Libertarian Think Tank is Spoiling for a Fight with the Fed

20-Oct (The Wall Street Journal) — The Cato Institute has some bones to pick with the Federal Reserve.

The Washington libertarian think tank this week will launch a new Center for Monetary and Financial Alternatives. Its goal: challenge the central bank’s policies and explore alternative ways to manage the U.S. money supply, including but not limited to a return to the gold standard.

“I think we can do better than the Federal Reserve,” said George Selgin, the center’s director and a former economics professor at the University of Georgia. “We should be exploring how to do better. We should be exploring alternatives that could do better, instead of dismissing that entire inquiry as something that should be only of interest to people on the fringe.”

…The Fed’s extraordinary actions in recent years – helping rescue large financial firms, pinning interest rates at zero for nearly six years and counting, three rounds of bond-buying aimed at stimulating economic recovery – remain controversial.

Critics have variously accused the Fed of bailing out fat-cat Wall Street bankers, harming Americans who rely on interest from their savings, distorting the flows of the free market, failing to generate sustainable economic growth and flirting with out-of-control inflation and a debased currency. Defenders say the Fed’s policies prevented the crisis from escalating into a financial catastrophe, helped stabilize the financial system and helped nurture a fitful recovery, and they note inflation remains low and the dollar strong.

…One overarching goal will to challenge the Fed’s reputation and record, not just in recent years but going back to its founding in 1913, he said.

The Fed has amazingly good credibility based on its amazingly weak performance,” Mr. Allison said. “We want to challenge that credibility.”

[source]

Posted in Currency Wars, Monetary Policy |

Leveraged Money Spurs Selloff as Record Treasuries Trade

20-Oct (Bloomberg) — When markets are buckling and volatility is signaling a crisis, you sell what you can, not what you want.

That’s what happened last week on Wall Street, where slowing economic growth in Europe, Ebola anxiety and escalating conflicts in the Middle East and Ukraine tore through the calm with a force not seen in three years. Loath to find out what their record holdings of corporate bonds and leveraged loans were worth as liquidity thinned and markets slid, professional traders turned to stocks and Treasuries to defuse risk.

The result was a frenzy. U.S. government debt volume surged to an all-time high of $946 billion at ICAP Plc, the world’s largest interdealer broker, more than 40 percent above the previous record. About 11.9 billion shares changed hands on U.S. equity exchanges on Oct. 15, the most since the European debt crisis of 2011.

“Whenever people can’t sell their illiquid assets, they turn to the U.S. stock market because everyone is involved in it and that’s what they can sell,” said Matt Maley, an equity strategist at Miller Tabak & Co. in Newton, Massachusetts, who has worked in the securities industry for 32 years. “That’s why the market selloff was so sharp. You sell what you can, and the deepest, most liquid asset in the world is U.S. stocks.”

[source]

Posted in Markets |

The Daily Market Report: Gold Higher on Growth Risks, Stock Market Volatility


20-Oct (USAGOLD) — Gold firmed in overseas trading to pressure last week’s high at 1249.63. The yellow metal is being underpinned by persistent worries over global growth risks and deflationary pressures, and the resulting stock market volatility.

German producer price inflation fell to -1.0% y/y in September, from -0.8% y/y in August, even as the ECB commenced covered bond purchases. The ECB is expected to begin it’s ABS purchases before the end of the year. The central bank also remains under pressure to escalate to sovereign bond purchases.

Japanese PM Abe is now considering forestalling the second part of the consumption tax hike. The Abe government hiked the consumption tax from 5% to 8% in April and the economy promptly fell off a cliff, contracting 7.1% in Q2

In recent weeks Abe had pledged to proceed with the second phase of the tax hike, moving the rate up to 10%. But suddenly he has some concerns. “By increasing the consumption tax rate if the economy derails and if it decelerates, there will be no increase in tax revenues so it would render the whole exercise meaningless,” Abe said.

