Tag: news

At the end of June, the Institute of International Finance delivered a troubling verdict: in a period of so-called “coordinated growth”, total global debt (including financial) hit a new all time high of $217 trillion in 2017, over 327% of global GDP, and up $50 trillion over the past decade. Commenting then, we said “so much for Ray Dalio’s beautiful deleveraging, oh and for those economists who are still confused why r-star remains near 0%, the chart  below has all the answers.”

Today, in a follow up analysis of this surge in global debt offset by stagnant economic growth, BofA’s Barnaby Martin writes that he finds “that as global debt has been mounting to more than $150 trillion (government, household and non-financials corporate debt), global GDP is just above $60 trillion.” His observation is shown in the self-explanatory chart below. 

As a result, both the global economy and central banks are now held hostage by both the unprecedented stock of debt injected into capital markets over recent years to offset the financial crisis depression, and the record low interest rates associated with it. 

As Martin writes, “the global fixed income market (as captured by the GFIM index) is now above the $51trillion mark“, which means that “more than $51 trillion at risk if rates vol spikes and yields move higher” and adds that “amid a record amount of assets acquired by the central banks we have seen the global fixed income market growing to the largest size it has ever been.” This is shown in the left panel on the chart below, while the right side chart shows the accompanying housing bubble: “amid record low funding costs the housing market is also experiencing rapid price gains in some regions as prices are now higher than pre-GFC levels. All main housing markets (US, Europe, Japan and UK) are above the 2007 highs, propped-up by record low yield levels.”

As a consequence of the above, both sides of the global wealth effect are at risk: not only the wealth effect for the “1%” via equity prices, but also the wealth effect for the middle class, in the form of real estate, which is traditionally where global middle classes have parked the bulk of their net worth.

Of course, central banks are all too aware of the risk that this record debt stock presents, and specifically, the threat of sudden, damaging spikes in interest rates cascading into overall volatility surges, which explains why, as BofA puts it, “central banks have been sellers of vol” through QE. Quote Martin:

QE programs around the globe have had a clear target: to reduce uncertainty and dampen market volatility. As we have highlighted before, every time the Fed embarked on the different phases of its QE programme, credit implied vols declined significantly (chart 6). On the other hand, during periods of no monetary easing or when the market started pricing the possibility of easing policy removal (tapering tantrum and the subsequent tapering phase) implied vols advanced (chart 6). Same happened in the case of the ECB: implied vols have re-priced lower post the announcements of the PSPP and the CSPP.

 

 

However, when both the Fed and the ECB attempted to communicate that these policies will have an end-date, implied vols repriced significantly higher. A good example is the market reaction post the May 2013 Bernanke’s mention of the idea of gradually reducing the Fed’s monetary expansion. The same reaction was seen back in October last year, when tapering fears hit Europe: implied vols moved higher over the  following couple of months.

So on one hand there is the threat of central bank balance sheet normalization which may, at any moment, prompt a violent repricing of volatility. On the other, Barnaby writes that “our work shows that the majority of vol spikes over the past years have taken place during periods of geopolitical uncertainty. Since 2013 we have seen a number of vol spikes and most of them had been the result of rising geopolitical risk.”

In 2013 it was the Syrian crisis and in 2014 was the Russia–Ukraine conflict. In late 2015 it was the Paris terrorist attacks and in middle last year it was the UK referendum. Recently we find that rising risks on the Korean peninsula has pushed spreads and vols higher. Note that European credit spreads have been in a constant tightening momentum since the CSPP announcement in March last year, but have moved wider in the past month or so.

Needless to say, the persistent threat of “geopolitical risk” at this moment is close to the highest on record. Ironically, when considering all potential threats, BofA concludes that “the risk for credit spreads and volatility is only on the moderate side as central banks are becoming more cognisant that “uncertainty” anda volatility shock could be damaging for the world economy. Hawkish messages are followed by dovish ones to introduce a “low vol monetary policy normalisation”. This is keeping vols and spreads in check.”

Or, said otherwise, for all the bluster of normalization, central banks will immediately backtrack the moment there appears to be even a moment of “miscommunication” between the Fed and capital markets, i.e., either a rate spike, or a jump in vol, or any other form or unauthorized selling of assets.

The implication is, of course, dire: with central banks trapped, this would suggests that the current pattern of relentless debt growth will persist indefinitely – or at least until it can’t go on any more – leading to an exponential growth in the “financial” economy at the expense of the “real” one, until finally the former swamps the latter.

