The Fed Is on a Collision Course

U.S. Federal Reserve Eccles Building, 1937

 

Is the Trump economic boom a mirage? The data say yes, but the Fed models say no. The Fed has a long track record of sticking to its model-based approach and missing major turns in the U.S. economy.

Current Fed policy will push the U.S. economy to the brink of recession later this year. When that happens, the Fed will have to reverse course and ease monetary policy. This will send the dollar crashing while gold and the euro soar.

At first, the claim that the Trump economic boom is nothing special seems contrary to the happy-talk headlines coming from CNBC, Fox Business, Bloomberg and other mainstream business media outlets.

“This Is Probably Just The Beginning” – Chinese Banks Are In Big Trouble

 

With the crackdown on financial system leverage underway, Chinese banks (and securities firms) are in big trouble. As we noted previously, China’s bond curve is inverted, yields are surging, and Chinese regulatory decisions shutting down various shadow-banking pipelines has crushed securities firms’ stocks. However, as Bloomberg points out, as China’s deleveraging efforts cut into banks’ profit margins, rising base funding costs and interbank credit risk concerns have pushed banks’ cost of borrowing beyond the rate they charge customers for loans for the first time in history.

Chinese Firm Behind Friday’s Internet Outage Slams Critics, Threatens Western Accusers With Lawsuits

 

As we reported earlier today, according to Bloomberg, Internet-connected CCTV cameras made by a Chinese firm, Hangzhou Xiongmai Technology were infected with malware that allowed hackers to takeover “tens of millions” of devices and launch the distributed denial-of-service (DDoS) attacks which brought the internet across much of the US, and especially on the east coast, to a virtual crawl for hours on Friday.

As Bloomberg first reported, and many others confirmed, the company itself admitted its culpability, with the security camera maker saying “its products were used to launch a cyber-attack that severed internet access for millions of users, highlighting the threat posed by the global proliferation of connected devices. The attackers hijacked CCTV cameras made by Hangzhou Xiongmai Technology Co. using malware known as Mirai, the company said in an e-mailed statement. While Xiongmai didn’t say how many of its products had been infiltrated, all cameras made before September 2015 were potentially vulnerable.”

Report: Texas shale can ‘compete with anything Saudi Arabia has’

Scott Sheffield, the outgoing chief of Pioneer Natural Resources, told Bloomberg that pre-tax production costs in the massive Permian Basin of West Texas have fallen to $2.25 a barrel.

“Definitely we can compete with anything that Saudi Arabia has. We have the best rock,” he said, adding that improvements in drilling technology and data analytics have “changed the cost calculus faster than almost anybody thought possible.”

Deutsche Bank Profit Plunges 98% And The Worst Is Yet To Come

The latest confirmation that Germany’s troubled banking giant Deutsche Bank is unable to navigate the troubled waters of NIRP came on Wednesday when the bank announced that its second-quarter net income fell 98% from a year earlier, hurt by weaker performances in trading, investment banking and other core areas. The lender said net income tumbled to €20 million ($22 million) from €818 million a year earlier, modestly better than the €22mm loss expected, while net revenue dropped 20% to €7.4 billion.

After rebounding modestly on the beat, the bank’s shares fell tumbled 5% on Wednesday morning, their lower level in 2 weeks; today’s decline has dragged DB stock 45% lower in 2016, making it one of Europe’s worst performers YTD (the Stoxx 600 is down 27% in 2016).

“I’m Not Crazy, I’m Scared” – Why For One Trader, This Time It Is Different

Bloomberg’s Richard Breslow, author of “Trader’s Notes” is painfully accurate with his latest take on the “markets.”

I’m Not Crazy, I’m Scared

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Over the last three days, we have reported that some of the most important investment voices in the world are more than a little scared about the ravenous appetite for risk playing out in the market, and the fact that they have been ignored is beyond unnerving. Central banks are driving all investment decisions, and what this implies is that they are in this trade so  deeply that there is no obvious or practical exit.

Another Oligarch Preaches to the Peasants – Charlie Munger Says “Prepare for Harder World”

While several exceptionally wealthy and successful people have admirably come out and spoken passionately of the broken nature of financial markets and the political system, as well as the threat this poses to society in general (think Paul Tudor Jones and Nick Hanauer), there have been several examples of oligarchs coming out and conversely demonstrating their complete disconnect from reality, as well as a disdain for the masses within a framework of incredible arrogance.

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The latest example comes from Charlie Munger, Warren Buffett’s right hand man, who tends to demonstrate an incredible capacity for verbal diarrhea. Recall his commentary on gold: “gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939.”  

World Entering “Golden Age of Gas”

Bloomberg published a lengthy article on the proliferation of shale gas drilling around the world, with interviews from top oil and gas executives. Drillers are trying to replicate the U.S. shale gas revolution in places such as China, Russia, India, South Africa, Australia, Argentina, the U.K, and Poland, among other places, according to the report. For example, Shell is working with Sinopec to tap the world’s largest shale gas reserves in China; Chevron teamed up with YPF SA to drill the massive Vaca Muerta shale formation in Argentina; and oil and gas companies are lining up to move into Mexico to drill the Mexican side of the Eagle Ford shale.

The Great Italian Auto Bailout — Courtesy of U.S. Taxpayers

At the beginning of 2014, Detroit may be bankrupt, but they’re cheering the five-year-old U.S. auto bailout in Italy. That’s because after being the beneficiary of billions in U.S. taxpayer largesse, Fiat, the leading Italian auto company, is going to buy its final stake in Chrysler from that other big bailout recipient, the United Auto Workers (UAW).

