Private: Fed holds steady on policy, in line with expectations. Median forecast now sees just 2 rate hikes in 2016, versus 4 back in December.
Private: Bangladesh Bank Chief Resigns After Cyber Theft of $81 Million
16-Mar (NY Times) — A spreading scandal over the mysterious electronic theft of $81 million from Bangladesh’s official account at the Federal Reserve Bank of New York prompted the governor of that country’s central bank to resign Tuesday, and three of his subordinates were fired.
They were the first political casualties since the theft came to light this month, when news reports from the Philippines said unidentified hackers using official electronic bank messaging technology had diverted the money in early February. Most or all of the stolen money, one of the biggest electronic heists in history, is thought to have been transferred to accounts in the Philippines.
…“Such cyberattacks are happening across the world,” Mr. Rahman said…
[source]
PG View: Mr. Rahman is correct, we hear about cyber attacks nearly everyday, but when the hackers start reaching into the NY Fed and disappearing $81 million it clearly suggests that the wealth you store in your bank or brokerage accounts is not safe. We have always advocated storing a portion of your wealth in physical gold, outside of the traditional banking and financial services realm. These days that advice is more prescient than ever.
Private: James Grant: ‘Something Is Going to Go Wrong’
01-Mar (EpochTimes) — James Grant needs no introduction. The chief editor of Grant’s Interest Rate Observer has been an eloquent observer and astute analyst of markets since he started his Barron’s column “Current Yield” in the late 1970s.
Grant recently won the Hayek Prize of the Manhattan Institute for his most recent book “The Forgotten Depression,” and the Gerald Loeb Lifetime Achievement Award.
Epoch Times spoke to Mr. Grant about the spotty track record of central bankers, deflation, gold and the gold standard, as well as negative interest rates and a ban on cash.
If interest rates were reduced to less than zero and if large denomination bills were retired, what would one do with one’s money? This one reason why the gold market is on a ferocious tear to the upside because people are thinking: “Wait a second. If that’s what they want to do to my money, if they want to tax it for it being money, and if they want to restrict my freedom to move things outside the banking system, I’m going to get outside the banking system legally in a time-tested way, and lay some of my wealth apart in gold, which cannot be created through the swift tapping of computer keyboard as can be done with currencies.”
I think this is a terrifically bullish moment for gold. I think it’s a very sad moment for the institution of fiat money. But fiat money has never worked out well in the very long run. — James Grant
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PG View: People are indeed thinking as Mr. Grant suggests and that has led to gold’s stellar performance so far in 2016. Ongoing experimentation by central banks with extraordinary measures is also driving safe-haven interest as investors fear that they can only push on the string so long before something goes wrong . . . and perhaps even horribly wrong.
Private: US inflation rears its ugly head as global cycle nears danger zone
by Ambrose Evans-Pritchard
15-Mar (Telegraph) — The trigger for the next global recession is at last coming into view after a series of loud distractions and false alarms.
The Atlanta Federal Reserve’s gauge of “sticky-price” inflation in the US soared to a post-Lehman peak of 3pc in February. This index is a ‘pure’ measure of core inflation – the underlying story once the noise is stripped out.
The Cleveland’s Fed’s ‘median consumer price index’ jumped to 2.9pc, with big rises are in medical services, housing rents, car insurance, restaurants, hotels, women’s clothing, jewelry, and car hire. This is the long-feared inflexion point we all forgot about in those halcyon days of deflation, now just a fond memory.
Expansions rarely die of old age. They are killed.
The Fed’s veteran vice-chairman Stanley Fischer is itching to tighten. “We may well at present be seeing the first stirrings of an increase in the inflation rate,” he said in a portentous speech last week.
Every major downturn since the First World War has been caused by the Fed, determined to snuff out inflation as the credit cycle matures. Expansions rarely die of old age. They are killed.
[source]
Private: The Daily Market Report: Gold Consolidates Ahead of Fed
16-Mar (USAGOLD) — It’s Fed day! Not surprisingly gold is consolidating at the low end of the recent range after traders paired long exposure ahead of today’s important announcement.
The Fed is widely expected to hold steady on policy today, but markets are wary that the central banks may indicate that a rate hike in June is likely. FedWatchers will dissect the statement when it comes out at 2:00ET in yet another attempt to discern the Fed’s intentions moving forward.
