Authored by EconomicPrism's MN Gordon, annotated by Acting-Man's Pater Tenebrarum, A Great Big Dud Many of today’s economic troubles are due to a fantastic guess. That the wealth effect of inflated asset prices would stimulate demand in the economy. The premise, as we understand it, was that as stock portfolios bubbled up investors would feel better about their lot in life. Some of them would feel so doggone good they’d go out and buy 72-inch flat screen televisions and brand-new electric cars with computerized dashboards on credit. The Wilshire 5000 total market index vs. federal debt and real GDP (indexed, 1990=100) – mainly there is an ever wider gap between asset prices and the underlying economic output, and although federal debt has grown by leaps and bounds in the Bush-Obama era, it can’t hold a candle to asset price inflation either. If asset prices were an indication of how an economy is doing, we would have arrived in Utopia by now. Unfortunately that is not the case, as asset prices primarily reflect monetary inflation. Just consider the extreme example of Venezuela’s IBC General Index, which went from 40,000 to 120,000 points, while the economy contracted by 21% in real terms (officially, that is. If one were to apply private sector estimates of inflation, it would look a lot worse). It is certainly true that economic aggregates are benefiting from bubble conditions to some extent, but that is essentially phantom prosperity. If you burn all your furniture, your home will be warm – that this might be problematic only becomes glaringly obvious once all the furniture is gone, because then it will not only be cold, but there will be nothing left to sit on either. When the red line on this chart reverts to the mean (or the “other extreme”), there will be a lot of gnashing of teeth, as many of the mistakes made during the bubble era will be unmasked. [PT] – click to enlarge. Before you know it, gross domestic product would go up – along with wages – and unemployment would go down. A self-sustaining economic boom would follow. This fantastic guess, however, has proven to be a critical error in judgment. Asset prices bubbled up, flat screen televisions and new cars were bought in record numbers, and the unemployment rate – according to the government’s statistics – went down. On the flip side, real GDP growth only marginally lurched upward, never eclipsing 3 percent during a calendar year, and the great big economic boom that was supposed to save the economy from itself turned out to be a great big dud. At the same time, the general aura of the Federal Reserve Chair, once held up on high by Bob Woodward, has slipped into irreparable decline. No public relations exploit or press briefing can correct the damage. No policy adjustment or balance sheet modification can return the Fed to its former glory. Quite frankly, the state of disrepute of present Fed Chair Janet Yellen appears to be that of a larcener, near comparable to a United States Congressman. The transition from maestro to scoundrel in just over a decade has been a sight to behold. ZIRP, QE, operation twist… you name it. There’s been one absurdity after another. Consider how much attention is paid to central bankers and their policies these days, as exemplified by how many cartoons about them are drawn about them. In times past no-one thought much about central banks, they were considered boring. That has certainly changed after the introduction of the pure fiat money system in the early 70s and the massive bubbles and busts their policies have triggered in the wake of this event. [PT] – click to enlarge. Sanitized for Public Consumption No doubt, the Fed has brought their shame upon themselves. They’ve made their bed. But they don’t want to lay in it. Earlier this week the June FOMC meeting minutes were released. According to the minutes, some FOMC members acknowledged that “equity prices were high when judged against standard valuation measures.” Some are even “concerned that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.” Unfortunately, the minutes are prepared and provided for public consumption in a cleanly sanitized summary form. Names are not tied to individual discussion points. Moreover, name calling and vulgarities are omitted from the official record. Perhaps, good manners and erudite etiquette have been preserved in the hallowed halls of an FOMC meeting. However, this is highly unlikely. Because over the last decade or so, in nearly all social dealings, both professional and public, good old-fashioned human decency has devolved to barroom decorum. We hope they haven’t removed the laugh track… (this is from an article we posted in 2014) [PT] – click to enlarge. Thus we’ve taken it upon ourselves to round out a brief excerpt of the FOMC discussion, adding back the warts to better demonstrate the meeting’s dialogue. What follows, in the best interest of reader edification, is a fictitious adaptation of true events that occurred at the June 14 FOMC meeting. Enjoy! The most recent laugh track chart we could find is from 2011 – and it is telling as well. The mood turned very somber in November of that year. We will have to hunt for a more recent update. Presumably the laugh track continues to mimic the trend in the stock market. [PT] Tales from the FOMC Underground “What should we do?” began Yellen. “A decade of easy monetary