All That Glitters Is Not Central Banking

The Fed given hawkish statements this past week continues to jawbone for permission to up interest rates. This is a Fed without courage or direction, a classic chase of getting permission rather than asking for forgiveness. In short, the absence of boldness in their blood should be obvious by now. All good leadership has an element of boldness. These bureaucrats have proved to be leaderless and devoid of boldness.

Meanwhile, their ongoing jawboning affects the precious metals, especially gold. And next week look for more of the same. Not only that but some serious data gets dumped on the market next week, data that could if more upbeat give the Fed the shot of courage it needs to pull off what would now not be so much of a surprise hike come September 21. Part of investor uncertainty of late centers on just such a possibility. The other one is the September 21 date could serve as the precursor for massaging the market for a definite rate boost in December.

What we know is this group is dying to raise rates at this point to take some of the heat off it incompetence. Such sentiment makes it even more likely they will miscalculate and make a grave mistake further damaging their credibility. One needs to realize that destroying the Fed in the view of some observers is part of the hidden agenda to create a situation more conducive for implementing a one world government. Out of chaos comes dependence. And along with it big brother.

Anyone who believes the ruling class will go down easy shouldn't have gold in his or her portfolio. This upcoming election smacks as a temporary divergence. With the current administration set to turn the Internet over to the UN and the more frequent calls for a cashless society, the garrote around your neck is getting pulled a little tighter each day. Like the word manipulation, the term convenience has many meanings and they're not all good.

Gold recently traded at $1327.88, not too far off from its bottom in what many see as a range between $1350 and $1325 an ounce in all the current uncertainty about central bank policies. The 100 moving average is $1308.  

Underway

It's underway. A sea change you don't want to get caught snoozing through.

Once upon a time there was a longtime county treasurer in California that made a lot of money for the county by borrowing short and investing long until one day a sea change in the interest rate market occurred. The county went bankrupt and he took his rightful place in the hall of investing infamy.

It's no secret that Japan's target inflation rate is a no show and the yen has appreciated nearly 18% so far this year, hurting exports and economic recovery in general. It's also an open secret not just the Bank of Japan but other central banks are running out of rabbits to extricate from their monetary policy top hats.

According to reports, the Japanese government holds about one third of outstanding government bonds, and like a rain and wind swept, swollen river a figure that is rising steadily. Enter BOJ Governor Haruhiko Kuroda who Monday stepped to the mike and criticized the negative interest rate program because of the tension it was placing on banks. To make money banks need a steeper yield curve. As noted below the spread between two-year and 30-year debt is now only 30 basis points. That's one big Ouch! for banks, pension funds, retirees and the like.

One way to get a steeper yield curve is to remove the underlying safety net, the BOJ put option. In short, drying up the official demand, not a healthy scene for long term bond prices that many feel are already at bubble proportions. Should Japan venture down that road what will be the global effect on other sovereign bond markets? It's pretty difficult to toss a pebble in pond without causing a few ripples.

Kuroda on Monday also pointedly flagged concerns about negative potential effects from the slide in long-maturity bond yields. Earlier this year, rates as long as 20 years touched zero percent. The BOJ chief noted that the drop hurt returns on pension programs, and could affect confidence levels and the economy more broadly.

As Kuroda said, clearly highlighting the dangers of a flatter yield curve, "some business firms have revised down their profit forecasts due in part to the increase in the net present value of retirement benefit obligations. We should take account of the possibility that such developments can affect people’s confidence by causing concerns over the sustainability of the financial function in a broad sense, thereby negatively affecting economic activity.”



 
It then resumed in late August, after central bankers made another coordinated push for fiscal stimulus at Jackson Hole, which would mean more sovereign debt supply, and thus lower prices, all else equal. Then earlier this week, Kuroda said that a review of the current stimulus efforts due by the Sept. 20-21 policy meeting in which some analysts and investors read between the lines that the BOJ may be seeking to force a shift toward a steeper yield curve after the gap between two- and 30-year securities compressed to a record 30 basis points.

 

 zerohedge.com/news/2016-09-08/brace-var-shock-bank-japan-may-be-about-unleash-global-selloff

 For what's it's worth we think it will begin before it's announced. Central bankers always favor bankers over the public.
 

Overnight

Mixed is becoming of late a common term to describe Asian markets as the Nikkei started out down and shrugged it off to gain 0.15% One thing that reportedly bothered Asian investors was North  Korea apparently set off a fifth nuclear test, the largest one yet, this month.

