Must Read – The Wall Street Examiner http://wallstreetexaminer.com Get the facts. Mon, 02 May 2016 04:09:10 +0000 en-US hourly 1 What Oil Needs to Sustain Its Rally http://wallstreetexaminer.com/2016/05/oil-needs-sustain-rally/ http://wallstreetexaminer.com/2016/05/oil-needs-sustain-rally/#respond Sun, 01 May 2016 14:00:29 +0000 http://moneymorning.com/?p=216248 Despite heroic profits reported by two of the FANGs - Facebook, Inc. (Nasdaq: FB) and Amazon.com, Inc. (Nasdaq: AMZN) - stocks had a very rough week.

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Despite heroic profits reported by two of the FANGs –Facebook, Inc. (Nasdaq: FB) and Amazon.com, Inc.(Nasdaq: AMZN) – stocks had a very rough week.

The Dow Jones Industrial Average fell 230 points or 1.28% to 17,773.64 while the S&P 500 lost 26 points of 1.26% to 2065.30. The Nasdaq Composite Index lost 2.67% to 4775.36 as Facebook and Amazon sucked the air and much of the profitability out of the room in the technology sector.

The other half of the FANGs, Apple, Inc. (Nasdaq: AAPL) and Alphabet Inc. (Nasdaq: GOOGL), took it on the chin after disappointing investors, and Apple in particular is struggling with the laws of large numbers, a phenomenon that Amazon and Facebook will eventually have to deal with.

The overall market is still very expensive and three of the four FANGs (other than AAPL) remain in a bubble.

But here’s what I really want to talk to you about today…

Why the Dollar and Oil Are Rising Together

But the real story over the first four months of the year was the pullback in the U.S. dollar and the recovery in oil prices from their lows. The U.S. Dollar Index hit 93 this week, down from 98.85 at the beginning of the year. The drop in the dollar was a major contributor to higher oil prices (remember oil is traded in dollars around the world). West Texas Intermediate (WTI) crude closed the week at $45.99/barrel, up sharply from the mid-$20s earlier this year. This rally is far from enough to save the many oil and gas companies that filed for bankruptcy in the United States (60 and counting) and the many more that will, but it is better than a poke in the eye.

The question, of course, is whether the rally will continue. The answer to that question largely depends on what happens to the dollar. Higher oil prices will lead to more production. The next leg in any sustained rally will require additional dollar weakness.

Of course, the dollar weakened this year because the Fed is weak – weak in mind, weak in will, weak in intellect, and weak in character. Janet Yellen and her confederacy of dunces refuse to normalize interest rates because they painted our economy into a trap. Every level of our economy is buried in too much debt – both the public and private sector.

No doubt higher interest rates will cause problems for overleveraged governments, businesses and consumers. But leaving interest rates at near zero encourages capital to be misallocated to unproductive activities such as consumption, housing, ill-advised M&A transactions that temporarily enrich short-term oriented shareholders and executives, overpriced stock buybacks, and other forms of speculation that do nothing to enhance the productive capacity of the economy.

The Central Bank’s Just Aren’t “Getting It”

Further, low interest rates do not lead economic actors to spend more money like the Fed’s models forecast, but instead cause them to act more cautiously and save. In sum, current policy backfires and produces slower growth and more debt. It must be reversed even though it will cause some short-term pain because that is the only way to produce better long-term results.

But we must take the world as it is, not as we would like it to be. And the world as it is features a feckless Fed that is not going to raise rates aggressively. At most we may see one interest rate hike this year. Investors are foolishly rooting for the Fed and other central banks to chicken out and do nothing. The reaction last week to the Bank of Japan’s decision not to take addition action to lower interest rates further below zero is a case in point – markets sold off. Markets want central banks to take additional easing measures even though they aren’t working. They should be careful what they wish for.

Central banks lowering interest rates (which in Europe and Japan means lowering them further below zero) and buying assets (which in Europe means buying corporate bonds and in Japan means buying equities) is destroying normal market functions.

The normal functioning of government and corporate bond markets in Europe and Japan has been destroyed by central banks buying trillions of dollars of bonds. These markets no longer send meaningful pricing signals and have no liquidity.

While their influence on equity markets is less direct, sooner or later central banks will corrupt these markets as well. We clearly have a bond bubble around the world (including the U.S.) as a result of central banks buying trillions of dollars of government bonds in their QE programs.

If central banks start buying more equities, we could see a similar phenomenon in stock markets. We know that some central banks like the Swiss own large amounts of stocks like Apple, Inc. (Nasdaq: AAPL). The Bank of Japan owns large chunks of the Japanese stock market. If these practices spread, markets could become even more distorted than they already are. Stock prices might stay high, but at what cost?

Central banks aren’t solving the problem of slow economic growth by engaging in these practices – they are corrupting markets and making things worse. They need to stop.

A Quick Word About Our Winning Short

Valeant Pharmaceuticals International Ltd. (NYSE: VRX) finally filed its year-end financials on Friday. As expected, the report revealed a company with serious problems.

In addition to disclosing that two more states are investigating its unsavory business practices, it revealed an even more leveraged balance sheet than expected. The company lost more money in the fourth quarter of 2015 than previously disclosed and reported higher amounts of goodwill and intangible assets than expected.

Valeant is a house of cards that its new CEO, who broke his contract with his previous employer to join the company, will not be able to fix. VRX shares dropped after the report was released and I believe it is going lower as the company struggles to stay alive.

Investors should buy long-dated puts as a low-risk way to profit from this company’s financial and moral carnage.

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Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Obama’s Big Lie: What’s Good for Wall Street Felons is Good for America http://wallstreetexaminer.com/2016/05/obamas-big-lie-whats-good-wall-street-felons-good-america/ http://wallstreetexaminer.com/2016/05/obamas-big-lie-whats-good-wall-street-felons-good-america/#respond Sun, 01 May 2016 12:36:11 +0000 http://neweconomicperspectives.org/?p=10323 To no one’s surprise, President Obama lobs periodic attacks on Bernie Sanders’ plans to restore the rule of law to Wall Street elites. Obama launched his latest attack, fittingly, through Wall Street’s sycophant-in-chief, Andrew Ross Sorkin.

The post Obama’s Big Lie: What’s Good for Wall Street Felons is Good for America was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of New Economic Perspectives. To view original, click here. Reposted with permission.

To no one’s surprise, President Obama lobs periodic attacks on Bernie Sanders’ plans to restore the rule of law to Wall Street elites.  Obama launched his latest attack, fittingly, through Wall Street’s sycophant-in-chief, Andrew Ross Sorkin.  Sorkin’s column expresses his shock at how Obama repeatedly extended their interview for hours beyond its scheduled length.  No one else is shocked that Obama, trying to make the case that bailing out the Wall Street felons was an act of supreme genius, would find Sorkin’s relentless sycophancy towards those felons and their political cronies so endearing.  This is the first segment of my response.  It focuses on the Obama administration’s great lie – the only policy “tools that work” in response to a financial crisis are getting “in bed with the banks” and making even wealthier through federal bailouts the bankers who grew wealthy by leading the fraud epidemics that caused the crisis.