You might have considered that possibility before you did the first hike. All this means though, is that the Abe government will continue to run up debt in their attempt to stoke inflation, without doing more to address the revenue side of the equation. Japanese savers are going to suffer even more and the savvy ones are likely buying gold.

Providing additional support to gold is “extraordinary” physical demand in China:

“…the latest data from the Shanghai Gold Exchange (SGE) shows the Chinese have been buying extraordinary amounts of gold before and after this holiday.” — Koos Jansen

We saw robust Chinese demand on gold’s previous tests of the $1200 zone. The drop early in the month to 1182.79 was apparently no exception. The Chinese know a bargain when they see one.

Posted in Daily Market Report, Gold News, Gold Views |

QE: New York Fed purchases $1.135 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

ECB starts buying covered bonds

20-Oct (Financial Times) — The European Central Bank has started to buy covered bonds, launching its latest attempt to stave off a vicious bout of economic stagnation in the eurozone.

The purchases are the first in a bond-buying programme that is expected to see the ECB place billions of euros of covered bonds and asset-backed securities on its balance sheet over the next two years in an attempt to revive lending and growth across the region.

The ECB confirmed that the central bank had begun purchasing the assets on Monday. The purchases of asset-backed securities are expected to start later this year.

The central bank will reveal how much it has bought every Monday afternoon, starting next week.

[source]

Posted in Central Banks, Monetary Policy |

The Chinese Precious Metals Market Is On Fire


19-Oct (BullionStar) — The Chinese national holiday, The Golden Week, is over and the latest data from the Shanghai Gold Exchange (SGE) shows the Chinese have been buying extraordinary amounts of gold before and after this holiday. The SGE was closed from October 1 to 7, the latest SGE withdrawal numbers cover September 29 and 30, and October 8, 9 and 10. In these 5 days 68.4 tonnes were withdrawn from the SGE vaults (in the mainland and the Shanghai Free Trade Zone).

[source]

Posted in Gold News, Gold Views |

Gold Futures Climb on Dollar Weakness to Falling Stocks

20-Oct (Bloomberg) — Gold futures rose as the dollar weakened and stocks declined, boosting demand for the metal.

The Bloomberg Dollar Index Spot fell 0.1 percent and the Stoxx Europe 600 index declined 0.6 percent as investors speculated on the timing of a Federal Reserve rate increase. Gold has advanced for the past two weeks, buoyed by a combination of a weakening dollar and falling stock prices.

“The combo of the two will give gold a boost,” Bernard Sin, global head of precious metals trading at MKS (Switzerland) SA in Geneva, said by e-mail.

…Speculators raised their net-long bullish bet on gold futures for the first time in nine weeks as of Oct. 14, according to U.S. Commodity Futures Trading Commission data. The 39 percent jump was the biggest gain since June 24 and first increase since mid August.

“This scenario continues to be supportive for gold, as it allows for more room to rebuild positions in the near term should investor doubts on global growth and uncertainties on the timing of Fed rate hikes linger,” Joni Teves, an analyst at UBS AG in London, said in an e-mailed report today.

[source]

Posted in Gold News, Gold Views |

Gold higher at 1246.52 (+8.42). Silver 17.45 (+0.20). Dollar lower. Euro higher. Stocks called mixed. US 10yr 2.18% (-1 bp).

Posted in all posts |

Four German Banks on the Brink

17-Oct (Handelsblatt) — The European Central Bank will give the results of its so-called “stress tests” to the banks on October 24. Shortly thereafter, at a Sunday afternoon press conference in Frankfurt, it will inform the public about which of the banks passed the months-long checkup into the health of their balance sheets. The test is designed to give the ECB a clean slate when it takes over the role of supervising Europe’s largest banks on November 4.

While Germany’s largest banks, including Commerzbank, are expected to pass the test, there are still four smaller banks putting in extra hours in hopes of passing ECB muster, according to information received by Handelsblatt.