policies has turned financial markets into a Las Vegas casino while the economy’s lazed around like my smelly house cats. What the heck was Bernanke thinking?” “Hell, Janet,” remarked New York Fed President William Dudley. “He wasn’t thinking. He soiled his pantaloons and then he soiled them again.” “So now we must clean up his stinky pile while he promotes his revisionist courage to act shtick. The reality is we must orchestrate a take-down of financial markets, and we must do it by year’s end.” “Well, gawd damn Bill!” barked St. Louis Fed President James Bullard. “With the exception of Neel, the $700 billion dollar bailout boy, don’t you think we all know that?” “Hey, now!” interjected Minneapolis Fed President Neel Kashkari. “Don’t blame me. I was just carrying out Hank Paulson’s will, right Bill? Saving our boys’ bacon back at Goldman so they could continue doing god’s work.” “Besides Fish, it was you all who lined up behind Bernanke and tickled the poodle with his crazy QE experiment while I was busy chopping wood at Donner Pass and getting my fanny spanked in the California Governor’s race by retread Jerry Moonbeam Brown, of all people.” “Fair enough,” continued Bullard. “The point is, taking down the stock market will cause an extreme upset to the economy’s applecart. The mobs will come after us with torches and pitchforks.” “You see, the real trick is to do the dirty deed then disappear behind a fog of confusion. That’s what Greenspan would do. How can we pull that off?” The maestro is still up to his old tricks… [PT] After a moment of silent contemplation, and a licked finger held up to the cool political winds drafting across the country… “Eureka! We can pin it on President Donald J. Trump!” exclaimed Chicago Fed President Charles Evans. “Could our good fortune be any better? Not since Herbert C. Hoover has there been a more perfect scapegoat for an economic depression of the Fed’s making.” “Hear, hear!” approved Yellen. “Damn the economy,” they bellowed in harmony… minus Kashkari. “This one’s on Trump!” Blaming ye olde Trump asteroid should be easy, since he has made the grievous mistake of taking credit for the run-up in the stock market on Twitter. Now he “owns” the bubble he previously denounced – at the very least he has become its co-owner. [PT] “Bill, one last thing,” closed Yellen. “After the meeting, remember to give the public that shake n’ bake you dreamed up about crashing unemployment. We have to give off an air of being data dependent.” “That misdirection should twist them up until NFL football starts. Shortly after that, our work will be done…” “…and by the New Year, Congress and Joe public will be begging us to rescue the economy from the Fed’s… I mean… Trump’s disastrous economic program.” * * * [Ed. note: in the original version of this article Richard Fisher was used in the section about the fictional meeting. We replaced him with James Bullard, as Fisher has retired from the Fed. Besides, we always thought Fisher was one of the more thoughtful Fed presidents; inter alia he was one of the handful of FOMC members who regularly dissented from Ben Bernanke’s mad-cap money printing schemes]
Janet Yellen's Monetary Policy Just Eased 50 bps and She Can’t Be Happy - by Michael Carino - Greenwich Endeavors
Over the last two months, the Fed has tried to continue to communicate that they plan on raising rates up to at least 3% and reduce their balance sheet by trillions. They just raised the Fed Funds rate by 25 bps to 1.25%. However, long term rates rallied by 50 bps! And the short end of the interest rate curve is priced with yields on top of the Fed Funds rate. This implies that either the Fed is lying and does not plan to raise rates again (or even lower rates), or something is broken in the bond market. After a decade of manipulation in rates by central banks globally, bond markets are priced at some of the richest conditions ever. There could not be a greater disconnect with actual economic conditions. Globally, there is no crisis on the horizon and sovereign risks could not be lower. GDP is tracking close to above average 3% and inflation right on 2%. Spare capacity near or at a cycle low, increasing the probability that inflation is going to run too hot going forward. So why did long term rates recently rally 50 bps? Such a large move surely comes on the heels of a financial crisis or recession. No, this move comes from the excessive conditions built over the last decade in the bond market. When such extremely disconnected conditions exist, the probability of a financial crisis from an unwind of these conditions is extremely high. The latest move to lower rates, even as the Fed is trying to normalize rates is due to the manipulation of bond markets by a consortium of large balance sheets that trade Treasuries in high volume during low volume periods. This is the strategy pursued in 2006 and 2007 and led to flattening of yield curve and diminished volatility as Fed raised rates. These high volume strategies take advantage of a soft Fed that telegraphs every step and stretches out their policy moves over long periods of time. This leads to high volume strategies believing the Fed issued a put on rates and therefore excessive risks can be taken to profit in the short run. Mohamed A. El-Erian, bond market veteran and specialist wrote today that the Fed should continue to raise rates “and that policy makers should take seriously the growing risk of future financial instability, especially in the absence of a carful normalization”. Other Fed officials, including the Fed’s vice chairman, William Dudley has also been sounding the alarms of a bond market out of control and resulting future financial instability. The bond market has turned into a game of no limit poker played by the biggest balance sheets and finally the alarm bells are getting rung. When the Fed tightens, rates usually rise as markets prepare and adjust for the tightening cycle and resulting risks. Real rates can adjust to over 300 bps. Real rates today are close to 0%. Unlevered bond market losses can hit a staggering 50% if rates normalize. When rates are more normalized and the Fed raises rates, the yield curve usually flattens as short term rates converge with long term rates. However, this time, just like in 2008, conditions have been so easy, traders use high volume strategies to squeeze market participants hedging or holding off on future purchases and make yields actually rally lower. This leads to significant future financial instability with substantial volatility and potential impacts in the real economy. The Fed wants to avoid the same mistakes but at the same time does not want to be held responsible if history repeats with a financial crisis. They will try to talk rates to normalization and Fed officials are currently trying to do so. But with each speech, market starts to move in the direction of normalization only to be met with high volumes pushing market to even lower yields. The Fed has to get real and stop this habitually bad behavior. They need to increase volatility in the bond market and let the volatility regulate bad behavior. The Fed is too transparent and traders are using a lower volume period – summer months – and lack of economic releases to push markets around like poker players do. These traders are using the Fed’s proven misguided monetary policy (which is a repeat of 2006-2007 and we know how that ended up) as a perceived put option on rates and exercising it with a high volume long biased trading strategy. Janet Yellen speech today should acknowledges how broken the bond market is and disconnected from their policy path or any semblance of normalization. She, too, will try to talk a good game. However, the market is so embedded with large traders with gargantuan balance sheets too large to reposition for higher rates without hurting their positions, the manipulation of rates will continue. To avoid a significant self-made financial crisis, Yellen needs to walk the walk as well. Yes, a 50 bp hike will stop this behavior. Also, bringing forward sales from their balance sheet, or let the balance sheet run off faster would end the manipulative behavior in the bond market that monetary policy has incubated. This would also be a savvy way to take advantage of these lower rates instead of getting front-run by these markets. The sooner the bond market starts to truly normalize, the less severe the market impact will be from the overvalued global bond market normalization process. So to avoid the same policy mistakes of the last tightening cycle and creating a financial and economic crisis, Yellen should be a little less predictable, knock out that perceived put option on higher rates and let increased volatility regulate the markets keeping positions smaller and extreme risk taking at bay. Today’s speech will be a step in the right direction. by Michael Carino, 6/27/17 Michael Carino is the CEO of Greenwich Endeavors, a financial service firm, and has been a fund manager and owner for more than 20 years. He has positions that benefit from a normalized bond market and higher yields. Do you?
На минувшей неделе рубль в соответствии с нашими ожиданиями отступил по отношению и к доллару, и к евро. Давление на российскую валюту оказало отступление цен на нефть, которое продолжается уже несколько недель кряду. У инвестиционного сообщества возрастают опасения по поводу роста объемов добычи в США и ряде других стран, и хотя новость о надлежащем соблюдении соглашения о снижении объемов добычи в мае позволила котировкам "черного золота" во второй половине недели отжаться, это помогло рублю нивелировать лишь часть потерь. Тем временем, поддержку доллару оказывали комментарии отдельных представителей Федрезерва. В частности, президент ФРБ Нью-Йорка Уильям Дадли заявил, что рост зарплат в стране поможет оживлению инфляции, и это позволит центральному банку продолжать повышение ставок. Руководитель ФРБ Кливленда Лоретта Местер со своей стороны заявила, что американская э
Москва, 27 июня - "Вести.Экономика". Когда дело касается инфляции, то Федеральный резерв иногда напоминает ребенка, который только что посмотрел не подходящий для его возраста фильм ужасов: быстрорастущие цены члены регулятора, похоже, видят в каждой тени и за каждым углом.
Когда дело касается инфляции, то Федеральный резерв иногда напоминает ребенка, который только что посмотрел не подходящий для его возраста фильм ужасов: быстрорастущие цены члены регулятора, похоже, видят в каждой тени и за каждым углом.
Когда дело касается инфляции, то Федеральный резерв иногда напоминает ребенка, который только что посмотрел не подходящий для его возраста фильм ужасов. Быстро растущие цены члены регулятора, похоже, видят в каждой тени и за каждым углом.
