complex, production unchanged for the lower 48, demand plunging 16% YoY, and energy credit continuing to weaken… But then this happened…

 

We noted early that Yuan caught a sudden unexpected bid early…

 

But the following chart suggests The PBOC CNH-JPY intervention spike was the momentum ignition for today's tomfoolery…

 

Dudley did a job on the dollar…

 

And his dovishness turned bank stocks around – but credit continued to weaken notably…

 

Here's The Dow… if you needed a laugh… Pisani "well we were stupidly oversold"

 

The Dow's realized (intraday inclusive) volatility is the highest since Black Monday chaos…

 

On the day, Nasdaq just would not join the party… Don't ask for a catalyst for the ramp starting at 2pmET…

 

Double Squeeze Day…

 

Treasury yields plunged and ripped back to modest rise on the day…

 

10Y broke below 1.80% – the first time in a year…

 

5Y broke down to its low end of the channel – what happens next?

 

The Dollar was dumped against every major…as Dudley's dovish jawboning 'helped"

 

And Kuroda will not be happy…

 

Commodities all gained on the USD weakness but obviously Crude had the highest beta…

 

Gold broke notably above its 200-day moving average… and silver broke above its 100-day moving-average///

 

Finally – in case you wondered just how crazy the intrday swings are in crude oil… they are the highest since Lehman…

 

Charts: Bloomberg

Bonus Chart: Once again The Fed exposed its data-dependence…

Data Dependene Update http://pic.twitter.com/iuvRhzi3gq

— Not Jim Cramer (@Not_Jim_Cramer) February 3, 2016

via Zero Hedge http://ift.tt/1o79QQX Tyler Durden

We have previously shown just how bad the situation in the US heavy trucking space – trucks with a gross weight over 33K pounds – was most recently in “US Trucking Has Not Been This Bad Since The Financial Crisis” in which we looked at November data and found, that “Class 8 truck net orders at 16,475, were 59% below a year ago and the lowest level since September 2012.  This was the weakest November order activity since 2009 and was a major disappointment, coming in significantly below expectations.  All of the OEMs, except one, experienced unusually low orders for the month.”

For those who missed the proverbial wheels falling of the heavy trucks, so to speak, the charts below do the situation justice:

So with 2015 in the history books, and as we start 2016 where the base effect was supposed to make the annual comps far more palatable, we just got the latest, January data. In short: the drop continues to be one of Great Recession proportions, manifesting in yet another massive 48% collapse in truck orders in the first month of the year as demand appears to have gone in a state of deep hibernation.  From Reuters:

U.S. January Class 8 truck orders fell 48 percent on the year, preliminary data from freight transportation forecaster FTR showed, indicating that 2016 could be another weak year for truck makers.

 

FTR estimated that orders for the heavy trucks that move goods around America’s highways totaled 18,062 units in January. This follows on from a full-year decline in 2015 of nearly 25 percent to 284,000 units from 276,000.

“It is not looking to be a strong year,” for the market, FTR chief operating officer Jonathan Starks said in a statement. 

 

Amid uncertainty over U.S. economic growth and a lackluster performance for retailers in the fourth quarter, trucking companies have been holding back on buying new models

As a reminder, unlike trains, which one can say are used to transport oil and coal, Class 8 trucks make up the backbone of U.S. trade infrastructure and logistics: what they represent is both domestic and global trade. Or in this the devastating collapse thereof.

Should one be concerned by this precipitous drop? Absolutely not: as the Federal Reserve would certainly say “it’s probably nothing” and blame it on the weather.

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Via Scotiabank's Guy Haselmann,

Rapidly Standing Still

While global central bank quasi-coordination ended in 2014, it completely diverged in 2015. This is highly troubling and dissimilar to other historical comparisons. The reason is because when both nominal and real interest rates are already zero and/or negative, cutting interest rates further is an action taken to directly weaken the currency. Making real rates more negative will simply not lead to more borrowing for capital spending. Therefore, the BoJ’s easing last week sounded an alarm that a currency war has basically begun.

By cutting rates, the BoJ has made the Fed’s job more difficult.  A continuation of diverging policies would ultimately place too much upward pressure on the US dollar. One reason the dollar materially slipped today is due to this realization and the market reacting to further price out Fed hikes.

Because a currency represents a relative relationship, Fed hikes could have helped pull other central banks away from the dangers and consequences of negative rates, while still helping their hidden desire for a weakened currency. Opposing central bank policy actions would cause too powerful of an impact on exchange rates. Unfortunately, it appears the path into negative territory is winning the directional battle. A classic prisoner’s dilemma has arisen for the Fed.

The pressure for China to devalue its currency is now stronger as well.  This is not only true because Japan is a key trading partner, but because China recently shifted its policy from a USD fixed exchange rate to a trade-weighted basket that includes the yen.  (Similarly, further cuts in Europe are intended to weaken the Euro.)

A strong dollar has always posed one of the biggest risks to the derailment of the Fed’s hiking cycle.  A rising dollar causes real exports to decline, because the relative price of US goods in foreign markets is higher. Concurrently, foreign goods are cheaper to US consumers, so real imports rise in the US.  US slack increases as domestic production declines, resulting in lower GDP and lower prices.  In other words, global output becomes redistributed away from the US.