This observation, brings us back to an analysis made by Bain several years ago:

Looking beyond today’s market conditions, however, our analysis found that capital superabundance will continue to exert a dominant influence on investment patterns for years to come. Bain projects that the volume of total financial assets will rise by some 50%, from $600 trillion in 2010 to $900 trillion by 2020 (all figures are in US dollars at the 2010 price level and market foreign exchange rates), even as the world economy increases by $27 trillion over the same period

 

As it has for more than the past two decades, the large volume of global financial assets will continue to sit on a small base of global GDP (totaling $90 trillion by 2020 versus $63 trillion in 2010). At that level, total capital will remain 10 times larger than the total global output of goods and services and three times bigger than the base of nonfinancial assets that help to generate that expanded world GDP.

That, much more than even the abovementioned $51 trillion in non-financial debt, is not only a major problem: it is an unprecedented disaster just waiting to happe.

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

WTI and RBOB prices are higher this morning following API's reported the biggest gasoline draw in history (compared to EIA data). Of course, disruptions (Florida demand and Texas supply) remain dominant but DOE reports a massive 8.4mm draw in Gasoline inventories – the biggest draw ever. The reaction in prices is anti-climactic as production rebounded and crude built dramatically to offset the exuberance.

Bloomberg's Javier Blas reminds readers that the report covers the period from 7:01 am on Friday, Sept. 1 to 7:00 am on Friday, Sept. 8. So a lot of disruption from Harvey (particularly from Sept. 1, 2, and 3) will still impact everything from refining intake to crude production and U.S. imports and exports.

API

• Crude +6.181mm (+4.82mm exp)
• Cushing +1.32mm (+1.6mm exp)
• Gasoline -7.896mm (-1.5mm exp) – biggest draw ever
• Distillates-1.805mm

DOE

• Crude +5.888mm (+4.82mm exp) – biggest build in 6 mos
• Cushing +1.023mm (+1.6mm exp- biggest build in 6 mos
• Gasoline -8.428mm (-1.5mm exp) – biggest draw ever
• Distillates -3.215mm – biggest draw in 6 mos

Bloomberg Intelligence energy analyst Vince Piazza notes that the impact from hurricane season will keep crude demand subdued, with roughly two million barrels of daily refining capacity off-line. Depressed gasoline consumption should persist temporarily on lower transportation use and suppressed refining utilization.

Gasoline inventories confirmed API's data and saw the biggest draw in history as Crude and Cushing saw major builds…

The bearish data point is that total U.S. petroleum inventories (that's crude, refined products, propane and the volatile "other oils" category) have built for the second consecutive week.

Total stocks up 1.7 million barrels, driven by big builds in crude, propane and other oils.

US Distillate exports fell to their lowest levels since 2010.

The massive collapse in US crude production last week – with most of Texas offline – has recovered somewhat with a 572k surge in production this week. However, it is clear that levels of production are well off pre-Harevy levels…

“We’ve had some supportive news from all three major oil industry bodies, OPEC seeing robust demand, IEA seeing the same and the EIA downgrading their outlook for U.S. production,” says Ole Hansen, head of commodity strategy at Saxo Bank.

“These are all things that point to a market that’s been in quite a better place than we’ve been in for a long time," and prices had gained following API's data, heading into the DOE data.

But it appears the biggest draw in history was not enough to hold RBOB prices up…

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

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

Venezuela is engaged in a multifaceted “war.” The Bolivarian Republic of Venezuela’s main enemy is the private sector of the economy (read: those who hold title to private property) and anyone else (internal or external) who opposes Chavismo (read: socialism).

Wars always wreak havoc; life, property, and dreams are destroyed. In the process, wars – like Venezuela’s – progressively consume a country’s accumulated capital stock, too. In other words, as wars rage on, the destructive war economy gradually eats away at productive assets like land, factory capacity, and raw materials. Just where this process leads was well illustrated by the great Austrian economist, Prof. Fritz Machlup, in a 1935 article about Austria’s World War I inflation:

A dealer bought a thousand tons of copper. He sold them, as prices rose, with considerable profit. He consumed only half of the profit and saved the other half. He invested again in copper and got several hundred tons. Prices rose and rose. The dealer’s profit was enormous; he could afford to travel and to buy cars, country houses and what not. He also saved and invested again in copper. His money capital was now a high multiple of his initial one. After repeated transactions — he always could afford to live a luxurious life — he invested his whole capital, grown to an astronomical amount, in a few pounds of copper. While he and the public considered him a profiteer of the highest income, he had in reality eaten up his capital.