“In part, data and justifications need to be sent over, in order to convince the regulators,” said one insider, who declined to be named.

[source]

Posted in all posts |

The Daily Market Report: Gold Outperforming White Metals


17-Oct (USAGOLD) — Gold eased modestly in early New York trading as stocks rebounded along with yields. Even as stocks held gains, there was some buying interest on the intraday dip and the yellow metal is presently trading higher on the day. Gold appears poised to notch its second consecutive weekly gain after holding key support at 1182.10/1179.83 earlier in the month.

Volatility in the stock a bond markets this week has rattled nerves, prompting demand for gold as a safe-haven asset and a hedge amid heightened market uncertainty. Risks to global growth were the primary cause of all the volatility; which in turn prompted much speculation about how the central banks might respond to said risks, and the related deflationary pressures.

The conclusion seems to be that interest rates will remain near zero and the central banks may pump even more liquidity into the market. Some of the regional Fed presidents have hinted at the possibility of an ‘un-taper’ or even QE4.

Amid the growth risks, it’s not surprising to see the yellow metal outperforming the white metals. The gold/silver ratio hit a five-year high of 71.82 on Thursday and remains elevated today.

The price of platinum briefly dipped below the price of gold on Thursday. It was the first time that has happened since April of last year.

With Europe on the verge of a triple-dip recession, and Japan likely to headed into recession again as well, commodities have been pressured. The vast majority of demand for the white metals come from industry. In a weak economic environment there tends to be less demand for automobiles and electronics, so demand for silver, platinum and palladium suffers also.

If you are looking for a safe haven these days, or looking for an asset to hedge your exposure to the more traditional asset classes. I encourage you to consider physical gold ownership.

I am not suggesting the white metals are a bad investment, but because they are primarily industrial metals, you should consider them to be more speculative in nature. Gold on the other hand, is — and remains — the classic safe-haven asset.

Posted in Daily Market Report, Gold News, Gold Views |

The Fed: Strangling the Saving Ethic and Values

17-Oct (CaseyResearch) — Saving was once drummed into our heads as the prudent thing to do. How many times did you hear, “A penny saved is a penny earned”? Now some argue it’s not worth anyone’s time to pick one up.

Blogger Shane of Domain Shane fame gives a number of reasons for not picking up pennies. (He will pick up quarters.) He’s figured out that he earns two cents a second, so stooping down to pick up a penny is a losing proposition. “The time it takes to pick up a penny, I could have kept moving and made double what I put in to it,” writes Shane.

… It’s clear that since the last tethers tying the dollar to gold were cut, money production has soared, and a casualty has been the savings ethic. When the government’s money was gold or tied to it, a worker simply had to exercise the discipline to put some money away every paycheck. Now the dollar earns zip, while its value is eroded by inflation. (Send your thank-you letters to the Eccles Building, Washington, DC.)

Janet Yellen (and before her, Ben Bernanke) doesn’t want your money sitting in savings. If you can’t bring yourself to blow it at the mall, Fed chairs want your money in stocks or other risky assets. As Jim Grant, founder of Grant’s Interest Rate Observer, said on CNBC the other morning, “The Fed was wanting us all to get out of savings accounts and into junk bonds and equities.”

But there’s a problem with that. In his book, The Ethics of Money Production, Jörg Guido Hülsmann explains:

Carpenters, masons, tailors, and farmers are usually not very astute observers of the international capital markets. Putting some gold coins under their mattress or into a safe deposit box saved them many sleepless nights, and it made them independent of financial intermediaries.

Hoarding paper money is financial suicide, and savings accounts yielding next to zero are the same thing. So, the average person must become a securities expert, follow financial news, spend time constantly supervising one’s investments, and have a good dose of luck. Even if the average person can do all that, Professor Hülsmann points out, “Inflation forces them to spend much more time thinking about their money than they otherwise would.”