The context of Sorkin’s column was Obama making the pitch for his “economic legacy.”  Obama is distressed that we do not understand how great he was because he was too busy saving us to have the time to “explain” to us how great he was.

“We were moving so fast early on that we couldn’t take victory laps. We couldn’t explain everything we were doing. I mean, one day we’re saving the banks; the next day we’re saving the auto industry; the next day we’re trying to see whether we can have some impact on the housing market.”

The result, he said, was that he lacked the political capital to do more.

Actually, one can explain everything one is doing in this sphere.  There are no reasons to keep secrets on economic and financial strategy.  A president who has a good case to make on the merits of his economic policies can make that case to the public with all the advantages of his office.  Obama would have gained immense “political capital” if he had led a vigorous claim to hold the Wall Street frauds personally accountable for their crimes and he would have discredited the source of much of his future opposition.  A president who allows elite CEOs to grow wealthy through fraud and even wealthier through a public bailout will – and should – squander his political capital.

Obama admitted to Sorkin, that he chose the strategy of allying himself with Wall Street and disparaging its critics.

Obama, convinced that anything short of a major bailout could lead to economic catastrophe, said Democrats should back Paulson’s plan. They did.

It was a rare moment of bipartisanship, with long-term political consequences. To Obama, this was a necessary alliance with Wall Street and a Republican president. To many others, it looked like a sweetheart deal for the same people who created the mess; some critics wondered why he was not equally quick to help aggrieved homeowners through an aggressive mortgage-relief or forgiveness program. “The whole thing about financial crises is the tools that work are the ones that will make you look like you’re in bed with the banks,” said Timothy Geithner, an architect of TARP whom Obama made his Treasury secretary.

Obama’s problem was not the one he claims – Americans didn’t understand why he was allying himself with the Wall Street felons because “we couldn’t explain everything we were doing….”  Obama’s problem is that many Americans realized that he was, to quote Sorkin, giving “a sweetheart deal [to] the same people who created” the crisis through their frauds.  Obama used our Nation’s wealth to make those felons even wealthier while giving them immunity from prosecution.  That is a dreadful “legacy” and it is destined to get far worse when it encourages the epidemics of control fraud that cause the next crisis.

Similarly, Americans increasingly realized that the record political contributions from the Wall Street felons to Obama’s 2008 campaign produced the self-serving rationalization that led him to claim to Sorkin that he made “a necessary alliance with Wall Street.”  “Necessary” to who?  Not to the American people or our economy.  It was “necessary” solely to his receiving the contributions.

Worse was soon to come, for as Sorkin notes Obama chose Geithner as his principal domestic policy official.  Geithner was already infamous as an abject failure as a financial regulator who failed utterly in his job, which was regulating Wall Street.  Geithner actually testified to Congress that he had never been a regulator.  That was true, but you are not supposed to admit it.

Geithner always claimed that he never worked for Wall Street, ignoring the fact that as the President of the New York Fed he was literally picked by Wall Street, paid for by Wall Street, and worked assiduously to advance the interests of the Wall Street CEOs who were leading the three control fraud epidemics.  After praising himself for not using the revolving door to make himself wealthy, Geithner promptly dropped that pretense and went to work officially for Wall Street.  He was made a top executive and instantly made wealthy not despite a record of failure as a self-professed non-regulator and Treasury secretary, but as a reward as a serial failure.  The thing that has repeatedly led to Geithner’s promotions is his consistent record of failing to serve the interests of the public because of his dedication to serving Wall Street’s interests.

The Obama Administration’s “Great Lie”

As “architect” of the bailout, Geithner famously explained that the plan was to bail out the banks and their senior officers and that any parts of the plan that were sold as helping the public were actually subterfuges designed to “foam the runways” for the elite banks and bankers.  Sorkin quotes Geithner announcing the Obama administration’s great lie:

“The whole thing about financial crises is the tools that work are the ones that will make you look like you’re in bed with the banks,”

No, the tools that work to speed recovery from a crisis and to prevent future crises demonstrate that you are not in bed with the felons – the elite bankers – because they are in prison.  When you give economic aid properly from the Treasury in response to a financial crisis, you ensure that the funds go to pay off the depositors at failed banks – not to bank felons in the form of sumptuous salaries and bonuses.  When the Fed acts properly as the “lender of last resort” it does not do so on the basis of collateral composed of toxic loans.  Providing mortgage relief to borrowers in the form of troubled debt restructuring (TDRs) aids honest bankers and does far more to spur recovery from a Great Recession by increasing effective demand.  Suspending the collection of the Social Security withholding tax is the quickest way to stimulate the economy and puts relatively more of the money in the pockets of those most likely to spend it, which provides a particularly strong “multiplier” that speeds recovery.  Only bankers and their political cronies purport to believe that bailing out the worst banks led by felons represent the “tools that work” to spur a recovery.

Equally important, however, is the question of what are the “tools that work” to prevent or reduce future crises.  Obama and Geithner’s policy of using public funds to further enrich the Wall Street felons and grant them immunity from prosecution for leading the three fraud epidemics that drove the crisis – and to continue to use public funds to enrich them even as those felons repeatedly launched new fraud epidemics – made the next crisis far more likely and likely to be more severe.  The policy of immunity for Wall Street felons also maximized injustice and inequality and replaced democracy with crony capitalism.  Taken together, all of these results are the results that the bank felons intend and expect from the policy “tools” they push.  This is why elite bank felons have always spread the propaganda that these are the only “tools that work.”  They are, in fact, the only “tools that work” – for the Wall Street felons.

Geithner was Wall Street’s “tool” in the Obama administration.  It was inevitable that Wall Street would find a way to reward him with further riches.  As Hillary Clinton says, “everybody” at her cabinet level is promptly made wealthy by the plutocrats after they end their government “service” – as long as that “service” serves the interests of the plutocrats.  She asserts that the system is not corrupt because “everyone does it,” which demonstrates a talent for willful blindness and self-serving rationalization that rivals Bill’s.

It is breathtaking to hear a confession of ubiquitous corruption (“everyone does it”) offered as if it were “proof” of non-corruption.  Paul Krugman, who desperately wants to see Hillary elected President, is enabling and apologizing for this corruption (and moral reasoning any parent would find distressing coming from his or her five-year-old daughter) rather than calling on her to stop taking money from Wall Street felons.  If she were to take the Bank Whistleblower United’s campaign funding pledge it would increase her chance of being elected and make her a vastly better President.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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The Cult Of Central Banking Is Dead In The Water http://wallstreetexaminer.com/2016/04/cult-central-banking-dead-water/ http://wallstreetexaminer.com/2016/04/cult-central-banking-dead-water/#respond Sat, 30 Apr 2016 14:22:16 +0000 http://davidstockmanscontracorner.com/?p=102679 The Fed has been sitting on the funds rate like some monetary mother hen since December 2008. Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months. There has never been a time in financial history when anything close to this happened, including…

The post The Cult Of Central Banking Is Dead In The Water was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here. Reposted with permission.