In Machlup’s parable, “copper” represents the capital in an economy. Over time, war consumption and inflation eat up the economy’s physical capital. And, without capital, peoples of war-torn lands face a bleak future. Alas, when the dust finally settles, new questions will have to be addressed. Indeed, citizens of war-torn lands are always left asking, “Where’s our capital?” Yes, the “seed corn” will be nowhere to be found.

But, some of the costs of war are hidden under a shroud of inflation. Inflation, too, is a problem — one that always accompanies wars. But, why?

Let’s start with a typical bogus explanation for inflation troubles — one that is often trotted out by governments dealing with war induced inflation — shifting the blame. True to form, the Chavistas have claimed that the enemies of the state were engaged in a conspiracy to undermine the bolivar by flooding Venezuela with counterfeit bolivar notes.

Indeed, a similar claim was made during Yugoslavia’s civil war. In October 1999, Minister for Information Goran Matic claimed that I was in charge of shipping huge quantities of counterfeit Yugoslav dinars into Milosevic’s Serbia, in an attempt to cause the dinar to collapse and inflation to soar. At the time, I was operating as an adviser to President Milo Djukanovic — who had become an arch foe of Milosevic —and was also State Counselor to the Republic of Montenegro. While the Matic fairy tale captured headlines in the Balkans for a few days, it was too far-fetched to result in anything but fleeting amusement for the chattering classes. And, I might add, the story was completely false.

In the case of Venezuela, Maduro’s explanation for Venezuela’s inflation problems is as phony as a counterfeit bolivar. Nevertheless, during wars, it is a standard refrain.

So, what about the real causes of inflation during times of war? During a war, government expenditures typically must increase, or at least remain the same. After all, the army must be fed, war materiel must be purchased, civil servants must be paid, subsidies for basic food and fuel items must continue, and so on… While government expenditures remain robust during war, the sources of government finance become problematic. The tax system and government administration begin to break down, and tax revenues dry up. Bond financing is nowhere to be found, since investors don’t want to invest in a country that is in a state of war.

Often, combatants, including the central government, pass the begging bowl, seeking foreign aid to fill the fiscal gap. In the case of Venezuela, Russia, China, and other allies of Venezuela,  are an obvious source of finance, but others are not so obvious.

For example, when economic sanctions are imposed on a country like Venezuela, smuggling and other illegal activities run rampant. Misha Glenny, in his fascinating account of the Balkan wars in the 1990s — contained in McMafia: A Journey through the Global Criminal Underworld (Random House, 2008) — makes the following little understood point:

The arms embargo played a key role in establishing the smuggling channels to Croatia and Bosnia, and soon drugs were accompanying the guns along the same routes. But this was nothing compared with the Balkan-wide impact of the comprehensive UN economic sanctions imposed on the rump of Yugoslavia, comprising Serbia (including the troubled province of Kosovo, with a large Albanian population) and Montenegro… Criminals and businessmen throughout the region worked feverishly to create a dense web of friendships and networks to subvert the embargo. Virtually overnight, the vote at the UN Security Council ordering sanctions created a pan-Balkan mafia of immense power, reach, creativity, and venality.

The profits generated by sanctions busting and other nefarious activities were split between the state and the deep pockets of the mafia. So, the Milosevic war machine was financed, to some extent, by smuggling and other illegal activities. This, no doubt, is playing a role in Venezuela.

But, at the end of the day, as a war rages, these sources of funds fail to come close to the level of government expenditures. What to do? Well, the government simply orders its central bank to start the printing presses and fill the deficit gap. It is this surge in the supply of money that generates higher inflation rates.

Again, let’s look at Yugoslavia, whose civil war began in June 1991. During the 1991-98 period, the Yugoslav dinar was devalued 18 times, with a total of 22 zeros being lopped off that unit of account.

In 1991, facing a tremendous budget deficit, Milosevic ordered the central bank to crank up the printing presses. The resulting hyperinflation peaked in January 1994, with a monthly inflation rate of 313 million percent — the world’s third highest hyperinflation. By that time, the central bank was funding virtually all of the government’s expenditures by printing money.

Indeed, Belgrade’s Top Cider Mint was working at full capacity, turning out bank notes that were worthless before the ink had dried. Finally, the mint’s physical capacity  was reached. The authorities could not print enough cash to keep up. On 6 January 1994, the dinar officially collapsed. 

Over the past year few years, Venezuela has been forced to let the central bank’s printing presses roll, though not to the extent they did in Yugoslavia. Nevertheless, the Banco Central de Venezuela (BCV) has turned on the money pumps. In consequence, the bolivar has collapsed and inflation has soared (see the chart below).