The Nikkei 225 started out down but shrugged it off and was up 0.15% while the Kospi declined 1.39%, the ASX 200 was down 0.83% and both Chinese indexes were mostly flat with the Shanghai up only 0.02% and the Shenzhen off 0.021%, the Hang Seng rallied 0.96%. Shares in Japan have been trading in a narrow range for weeks now as investors try to figure out the Fed's next move on interest rates. Inflation was again a relative no show in China as China’s consumer-price index was up just 1.3% in August, slowing from July’s 1.8% and giving authorities more room to ease monetary policy to lift growth.
 
In Europe, the WSJ reported, The European Central Bank left its €1.7 trillion ($1.9 trillion) stimulus unchanged at a policy meeting Thursday, brushing off concerns over economic shock waves from Britain’s vote to leave the European Union and disappointing investors expecting the ECB to act again soon.

The decision to stand pat, even as new forecasts showed the ECB missing its inflation target for years, underlines how central banks are approaching the limits of what they can achieve without support from other policy areas, notably governments. In China earlier this month, Group of 20 leaders warned that monetary policy alone can’t fix the world’s economic ills, and pledged to boost spending and adopt overhauls aimed at boosting growth.
 
Central banks are still in the spotlight, however, as several members of the fed are due to speak Friday and investor try to fathom the future of U.S.interest rates and reconfigure their portfolios. Overnight the U.S. dollar index weaken slightly against a basket of currencies trading at 94.856. Energy is anther items investors will be watching Friday as oil rallied strongly Thursday after a big draw down in U.S. reserves came to light. U.S. crude futures shed 0.84 percent to $47.22.



 

Overrnight

Investors might not have noticed it with all the attention global central bankers have been getting of late, but there's another theme at work here very much tied to those central banks, the action of currencies.

The dollar, for example, has fallen by about 15 percent compared to the Japanese yen and 3 percent against the euro. It's up 2.5 percent against the renminbi year-to-date. A stronger dollar would be somewhat negative for gold, big U.S. multinationals and exports, but it would also most likely bring back more drilling activity for oil.

Meanwhile, the Nikkei fell overnight,in part owing the the stronger yen and the continued uncertainty in markets as investors further focus on global central bankers who will be speaking this week. The Nikkei was down 0.49% as the Dow Jones Industrial Average and the S&P 500 indexes eased Wednesday wile the Nasdaq managed to push higher to a new closing high.

The Australian S&P/ASX 200 fell 0.89 percent wile on the mainland the Shanghai Composite traded flat and the Shenzhen edged a bit higher, 0.32%, the Hang Seng index inched up 0.32 percent. South Korea's benchmark Kospi slipped 0.29 percent.

In the U.S energy prices rallied Wednesday behind an American Petroleum Institute announcement of the largest weekly stock declines in nationwide crude inventories in over 30 years. U.S. crude futures were trading up 1.76 percent at $46.30 a barrel, while Brent futures added 1.56 percent to $48.73 during Asian trade. Later in the day Thursday investors will be watching what happens at the ECB monetary policy meeting as the central bank theme continues to hold attention of investors around the globe.

Overnight

Dollar down, Asian stocks higher is the overnight theme after weaker than expected data for the U.S. ISM services most likely put the lid on any hopes for the Fed hiking interest rates this month. Asian shared traded mixed with the Nikkei 225 off 0.63% as the dollar weakened pushing the dollar/yen to 101.42, below its 103 level seen the last three trading sessions.

The Hang Seng was down 0.28%, the Shanghai Composite index up 0.36%,the Kospi edged higher 0.06% and the ASX 200 moved up 0.04% as the news is being dominated once again by central bank happenings or the lack thereof.. U.S. crude oil futures traded up 0.42 percent at $45.02 a barrel, while Brent futures gained 0.49 percent to $47.49, after falling 0.8 percent the day earlier on receding hopes of an agreement between Saudi Arabia and Russia to freeze output. Despite higher crude prices, oil-related stocks in Asia were mostly lower.


Confidence continues to wane about the Bank of Japan's ability to effective stimulate the markets with any further monetary policy changes. As more and more investors question central bank policy effectiveness, the  plot not only thickens it becomes more murky, hardly a confidence builder. As CNBC International reports: Expectations for further quantitative easing at upcoming European Central Bank and Bank of Japan meetings may be running high, but chances are central bankers will be wasting their time with fresh measures, analysts warned. 

Brian Coulton, chief economist at Fitch Ratings, said the gap was narrowing between the marginal benefits of central banks further expanding their balance sheets by buying more assets and the unintended negative consequences. 

"Quantitative easing has some downside effects for the profitability of banks," Coulton said on Tuesday at Fitch's Global Sovereign Conference in Singapore. "It may not spur bank lending as strongly as you would expect." 

In the U.S. Both gold and silver ended the U.S. day session sharply higher and hit three-week highs. Overnight gains in both metals were solidly extended after the morning release of a very downbeat U.S. ISM non-manufacturing report for August, according to Kitco. Silver was moving towards $20 an ounce and gold trading at $1355.50.