The Fed has been sitting on the funds rate like some monetary mother hen since December 2008. Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months.

There has never been a time in financial history when anything close to this happened, including the 1930s. Nor was interest-free money for eight years running ever even imagined in the entire history of monetary thought.

So where’s the fire? What monumental emergency justifies this resort to radical monetary intrusion and repression?

Alas, there is none. And that’s as in nichts, nada, nope, nothing!

There is a structural growth problem, of course. But it has absolutely nothing to do with monetary policy; and it can’t be fixed with cheap money and more debt, anyway.

By contrast, there is no inflation deficiency—–even by the Fed’s preferred measure. Indeed, the very idea of a central bank pumping furiously to generate more inflation comes straight from the archives of crank economics.

The following two graphs dramatize the cargo cult essence of today’s Keynesian central banking regime. Since the year 2000 when monetary repression began in earnest, the balance sheet of the Fed has risen by 800%, while the amount of labor hours used in the US economy has increased by2%.

At a ratio of 400:1 you can’t even try to argue the counterfactual. That is, there is no amount of money printing that could have ameliorated the “no growth” economy symbolized by flat-lining labor hours.

 

Owing to the recency bias that dominates mainstream news and commentary, the massive expansion of the Fed’s balance sheet depicted above goes unnoted and unremarked, as if it were always part of the financial landscape. In fact, however, it is something radically new under the sun; it’s the footprint of a monetary fraud breathtaking in its magnitude.

In essence, during the last 15 years the Fed has gifted the US economy with a $4 trillion free lunch. Uncle Sam bought $4 trillion worth of weapons, highways, government salaries and contractual services but did not pay for them by extracting an equal amount of financing from taxes or tapping the private savings pool, and thereby “crowding out” other investments.

Instead, Uncle Sam “bridge financed” these expenditures on real goods and services by issuing US treasury bonds on a interim basis to clear his checking account. But these expenses were then permanently funded by fiat credits conjured from thin air by the Fed when it did the “takeout” financing. Central bank purchase of government bonds in this manner is otherwise and cosmetically known as “quantitative easing” (QE), but it’s fraud all the same.

In essence, Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work of catalyzing, coaxing and stimulating more jobs and growth out of the US economy.

No it wasn’t!

What it was actually doing was not stimulating the main street economy, but falsifying and inflating the price of financial assets. That happened directly in the Treasury and GSE (i.e. Fannie Mae and Freddie Mac) markets where the Fed made its massive debt purchases, but that Big Fat Bid obviously cascaded through the pricing mechanism of the entire financial system via the linkage of credit spreads, cap rates and carry trades, including the PE on equities.

By contrast, the mainstream Keynesian delusion that the Fed has been stimulating GDP growth rather than speculator windfalls is rooted in the hoary concept of “aggregate demand” deficiency. That is, the proposition that the macroeconomy has a natural growth rate based on potential output at full employment, and that when actual growth falls short of that benchmark, it is the job of the state—–and in recent times, especially its central banking branch——to stimulate sufficient aggregate demand to close the gap.

This is claimed to be the essence of the welfare enhancing function of the state. To wit, pushing a continuously lapsing and faltering private capitalism toward its inherent full employment potential, thereby generating jobs, income and wealth that would otherwise not happen.

Alas, that’s complete self-serving clap-trap. At the end of the day, the full employment myth has conferred opportunities for employment and power on economists who would otherwise not have much more social function than astrologists; and it has provided an all-purpose blanket of rationalization for politicians bent on using the tools of state intervention and subvention to do good, do favors and do re-election.

The truth is, there can never by an honest shortage of “aggregate demand” because the latter is nothing more than spending for consumer and capital goods that is financed from the flow of income and production. As “Say’s Law” famously and correctly insists, “supply creates its own demand”.

And even more to the point, it is “supply” that is the hard part of the economic equation. It stems from work, exertion, sweat, discipline, enterprise, innovation, invention, sacrifice and savings.

Spending from what has already been produced is the easier part. And given human nature,  there is virtually no prospect of a shortage of aggregate demand——and most certainly not one which is chronic and continuous, as is implicit in the 24/7 stimulus policies of modern central banking.

Indeed, the idea that the state can create “aggregate demand” ex nihilo stems from a one-time parlor trick that was operative in the second half of the 20th century. Central banks discovered that they could stimulate credit expansion by supplying plentiful reserves to the fractional reserve banking system, thereby causing credit growth that was not funded from current savings.

That did permit a temporary breach of Say’s Law because spending derived from freshly minted banking system credit was additive to spending for consumer and capital goods financed out of current income and production. But there was a catch. Namely, continuous credit expansion resulted in the steady leveraging-up of household and business balance sheets.

Eventually, balance sheets became saturated and a condition of Peak Debt was achieved. In the case of the household sector, leverage ratios against wage and salary income rose from a stable historic level of about 75% prior to 1980 to a peak of 220% in 2007.  Then the parlor trick was over and done because in the aggregate there was no credit-worthy headroom left on balance sheets.

In fact, as shown in the chart below, the household sector has been slowly deleveraging its wage and salary income since the Great Financial Crisis.What that means is that with respect to the largest slice of the income pie by far—–the wage and salary earnings of households——Say’s Law has been re-instated. Household consumption is now constrained to the growth of production and income.

There is no more central bank “stimulus” through the household credit channel of monetary transmission.

Household Leverage Ratio - Click to enlarge

Household Leverage Ratio – Click to enlarge

Likewise, total US business borrowings have increased from $11 trillion to $13 trillion since the fall of 2007, but it has not lead to additional investment spending. Instead, the Fed fueled inflation of financial assets has induced businesses to cycle virtually 100% of their incremental borrowings into financial engineering. That is, stock repurchases and M&A deals.

But financial engineering does not add to GDP or increase primary spending; it results in the re-pricing of existing financial assets. That is, it gooses stock prices higher, makes executive stock options more valuable and confers endless windfalls on the fast money speculators who work the financial casinos.

Indeed, as we demonstrated in a post earlier this week—–precisely 100% of the entire increase in corporate borrowing since the turn of the century has been pumped back into the casino in the form of stock repurchases. Accordingly, the business investment channel of monetary transmission is over and done, as well.

The world is drowning in excess production capacity owing to the massive worldwide credit inflation and repression of capital costs during the last two decades. That was the effect of total global credit growth from $40 trillion in the mid-1990s to upwards of $225 trillion today—-an $185 trillion expansion that exceeded the growth of global GDP by nearly 4X during the same period.

