Baltic Dry Index. 1088 -08
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
In central banking as in diplomacy,
style, conservative tailoring, and an easy association with the affluent count
greatly and results far much less.
J. K. Galbraith.
For more on Scotland’s threat to the Unions of the UK and EU,
scroll down to the last article in this section.
Up first, the world according to the banksters and their ilk, from
Jackson Hole. Anglo-American
banksterism, is now about to part company with European banksterism, it seems,
as we all hurtle towards the end of the Fed’s final monstrous bubble and the
end of the Great Nixonian error of fiat money. Right now, continental Europe seems
more committed than ever to commit continental suicide.
"In
economics, hope and faith coexist with great scientific pretension."
J. K. Galbraith.
Jackson Hole Theme: Labor Markets Can’t Take Higher Rates
Aug 24,
2014 11:00 PM GMT
Global central bankers led by Federal Reserve Chair Janet Yellen
said labor markets still have further to heal before their economies can
weather higher interest rates. Even as they signaled international monetary policies are set to diverge as economic recoveries increasingly differ, officials meeting over the weekend in Jackson Hole, Wyoming, placed jobs at the center of their decision making by saying stronger hiring and wages are still needed to drive demand.
The focus on jobs suggests the Fed and Bank of England will tighten policy within a year as their economies show signs of strengthening. By contrast, European Central Bank President Mario Draghi and Bank of Japan Governor Haruhiko Kuroda acknowledged they may be forced to deploy fresh stimulus.
More
Yellen Riding U.S. Growth Veers From Draghi as EU Stalls
Aug 23, 2014 5:00 AM GMT
The world’s two most powerful central bankers are nearing a transatlantic
gap in monetary policy as the Federal Reserve debates raising interest rates
while the European
Central Bank signals more stimulus. The potential for divergence was on display yesterday as Fed Chair Janet Yellen and ECB President Mario Draghi outlined differing economic outlooks to international counterparts in Jackson Hole, Wyoming. The U.S. unemployment rate stands at 6.2 percent compared with 11.5 percent in the euro area.
Yellen said with their labor markets healing, U.S.
central bankers are shifting to debating when “we should begin dialing back our
extraordinary accommodation.” By contrast, Draghi said officials “stand ready
to adjust our policy stance further” while adding that investor bets on the
bloc’s inflation have “exhibited significant declines at all horizons” in
August.
“U.S. monetary policy is leaning toward tightening in 2015, and, if you believe futures markets, policy in Europe is on hold until well into 2017,” said Alan Ruskin, head of foreign exchange strategy for Group of 10 countries at Deutsche Bank AG in New York. “Draghi’s talk was pretty consistent with that view.”
Such a split puts investors on the alert for a multi-track world of monetary policy almost six years since central banks began uniting around record-low interest rates to rescue their economies from recession. A break between the U.S. and ECB in interest-rate paths will likely create more foreign-exchange volatility as interest-rate differentials widen, Ruskin said.
More
Italian Bond Yields Fall to Record With Spain’s on ECB Outlook
Aug 23, 2014 7:00 AM GMT
Italian 10-year government bond yields fell to a record in the week on bets European Central Bank
officials will maintain monetary stimulus even as their peers in the U.K. and
U.S. consider tighter policy. Spanish 10-year yields also fell to a record as reports showed euro-area manufacturing and services grew at a slower pace this month and consumer confidence declined more than economists predicted. German 10-year bunds yielded the lowest relative to Treasuries since 1999 as Federal Reserve minutes showed officials raised the possibility of increasing interest rates sooner than they had anticipated.
“Data continues to be quite weak, and this in turn is fueling quantitative-easing expectations,” said Felix Herrmann, an analyst at DZ Bank AG in Frankfurt, referring to a central-bank policy of asset purchases to kickstart growth and fuel inflation. “The hunt for yield in the periphery continues.”
Italy’s 10-year rate fell one basis point, or 0.01 percentage point, to 2.58 percent at 5 p.m. London time yesterday, after touching 2.561 percent on Aug. 20, the lowest since Bloomberg started collecting the data in 1993. The 3.75 percent bond due in September 2024 was at 110.455. Spain’s 10-year yields dropped to as low as 2.371 percent on Aug. 21, before ending the week at 2.38 percent, a drop of two basis points from Aug. 15.
Germany’s benchmark debt rose three basis points to 0.98 percent, after touching a record-low 0.951 percent on Aug. 15. That left the yield difference, or spread, between the German securities and similar-maturity U.S. Treasuries (GDBR10) at 143 basis points. The spread widened to 144 basis points on Aug. 20, the most since June 1999, based on closing prices.