Президент Федерального резервного банка Нью-Йорка Уильям Дадли в воскресенье заявил, что центральному банку США, вероятно, придется повышать процентные ставки более стремительными темпами, если финансовые условия не будут ужесточаться в достаточной степени в ответ на действия Федеральной резервной системы, передает Dow Jones.
Москва, 26 июня - "Вести.Экономика". Недавнее сужение кредитных спредов, рекордные цены на акции и падение доходности облигаций могут побудить Федеральный резерв продолжать ужесточать политику в США, сказал один из самых влиятельных чиновников ФРС в опубликованных в понедельник комментариях.
Перед открытием рынка фьючерс S&P находится на уровне 2,441.25 (+0.26%), фьючерс NASDAQ повысился на 0.47% до уровня 5,839.75. Внешний фон позитивный. Основные фондовые индексы Азии завершили сессию в плюсе. Основные фондовые индексы Европы на текущий момент демонстрируют позитивную динамику. Nikkei 20,153.35 +20.68 +0.10% Hang Seng 25,871.89 +201.84 +0.79% Shanghai 3,186.05 +28.17 +0.89% S&P/ASX 5,720.16 +4.29 +0.08% FTSE 7,471.97 +47.84 +0.64% CAC 5,318.50 +52.38 +0.99% DAX 12,818.73 +85.32 +0.67% Августовские нефтяные фьючерсы Nymex WTI в данный момент котируются по $43.12 за баррель (+0.26%) Золото торгуется по $1,239.70 за унцию (-1.33%) Фьючерсы на основные фондовые индексы США на премаркете умеренно повышаются на фоне роста нефтяных котировок и слабых данных по заказам на товары длительного пользования за май. Как показал отчет Министерства торговли, новые заказы на основные капитальные товары произведенные в США неожиданно упали в мае, тогда как поставки также снизились, что говорит о потере импульса в обрабатывающем секторе на полпути во втором квартале. Согласно данным отчета, заказы на необоронные капитальные товары, за исключением самолетов, внимательно отслеживаемого датчика для планов деловых расходов, снизились на 0.2%. Эти так называемые основные заказы на капитальные товары были пересмотрены, и показали увеличение на 0.2% за апрель. Ранее сообщалось, что они выросли на 0.1%. В то же время, поставки капитальных товаров, используемые для расчета расходов на оборудование в государственном измерении ВВП, снизились на 0.2% в прошлом месяце после роста на 0.1% в апреле. Экономисты прогнозировали, что основные заказы на капитальные товары в мае вырастут на 0.3%. Общие заказы на товары длительного пользования, товары от тостеров до самолетов, которые рассчитаны на срок службы три года или дольше, упали на 1.1% после снижения на 0.9% в апреле. Цены на нефть отскочили от семимесячных минимумов на прошлой неделе. Однако их дальнейший рост продолжают сдерживать данные, свидетельствующие о неуклонном ростом поставок в США и существенных глобальных запасах. Недавнее падение нефтяных котировок также вызвало обеспокоенность по поводу низкой инфляции в США, которая упорно остается ниже целевого показателя ФРС в 2%. Напомним, ФРС повысил ставки в этом месяце во второй раз в этом году и, как ожидается, снова поднимет их. Фьючерсы оценивают шансы повышение ставок к декабрю близко 50%. Глава ФРС Джанет Йеллен выступит в Лондоне во вторник, и инвесторы будут искать в ее словах подсказки относительно перспектив дальнейшего ужесточения политики центробанка, после того, как в последние дни другие представители ФРС высказали неоднозначные мнения. В понедельник президент ФРБ Сан-Франциско Джон Уильямс заявил, что регулятору необходимо постепенно повышать ставки, или экономика рискует перегреться. Глава ФРБ Нью-Йорка Уильям Дадли отметил, что недавнее сужение кредитных спрэдов, рекордные цены акций и падение доходности облигаций могут побудить ФРС продолжать ужесточать политику США. Важных сообщений корпоративного характера, способных оказать влияние на динамику широкого рынка, на премаркете отмечено не было.Источник: FxTeam
It's set to be a busy week with a a jam-packed agenda for central bank watchers, with speeches due from Janet Yellen, Mario Draghi, Mark Carney, Haruhiko Kuroda and more. Economic data may also drive momentum in financial markets, with closely watched reports due on inflation, employment, manufacturing and housing from China to the U.S. We also have GDP, durable goods and consumer confidence in US, industrial production in Japan and confidence indexes in EA Key highlights: In the US, it will be a busy week with durable & capital goods orders, pending home sales, core PCE inflation, personal income & spending and multiple Fed speakers on the agenda. In the Eurozone, key releases include money supply M3, CPI and confidence data. There will also be a central banking forum with ECB, BoJ, BoE and BoC speakers in the schedule. In UK, we wait for final GDP, credit & lending data, house prices and money supply M4. In Japan, main releases include retail sales, CPI and industrial production. In Canada, beyond GDP, we will hear from BoC speakers. In China, we will have current account balance and PMIs. The focus is on inflation releases in US (PCE), EZ and Japan. The attention on these releases should remain high given recent market action: declining oil