Some seem to think that today’s slightly larger than expected 0.3% uptick in core inflation may prompt the FOMC to be a little more hawkish in the statement. However, with perhaps the exception of housing starts, the rest of today’s data is cause for continued dovishness.
The Fed will also announce their latest economic projections and then Janet Yellen will hold a press conference at 2:30ET. The ‘dot plot’ projections have already been reduced to an amusement. “Call it the Federal Reserve that cried wolf,” said the WSJ’s Steven Russolillo in an article earlier this week.
Fed forecasting has historically been terrible; overly optimistic in just about every instance. Markets don’t put much stock in them, but it is interesting to note relative shifts in that oft-unwarranted optimism.
The BoE is slated to announce policy tomorrow. Here too, ‘steady as she goes’ is anticipated. However, in announcing the latest UK budget before Parliament, Chancellor of the Exchequer George Osborne, painted a rather gloomy picture:
It wasn’t that long ago that the folks were talking seriously about rate lift-off in Britain as well. I think it will be a long-while before we hear such rumblings again.
In a low rate environment, and particularly in a negative rate environment, gold will tend to perform very well. Dips within the uptrend that has dominated this year are likely to be perceived as buying opportunities.
Private: Munich RE stashes gold and cash to counter negative rates
“German reinsurer Munich RE is boosting its gold and cash reserves in the face of the punishing negative interest rates from the European Central Bank, it said on Wednesday. The world’s largest reinsurer is far from alone in seeking alternative investment strategies to counter the near-zero or negative interest rates that reduce the income insurers require to pay out on policies.”
MK note: Last week, we pointed to activity by investment banks in the paper gold market as an important contributor to the choppy upward trend in the gold price so far this year. This is the first announcement I have seen that a major financial institution is actually buying physical gold to counter central bank interest rate policies. Chief Executive Nikolaus von Bomhard told a news conference, “We are just trying it out, but you can see how serious the situation is.”
Private: March Buyers Group: Swiss 20 Franc Helvetia
Our March offer features special pricing on the elusive BU pre-1933 Swiss 20 Franc gold coins. Please see details below, or click here for immediate access to the offer page.
Minted: 1897-1930
Fineness: .900
Actual Gold Content: .1867 troy ounce
The Swiss 20 Franc Helvetia has always been a highly sought after cornerstone of any historic bullion coin position. It evokes the sound monetary and banking principles for which Switzerland is known, and has long been recognized as an international standard for portability and liquidity. As such, when demand for gold spiked in 2008/9, the Swiss Francs were heavily subscribed and supplies simply never recovered. We were occasionally offered smaller lots, but always at oppressively high premiums, to the point that, in many ways, we gave up on recommending Swiss 20 Francs for inclusion in safe-haven oriented gold positioning and pursuing them for our inventory.
But that said, it would appear the stars have finally aligned, if only for this one moment. It took four sources and some stingy negotiations, but we are now prepared to make available the largest (and least expensive) lot of pre-1933 Brilliant Uncirculated Swiss 20 Franc’s since before the financial crisis.
All participants purchasing ten coins or more will be entered into a raffle to win this Swiss Confederatio Helvetica (minted 1883-1895 – total mintage 1.5 million – BU condition).
Buy more and increase your odds of winning!
[offer]
Private: Rickards: Why Gold Is Going To $10,000
15-Mar (Hedgeye) — Bestselling author Jim Rickards sits down with Hedgeye CEO Keith McCullough to discuss his new book, “The New Case for Gold,” and why a cocktail of factors makes it more critical than ever for investors to protect their portfolios with gold.
[source]
PG View: Disregard the attention grabbing headline and focus instead on the content of this really interesting and far reaching interview. Rickards and McCullough lay out a pretty compelling case for physical gold ownership that goes well beyond any bullish price projection. I encourage you to watch this interview in its entirety and then give us a call.
Private: Monetary policy is not enough to beat deflation
15-Mar (FT) — Monetary policymakers are on the defensive. After a decade in which central banks steered the global economy out of crisis, faith in their powers is waning. In the past week, the European Central Bank and Bank of Japan governors have fought back against the sceptics, underlining their resolve to defeat deflation and revive anaemic growth. Mario Draghi and Haruhiko Kuroda are right to contend that their policies are having an effect. Yet as they delve ever deeper in the toolbox of unorthodox policy, the risks of unintended consequences are increasing, and the need for governments to play their part is ever more apparent.