Under this condition the diversion of corporate borrowing to financial engineering and stock buybacks is a no-brainer. Prospective returns on real productive assets are jeopardized by the immense overhang of excess capacity and the unfolding contraction of profit margins and CapEx, whereas stock buybacks and M&A deals bring immediate excitement and financial rewards to the C-suite.

So we go back to the beginning. The Fed and central banks in general are pushing on a fiat credit string because Peak Debt has arrived. All of today’s massive central bank intrusion is ending up in the secondary markets where it is causing the falsification of financial asset prices and massive, unearned and ultimately destructive windfall gains to speculators.

Here’s the essence of the Keynesian full employment/potential GDP myth. The learned economic doctors have simply pulled a fancy version of the old story about the professor of economics who fell into a 30-foot hole with a colleague. At length, the latter inquired about the professor’s plan to get out. “Assume we have a ladder”, said he.

There is absolutely nothing more to potential GDP and the so-called output gap than an assumed ladder. In the context of an $80 trillion global GDP enabled by today’s massive trade, capital and financial flows and current information technology, “potential output” is impossible to measure and is constantly changing.

There is no way to know whether an auto plant is at 95% utilization or 65%; it all depends on ever-changing costs of labor, the number of scheduled shifts, the complexity of the vehicles being assembled at any moment in time and the line speed, which. in turn, is a function of equipment, automation and technology variations over time.

Likewise, when on the margin labor is deployed by the gig in the DM economies and when the rice paddies have not yet been fully drained in the EM economies, there is no reasonable, accurate or meaningful way to measure labor utilization, either.

So there is no grand Keynesian economic bathtub whose full employment dimensions can be measured; and there is no way for the Fed or other central banks to fill it right to the brim with extra demand stimulus, anyway. Peak Debt has blocked the monetary policy transmission channels.

In fact, tepid growth of labor hours, productivity and output is a supply side problem. In that respect, replacing the current burdensome 16% payroll tax on America’s high cost labor with a consumption tax on the nation’s heavily imported goods would do more for supply side growth than central bankers could ever accomplish in a month of Sundays.

Likewise, there is no want of inflation, and the 2% target is simply a central banker’s con job. By selecting the most flawed and under-stated measure possible—-the PCE deflator less food and energy—–our monetary central planners rationalize their massive usurpation of power.

But there isn’t an iota of proof that 2.0% goods and service inflation is any more conduce to real growth of output and wealth than is 1.4% or even (0.2%). In any event, there is plenty of evidence that we are and always have been at 2.0% CPI inflation or better.

When an array of the inherently flawed inflation indices are considered as shown below, there is no meaningful shortfall from 2.0% since 2010 or during the entire period when the Fed has claimed to be struggling against lowflation. And that’s especially so when the BLS’ preposterous owners’ equivalent rent (OER) is replaced with empirical gauges of housing rent inflation.

CPI, PCE, and Reality - Click to enlarge

So what is to be done, as Lenin once queried?

In a word it is this. Fire the Fed. Attend to supply side policy. Let market capitalism do the rest.

The cult of central banking is dead in the water.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Chart of the Day- The Real Story Behind The True Magnitude of The New Home Sales Collapse http://wallstreetexaminer.com/2016/04/chart-day-real-story-behind-true-magnitude-new-home-sales-collapse/ http://wallstreetexaminer.com/2016/04/chart-day-real-story-behind-true-magnitude-new-home-sales-collapse/#respond Sat, 30 Apr 2016 11:15:34 +0000 http://davidstockmanscontracorner.com/?p=102170 Comparing the growth in the number of full time jobs versus the growth in new home sales starkly illustrates both the horrible quality of the new jobs, and how badly ZIRP has served the US economy.

The post Chart of the Day- The Real Story Behind The True Magnitude of The New Home Sales Collapse was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of David Stockman's Contra Corner » Lee Adler. To view original, click here. Reposted with permission.

Comparing the growth in the number of full time jobs versus the growth in new home sales starkly illustrates both the horrible quality of the new jobs, and how badly ZIRP has served the US economy.

Growth in new home sales has always been dependant on growth in full time jobs. For 38 years until the housing bubble peaked in 2006, home sales and full time jobs always trended together, subject to normal cyclical swings. With the exception of 1981-83 when Paul Volcker pushed rates into the stratosphere, new home sales always fluctuated between 550 and 1,100 sales per million full time workers in the month of March.

New Home Sales and Full Time Jobs - Click to enlarge

That correlation broke in the housing crash of 2008-09 when sales fell to a low But in the housing crash in 2007-09 sales fell to a low of 276 per million full time workers. Since then the number of full time jobs has recovered to greater than the peak reached in 2007. In spite of that, new home sales per million workers remain at depression levels.With 30 year mortgage rates now at 3.6% sales are lower today than they were when mortgage rates were above 17% in 1982. Sales have never reached 400 sales per million workers in spite of the recovery in the number of jobs, in spite of ZIRP, in spite of mortgage rates often under 4%.

ZIRP has actually made the problem worse. It has caused raging housing inflation which has caused median monthly mortgage payments for new homes to rise by 20% since 2009. ZIRP has enabled corporate CEOs to game the stock market to massively increase their own pay while encouraging them to cut worker salaries and shift higher paying jobs overseas. That leaves the US economy to create only low skill, low pay jobs that do not pay enough for workers to be able to purchase new homes.

The perverse incentives of ZIRP are why the housing industry languishes at depression levels.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Doug Noland’s Credit Bubble Bulletin: The Red Line http://wallstreetexaminer.com/2016/04/doug-nolands-credit-bubble-bulletin-red-line/ http://wallstreetexaminer.com/2016/04/doug-nolands-credit-bubble-bulletin-red-line/#respond Sat, 30 Apr 2016 05:17:00 +0000 http://wallstreetexaminer.com/?guid=2324ceeac4f86c81c6ca97c01e9c29dd Seemingly the entire world has operated under the assumption that Chinese officials (and global policymakers in general) have zero tolerance for crisis – let alone a collapse.

The post Doug Noland’s Credit Bubble Bulletin: The Red Line was originally published at The Wall Street Examiner. Follow the money!

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April 25 – Financial Times (Jennifer Hughes): “Stand easy — or easier, at least. Ten basis points might not be the biggest one-day change for borrowing costs in China’s vast $7tn bond markets, but it was enough on Monday to push the country’s closely watched onshore repo rate back from an eight-month high. That offers a little breathing space for investors to ponder what next for the rising tensions in onshore bond markets. One point to look at is their own leverage as well as their fears for companies… Amid all the furore about the pain of rising rates, one so-far overlooked factor is that investors, as well as companies, appear precariously balanced. The market for pledge-style repos — short-term, bond-backed loans — is currently bigger than the stock of outstanding debt, according to Wind Info. A sharp worsening in market sentiment could force those borrowers into fire sales if their loans are called or cannot be rolled over.”