and inflation was cited as one of the main reasons that supported the recent downward move in long-end rates. A breakdown of key events just in the US: A summary of all the key DM events in the coming week is below: In the US, Bank of America is looking for a flat reading for core PCE inflation, causing % yoy inflation to decline to 1.4% (1.411% unrounded) from 1.5% in April. In the Eurozone, the bank expects inflation to drop to 1.2% (1.15%) marking its inflation forecasts to market following the drop in oil prices: it now expects inflation at 1.5% in 2017 and 1.0% in 2018. In Japan, BofA forecast Nationwide inflation at 0.5% y/y in May. However, we think the June Tokyo CPI is key: we expect a +0.3% rise in June. * * * DB's Jim Reid breaks down the week's events on a day by day basis. This morning in Europe we’re kicking off in Germany where the June IFO survey is due out. In the US the most significant release is the May durable and capital goods orders reports, while the Dallas Fed manufacturing survey will also be released later this afternoon. Tuesday kicks off in China with industrial profits data. In the UK we’ll then get the CBI retailing sales data before we then get the conference board consumer confidence, Richmond Fed manufacturing index and S&P/Case-Shiller house prices readings in the US. Turning to Wednesday, the early data in Europe includes France consumer confidence and Euro area M3 money supply. Over in the US on Wednesday we are due to get the advance goods trade balance for May, wholesale inventories for May and pending home sales for May. Thursday kicks off early in Japan with the latest retail trade report. In Europe we’ll then get consumer confidence in Germany, UK money and credit aggregates and confidence indicators for the Euro area. The afternoon will then see Germany release its flash June CPI print while in the US we’ll receive the third and final Q1 GDP report revisions and initial jobless claims data. We end the week on Friday with Japan employment data and CPI along with the China PMIs for June. It’s a busy end to the week in Europe too on Friday with CPI in France, unemployment in Germany, Q1 GDP in the UK (final revision) and a first look at Euro area CPI in June. A busy day concludes in the US with personal income and spending in May, core and deflator PCE readings, Chicago PMI and the final University of Michigan consumer sentiment reading for June. Away from the data the Fedspeak this week consists of Fed Chair Yellen tomorrow evening along with Williams, Harker and Kashkari also at various stages tomorrow, and Williams again on Wednesday and Bullard on Thursday. China Premier Li Keqiang speaks early tomorrow morning. Meanwhile the ECB forum which kicks off today will see Carney, Draghi and Kuroda all speak on Wednesday. Other things to note this week is the UK PM May’s speech this afternoon, US Supreme Court decision on Trump’s travel ban today, BoE stability report on Tuesday, the result of the second part of the Fed’s bank stress tests on Wednesday and UK House of Commons vote on Thursday. * * * Finally, courtesy of RanSquawk, here is a preview of the main events in the US, where the key economic releases this week are the durable goods report on Monday, the Q1 GDP revision on Thursday, and the personal income and spending report on Friday. In addition, there are several scheduled speaking engagements by Fed officials this week, including a speech by Fed Chair Yellen on Tuesday. MON 26 JUN 2017 – 1330BST: US DURABLE GOODS ORDER (MAY, PRELIM) Forecast: -0.7% vs prev. -0.8%; ex-transport seen 0.3% vs prev. -0.5%. The headline weakness is likely to come on the back of softer orders from Boeing, which reported 13 orders in May, down from the 15 in April (note: this reading captures the pre-Paris air show data). Excluding transport, the picture should be more stable, and there is some risk of prior revisions upwards, Credit Agricole says: “Durable goods production excluding vehicles was reported to have decreased 0.6%, but we think that April’s unexpected decline was overdone and should put upward pressure on orders this month.” TUE 27 JUN 2017 – 1500BST: US CONSUMER CONFIDENCE (JUN) Forecast: 116 vs prev. 117.9. Lower confidence is likely to be driven by declines in the expectations index, which are forecast to fall by around 2 points to 100.6, analysts believe. “The usual drivers of confidence have all remained supportive in recent weeks,” says Capital Economics, “labour market conditions are still strong, gasoline prices have been trending lower and the stock market is at a record high.” But the consultancy wants that “the timelier Gallup and University of Michigan measures of confidence have both dropped back recently. And based on the past relationship, the Conference Board index also looks set for a fall.” THU 29 JUN 2017 – 1330BST: US GDP (Q1, 3RD RELEASE) Forecast: 1.2% Q/Q annualised, unchanged vs 2nd release; consumption expected to be revised up to 0.9% from 0.6%; price index seen unchanged vs 2nd release at 2.2%. No