As the bolivar collapsed and inflation accelerated, the BCV became an unreliable source of inflation data. Indeed, from December 2014 until January 2016, the BCV did not report inflation statistics. Then, the BCV pulled a rabbit out of its hat in January 2016 and reported a phony annual inflation rate for the third quarter of 2015. So, the last official inflation data by the BCV is almost two years old. To remedy this problem, the Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, began to measure inflation in 2013.

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black market (read: free market) for currency and the black market data are available, changes in the black market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

I compute the implied annual inflation rate on a daily basis by using PPP to translate changes in the VEF/USD exchange rate into an annual inflation rate. The chart below shows the course of that annual rate, which previously peaked at 1823% (yr/yr) in early August 2017. At present, Venezuela’s annual inflation rate is 2060%, the highest in the world (see the chart below).

Does this inflation mean that President Maduro will be shown the door tomorrow. No. Milosevic stayed in the saddle for five years after Yugoslavia’s hyperinflation peaked. 

This piece was originally published on Forbes.

via http://ift.tt/2h1HFoC Steve H. Hanke

Following a series of "almost simultaneous" warnings that shopping centers, railway stations and university buildings in Moscow had been rigged with explosives, authorities ordered the evacuation of more than 10,000 people on Wednesday.

“Twenty sites are currently being evacuated, and more than 10,000 people have been escorted out, though the specific number is still being confirmed,” an emergency services source told news agency Tass.

 

“This appears to be a case of telephone terrorism, but we have to check the credibility of these messages,” said the source, who noted that the calls began at the same time, and continued after the evacuations had begun.

???????? ????????? ??????? ? ??????????? ? ??????. ????????? ?? ?????????? ? ??????. ? ????? ? ???, ??? ??????????: https://t.co/rpRIh34ksc http://pic.twitter.com/2ZLUWkzubQ

— Business FM (@Radio_BFM) September 13, 2017

Emergency services said that specialist units equipped with bomb-sniffing dogs were searching the locations, according to Russia Today. The source, or sources, of the threats have not yet been identified.

? ?????? ???????????? ??? ?? ? ??? ??????? #?????? #?????????https://t.co/DKH8HUHfsy http://pic.twitter.com/wUOPuyHfHW

— ?????? (@spektronline) September 13, 2017

Among the affected areas include Moscow's largest railway stations, more than a dozen shopping centers, including GUM, located next to Red Square, and at least one university – though there have been unconfirmed reports of an evacuation at another school. Luckily for commuters, TASS reported that the police investigation had not interrupted service on the city's metro line.

Here's a live feed from Komosomolskaya Square, where things appear to have calmed down:

Video from the evacuation at one Moscow mall can be viewed below:

@lifenews_ru ????????? ?? ?????????? @m24video http://pic.twitter.com/k9cVmhtki5

— ?.? (@me1nikoff_m) September 13, 2017

via http://ift.tt/2x12Nzg Tyler Durden

The $USD continues to drop like a brick, having taken out critical support in the near-term.

This is just the beginning. It's only going to get worse from here.

Here’s the $USD’s chart running back 40 years. I call this the “single most important chart in the world,” because how the $USD moves has a massive impact on all other asset classes.

As you can see the $USD broke out of a massive 40 year falling wedge pattern. This initial breakout has failed to reach its ultimate target (120) and is now rolling over for a retest of the upper trendline in the mid-to low-80s.

Put simply, this chart is telling us that the $USD is going to be collapsing in the coming months.

The implications of this are going to be tremendous for the financial system. US corporate profits will be increasing particularly for large multi-national companies. Emerging Markets will outperform.

And most importantly, the $USD's collapse  is going to be like rocket fuel for inflation trades. 

If you’re not taking steps to actively profit from this, it's time to get a move on.

We just published a Special Investment Report concerning a secret back-door play on Gold that gives you access to 25 million ounces of Gold that the market is currently valuing at just $273 per ounce.

The report is titled The Gold Mountain: How to Buy Gold at $273 Per Ounce

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As I write this, there are 39 left.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

via http://ift.tt/2jomNsh Phoenix Capital Research

OMB Director Mick Mulvaney told Fox Business this morning that the target date for the release of details around a renewed tax plan is September 25th (presumably 2017) and that has triggered USD-buying and gold-selling.