Overnight

It is another mixed session for stocks in Asia overnight as investors waited to what the Reserve Bank of Australia rate-setting meeting would bring. Their answer: The bank left interest rates on hold at the record low of 1.5% set last month causing little change in the Australian dollar which last was trading around 76.2 cents to the U.S. dollar.

Earlier the dollar had jumped up on stronger than expected economic news. One source reported, however, that "...outgoing Reserve Bank governor Glenn Stevens hinted in his last speech a couple of weeks ago that the RBA had anticipated that the banks would not pass on all of the rate reduction when it made its August decision.

The Australia's ASX 200 traded down 0.18 percent with a decline in the heavily-weighed financials sub-index. But the energy sector trade up 0.53 percent, along with the materials edging  up 0.19%. The Nikkei 225 tweaked up 0.22%, the Kospi was up 0.23 percent and in /china the two composites split the session with the Shanghai flat and the Shenzhen up slightly 0.21%. The Hang Seng was off 0.1% and the yen was down 0.4% against the dollar.


The WSJ reported: The yen was recently down 0.4% against the dollar, which remained weak after the release of weaker-than-expected U.S. jobs data on Friday, reducing the likelihood of an imminent interest rate increase by the Federal Reserve. A weaker yen helps boost the competitiveness of Japanese exports. 

The Journal also noted that "... the Philippines, the stock market benchmark PSEi was the region’s biggest decliner, falling 0.7%, after U.S. President Barack Obama abruptly canceled a first meeting with Philippine leader Rodrigo Duterte in a rare diplomatic rupture. Analysts point to concerns that rising tensions between the two close allies could impact future trade deals. The meeting was called off following bombastic comments from the Philippine leader on Monday demanding that their discussion not touch on his approach to human rights and referring to the U.S. leader in Tagalog with an expression widely translated to mean “son of a bitch.”
 
Weak jobs numbers and uncertainty about future restring rate hikes in the U.S. continues to trouble many investors. On Wednesday San Francisco Federal Reserve Bank President John Williams will deliver a speech on the economic outlook that should gather some attention.

Overnight

Shares were up in Asia overnight as investors apparently took some solace in U.S. non-farm payrolls numbers out last Friday. Weak to tepid numbers in the eyes of many put off another rate hike in the near future. The risk here however small is that the Fed will do something different, but this is hardly an aggressive group of central bankers.

The Nikkei 225 gained 1.2 percent, its highest level in three months, the Australian ASX 200 was up 0.99 percent. In China the mainland markets were higher, with the Shanghai composite up 0.19percent  while the Shenzhen composite was up 0.65 percent.The Hang Seng index was up 1.62 percent, at levels not seen since August 2015. In South Korea, the Kospi was up 0.89. MSCI's broadest index of Asia-Pacific shares outside Japan was 0.5 percent higher in early trade.

Look for more jawboning in the upcoming week as officials from the Bank of Japan and the Fed unleash what most likely will be closely watched speeches ahead of policy meetings later this month. And don't forget the ECB will wind up a  two-day policy meeting while the U.K.’s new Treasury chief will make his first appearance before the House of Lords. There also will be data on inflation from China. With Monday being a holiday in the U.S. markets won't get to normal, if we can use that term, until Tuesday.

The WSJ reported: In early Asian trade, crude-oil prices gave up gains with Brent, the global crude benchmark, last trading down 39 cents at $46.44 a barrel. Gold, meanwhile, was up 0.1%.

Better For Whom?

We've been saying for a long time the Fed made a conscious decision to screw savers. retirees and the COLA. The includes lots of the elderly and the poor.

Here's a recent quote from The Vice Chair Stanley Fischer. He sloughs it off as making choices. We agree. They definitely chose the wealthy over the poor. Millions of Baby Boomers are facing retirement, joining others. Plus people are living longer, another big problem for elites we will get into later. Fischer is probably a BB himself with one huge difference. He most likely has a decent retirement plan in place, not to mention access to what can only be called insider information, a privilege he will most likely enjoy until he dies.

Well, clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that and we have to make trade-offs in economics all the time, and the idea is the lower the interest rate, the better it is for investors.”

The better it is for investors for sure, but the phony wealth effect it's suppose to engender is just that--bogus. Moreover, there is a certain callous indifference in his comment, part of the "we know best" meme. They know best for whom? This is just one of a multitude of reasons the people call for the Fed to be dismantled and not replaced by any such centralized government agency.