major changes are expected to the headline, though the composition of growth will be in focus, particularly the price index. FRI 30 JUN 2017 – 1330BST: US PCE, PERSONAL INCOME, PERSONAL SPENDING (MAY) Forecast: personal income 0.3% M/M vs prev 0.4%; spending 0.1% M/M vs prev. 0.4%. Core PCE 1.4% Y/Y vs prev. 1.5%. The Fed recently downgraded its view of PCE inflation in 2017 to 1.6%m and the core measure to 1.7%. The May data is likely to highlight the challenges the Fed faces as it normalises policy, with the PCE data once again moving away from target. Meanwhile, May’s employment report saw wages grow by 0.2% M/M, and “this should feed through to broad personal income growth of 0.3%,” ERBS says. “Spending growth is poised to come in lighter than income on the back of relatively soft retail sales on the month,” and the bank notes “that the retail number came with substantial back-month revisions, and accordingly, even with a flat read for May, real personal consumption is poised to clock in 3%+ for the quarter overall.” FRI 30 JUN 2017 – 1330BST: CANADA GDP (APR) Forecast: exp. 0.20% M/M vs prev. 0.50%. Following a strong March print, where utilities and manufacturing supported output, though utilities output is likely to come in flat in April, RBC’s analysts say. The bank also expects a 5% M/M drop in non-conventional oil extraction after fire-related shutdowns which may impact the headline. Meanwhile, RBC says solid retail and wholesale sales data should be supportive. “Taking a step back, the BoC’s hawkish shift is supported by an average of 3.5% annualized growth the last three quarters, with a strong April outcome incrementally adding to this trend,” RBS says. FRI 30 JUN 2017 – 1500BST: US: UNIVERSITY OF MICHIGAN (JUN, FINAL) The Prelim release came in at 94.5, down from 97.1, missing expectations, and printing the softest reading since October 2016, with weakness evenly spread between the current conditions and future expectations index. “All optimism generated by Trump’s Presidential victory has been reversed now, which presumably relates to the lack of action on fiscal stimulus, tax reform and healthcare changes,” said analysts at ING. “There was also a steep fall in business expectations for next year (again back to Trump election levels) and also business conditions over the last few months.” ING adds that weak wage growth was likely to have exacerbated the situation. “Nonetheless,” the bank says “most other spending related questions saw similar responses seen in recent months (be it buying a house, car or other items).” It is worth noting that the prelim data showed 1-year inflation expectations unchanged at 2.6%, but 5-year expectations rose by 0.2ppts to 2.6%. * * * Weekly G-10 central bank monitor The abundance of Fedspeak last week did little to persuade the market to shift towards the FOMC’s hiking trajectory – which has pencilled in seven additional 25bps hikes through the end of 2019; Fed Funds Futures, on the other hand, see just two more hikes over that horizon. An acceptance of the need to be patient was generally evident in the tone of the 2017 voters who spoke about monetary policy last week: while NY Fed’s William Dudley suggested that halting the tightening cycle might imperil the economy, Chicago Fed’s Charles Evans thought it prudent to ‘wait and see’, a sentiment echoed by the Dallas Fed’s Robert Kaplan as well as the usually hawkish Philadelphia Fed President Patrick Harker. Evans and Kaplan’s concerns stem from inflation (specifically, the apparent lack of it). Kaplan was sanguine, and believes that inflationary pressures will pick-up as labour market slack is eroded – which was also Dudley’s core argument. Evans, however, was more scathing, arguing that low inflation was a serious policy mess, and he expressed nervousness about the recent soft inflation data and the challenges about bringing up towards the Fed’s 2% target. “There is a growing rift among Fed policymakers,” write analysts at Jefferies. The bank notes that following the June FOMC rate decision “there have been public grumblings from a growing number of Fed officials who are becoming uncomfortable with the behaviour of the recent inflation data,” adding “predictably, policymakers with dovish inclinations have been outspoken. Yellen is finding herself in a new role as a hawk.” May’s PCE data, released this coming Friday, will be key for influencing the debate. The core measure is seen ticking down by 0.1ppt to 1.4%, and crucially, away from the FOMC end-2017 forecast of 1.7%. Morgan Stanley’s analysts point out that since the beginning of the year, US inflation expectations have fallen by the most in the G10 economies, with 10-year breakeven rates down by around 40bps, which subsequently pushed the 2s10s spread to the narrowest since end of 2007. And this curve-flattening – also evident in other curve spreads – has not gone unnoticed by Fed officials. Kaplan suggested that the Fed be cautious about hiking rates further with 10-year yields around these levels, arguing