It remains a caricature to paint central banks as impotent. Eurozone inflation may be close to zero, but had the ECB not acted, Mr Draghi argues, the counterfactual would have been “disastrous deflation”. He has also shown that there is still plenty of scope for central banks to innovate by extending their asset-purchase programmes to riskier assets and finding ways to support banks that increase lending to the real economy. More radical tools, such as “helicopter money” — printing money to finance government spending — are as yet a matter of academic discussion, but are not ruled out.
Nonetheless, the concern that central banks are losing their grip has some foundation. Monetary policy as it is now practised clearly has some unpredictable and uncertain effects, especially when it comes to recent experiments with negative interest rates. Since the BoJ cut rates below zero in January, it has seen the yen appreciate, bank shares fall and financial unions drop demands for wage rises — counterintuitive developments that make it understandably cautious about going any further for the time being.
This is not an argument for central bank inaction. Monetary policymakers battling deflation can and should do more, focusing first on quantitative easing, where they have more evidence to assess the likely effects.
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Private: Global banking system awash with cash, but lending stagnates
16-Mar (Reuters) — The global banking system has more cash now than at any time since the 2008 crisis but the failure of banks outside the United States to lend that money out is fast becoming the biggest barrier to economic growth.
This is potentially dangerous for the world economy because after nearly a decade of unprecedented stimulus to revive the global economy and financial system, the effectiveness of central banks’ policy measures is fading.
The slowdown in the velocity of money is being blamed on a range of factors including the large amount of debt still in the system, banks sinking into a liquidity trap and the unwillingness of households, businesses and banks themselves to take risks.
Rectifying this will require a mix of growth-friendly measures in fiscal policy, regulation, and structural reforms, analysts say. It won’t be a quick or easy fix.
[source]
PG View: As the efficacy of über-accommodative monetary policy continues to erode — along with the credibility of central banks — the dangers escalate. In a ‘risk-off’ environment, gold really shines.
Private: U.K. Economy Faces ‘Cocktail of Risks’ Says George Osborne
16-Mar (WSJ) — U.K. Treasury chief George Osborne announced downgraded growth forecasts for the U.K. amid a darkening global outlook but said he remains on track to close the nation’s budget deficit.
In presenting his annual tax-and-spending plan to parliament on Wednesday, Mr. Osborne, the Chancellor of the Exchequer, said that the British economy faces “a cocktail of risks” in light of the weaker outlook for the global economy.
“Financial markets are turbulent. Productivity growth across the West is too low. And the outlook for the global economy is weak. It makes for a dangerous cocktail of risks,” Mr. Osborne said.
“But one that Britain is well-prepared to handle, if we act now so we don’t pay later,” he added.
Reflecting the darker outlook, the Office for Budget Responsibility, the U.K.’s fiscal watchdog, on Wednesday cut its forecasts for growth in the U.K. over the next four years. It said it expects growth of 2% this year, compared with a previous forecast of 2.4%.
[source]
PG View: Can we safely assume the BoE won’t be raising rates any time soon? I believe we can . . .
Private: Gold edges lower ahead of Fed policy statement
16-Mar (Reuters) — Gold eased on Wednesday after data showed U.S. inflation rose last month, potentially keeping the Federal Reserve on course to raise interest rates this year, but moves were muted ahead of a pending U.S. central bank policy statement.
In an announcement due at 1800 GMT, the Fed is expected to signal policymakers’ willingness, or otherwise, to proceed with the rate hiking process they kicked off in December.
Since then, volatility in equities and oil prices, a raft of mixed economic data, and concerns over global growth have curbed expectations for further hikes, allowing gold to rise 16 percent this year.
…Fed policymakers are expected to leave short-term interest rates unchanged but also to signal that a rate hike is not too far off as long as the job market and inflation continue to improve.
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Private: U.S. housing starts 1.178M in Feb, above expectations of 1.150M, vs upward revised 1.120M in Jan.
Private: U.S. CPI -0.2% in Feb, in line with expectations, vs unch in Jan; 1.0% y/y, down from 1.4% y/y in Jan. Core +0.3% on expectations of +0.2%.