I recall an early-1998 Financial Times article highlighting the explosive growth in Russian ruble and bond derivatives. Not only had the “insurance” market for risk protection grown phenomenally, Russian banks had become become major operators in what had evolved into a huge speculative Bubble in Russian debt exposures. That was never going to end well.

There was ample evidence suggesting Russia was a house of cards. Yet underpinning this Bubble was the market perception that the West would not allow a Russian collapse. With such faith and the accompanying explosion in speculative trading, leverage and a resulting massive derivatives overhang, any break in confidence would lead to illiquidity, panic and a devastating bust. Just such an outcome unfolded in August/September 1998.

“The market for pledge-style repos — short-term, bond-backed loans — is currently bigger than the stock of outstanding debt” (from FT above). With this undramatic sentence exists the potential for a rather dramatic global financial crisis. And, to be sure, seemingly the entire world has operated under the assumption that Chinese officials (and global policymakers in general) have zero tolerance for crisis – let alone a collapse. So Credit, speculation and leverage have been accommodated – and they combined to run absolute roughshod.

Jennifer Hughes’ FT article (noted above) includes a chart worthy of color printing and thumbtacking to the wall: “China’s Use of Bonds as Loan Collateral Rises Sharply”. The pink line shows “Onshore Market Bonds” having almost doubled since mid-2011 to about 40 TN rmb ($6.17 TN). The Red Line – “Pledge-Style Repos” – has ballooned four-fold since just early 2014 to surpass 40 TN rmb. So basically, in this popular market for inter-bank borrowings, borrowing banks have pledged bond positions larger than the entire market as collateral for their (perceived safe) short-term borrowing needs.

China has an historic Credit problem. It as well suffers from an unfolding “money” fiasco of epic proportions. My analytical framework attempts to differentiate the two, as each comes with its own set of (related) issues. A Credit Bubble is a self-reinforcing but inevitably unsustainable expansion of debt. Money (the contemporary variety) is a financial claim perceived as a safe and liquid “store of nominal value.” Importantly, systemic risk expands exponentially when risky borrowings are financed by an expansion of “money-like” instruments/financial claims. This typically occurs late (“terminal phase”) in the Credit Bubble Cycle.

During the U.S. mortgage finance Bubble period, “Wall Street Alchemy” worked to transform increasingly risky mortgage debt into perceived safe “AAA” securities and instruments. And so long as the rapid expansion of mortgage Credit propelled home prices and economic activity, the Fallacy of Moneyness prevailed. But at some point Bubble risk intermediation processes invariably turn perilous. The disconnect becomes increasingly untenable: enormous risk has accumulated – and continues to swell – backed by a rapid expansion of perceived safe “money.” After months of festering Credit deterioration, it was the breakdown in confidence in the repo market that precipitated the devastating 2008 financial crisis.

How sound is China’s multi-Trillion repo market? In general, lending in short-term, collateralized, inter-bank markets is perceived to be very low risk. Confidence is based on the soundness of the individual institutions in the market; in the quality and liquidity of the debt collateral; and the capacity and determination of official institutions to backstop the marketplace during periods of tumult.

As for China, underpinnings are vulnerable. The banking sector has enjoyed years of explosive growth, which by definition virtually ensures latent fragilities. There are as well major cracks surfacing in China’s corporate bond market, portending serious issues with the collateral backing China’s “pledge-style repos.” And how has corruption and incompetence (not to mention state-directed lending) impacted the quality of banking system assets? At this point, faith that Beijing will backstop system Credit while ensuring uninterrupted economic expansion is fundamental to repo market confidence.

After the incredible $1.0 TN Q1 Chinese Credit expansion, there were indications this week that excess went too far and officials now seek to slow things down (see “China Bubble Watch”). Officials also moved this week to rein in commodities speculation. Efforts were made as well to tighten mortgage Credit, at least in some of the more overheated markets.

I often refer to the “global pool of speculative finance.” Well, after years of rampant Credit excess, China these days has its own unwieldy pool of speculative finance fomenting boom/bust dynamics throughout equities, housing and, more recently, in debt and commodities. And I believe it is a safe assumption that the explosive growth in short-term (“repo”) borrowings has been instrumental in financing myriad asset and speculative Bubbles. Chinese officials, of course, have been keen to avoid bursting Bubbles and all the associated negative economic, social and geopolitical consequences. Regrettably, these efforts have nurtured only greater distortions, risk misperceptions and stupendous Bubble excess.

Returning to the “China as marginal source of global Credit” theme, one can these days make clearer delineations. Today, Bubble markets and an extraordinarily maladjusted and imbalanced global economy are highly dependent upon ongoing Chinese financial and economic booms. The Chinese Bubble depends upon ongoing speculative excess and asset inflation. And Chinese asset and speculative Bubbles are sustained by cheap “repo” and other short-term “money-like” finance.

With various Bubbles either already faltering or indicating acute fragility, confidence in China’s “repo” finance has turned quite vulnerable. And as goes the Chinese “repo” market so goes China’s asset Bubbles, Credit Bubble and economic Bubble, with ominous portents for global markets and the overall global economy.

Markets were turning keen to this risk earlier in the year. More recently, with Chinese officials having seemingly stabilized their financial and economic systems, global market attention returned to anxious central bankers, zero/negative rates and a couple Trillion additional QE. There was a huge policy-induced short squeeze that bolstered bullishness and sucked in a significant amount of buying power. The leveraged speculating community got turned upside down, with trades going haywire throughout global markets. The return of “risk on” turned into a real pain trade for many. And just when it appeared markets had stabilized and positioning had normalized…

There were indications this week that the “risk on” spell may have been broken. Thursday saw Japan’s Nikkei sink 3.6%, while the yen jumped 2.6%, the “most since 2010.” It was a somewhat histrionic market reaction to the Bank of Japan’s decision not to immediately expand stimulus. For me, it indicated market “risk off” susceptibility. Japanese equities and the yen have been important markets for the leveraged speculating community. Both the Japanese equities rally and the yen pullback were “counter-trend” moves susceptible to hasty market reassessment.

The yen surged 4.7% this week to an 18-month high versus the dollar. Japan’s Topix Bank Index sank 8.6%, increasing 2016 losses to 29.3%. It’s worth noting that financial stocks were under pressure globally again this week. Hong Kong’s Hang Seng Financials were down 2.8% (down 11.3% y-t-d), and European bank stocks fell 2.7% (down 16.7%). The major European equity markets – having been major squeeze and “risk on” beneficiaries over recent weeks – also showed their vulnerability. Germany’s DAX index sank 3.2%, and French stocks were down 3.1%. Rallies dominated by short-squeeze dynamics often have a propensity for abrupt reversals.