“…a generation of people are being made poorer at the hands of the Fed.”

[source]

PG View: Save. Because it’s the prudent thing to do. Then, make sure part of your savings are in gold.

Posted in Central Banks, Monetary Policy |

University of Michigan sentiment (prelim) rose to 86.4 in Oct, above expectations of 84.3, vs 84.6 in Sep.

Posted in Economic Data |

Gold set to post weekly gain on uncertain US rate outlook

17-Oct (Reuters) – Gold edged lower on Friday as shares rebounded, but it was still set for a second straight weekly gain as concerns over the global economy have raised speculation the U.S. Federal Reserve could keep interest rates low for longer.

Spot gold was down 0.1 percent at $1,237.40 an ounce by 1145 GMT. The metal is up about 1.4 percent for the week after reaching a one-month high of $1,249.30 on Wednesday.

U.S. gold futures were down $3.50 an ounce at $1,237.70.

“There has been a move down in the dollar and equities this week, but in comparison the upside in gold has been relatively modest,” ABN Amro analyst Georgette Boele said.

[source]

Posted in Gold News, Gold Views |

On outskirts of Baghdad, Islamic State’s advances raise tensions

16—Oct (WahingtonPost) — About 14 miles from Baghdad International Airport, a mortar shell landed with a thud. A second followed, closer, and then a third struck across the Iraqi army’s lines, as the Islamic State militants zeroed in on their target.

The volley of mortar fire outside the Baghdad suburb of Abu Ghraib this week was not unusual in itself; Islamic State fighters and the Iraqi army have regularly exchanged fire in this area for months. But now, officials worry that gains by the extremist group in neighboring Anbar province will provide momentum for an assault on the outskirts of the capital.

Mortar shells fired by the Islamic State have already fallen in central Baghdad in recent weeks, and and suicide bombings have picked up pace — a wave of blasts killed at least 40 people on Thursday, local media reported. While the army is holding its ground around the capital’s perimeter, Abu Ghraib is seen as a weak point, and sympathy for the radical fighters is growing here, residents say, because of the actions of heavy-handed Shiite militias.

[source]

Posted in Geopolitical Risks |

The Daily Market Report: Gold Firm Amid Stock and Bond Market Volatility


16-Oct (USAGOLD) — Gold remains generally well bid near four-week highs, amid ongoing stock and bond market volatility. The dollar seems to have stabilized somewhat today, which may be limiting the upside in the yellow metal for the time being.

Not surprisingly, the plunge in stocks has heightened talk of QE4, even as QE3 is on the verge of being wound down. There are just four more POMOs to go this month and then the taper is complete.

St. Louis Fed President James Bullard expressed concerns about falling inflation expectations. “I think that a logical policy response at this juncture may be to delay the end of the QE,” said Bullard in a Bloomberg interview. The San Fransisco Fed’s Williams said yesterday that more QE might be appropriate if the U.S. economy faltered. Kocherlakota and Lockhart chimed in today with their concerns about inflation and the “far from normal” labor market.

While the doves are out in force this week, hawks Plosser and Fischer continue to express optimism in the “recovery”. They continue to expect a sooner than expected rate hike, but they are clearly outnumbered.

I’m not sure what more bond buying would accomplish anyway. As we discussed in yesterday’s DMR the budget surplus may leave precious little supply available to be bought in a new round of QE. And the 10-year yield probed back below 2% today, so clearly there’s plenty of short covering and safe-haven interest in the bond market for the time being.

What’s most amazing is how the concerns about deflation exploded this week. Five-years after the financial crisis began, and trillions and trillions in central bank accommodations implemented in an effort to manufacture inflation, and the biggest fear facing policymakers is deflation. That says a lot. It is reflective of global economy that is monumentally out of whack.