Private: Gold steady at 1233.37 (+0.54). Silver 15.29 (+0.015). Dollar higher. Euro easier. Stocks called mixed. US 10yr 1.96% (-1 bp).
Private: The Daily Market Report: Pre-Fed Position Squaring Weighs on Gold, But Downside Seen as Limited
15-Mar (USAGOLD) — Gold slipped to a two-week low as position squaring continues ahead of tomorrow’s FOMC policy statement. However, renewed weakness in oil, softer stocks and the ever-present growth and disinflation risks should help limit the downside in the yellow metal.
The BoJ held steady today, as was widely expected. However, they overtly signaled that their bias remains toward easing, which sets the stage for further accommodations; possibly as soon as April.
The BoJ was expected to hold today as they awaited positive results from January’s surprise rate cut into negative territory. However, today’s downgrading of both their growth and inflation outlooks does not bode well for near term improvement.
So of course market focus shifts to more accommodations. Here’s a view from HSBC:
Really? A “quantum leap”? Like all the ‘quantum leaps’ that proceeded it?
Well, I suppose they may as well go big or go home. One has to wonder when and how this will all end, but investors should be very worried.
As you proceed with your worrying, keep this in mind:
The Fed is widely expected to hold steady when they announce policy tomorrow. If that wasn’t a done deal already, today’s raft of U.S. economic data likely seals the deal.
U.S. retail sales fell 0.1% in February, in line with expectations. However, January was revised to -0.4% from +0.2% previously. Ex-autos was -0.1% as well, but again, January was revised to -0.4% from +0.1%.
The inflation picture remains bleak: U.S. PPI fell 0.2% in February and is unchanged from a year ago. Core PPI came in at unchanged m/m, on expectations of -0.2%.
The one bright spot was a larger than expected rebound in the March NY Empire State index, which printed 0.62, well above expectations of -12.0, versus -16.6 in February. However, if the Fed truly is data dependent, the data certainly are not supportive of another rate hike.
Private: Oil Prices Drop on Oversupply Worries
15-Mar (WSJ) — Oil prices are retreating and a month-long rally is faltering as traders return their focus to a heavy oversupply in storage.
Light, sweet crude for April delivery recently fell $1.02, or 2.7%, to $36.16 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 85 cents, or 2.2%, to $38.68 a barrel on ICE Futures Europe. After more than a month of gains, crude is now down in three of the last four sessions.
There have been some bullish signs on declining supply and surging demand, but not enough to fundamentally alter a market that has been oversupplied and crashing for nearly two years, analysts said. Of the three major international agencies that recently released updated outlooks, none tightened their forecast for oversupplied markets, Dominick Chirichella, analyst at the Energy Management Institute, said in a note.
“The market is in a reality check,” he added.
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Private: U.S. business inventories +0.1% in Jan, above expectations of unch, vs negative revised unch in Dec; shipments -0.4%.
Private: U.S. NAHB housing market index steady at 58 in Mar, below expectations of 59, vs 58 in Feb.
Private: HSBC: BoJ Will Gear Up For “Quantum Leap” In April
While the Bank of Japan did not dip further into negative interest rates and kept its pace of asset purchases unchanged today, economists doubt the BoJ has completely given up on the negative rate rout.
Indeed, in its statement today, BoJ acknowledged Japan’s consumer price inflation is just at 0% and said it will continue with “QQE with a negative interest rate aiming to achieve the price stability target of 2 percent.”
To be sure, BoJ has got enough backlash since it adopted negative rates on January 29. Consumers view the policy poorly and the Japanese government bond market gyrated. See my March 9 blog “BoJ To Pause Rate Cuts As Bond Yields Gyrate, Consumers Turn Negative“.
HSBC thinks Bank of Japan will increase its pace of asset purchases first – as soon as this April – and cut rates again by November. In a note published before BoJ’s decision today, economist Izumi Devalier wrote:
Governor Kuroda will likely want to refute the idea that the central bank is reluctant to expand its balance sheet more aggressively, either in terms of size or risk. We therefore think the central bank is likely to announce a “quantum leap” in risk asset purchases when it likely downgrades its growth and inflation forecasts in April… Our base case is a JPY10trn increase in equity purchases, taking the monetary base target to JPY90trn.
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PG View: Good grief! Where does it end?