More
BOE’s Broadbent Says Path of Rates to Be ‘Materially Different’
Aug 23, 2014 7:38 PM GMT
Bank of England Deputy Governor Ben Broadbent said the path of U.K. interest rates is going
to be “materially different” than in the past. Echoing Governor Mark Carney’s point that any increase in the U.K. benchmark from 0.5 percent will be gradual, Broadbent told fellow central bankers in Jackson Hole, Wyoming, that “the path of interest rates that’s necessary to meet our mandate is going to be materially different than it has in the past.”
He was speaking on a panel along with Haruhiko Kuroda, governor of the Bank of Japan, and Alexandre Antonio Tombini, governor of Brazil’s central bank.
Broadbent used the conference, organized by the Federal Reserve Bank of Kansas City, to argue the financial crisis has changed the economic landscape and central banks must now consult labor-market data to assess price pressures in the economy.
----While the BOE has dropped its link between policy and the unemployment rate, Governor Mark Carney said this month that policy makers would put increasing weight on wage data in their assessment of when to raise the benchmark interest rate from a record-low 0.5 percent.
Broadbent said in the speech that nominal wage growth has been “much weaker than we expected.”
While surveys indicate some of the softness in wages may be reversed later this year, it’s also possible that Britons have become more accepting of lower pay awards and that salary growth has adjusted downward due to weak productivity, he said.
More
Sweden Lowers Growth Forecast as Crisis Message Draws Rebuke
Aug 23, 2014 11:00 PM GMT
Sweden’s government cut
its growth forecast for a second time in two months, citing the turmoil abroad
amid criticism it was seeking to play up crisis concerns to regain voter
support ahead of next month’s election. Gross domestic product for the largest Nordic economy will expand 1.9 percent in 2014, below a July forecast of 2.5 percent, the Finance Ministry said yesterday in a statement distributed in Harpsund, south of Stockholm. Growth will be 3 percent in 2015, versus the 3.1 percent it forecast in July.
“The Swedish economy is expected to gradually recover but the recovery is still uncertain,” Finance Minister Anders Borg said at a press briefing. “The risk picture is still negative.”
More
Ukraine Rating Cut by Fitch as East Conflict Hurts Growth
Aug 23, 2014 12:11 AM GMT
Ukraine’s credit rating was cut by Fitch Ratings, which
cited a worsening economic outlook as the military conflict with pro-Russian
separatists in the nation’s east curbs business activity. The company lowered its assessment to CCC from B-, which signals a high risk of default. Only Argentina, which failed to make an interest payment last month, is rated lower than Ukraine among 104 countries Fitch tracks.
While the government has recaptured territory from the rebels, conflict may persist or intensify, delaying economic revival and damaging productive assets, Fitch wrote in a statement yesterday. Ukraine and its allies say the war is being fueled by Russian support for the insurgents, which President Vladimir Putin has denied.
Ukraine’s economy has been rocked
by Russia’s annexation of Crimea and pro-Russian separatist attacks in the
nation’s eastern industrial heartland. The government sealed a $17 billion loan
from the International
Monetary Fund
to stave off bankruptcy and received the first tranche in May. The hryvnia has
lost 39 percent against the dollar this year, data compiled by Bloomberg show.
The eastern European nation’s government
predicts the economy will shrink 6 percent this year. It needs more financing
than the IMF program envisages and will hold a donor conference in September,
Finance Minister Oleksandr Shlapak said this week.
More
We end for this last UK summer bank holiday in England looking
north of the border at Scotland. Will they or won’t they vote to leave the
Union? As goes Scotland, in all probability, goes Catalnia, Corsica, the Basque
country, and just possibly, Britany, Sicily, and Venice.
Below, sensing defeat, the exit Samondistas get desperate and
start issuing threats. Scotland, the Argentina of the North.
It is
never difficult to distinguish between a Scotsman with a grievance and a ray of
sunshine.
P. G.
Wodehouse.
Scotland ‘should not take on UK debt’ unless it can keep the pound
Yes campaign’s economist plots way ahead if Westminster refuses to share sterling
An independent Scotland should
walk away from its share of the UK’s national debt if Westminster continues to
refuse a sterling union, one of the Yes campaign’s leading economic gurus has
advised.
“Britain inherits the debt,” said
Sir James Mirrlees, a Nobel Prize-winning economist and a prestigious figure on
Scotland’s Council of Economic Advisers.
“It is hard to see how Scotland
can take on the debt unless there is a full currency union,” he told The
Telegraph. “This is implied by the hard-line taken by Westminster. It is
Scotland’s bargaining position.”
Crawford Beveridge, chairman of
Scotland’s Fiscal Commission Working Group, warned last week that any such move
would be “morally difficult” and likely deemed a “default” by credit ratings
agencies.
Not even the Baltic states
entirely repudiated Soviet-era debts in the early 1990s, even though the Soviet
occupation of their countries was never recognised by the West. It would be
hard for Scotland to invoke the “doctrine of odious debts” – where debts run up
by despotic regimes can legitimately be reneged on – under international law.