“Chrysler’s Now Fully an Italian Auto Company,” reads the Time magazine online headline. But wait a minute! Wasn’t the bailout supposed to be about saving the American auto industry?

The Complex ‘Military-Style’ Raid on California Power Station Spooks U.S.

When U.S. officials warn about “attacks” on electric power facilities these days, the first thing that comes to mind is probably a computer hacker trying to shut the lights off in a city with malware. But a more traditional attack on a power station in California has U.S. officials puzzled and worried about the physical security of the the electrical grid–from attackers who come in with guns blazing.

Around 1:00 AM on April 16, at least one individual (possibly two) entered two different manholes at the PG&E Metcalf power substation, southeast of San Jose, and cut fiber cables in the area around the substation. That knocked out some local 911 services, landline service to the substation, and cell phone service in the area, a senior U.S. intelligence official told Foreign Policy. The intruder(s) then fired more than 100 rounds from what two officials described as a high-powered rifle at several transformers in the facility. Ten transformers were damaged in one area of the facility, and three transformer banks — or groups of transformers — were hit in another, according to a PG&E spokesman.

Bloomberg: London Gold Vaults are Virtually Empty, All the Gold has been Transferred to Hong Kong!

Note: The video will not properly post here. You must go to the website to view the video.

In this MUST WATCH clip, Bloomberg Industry’s Kenneth Hoffman shockingly reveals that London’s gold vaults are “virtually empty“: “You could go into a vault in London a couple of years ago.

The vaults were packed to the rafters with gold, and the gold would trade from me to you to somebody else. You can walk into those vaults today and they are virtually empty.

PBOC Says No Longer in China’s Interest to Increase Reserves

The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.

“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.

Putin Prepares for a Currency War that He Thinks (Hopes?) Will Collapse America

Two respected news sites with separate but connected stories outlined the serious trouble we are in (even if they don’t seem to recognize the gravity of their reporting).

First, it is reported on Bloomberg that Russia’s Putin has overseen the largest gold buying of any nation on the planet:

Coal Industry Under Attack

A map has been generated at FreeMarketAmerica.org which tracks jobs lost on account of the Sierra Club’s war on coal. The data for the map comes from the National Mining Association, which says that over 1.2 million jobs have been lost in the coal industry. If mining stocks haven’t been doing well – whether we are talking coal or even gold – consider the environmental hits taken by the mining industry. Like the timber industry in the Pacific Northwest, coal mining has been specially targeted for reduction.

It’s true, of course. Last June Bloomberg ran a piece, “Displaced coal miners face slim job prospects.” All around the country, coal jobs are being lost. Coal is one of America’s key energy resources. It is an energy resource we don’t have to import. But the Obama Administration appears determined to crush the coal industry in order to save the planet from global warming. The Environmental Protection Agency (EPA) believes global warming is caused by greenhouse gases produced by coal as well as oil. Therefore, a radical effort is underway to curtail the use of coal.

Only a few years ago more than half our electricity was generated from coal. In the first quarter of 2012 the generation of electricity from coal dropped 21 percent from 2011 levels. The immediate culprit is the Cross-State Air Pollution Rule (CSAP). You can read about it at the Web Site of the EPA where it states: “On July 6, 2011, the US Environmental Protection Agency (EPA) finalized a rule that protects the health of millions of Americans by helping states reduce air pollution and attain clean air standards. This rule, known as the Cross-State Air Pollution Rule, requires states to significantly improve air quality by reducing power plant emissions that contribute to ozone and/or fine particle pollution in other states.” (In other words, coal is out.)

In the middle of the worst economic times since the Great Depression, when as many as 86 million are unemployed, how can the federal government purposely push for over 1.2 million in additional job losses? And yes, the job situation may be worse than official figures suggest. Readers should review CNN Money’s May 4 piece titled “The 86 million invisible unemployed” which stated that our work force has the “lowest force participation rate since 1981.”

As CNN Money explained, “Only people looking for work are considered officially unemployed.” So the situation is worse than the government represents. Yet the government would add to the number of those out of work by strangling the coal industry. When the price of oil remains high and a war in the Middle East could drive oil prices higher, wouldn’t it be wise to leave the coal industry alone? But then, we have to save the planet from global warming – or do we?

Full article: Coal Industry Under Attack (JR Nyquist | Financial Sense Online)

U.S. leaders had better heed Israel’s warnings on Iran

On the one hand, we cannot exclude the possibility that the senior Israeli officials briefing us are bluffing. On the other hand, what we journalists hear in closed rooms is staggering.

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In his Bloomberg columns, Goldberg monitors the unfolding Mideast drama with precision and insight. And yet, distinguished columnists such as Roger Cohen of the New York Times dismiss Goldberg’s information and analysis.  They claim that an Israeli attack on Iran (with no American support and cooperation) is insane and therefore would never happen.

Personally, I hope Cohen is right.  An Israeli air strike on the Islamic Republic is the worst way to stop its nuclear project.  But up to this point, all diplomatic attempts to stop the Ayatollahs have failed.  Recently imposed sanctions are biting, but they do not really discourage the Shiite fanatics.  By 2013, Israel might lose its military potency vis-à-vis Iran.

So temperatures are rising in Jerusalem.  As time is running out the Goldberg scenario becomes more and more likely.  What he hears from his sources, and what I hear from my sources, lead us to believe the coming summer is a crucial one.  If senior Israelis are now shouting gewald, American decision makers and opinion leaders had better pay close attention.

Full article: U.S. leaders had better heed Israel’s warnings on Iran (Haaretz)