Here at home, the Securities Broker/Dealer index was (ominously) slammed 5.5%. Worries, however, were not limited to financials. Having notably benefited from squeeze dynamics, an abrupt reversal saw biotech stocks slammed 5.9%. More prophetic for the general markets – and the economy overall – were further indications this week of a faltering technology Bubble. In a period of general earnings deterioration, it is worth recalling how quickly technology earnings can evaporate (recall 2000 to 2002).

Wall Street darling Apple sank 11% this week on weak earnings. Fear of a rapid slowdown in smart phones also saw the semiconductors (SOX) slide 3.5%. On the back of declines in Apple, Microsoft (down 3.7%) and Netflix (down 6.1%), the Nasdaq100 dropped 3.0%. Tech indices – and the general market – benefited from players crowding further into the big winners (Amazon and Facebook up 6.3%). It’s worth noting that the VIX ended the week at 15.70, up from the week ago 13.95.

Commodities are on fire. The GSCI Commodities index jumped 3.6% this week to a six-month high (up 15.6% y-t-d). Crude gained another $2.27 to $46.01. More interestingly, Gold surged $61 (4.9%) to 14-month highs (HUI up 15.4%!). Silver jumped 5.4% to a 15-month high. Curiously, the dollar index fell 2.2% this week to a one-year low.

From my vantage point, global market vulnerability has reemerged. Sentiment has begun to shift back in the direction of central banks having largely expended their ammunition. This becomes a more pressing issue when market players sense heightened deleveraging risk. Dan Loeb’s (Third Point Capital) comment, “There is no doubt that we are in the first innings of a washout in hedge funds,” provided a timely reminder that the market recovery did little to erase levered player woes. Indeed, market convulsions over recent months have only compounded problems.

It’s during bouts of “risk off” that the true underlying liquidity backdrop is illuminated. Combine short squeezes and the unwind of hedges with QE – and global markets seemingly luxuriate in liquidity abundance. “Risk off” exposes the liquidity illusion. Risk aversion would see longs liquidated and leverage unwound, with a rush to reestablish shorts and risk hedges. And rather quickly de-risking/de-leveraging would overwhelm QE. And if “risk off” is accompanied by Chinese Credit, banking and “repo” problems, well, global crisis dynamics would gather momentum in a hurry.

It’s almost as if gold, silver and crude prices are now shouting that they win either way. If the China Bubble perseveres along with global QE, inflation has a decent shot of taking root (an ugly scenario for global bond Bubbles). But if the ominous China “repo” Red Line foretells a harsh Chinese and global crisis – crude and the precious metals, in particular, offer rather enticing wealth preservation potential. It’s time again to be especially vigilant.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Why Carl Icahn’s Apple Stock Dump Is a Red Flag for All Investors http://wallstreetexaminer.com/2016/04/carl-icahns-apple-stock-dump-red-flag-investors/ http://wallstreetexaminer.com/2016/04/carl-icahns-apple-stock-dump-red-flag-investors/#respond Fri, 29 Apr 2016 19:57:40 +0000 http://moneymorning.com/?p=216115 The extra slam that Apple stock got from Carl Icahn's surprise announcement that he had dumped all of his AAPL shares proves again why activist investors can be dangerous.

The post Why Carl Icahn’s Apple Stock Dump Is a Red Flag for All Investors was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Money Morning - We Make Investing Profitable. To view original, click here. Reposted with permission.

The extra slam that Apple stock got from Carl Icahn’s surprise announcement that he had dumped all of his AAPL shares proves again why activist investors can be dangerous.

While many investors believe they can glean actionable tips by following the likes of Carl Icahn, people can never forget that these folks are in the game to maximize their own profit.

A step-by-step deconstruction of what Carl Icahn did to Apple over three years illustrates why we all need to be wary of activist investors…

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The gut punch Carl Icahn delivered to Apple stock on Thursday makes it abundantly clear why activist investors can be hazardous to your portfolio.

When former Apple Inc. (Nasdaq: AAPL) cheerleader Icahn announced in a CNBCinterview that he had unloaded all 45.8 million of his remaining shares, AAPL stock dipped 2.5%.

And that was on top of an awful week for Apple stock that had already sheared 8% from theAAPL stock price. As of midday Friday, Apple stock was trading near $93.

It was a great trade for Carl Icahn, who claimed on CNBC that he made a profit of approximately $2 billion. This is why he’s one of the most famous activist investors in the world.

But the episode illustrates why the Carl Icahns of the world represent a threat to retail investors like you and me…

How Carl Icahn and His Ilk Can Cost You

This is especially true in Icahn’s case, because his reputation gives stock-moving power to his public statements.

The trouble comes when ordinary investors incorporate the statements of heavyweights like Icahn into their investing decisions.

“Studies show that raider activists work their magic over the short term, typically anything from a period of months to right about three years. What everyone needs to understand is that they are usually not aligned with long-term value, let alone your interests as an individual investor,” said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

While activist investors may buy a stock because they truly believe it’s undervalued – or short it because they believe it’s truly a dog – it’s vital to remember they have a vested interest in moving a stock in the direction they want it to go.

To see how tricky this can be, let’s dig into the details of how Carl Icahn created his Apple position, what he did to drive the Apple stock price higher, and the real reasons he sold when he did…

Apple Stock Was a Target Ripe for Carl Icahn

Icahn started to accumulate Apple stock back in August of 2013. That alone was a smart move, as the AAPL stock price had tumbled about 40% from the fall of 2012 to the spring of 2013.

Icahn continued to make large purchases into 2014, at one point buying $1.65 billion worth of Apple stock in one swoop. He eventually accumulated about 53 million shares.

The day Icahn first announced he was buying Apple, the stock spiked about 5%. Initially, he agitated for a stock buyback program. Although he lost a proxy fight in 2013, Apple did launch such a program along with a dividend increase that year.

After that victory, Icahn embarked on a campaign to drive up the AAPL stock price by making the case that it was drastically undervalued.

An open letter to Tim Cook in October 2014 praised Cook’s leadership and Apple’s prospects, not just for the iPhone, but for the iPad, the Mac, the as-yet-unreleased Apple Watch, and even a mythical Apple UltraHD television.

The real point of the letter, however, was to publicize an outlandish $203 Apple stock price target. At the time, AAPL stock was trading at just over $100 a share. The most bullish analyst Apple stock target price was just $139. Suspicious, no?

Why Carl Icahn Put Sky-High Targets on AAPL Stock

Here’s what I wrote on Money Morning that day: “Apple doesn’t need to get anywhere near $203 for Icahn to score huge profits. But more people are likely to buy AAPL when Icahn says it’s really worth $203 than if he says it’s really worth $125. Who doesn’t want to miss out on an opportunity to double their money?”

Icahn’s strategy was obvious. And if there were any doubt, he wrote anotherletter to Cook in May 2015. Like the October letter, it heaped praise on Cook and Apple’s products.

The May letter also included a detailed valuation of Apple stock. But this time, Icahn ludicrously concluded that AAPL shares were worth – ta-da! – $240 a share.