The Czech and Slovak republics divided the Czechoslovak debt on a pro-rata
basis after their “velvet divorce”.
Sir James said Scotland could
continue to use the pound as legal tender inside the country if necessary,
whatever London decides. “No country has stopped its currency from being
circulated in another state that I know of,” he said.
He suggested that Edinburgh could
equally issue a Scottish pound that is pegged to sterling and backed by a
currency board along the lines of Hong Kong’s model. But, in his opinion,
neither option, if forced upon Scotland, would entail any obligation to take on
UK debt.
Sir James said this clash can be
avoided. He believes the common sense option for all involved is to agree on a
co-operative union. The British themselves would enjoy a “non trivial” benefit
from being able to use their own coin in Scotland. “The easiest transition
would be to keep using sterling for five to 10 years,” he said.
More
If
all else fails, immortality can always be assured by spectacular error.
J. K.
Galbraith.
At the Comex silver depositories Thursday final figures were: Registered 59.99
Moz, Eligible 118.20 Moz, Total 178.19 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Below, more on our new lawless age. Free unlimited
money for the banksters. Austerity and lecturing for everyone else. How modern
Rome fell.Why did I take up stealing? To live better, to own things I couldn't afford, to acquire this good taste that you now enjoy and which I should be very reluctant to give up.
Europe, with apologies to Cary Grant. To Catch A Thief.
Why The Fed’s Outrageous Gift To Foreign Banks—- Risk Free Aribitrage On IOER—Is Just The Tip Of The Iceberg
by David Stockman • August 22, 2014
This profit stripping operation
is simple. Foreign banks on Wall Street borrow from money market funds at an
infinitesimal 3-6 basis points and then shuffle the loot down to
33 Liberty Street where the New York Fed pays them 25 basis points on
the same funds. This gift is known as the IOER payment for excess
reserves. It is a short-term trade which is rolled-over
day after day and is absolutely risk free. Both ends of the arb
represent money prices that are administered by the Fed, not set by
price discovery in the market.
Indeed, as part of its “open
mouth” communications policy, the Fed promises to give considerable
advance warning as to when the yield on IOER and also overnight money market
borrowings is going to change. Accordingly, any foreign bank caught
napping long enough to run afoul of a well-telegraphed
Fed change in the arb would likely be operating on pre-telegraph technology.
That is to say, this Fed sponsored arb is tantamount to owning a printing
press. All it takes is a banking license from the state of New York or other US
jurisdiction.
And, yes, the parent bank owning
a license to print profits in this manner should be domiciled outside
the USA. That’s because foreign banks are generally not subject
to FDIC levies designed to fund Uncle Sam’s deposit insurance programs—-fees
which would bite into the risk free arb described above. By contrast, domestic
banks which pay the FDIC fees are largely not involved in this particular
free money gambit.
This seems like a screaming
outrage that couldn’t be true—especially because the real
beneficiaries of the Fed’s largesse are Europe’s giant banks which
are insolvent but socialized wards of the state. But, alas, no less
an authority than the Fed’s own unpaid spokesman, Jon Hilsenrath of the
Wall Street Journal, confirms that this entire larcenous arrangement
happens day-in-and-day-out on Wall Street:
The most striking feature of the
Fed’s strategy is that it keeps in place an effective subsidy that the U.S.
central bank is currently paying to foreign banks.
Here’s how:
In recent years foreign banks
have been tapping U.S. money market funds for very cheap short-term loans. Unlike
domestic banks, foreign banks don’t have domestic depositors to tap for funds,
so they turn elsewhere for dollars. Money market funds make the funds
available for a few hundredths of a percentage point. The foreign banks in turn
park those loans at the Fed for 0.25% interest. They earn profits on the spread
between the cheap cost of funds available from money market funds and the
higher rate they get at the Fed.
It’s a trade that domestic U.S.
banks have been unwilling to make because they have to pay additional fees to
the Federal Deposit Insurance Corp. on their borrowings, fees the foreign banks
don’t have to pay.
Here’s the thing, however. The
profit capture by foreign banks is only the tip of the iceberg of financial
deformation that has been generated by ZIRP and the Fed’s whole hog
domination of financial markets where honest prices for money, debt
and risk assets were long ago extinguished. In this instance, ZIRP has caused
$2.6 trillion in money market mutual funds to be sequestered in financial limbo
where these funds earn virtually nothing in the Fed
administered money market.
MoreBanks are an almost irresistible attraction for that element of our society which seeks unearned money.
J. Edgar Hoover
The monthly Coppock Indicators finished July.
DJIA: +157 Down. NASDAQ: +318 Down. SP500: +232 Down. The Fed’s final bubble has taken on a
very scary wobble, but this is nothing compared to the return of real interest
rates at some point ahead.
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