• REVENUE NEUTRALITY `NOT ON THE TOP OF OUR LIST’: MULVANEY
• CAN’T BALANCE U.S. BUDGET LONG-TERM ON CURRENT GROWTH: MULVANEY
• TRUMP’S FRUSTRATED WITH SLOW PACE OF WASHINGTON ON TAX:MULVANEY
• TRUMP `ADAMANT’ ABOUT GETTING CORPORATE RATE TO 15%: MULVANEY

These remarks follow Trump’s meeting with Congressional leaders Tuesday evening on the subject. As Reuters reports:

  Trump met with six senators including three Democrats who set clear conditions for future cooperation with him on taxes… Also attending were Vice President Mike Pence, White House economic adviser Gary Cohn and Mnuchin.”

As you know, House Speaker Paul Ryan has said that 15% is unrealistic. In his view, something closer to 22.5% is doable.  Paul Ryan has also confirmed that date:

• *RYAN: OUTLINE OF TAX PLAN WILL BE RELEASED WEEK OF SEPT. 25
• *RYAN SAYS CONFIDENT TRUMP TO PUSH FOR CONSERVATIVE TAX REFORM

Meanwhile, House Ways and Means Committee Chair Brady, a member of the “Big Six,” has reiterated the target date while adding that he instructed House Republicans that the goal is for the House and Senate to complete the budget process by mid October and then take up the tax bill.

Gold down, USD suring as the “Trump trade”, this time prompted by hopes of tax cuts, appears to be making a comeback.

via http://ift.tt/2f54bMN Tyler Durden

In a curious case of 2015 deja vu, DoubleLine founder Jeffrey Gundlach says German bond yields are "crazily low," and expects them to rocket higher and rattle the US Treasury market when (if) the ECB scales back its bond purchases.

The FT reports that Gundlach warns the 10-year German Bund yield would jump to 1 per cent “pretty quickly”, from about 0.4 per cent today.

So far he has been right, just as in 2015 when Gundlach and Gross warned that Bunds were "the short of a lifetime."

And of course, as goes Bund yields, so goes UST yields…

“That would be a catalyst for US interest rates rising as well, as we’re all tied together these days. So we’re watching this pretty closely,” Gundlach said.

 

“You have massive risk at these levels.”

 

“I just don’t like 10-year Treasuries at this level, they don’t have any business being down here.”

Gundlach concluded ominously:

“I’m starting to come to the conclusion . . . that maybe we have to go on trouble-watch in the middle of 2018.”

For now, Gundlach's favorite bond indicator is pulling back…

via http://ift.tt/2y5N2qS Tyler Durden

It appears the mob has won (a battle, perhap not the war).

Following a coordinated alt-left attack targeting Hope Hicks' account, Twitter has suspended the new White House Communications Director's account after a mass-reporting.

Alt-left targeted her account and mass-reported it. Twitter took it down http://pic.twitter.com/pk7nLo0Dwg

— Jack Posobiec (@JackPosobiec) September 13, 2017

Here is Hope's Twitter page…

The Alt-Left is cheering their victory…

Alt-Left "journalist" cheers suspension of Hope Hicks after mass-harassment campaign @jules_su http://pic.twitter.com/ikPt8J4h4n

— Jack Posobiec (@JackPosobiec) September 13, 2017

We suspect Twitter will be more than a little embarrassed by this – it appears Jack Dorsey's sophisticated new anti-free-speech, censorship AI algos are really just mob-rule-driven – if enough people don't like what you are saying (or may say), they will comply…

This is a horrific sign for our democracy when @Twitter refuses to allow our President's own communications channel with the people https://t.co/vJwiklJNap

— Jack Posobiec (@JackPosobiec) September 13, 2017

We anxiously await President Trump's response.

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

Most retail stocks have been something to avoid this year, as the majority of them have been hard hit! Could a trend change be about to take place? For sure a big test for them is in play right now!

CLICK ON CHART TO ENLARGE

The decline in XRT that started the first of the year, took it down to test 3-year horizontal support at line (1), inside of falling channel (2), where a reversal pattern took place. Over the past month, XRT has experienced a small counter trend rally.

This counter trend rally now has it testing the top of its falling channel at (3). If XRT can break out at (3), this hard hit sector has a chance of attracting buyers.

Below looks at retail stock Macy’s and how hard its been hit over the past couple of years (lost nearly two-thirds of its value).

CLICK ON CHART TO ENLARGE

Macy’s could be forming a large bullish falling wedge over the past couple of years. “M” is testing the top of the falling wedge this week at (1). If it can breakout at (1) buyers could become interested in this hard hit sector.

Macy’s is one of six individual stocks the Power of the Pattern has been sharing the past few weeks with Premium and Sector Members, as out of favor stocks that could surprise the public to the upside.

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