“Corporate activists frequently take their case to the public by ‘talking up their book’ – a derogatory Wall Street term meaning they make public commentary on things intended to increase the value of their own holdings,” Fitz-Gerald said.

apple stock

Apple stock was then trading near its peak, at about $130 a share. Icahn was seeking to milk the trade just a bit more by luring gullible investors into driving the AAPL stock price still higher.

Alas, reality intervened shortly afterward. By mid-summer, Apple stock had begun to fall again.

As it tried to recover in the fall, Icahn tried one last time to wring some extra value out of his trade.

“Apple, even in a bear market – it may get hurt, it may go down – but I think Apple is still ridiculously underpriced,” Icahn said in a Sept. 30 CNBC interview. He added that Apple was “misunderstood by most of Wall Street” and that he was “seriously considering” buying more shares of Apple.

But by then the narrative that the iPhone 6S was failing to sell as well as the iPhone 6 had already taken hold, in addition to concerns about sales in China. Not even Carl Icahn could prop up AAPL stock.

At some point in April, as AAPL stock recovered from the general December-January sell-off, Icahn decided to cash out. Apparently Apple stock isn’t worth $240 a share, after all, eh, Carl?

Icahn’s Excuse for Selling Apple Is Weak

When Icahn returned to CNBC to confess that he’d sold his entire remaining position in Apple stock, the reason he gave was economic weakness in China. It’s unlikely he believes it.

Apple’s horrible earnings report Monday, in which sales in China declined 26%, gives Icahn cover. But he knows this is a bump in the road and that iPhone sales will almost certainly grow in 2017.

“I simply think he couldn’t get what he wanted: more leverage, a short-term boost in share prices based on the financial engineering that would have come with a more aggressive buyback program, and the opportunity for even more ginormous profits. So he hit the road like a five year old taking his toys out of the sandbox because the other kids won’t play with him,” Fitz-Gerald said.

But while Icahn’s strategy was a stunning success, it’s not something retail investors can emulate.

“Corporate activists are not in it because they believe in the goodness of their actions. They’re in it for the profits – pure and simple,” Fitz-Gerald said.

Read the rest of this post Why Carl Icahn’s Apple Stock Dump Is a Red Flag for All Investors  where it appeared first on Money Morning – We Make Investing Profitable.

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About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

Disclaimer: © 2016 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.

 

 

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Gold Prices Will Receive a Boost in 2016 from This International Event http://wallstreetexaminer.com/2016/04/gold-prices-will-receive-boost-2016-international-event/ http://wallstreetexaminer.com/2016/04/gold-prices-will-receive-boost-2016-international-event/#respond Fri, 29 Apr 2016 18:54:30 +0000 http://moneymorning.com/?p=216103 Gold prices have rallied higher this week, nearing their highest level in 15 months.

The gains are all thanks to the U.S. Federal Reserve and U.S. dollar.

The post Gold Prices Will Receive a Boost in 2016 from This International Event was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Money Morning - We Make Investing Profitable. To view original, click here. Reposted with permission.

Despite negative sentiment toward the metal recently, gold prices have seen a huge rally this month.

The biggest drivers for the gold price this past week have been the U.S. Federal Reserve and the U.S. dollar.

We now know the Fed didn’t raise rates at its April meeting but is setting the stage to do so in June.

gold pricesLow interest rates have weighed on the dollar, which supports the price of gold. But as investors brace for a possible June rate hike, the dollar may gain back some strength.

That would likely lower the gold price in the near term, but I expect that to be temporary.

In fact, I’d see that as a great opportunity to invest in this promising sector.

Before we get to that, here’s a recap of the incredible week for gold prices…

Gold Prices Rocket Higher This Week

Once markets opened for the week, the gold price moved higher and never looked back. On Monday, April 25, prices jumped 0.5% to close at $1,238.

The two sessions during the FOMC meeting gave meager gains to gold prices. On Tuesday, gold gained 0.4% to settle at $1,243. The next day, Fed officials announced they would not raise rates – no real surprise – but indicated they’re considering a June rate hike. That pushed the price of gold up 0.2% to $1,246 on the day.

On Thursday, the gold price surged thanks to the declining U.S. Dollar Index (DXY), which dropped below 94. Prices added 1.6% to close at $1,266.

And the gold price today (Friday, April 29) is on track for another session of gains. As of 1:40 p.m., it’s up 2% to $1,292.10 – the highest level in nearly 15 months – while the dollar hovers near 93.18.

But it’s not just the Fed and the dollar moving gold prices today. In fact, there’s one event in the world’s second-largest economy that will move gold prices in 2016

This International Event Will Move Gold Prices in 2016

It’s no secret the price of gold has steadily moved higher since consolidating near $1,220 in late March. That’s when the U.S. Dollar Index peaked around 96.5 and has headed south ever since.

The market was baking in expectations that the Fed wouldn’t hike rates at its April meeting.  And it was right. In fact, the Fed didn’t raise rates, and a June hike is now looking possible but less likely than previously.

I believe that’s what the gold market is sensing and therefore pricing in.

Meanwhile, there’s some big news on the gold front coming out of China…

On April 19, China launched the Shanghai Gold Fix, the country’s own gold exchange that prices the metal in yuan. Some believe it could challenge the centuries-old London gold price fix, currently settled by the London Bullion Market Association (LBMA).

The big – and crucial – difference is the gold fix on the Shanghai Gold Exchange (SGE) requires purchasers of gold futures to deposit physical gold at the exchange. Observers expect this to support SGE pricing, favoring higher levels than in London since contracts are backed by physical metals.

The Shanghai Gold Fix will surely bring increased influence to China with respect to the global gold markets. Being the largest gold producer and importer, a yuan-priced fix will help China have more say.

And with China’s significant position in this market, gold prices are likely to be very positive as we go forward.

 

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About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

Disclaimer: © 2016 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.

 

The post Gold Prices Will Receive a Boost in 2016 from This International Event appeared first on Money Morning – We Make Investing Profitable.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Why These Oil Price Predictions from Wall Street Are Dead Wrong http://wallstreetexaminer.com/2016/04/oil-price-predictions-wall-street-dead-wrong/ http://wallstreetexaminer.com/2016/04/oil-price-predictions-wall-street-dead-wrong/#respond Fri, 29 Apr 2016 16:55:13 +0000 http://moneymorning.com/?p=216072 Many banks on Wall Street have overwhelmingly bearish oil price predictions.

In fact, there's one bank that sees oil prices falling below $30 by the end of the year.

This chart shows where four major banks see prices heading through 2017...

The post Why These Oil Price Predictions from Wall Street Are Dead Wrong was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.

Although prices are up 75.6% from their 13-year low of $26.21 in February, oil price predictions on Wall Street are still bearish.

In fact, one investment bank sees crude oil prices tumbling below the $30 mark by the fourth quarter. That’s a more than 35% drop from yesterday’s close of $46.03.

