A “Financial H-Bomb” Has Exploded

 

Somebody exploded an H-bomb last week, and it wasn’t North Korea. It was the U.S.

This was not a kinetic H-bomb, the kind that leaves a mushroom cloud.

It was a financial H-bomb. Continue reading

Trump Now Owns the Fed

 

Donald Trump has the opportunity to appoint a higher percentage of the Board of Governors of the Federal Reserve system at one time than any president since Woodrow Wilson.

President Wilson signed the Federal Reserve Act during the creation of the Fed in 1913 when they had a vacant board. At that time, the law said the secretary of the Treasury and the comptroller of the currency were automatically on the Fed’s board of governors. But besides that, President Wilson selected all five of the other participating members.

Now Trump has the opportunity to fill more seats on the Fed’s Board of Governors than any president since then.

Continue reading

Japan’s Shifting Power Alliances

 

I’ve just wrapped up a long trip to Japan. And I’ve taken away one lesson from all of my conversations, speeches and research: The rise of nationalism in the U.S. will cause massive shifts in global trade alliances.

One of the main beneficiaries will be Japan. Now, Japan might not be on your radar, day-to-day, but it’s about to play a very important role in the world of Donald Trump.

Here’s what I mean… Continue reading

Don’t Be Fooled – The Federal Reserve Will Continue Rate Hikes Despite Crisis

 

Though stock markets in general are meaningless and indicate nothing in terms of the health of the economy they still function as a form of hypnosis, or a kind of Pavlovian mechanism; a tool that central bankers can use to keep a population servile and salivating at the ring of a bell. As I have mentioned in the past, the only two elements of the economy that the average person pays attention to in the slightest are the unemployment rate and the Dow. As long as the first is down and the second is up, they aren’t going to take a second look at the health of our financial system. Continue reading

Have Bundesbank Agents Infiltrated the Fed?

Chart 1

 

Germany’s central bank is the Bundesbank. Prior to the commencement of trading of the euro in January 1999, the Bundesbank conducted Germany’s monetary policy. The Bundesbank has a reputation for pursuing general price-level stability above all else. You might say that the Bundesbank has inflation phobia. The reason for this Bundesbank inflation phobia is the remembrance of the hyperinflation Germany experienced between World Wars I and II. Given the US central bank’s recent actions, it would almost seem that the Fed has developed inflation phobia too. Continue reading

Bank of America: “The Most Dangerous Moment For Markets Will Come In 3 Or 4 Months”

 

Two weeks after BofA’s Michael Hartnett previewed (and timed) not only the “Great Fall” of stocks, but also explained that the Fed and global central banks are now in the business of making the “rich poorer“, he is out with a new note which looks at the Fed’s latest U-turn, which has unleashed the latest market buying spree, warning that “further upside in risk assets will create problems later in the year” (for three reasons he lists out), and concludes that “ultimately, we believe the extremely strong performance by equities and bonds in H1 is very unlikely to be repeated in H2.” Hartnett then goes back to his original thesis that the Fed will no longer pursue its primary mandate of pushing stocks (i.e. wealth effect and confidence) higher because it is “now politically unacceptable for the Fed and any other central bank to stoke a bubble on Wall St.”

As a result, “monetary policy will have to tighten to raise volatility, reduce Wall St inflation, and reduce inequality. There are two ways to cure inequality: you can make the poor richer, or you can make the rich poorer. The Fed will reduce its balance sheet in the hope of making Wall St poorer.

Continue reading

Derivatives Trading Legend: “As Little As A 4% Decline In One Day Could Start A Critical Crash”

After building out Merrill’s mortgage trading floor basically from scratch, then moving to the buyside at Pimco, several weeks ago Harley Bassman, more familiar to many traders as the “Convexity Maven” – a legend in the realm of derivatives (he helped design the MOVE Index, better known as the VIX for government bonds) – decided to retire (roughly one year after his shocking suggestion that the Fed should devalue the dollar by buying gold).

But that did not mean he would stop writing, and just a few days after exiting the front door at 650 Newport Center Drive in Newport Beach for the last time, Bassman wrote his first full article as a “free man”, in which the topic was, not surprisingly, derivatives and specifically the recent collapse in vol – and convexity – what prompted it, but most importantly and what everyone wants to know: what threshold would be sufficient to finally launch the next “critical mass” market move (i.e. crash) and, just as importantly, what could catalyze it. Continue reading

Jim Rickards: We’re Heading for War with North Korea

Click on the picture for the Bloomberg video interview.

 

Speaking with Bloomberg’s Betty Liu on gold, the geopolitical threat of North Korea and what to expect from the Federal Reserve financial expert Jim Rickards provided what his outlook shows for the months ahead.