Currency wars are a zero sum game. However, they can be a negative sum game if they lead to protectionism or other anti-globalization retaliatory measures.  Currencies are targeted when there is a deficiency of good or effective policy options.  Unfortunately, Japan, China, and Europe cannot all become more competitive against each other at the same time, and attempts to do so destabilize markets and propagate imbalances.

Stanley Fischer is one of the most experienced and wily central bankers in the world. His shrewd insights are influential. Many on the FOMC (and elsewhere) look to him as a ballast and beacon for navigating highly turbulent financial markets and economic waters.  His calm and unflappable demeanor shrouds a deep understanding of economic and financial market issues, and the first and second-order effects of monetary policy.

It is interesting and no coincidence that several of his recent speeches have addressed exchange rates and risks to financial stability (see here and here).  In an interview with Tom Keene on Monday, he commented at length on the question of currency wars. Fischer said to Keene, “The agreement is that the international body of policy makers frowns upon measures undertaken solely to weaken a currency….if you are trying to change the exchange rate purely to get an advantage against other countries, that’s not ok”.  Fischer sounded as if he was warning other central banks.

My colleague Dov Zigler wrote an excellent note on this interview:

Fischer is downgrading his inflation outlook due to the strengthening of the USD. He says: “Further declines in oil prices and increases in the foreign exchange value of the dollar suggested that inflation would likely remain low for somewhat longer than had been previously expected.” This could mean that FOMC members, including Fischer, will also reduce the part of their forecasts tied to the inflation outlook — namely, forecasts for the appropriate path of monetary policy. Much will thus depend on what happens to the USD over the weeks between now and the March FOMC meeting. We wrote about this in Daily Points this morning. It is a material risk.

 

Fischer commented at length on the question of ‘currency wars’ — and implied that the FOMC has very little patience for central banks engaging in them. At the conclusion of the Q&A, Fischer was asked by the moderator about ‘currency wars’. What Fischer said bears quotation at length because it speaks to a potential impact on Fed policy from international monetary policy actions. Fischer said: ‘There’s an agreement among countries. It is an inevitable result of an easy policy that your currency weakens. There is an agreement among international policy makers. The agreement is that the international body of policy makers frowns upon measures undertaken solely to weaken a currency. If the conclusion is that you are involved in an effort to strengthen your economy [via monetary easing]… that’s ok. If you are trying to change the exchange rate purely to get an advantage against other countries, that’s not ok.” The question is thus whether or not the FOMC thinks that recent actions by major central banks, which have had the effect of weakening currency crosses against the USD, were undertaken with bona fide economic logic other than currency depreciation in mind. The tone of the Fed Vice Chair’s comments implied that he might have his doubts.

 

The Fed is not worried about the unemployment rate falling ‘too much’ and will not necessarily conduct monetary policy in order to cool off the labor market at least in the near term. To that effect, Fischer asks: “Should we be concerned about the possibility of the unemployment rate falling somewhat below its longer-run normal level, as the most recent FOMC projections suggest? In my view, a modest overshoot of this sort would be appropriate.” Don’t expect the FOMC to hike aggressively just because the labor market is improving incrementally.

 

The Fed isn’t making any final judgements about whether or not the recent market volatility should cause it to alter its policy normalization plans — but it could alter its plans if the volatility gets too extreme. Writing about the volatility in asset markets triggered by a mix of falling oil prices and uncertainty about China, Fischer says: “If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States. But we have seen similar periods of volatility in recent years that have left little permanent imprint on the economy. As the FOMC said in its statement last week, we are closely monitoring global economic and financial developments…” Fischer sounds taciturn here, and to his credit, both has perspective amidst a volatile market and remains flexible and open minded with respect to how the Fed should respond to it.

 

Fischer wants to maintain a large Fed balance sheet for ‘a time’. It should be clear from other recent Fed comments that the FOMC intends to maintain a large balance sheet. Fischer however added a wrinkle today.

Risks to financial stability, which are intertwined with the level of the USD, likely played a role in the Fed’s decision to hike rates in December. Political aspects, which some FOMC members are only willing to admit in closed door meetings, also played a part. Congress generally views interest on excess reserves as an unpalatable ‘giveaway of taxpayer money to banks’.  Ironically, a 0% rate is also criticized.

The Fed has a tricky balance of trying to find (and not veer too far from) the ‘neutral rate’, while simultaneously managing an enormous balance sheet and restraining as much political opposition as possible. In this regard, putting some distance between 0% and the Fed Funds rate therefore has its benefits, as both negative rates or a QE4 program (should it be necessary) would be highly problematic from a political point of view. Although the argument might sound stupid, by lifting rates, the Fed has the ability to move back down to 0% before resorting to these other ‘contemptuous’ actions. The FOMC is certainly in a quagmire.

As I have been writing for over a year now, “all roads lead to Treasuries”. I have outlined the many reasons on numerous occasions. I still expect long-dated Treasuries to be one of the best trades of the year. I expect them to move to new all-time low yields in 2016 (i.e., 10’s and 30’s below 1.39% and 2.23% respectively).

“They disguise it.  Hypnotize it. Television made you buy it.” – System Of A Down

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