The sad part is that the central banks are likely to respond with more of the same; tTrillions and trillions more dollars, yen, pounds, euros, francs, yuan, etc. will likely be unleashed. Because clearly, the liquidity provided in their inflation stoking actions of the last several years, simply wasn’t enough.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

QE: New York Fed purchases $0.188 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

Data Dependent Fed Ignores ‘Data’ – Bullard Joins Williams In Call For QE4

16-Oct (ZeroHedge) — As yet another fed speaker takes the jawboning lectern today, it is becomingly increasingly clear that The Fed truly has only one mandate – to keep stocks up. While claiming to be “data-dependent”, which judging by the general trend of government-supplied data (and President Obama), things are going great; Jim Bullard joins his intervention-prone colleague Williams:

BULLARD SAYS BOND PURCHASES SHOULD BE DATA DEPENDENT

and

SAYS ‘U.S. FUNDAMENTALS REMAIN STRONG’

but

BULLARD SAYS FED SHOULD CONSIDER DELAY IN ENDING QE.

So much for data-dependence…

[source]

Posted in Central Banks, Monetary Policy, QE |

Oil price fall triggers fears of Venezuela default

16-Oct (Financial Times) — When Venezuela last week demanded an emergency Opec meeting to try to stop the fall in energy prices, it was not the socialist country’s peers in the oil-producing cartel that paid attention but rather its increasingly worried bond investors on Wall St.

“It is the question that I am being constantly asked; at what oil price can Venezuela no longer pay [its debts]?” said Francisco Rodríguez, senior economist at Bank of America Merrill Lynch.

Although Venezuela has the largest energy reserves in the world, its deteriorating economy has forced Nicolás Maduro, the president, to slash imports to cover foreign debt payments amid a severe hard currency crunch that has already produced shortages of almost everything, from toilet paper to medical supplies.

“It is hard to believe, but there are worse shortages in Venezuela than there are in Syria,” said Moisés Naím, senior associate at the Carnegie Endowment for International Peace in Washington.

But this week’s fall in the oil price has further fomented worries of a possible default, pushing up Venezuelan bond yields to more than 16 per cent – the riskiest for any sovereign in the world – and boosted credit default swaps to over 1,870 basis points. Oil accounts for around 95 per cent of Venezuelan export revenues.

[source]

Posted in all posts |

US NAHB housing market index falls to 54 in Oct, below expectations of 59, vs 59 in Sep.

Posted in Economic Data |

US Philly Fed index sank to 20.7 in Oct, above expectations of 20, vs 22.5 in Sep. Employment tumbles to 12.1, vs 21.2 in Sep.

Posted in Economic Data |

Platinum Falls Below Gold for First Time Since April 2013

16-Oct (Bloomberg) — Platinum dropped to the lowest in more than a week in London, falling below the price of gold for the first time since April 2013, on concern slowing economic growth will curb demand.

Platinum is mostly used for automotive catalytic converters, with industry accounting for more than 50 percent of usage, according to Johnson Matthey Plc. That compares with about 10 percent for gold, which reached an almost five-week high yesterday as investors sought a haven and after the Federal Reserve indicated a worldwide economic slowdown may delay interest-rate increases.

[source]

PG View: Given the global growth risks, it makes sense that the white metals — which are primarily industrial metals — are comparatively suppressed relative to gold.

Posted in Gold News |

NATO Chief: No Russian Withdrawal From Ukraine Border

16-Oct (The Wall Street Journal) — NATO’s top military commander said Wednesday that it had seen no “major movement” of Russian troops away from the Ukrainian border. Meanwhile, the Asia-Europe Meeting opens Thursday, where the crisis in Ukraine is expected to take center stage.

[source]

Posted in Geopolitical Risks |

Risk of Deflation Feeds Global Fears

16-Oct (The Wall Street Journal) — Behind the spate of market turmoil lurks a worry that top policy makers thought they had beaten back a few years ago: the specter of deflation.

A general fall in consumer prices emerged as a big concern after the 2008 financial crisis because it summoned memories of deep and lingering downturns like the Great Depression and two decades of lost growth in Japan. The world’s central banks in recent years have used a variety of easy-money policies to fight its debilitating effects.