This chart shows where four of the largest banks on Wall Street see West Texas Intermediate (WTI) crude oil prices headed over the next few quarters…

oil price predictions

According to a Wall Street Journal survey of 13 investment banks, the average Brent crude oil price prediction is $41 a barrel by the end of 2016. The average prediction for WTI is even lower at $39 a barrel.

The biggest reason for the bearish oil price predictions is the global supply glut. Citigroup Inc. (NYSE: C) reported global oil supply has increased by a record 370 million barrels since January 2014.

“The market will balance eventually, probably at the turn of the year,” BNP Paribas commodity analyst Gareth Lewis-Davies told The Wall Street Journal. “But until then, we still have a big oversupply to worry about.”

Most analysts worry about OPEC’s output, which hit 32.64 million barrels a day this month. That’s just short of its January level of 32.65 million a day – the highest in 19 years.

And Iran is playing a big role in the cartel’s record production. Since its economic sanctions were lifted in January, Iran has been pumping oil at a record pace. The country’s output reached 3.4 million barrels a day this month. That’s close to its pre-sanctions level of 3.5 million.

Investors and analysts are concerned about Iran’s soaring output. The country – which sits on more than 157 billion barrels of oil reserves – plans to ramp up output until it hits its target of 4.2 million barrels a day. This steadily increasing supply is what’s causing the bearish oil price predictions, which could scare investors into an oil price sell-off.

But Money Morning Global Energy Strategist Dr. Kent Moors – an oil market veteran who advised U.S. energy agencies for more than four decades – says there’s one reason why Iran won’t reach its target anytime soon…

These Oil Price Predictions Don’t Take into Account Iran’s One Problem

If Iran reaches its output goal of 4.2 million barrels a day, it won’t be able to maintain it.

You see, Iran’s oil equipment and infrastructure is in terrible condition. Its drilling technology is more than 40 years old, the pipelines burst on a daily basis, and the nation’s petrochemicals are simply exploding.

“In short, Iran needs access to outside help fast,” Moors told Money Morningreaders in March. “For all the talk of the country increasing its exports, that rate will take time to reach and is not sustainable given the current state of affairs.”

And after bailing on the Doha meeting earlier this month, Iran has further isolated itself from its oil-producing neighbors. With oil exports accounting for 65% of the nation’s GDP, Iraq pushed for an output freeze at the meeting to help its struggling economy. And Saudi Arabia – the world’s largest oil producer – is already Iran’s foremost geopolitical rival.

All of this means Iran will have a tough time reaching 4.2 million barrels a day. Even if the country does get there, it will only benefit by stealing market share from neighboring producers. That will only occur if Iran cuts its crude oil prices, which defeats the purpose of increasing output in the first place.

Iran’s infrastructure problems and lack of allies ensure its output will stagnate this year. That means it won’t have a negative effect on crude oil prices.

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The post Why These Oil Price Predictions from Wall Street Are Dead Wrong appeared first on Money Morning – We Make Investing Profitable.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Lebowski Achiever Award: The First President In Modern Times Without 4% Real GDP Growth, But Whopping Debt http://wallstreetexaminer.com/2016/04/lebowski-achiever-award-first-president-modern-times-without-4-real-gdp-growth-whopping-debt/ http://wallstreetexaminer.com/2016/04/lebowski-achiever-award-first-president-modern-times-without-4-real-gdp-growth-whopping-debt/#respond Fri, 29 Apr 2016 13:02:34 +0000 http://confoundedinterest23.wordpress.com/?p=1006 President Obama may go down in history as the only President in modern time to not have a single quarter of real GDP growth of 4% or higher.

The post Lebowski Achiever Award: The First President In Modern Times Without 4% Real GDP Growth, But Whopping Debt was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

President Obama may go down in history as the only President in modern time to not have a single quarter of real GDP growth of 4% or higher. In fact, there was only one quarter where real GDP growth barely exceeded 3% (Q3, 2010).

And this is in spite of (or because of) the unprecedented zero interest rate policies (ZIRP) of Bernanke and Yellen. Not to mention the enormous fiscal stimulus which helped Q3 2010 real GDP growth barely stagger above 3%.

obamafed

Here is a chart of “Stimulato,” The Federal Reserve’s unprecented intervention into financial markets.

stimulato16

But at least The Federal Reserve was able to blow bubbles — asset bubbles, that is, like the stock and housing market.

bubblesassets

Wage growth has been stagnant since 2009 with real median household income lower in 2014 than it was in 2007, before The Great Recession.

rmincrealgdp

And we have declining labor force participation and homeownership rates.

hownlfp

Of course, regulatory overburden isn’t helping. Under the Obama Administration, around 28,000 new Federal regulations have been added, including the dreaded Consumer Financial Protection Bureau-related governance.

So, between The Federal Reserve’s massive distortion on the financial markets and the wage-crushing policies of the Obama Administration, they should share the sub-4% Real GDP growth award. Or at least a Lebowski Achiever Award.

b0db1030-dfc7-11e4-815c-331c740b8969_big-lebowski-man-of-year-time-mirror-movie-

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

The post Lebowski Achiever Award: The First President In Modern Times Without 4% Real GDP Growth, But Whopping Debt was originally published at The Wall Street Examiner. Follow the money!

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Chart Of The Day: Remind Me Again How Low Rates Stimulate Housing http://wallstreetexaminer.com/2016/04/chart-day-remind-low-rates-stimulate-housing/ http://wallstreetexaminer.com/2016/04/chart-day-remind-low-rates-stimulate-housing/#respond Fri, 29 Apr 2016 08:30:19 +0000 http://davidstockmanscontracorner.com/?p=102159 Since the bottom of the housing crash in 2009, the Fed has pushed mortgage rates down by 26%. That has “stimulated” new house sale prices to inflate by 40.4%. At the March 2009 median price of $205,100 and the then current mortgage rate of 5.0%, the monthly payment was $1,101. At the current median price of $288,000…

The post Chart Of The Day: Remind Me Again How Low Rates Stimulate Housing was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of David Stockman's Contra Corner » Lee Adler. To view original, click here. Reposted with permission.

Since the bottom of the housing crash in 2009, the Fed has pushed mortgage rates down by 26%. That has “stimulated” new house sale prices to inflate by 40.4%. At the March 2009 median price of $205,100 and the then current mortgage rate of 5.0%, the monthly payment was $1,101. At the current median price of $288,000 and the current mortgage rate of 3.69% the monthly payment is $1,324. So remind me again how the Fed’s artificially suppressing mortgage rates stimulates housing demand when the monthly payment is now 20% higher?

New Home Sale Price and Mortgage Rates - Click to enlarge

 

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

The post Chart Of The Day: Remind Me Again How Low Rates Stimulate Housing was originally published at The Wall Street Examiner. Follow the money!

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