Here a link to the article and the thoughts of someone taking issue with Fischer's basic understanding how markets work. Read it for yourself and decide.

mishtalk.com/2016/09/03/fed-vice-chairman-admits-fed-sponsors-wealth-inequality/

Inflation is way worse than they've been telling us, jobs and economy the same. We're probably looking at some stagflation real soon. Meanwhile, these over paid bureaucrats continue to bluster, bumble and fumble. 

The Important Stuff

Few people if any predicted the market turmoil that kicked off the start of 2016.

Like the old warning about the lull before the storm, we're seeing more rhetoric along those lines going into next year. As a WSJ financial columnist pointed out in this weekend edition, you have to go back to 2010 to find another August slower than the first seven months of this year.

Some are calling this the lull before the lull. Others, as it frequently turns out, make this more-of-the-same mistake. Average daily volume in August was below that of the first seven months. To be sure, August is viewed by many as a vacation month. Volatility minus a few false grunts and groan has been AWOL. The election is another reason cited. Hold this puppy together until after November. Then there's the old saw about which political party is best for the stock markets, Democrat rather than Republican?

Some heavy, heavy hitters have come out foretelling their net short positions. Warning signs or something else? The war between the fiat money changers and the gold crowd continues. Proletariat publications like Money Magazine hawk investment opportunities outside the U.S.  Europe is one place. Calmness, like panic, is catching, a close brethren of more of the same. Lurking in the shadows, however, is the meme that just battening down and staying fully invested makes the most money in the long run, notwithstanding Keynes' warning about long runs,

Will it be a stock picker's market? That, if so, at least in part implies the return a current market stepchild, active versus passive asset management. Investors have plowed deeply into ETF funds. For the most part, the only thing active about them is the money plowing into them. The Fed has gone through a litany of dots, the latest being jobs, that were suppose to tell the tale. When is dull soothing? Right now is as good an answer as any. What's even a better question is why would anyone of sound mind believe those job numbers, non-farm payroll or otherwise?

Our guess is the Fed could hike interest rates 25 basis points Tuesday and except for some short term volatility not many investors would lose more than a night or two of partial sleep. There might even be a huge market sucking sound of relief. Big Daddy Pharma most likely wouldn't like it as millions could cancel their anti-anxiety prescriptions. Another Brexit moment .Despite all of its time in the cynosure, the Fed is now irrelevant. They have done what many accuse Donald Trump of, self-branding. Main stream media and a gaggle of economists whose jobs depend on it are the only ones paying any attention to the Fed. If you choose to do so, it's a financial form of cutting your own throat just to watch yourself bleed.

You want to look for something else, something different. Maybe something like Trump wins, Hilary has an out of body religious experience causing her post-coma to tell the real truth and Barbara Streisand actually leaves the country. One of the reasons most investors fail or get lackluster results is they don't pay enough attention to the important stuff.

We'll Always Have Emerald City

They had a big football game in San Diego last night in part to honor U.S. service men and women. We'll skip the other controversy there that captured its share of attention.

This is about just how whimpering and weak the U.S. economy remains after monstrous unprecedented gobs of money have been tossed at not just the country but the entire globe after eight years of this administration's stewardship.

We recognize that Helicopter Ben, also known as former Fed Chairmen Ben Bernanke, recently noted why the Fed should keep a negative balance sheet. It's not a long word, though it's tough for some to spell and others to digest, bankruptcy. If the nation goes bankrupt, the premise is you'll need and want even bigger government.

One of this president's early acts in his first term was to seize any cost of inflation allowances for retirees, the elderly and such. It's a feat he carried out twice in eight years while spending wildly on other issues. Returning to that football game celebration of America's arm forces, we offer Mr. President' recent quote that is prime material for stand-up comics fluent in all languages.

In a letter to Congress, Obama said: “I am strongly committed to supporting our uniformed service members, who have made such great contributions to our nation over more than a decade of war. As our country continues to recover from serious economic conditions affecting the general welfare, however, we must maintain efforts to keep our nation on a sustainable fiscal course. This effort requires tough choices, especially in light of budget constraints.”

Now there there too much laughable material in there for a short pice like this, such as "in light of budget restraints," so we are strongly committed to search for any signs of a serious recovery that will affect the general welfare to take a serious path to a sustainable fiscal course, notwithstanding tough choices, and our first not so difficult choice would be to cut the salaries of Congress people and their staffs 75 percent so the money could go in part to boosting servicemen and women at least to a 2.6 percent pay hike. If we can toss in one retiring Congresswoman's retirement plan, we will opt for a full three percent.

Such, in case anyone out there is listening, a promise carried out would most likely put this upcoming election out of reach for one of the two remaking candidates, MSM lying or no. Meanwhile, there's always good comedy club material coming out of the Emerald City. Like that famous movie couple and Paris, we'll always have that.