Now, fresh signs of slow global economic growth, falling commodities prices, sagging stock markets and declining bond yields suggest the deflation risk hasn’t gone away, particularly in the often-frenetic eyes of investors. These emerging threats come as the Federal Reserve is on track this month to end a bond-buying program that has been one of the main tools in its fight against falling prices.

The deflation concern is particularly pronounced in Europe and Japan, two economies where policy makers are struggling to come up with solutions to counter especially slow economic growth.

[source]

PG View: Trillions and trillions in central bank accommodations to generate inflation and deflation remains the big threat.

Posted in all posts, Deflation |

US industrial production +1.0% in Sep, above expectations of +0.4%, vs negative revised -0.2% in Aug; cap use 79.3%, on expectations of 79.0%.

Posted in Economic Data |

US 10-year yield traded back below 2%, but held above yesterday’s low at 1.873%. Presently 2.02%, -11 bps from yesterday’s close.

Posted in Markets |

Gold holds near 5-week high


16-Oct (MarketWatch) — Gold futures edged lower Thursday but held near a five-week high set the previous session as investors appeared ready to embark upon a fresh round of heavy selling in global equity markets.

Gold for December delivery fell $2.30, or 0.2%, to $1,242.50 an ounce. December silver lost less than a half-cent to trade at $17.46 an ounce.

Gold hit a five-week high Wednesday, boosted as investors sought havens in a rout that slammed U.S. equities. The Dow dropped as much as 460 points and the S&P 500 wiped out its gain for the year before sharply paring losses in a late session rebound. The dollar sold off sharply, which also might have provided some support for precious metals. A weaker currency makes dollar-priced commodities less expensive to users of other currencies.

Stocks were back under pressure Thursday, with Asian and European markets taking a cue from the previous day’s U.S. weakness. The dollar, however, strengthened against the euro and the Japanese yen.

While risk aversion may set the tone, underlying support might come from seasonal demand out of India ahead of this month’s religious festivals, wrote strategists at Commerzbank in Frankfurt. September Indian trade data showed gold imports soared by 450% year-over-year to $3.75 billion, they said, which indicates Indian consumers haven’t been deterred from buying large quantities of gold by import restrictions.

[source]

Posted in Gold News, Gold Views |

Wall Street looks headed for another brutal day

16-Oct (MarketWatch) — U.S. stocks futures slumped on Thursday, with investors worried the carnage from the previous day’s roller-coaster session will continue. A hefty lineup of Federal Reserve speakers, and earnings from prominent companies such as Goldman Sachs Group Inc., could steer the market.

Futures for the S&P 500 index dropped 19.60 points, or 1.1%, to 1,827.10, while those for the Dow Jones Industrial Average lost 129 points, or 0.8%, to 15,878. Futures for the Nasdaq-100 index fell 50.75 points, or 1.4%, to 3,701.25.

The weakness came after U.S. stock benchmarks flirted with their worst daily decline in more than three years on Wednesday, although they trimmed losses before the final bell.

[source]

Posted in Markets |

US initial jobless claims -23k to 264k in the week ended 11-Oct, well below expectations of 290k, vs 287k in previous week.

Posted in Economic Data |

Gold steady at 1239.46 (-0.58). Silver 17.36 (-0.09). Dollar higher. Euro lower. Stocks called lower. US 10yr 2.04% (-10 bps).

Posted in all posts |

Things that go bump. . .

goldenmoonDow drops another 173 points. . .down 852 points last four sessions. Intervention (in one man’s opinion) or it would have been substantially worse. Down 460 at mid-day.  What’s next?

See “October Market

Here’s what it looks like on a chart (courtesy of our long-time friends at INO.com)

DowINOClose10-14-2014Bump.
Gulp. . .
Hello, October.

Posted in all posts |