The Bloomberg host began by asking Rickards why, with no current inflationary problems seen by most investors, he believed that gold was due for a major boom. The Strategic Intelligence editor started, “The reason in the first half [of the year] about 7.8% against enormous headwinds. The Fed has raised rates in December, March and again in June. [Now] we’re seeing disinflation, a slowing economy, a declining labor force. Everything looks like a recession and yet gold went up almost 8% in that environment. As we go forward, the Fed will always be the last to know.Continue reading

Pensions Timebomb In America – “National Crisis” Cometh

“This is going to be a national crisis…

“This” being America’s woefully underfunded pension liabilities, according to Karen Friedman. She’s the executive vice president of the Pension Rights Center.

(A place called the Pension Rights Center does in fact exist. We checked.)

MarketWatch columnist Jeff Reeves howls in confirmation that “collapsing pensions will fuel America’s next financial crisis.”

“This is not a distant concern,” warns he, “but a system already in crisis.” Continue reading

“It’ll Be An Avalanche”: Hedge Fund CIO Sets The Day When The Next Crash Begins

While most asset managers have been growing increasingly skeptical and gloomy in recent weeks (despite a few ideological contrarian holdouts), joining the rising chorus of bank analysts including those of Citi, JPM, BofA and Goldman all urging clients to “go to cash”, none have dared to commit the cardinal sin of actually predicting when the next crash will take place.

On Sunday a prominent hedge fund manager, One River Asset Management’s CIO Eric Peters broke with that tradition and dared to “pin a tail on the donkey” of when the next market crash – one which he agrees with us will be driven by a collapse in the global credit impulse – will take place. His prediction: Valentine’s Day 2018. Continue reading

U.S. Weeks Away From A Recession According To Latest Loan Data

 

While many “conventional” indicators of US economic vibrancy and strength have lost their informational and predictive value over the past decade (GDP fluctuates erratically especially in Q1, employment is the lowest this century yet real wage growth is non-existent, inflation remains under the Fed’s target despite its $4.5 trillion balance sheet and so on), one indicator has remained a stubbornly fail-safe marker of economic contraction: since the 1960, every time Commercial & Industrial loan balances have declined (or simply stopped growing), whether due to tighter loan supply or declining demand, a recession was already either in progress or would start soon. Continue reading

Trump Flips On Five Core Campaign Promises In Under 24 Hours

Blink, and you missed Trump’s blistering, seamless transformation into a mainstream politician.

In the span of just a few hours, President Trump flipped to new positions on several core policy issues, backing off on no less than five repeated campaign promises.

In a WSJ interview and a subsequent press conference, Trump either shifted or completely reversed positions on a number of foreign and economic policy decisions, including the fate of the US Dollar, how to handle China and the future of the chair of the Federal Reserve. Continue reading

“This Is Not The Reaction The Fed Wanted”: Goldman Warns Yellen Has Lost Control Of The Market

 

With stocks soaring briskly around the globe following Yellen’s “dovish” hike, and futures set for a sharply higher open with the Nasdaq approaching 6,000, something surprising caught our attention: in a note by Goldman’s Jan Hatzius, the chief economist warns that the market is overinterpreting the Fed’s statement, and Yellen’s presser, and cautions that it was not meant to be the “dovish surprise” the market took it to be.

Specifically, he says that while the FOMC delivered the expected 25bp hike, with only minor changes to its projections. “surprisingly, financial markets took the meeting as a large dovish surprise—the third-largest at an FOMC meeting since 2000 outside the financial crisis, based on the co-movement of different asset prices.”

Even more surprisng is that according to Goldman, its financial conditions index, “eased sharply, by the equivalent of almost one full cut in the federal funds rate.”

In other words, the Fed’s 0.25% rate hike had the same effect as a 0.25% race cut! Continue reading

Here’s the one word in Janet Yellen’s speech that the markets should be very worried about

Please see the source for the video.

 

The stock market has churned a bit in the last few days. Some Wall Street wags have suggested that concerns over the President’s tweet storm over the weekend, or North Korea’s missile firings, may have been behind the stall in the market.

Certainly, political uncertainty, and geo-political risk, have caused some consternation in global markets, while concerns about the pace of gains in stocks, coupled with perceived lofty valuations have also provided a mild headwind on Wall Street in the last few days.

While the market appears to be happily embracing a coming rates hike from the Federal Reserve, it seems to me that market participants may have glossed over a very important comment from Fed Chair, Janet Yellen, last Friday. Continue reading

The world economy can’t handle even one US rate hike, strategist Sri-Kumar says

Please see the source for the video.

 

Even one small interest rate increase by the Fed could have a sweeping impact on U.S. and world economies, Komal Sri-Kumar told CNBC on Monday.

“I think they are going to hike” on March 15, Sri-Kumar said on “Squawk Box,” echoing a theory shared by many analysts. “But that is going to prompt capital outflows from the euro zone, especially with the political risk. It is going to increase the capital outflow from China, and the U.S. economy will feel the impact.”

These moves would strengthen the dollar against other currencies, putting downward pressure on the euro, said Sri-Kumar, president of Sri-Kumar Global Strategies. Continue reading