that it was indicative of the market’s sluggish view on future growth. Dudley was having none of it, however, attributing it to low overseas inflation, once again, highlighting the divergence of opinion among 2017 voters. Balance sheet normalisation, however, is one area where the Fed seems more unified in their endeavours to kick-start the process in 2017. The St Louis Fed President James Bullard said the Fed could announce the start in September, and even identified the ‘low $2 trillion’ level as an appropriate for the long-term size of the balance sheet (from the current $4.5 trillion mark, and for reference, versus around $900 million in Q3 2008). But once again, the link to inflation may prove the guiding factor: Kaplan said balance sheet reduction may have a ‘muting’ effect on inflation, and he was uncertain as to exactly how much. Expect more commentary around this theme in the weeks ahead. Source: Bofa, DB, Goldman and RanSquawk
Недавнее сужение кредитных спредов, рекордные цены на акции и падение доходности облигаций могут побудить Федеральный резерв продолжать ужесточать политику в США, сказал один из самых влиятельных чиновников ФРС в опубликованных в понедельник комментариях.
Недавнее сужение кредитных спрэдов, рекордные цены на акции и падение доходности облигаций могут побудить Федеральный резерв продолжать ужесточать политику в США, сказал один из самых влиятельных чиновников ФРС в опубликованных в понедельник комментариях.
Authored by MN Gordon via EconomicPrism.com, Dear Mr. Dudley, Your recent remarks in the wake of last week’s FOMC statement were notably unhelpful. In particular, your excuses for further rate hikes to prevent crashing unemployment and rising inflation stunk of rotten eggs. Crashing Unemployment Quite frankly, crashing unemployment is a construct that’s new to popular economic discourse, and a suspect one at that. Years ago, prior to the nirvana of globalization, the potential for wage inflation stemming from full employment was the going concern. Now that the official unemployment rate’s just 4.3 percent, and wages are still down in the dumps, it appears the Fed has fabricated a new bugaboo to rally around. What to make of it? For starters, the Fed’s unconventional monetary policy has successfully pushed the financial order completely out of the economy’s orbit. The once impossible is now commonplace. For example, the absurdity of negative interest rates was unfathomable until very recently. But that was before years of central bank asset purchases made this a reality. Perhaps, the imminent danger of crashing unemployment will give way to the impossibility of negative unemployment. Crazy things can happen, you know, especially considering the design limitations of the Bureau of Labor Statistics’ birth-death model. Secondly, muddying up the Fed’s message with inane nonsense like crashing unemployment severely diminishes the Fed’s goal of providing transparent communication. In short, Fed communication has regressed from backassward to assbackward. During the halcyon days of Alan Greenspan’s Goldilocks economy, for instance, the Fed regularly used jawboning as a tactic to manage inflation expectations. Through smiling teeth Greenspan would talk out of the side of his neck. He’d jawbone down inflation expectations while cutting rates. Certainly, a lot has changed over the years. So, too, the Fed seems to have reversed its jawboning tactic. By all accounts, including your Monday remarks, the Fed is now jawboning up inflation expectations while raising rates. Congratulations and Thank You! History will prove this policy tactic to be a complete fiasco. But at least the Fed is consistent in one respect. The Fed has a consistent record of getting everything dead wrong. If you recall, on January 10, 2008, a full month after the onset of the Great Recession, Fed Chair Ben Bernanke stated that “The Federal Reserve is not currently forecasting a recession.” Granted, a recession is generally identified by two successive quarters of declining GDP; so, you don’t technically know you’re in a recession until after it is underway. But, come on, what good is a forecast if it can’t discern a recession when you’re in the midst of one? Bernanke’s quote ranks up there in sheer idiocy with Irving Fisher’s public declaration in October 1929, on the eve of the 1929 stock market crash and onset of the Great Depression, that “Stock prices have reached what looks like a permanently high plateau.” By the month’s end the stock market had crashed and crashed again, never to return to its prior highs in Fisher’s lifetime. To be fair, Fisher wasn’t a Fed man. However, he was a dyed-in-the-wool central planner cut from the same cloth. Moreover, it is bloopers like these from the supposed experts like Bernanke and Fisher that make life so amiably pleasurable. Do you agree? Hence, Mr. Dudley, words of congratulations are in order! Because on Monday you added what’ll most definitely be a sidesplitting quote to the annals of economic banter: “I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go. This is actually a pretty good place to be.” – William Dudley, June 19, 2017 Thank you, sir, for your shrewd insights. They’ll offer up countless laughs through the many dreary years ahead. Too Little, Too Late When it comes down to it, your excuses for raising rates are not about some unfounded fear of a crashing unemployment rate. Nor are they about controlling price inflation. These are mere cover for past mistakes. The esteemed James Rickards, in an article titled The Fed’s Road Ahead, recently boiled present Fed policy down to its very core: “Now we’re at a very delicate point, because the Fed missed the opportunity to raise rates five years ago. They’re trying to play catch-up, and yesterday’s [June 14] was the third rate hike in six months. “Economic research shows that in a recession, they [the Fed] have to cut interest rates 300 basis points or more, or 3 percent, to lift the economy out of recession. I’m not saying we are in a recession now, although we’re probably close. “But if a recession arrives a few months or even a year from now, how is the Fed going to cut rates 3 percent if they’re only at 1.25 percent? “The answer is, they can’t. “So the Fed’s desperately trying to raise interest rates up to 300 basis points, or 3 percent, before the next recession, so they have room to start cutting again. In other words, they are raising rates so they can cut them.” Unfortunately, Mr. Dudley, the Fed miscalculated. Efforts to now raise rates will be too little, too late. To be clear, there ain’t a snowball’s chance in hell the Fed will get the federal funds rate up to 3 percent before the next recession. You likely won’t even get it up to 2 percent. Nonetheless, you should stay the course. If you’re gonna raise rates, then raise rates. Don’t cut them. Raise them. Then raise them some more. Crash stocks. Crash bonds. Crash real estate. Crush asset prices. Purge the debt and speculative excesses from financial markets. Let marginal businesses go broke. Let too big to fail banks, fail. You can even consult with Dick “The Gorilla” Fuld, if needed. Then let nature do its work. In essence, bring the paper money experiment to a close and shutter the doors of the Federal Reserve. No doubt, the economy and millions of people will suffer a painful multi-decade restructuring. But what choice is there, really? Let’s face it. The Fed can’t hold the financial order together much longer anyway. Why pretend you can with utter nonsense like crashing unemployment? It’s insulting. Your credibility’s shot. Better to get on with it now, before it’s forced upon you. P.S. What’s up with Neel Kashkari? The man has gone rogue.
Authored by Kevin Muir via The Macro Tourist blog, Think back to September of 2010. At the time, most pundits were bearish US equities. There was a ton of doubt about the efficacy of quantitative easing. Many investors were chasing gold, believing the Fed was pushing on a string and another 2008 style collapse was imminent. Yet one hedge fund manager was brave enough to get on TV, and take the other side. I still remember watching David Tepper make the convincing case that stocks were a screaming buy. “Either the economy is going to get better by itself in the next three months…What assets are going to do well? Stocks are going to do well, bonds won’t do so well, gold won’t do as well. Or the economy is not going to pick up in the next three months and the Fed is going to come in with QE. Then what’s going to do well? Everything, in the near term though not bonds… So let’s see what I got—I got two different situations: One, the economy gets better by itself, stocks are better, bonds are worse, gold is probably worse. The other situation is the fed comes in with money.” The Tepper bottom was formed, and if David was not already in the hedge fund hall of fame, this gutsy call immortalized his spot. The trade was genius because Tepper realized the Fed would ensure a positive outcome for equities regardless of which path the economy took. Fast forward to today. Instead of the Fed bankrolling you with promises of QE, they are tightening monetary policy, and making plans to wind down their balance sheet. And it has not gone unnoticed. Over the past week, plenty of smart guys have warned that the Fed no longer has your back. Whether it is Epsilon Theory’s Ben Hunt or former PIMCO head Mohamed El-Erian, the idea that liquidity is being withdrawn from the financial system, and therefore switching to an underweight risk position is starting to gain traction. Although many of these strategists are preaching caution, at least they have the humility to understand that calling tops is a difficult endeavor. On the other hand, I find it amusing how the recent rise has emboldened a new breed of bulls that know for sure that stocks will continue rising. Or equally funny are those who are 100% convinced we are about to crash. I don’t have a clue how they can be so confident of anything in this environment. We have two of the largest Central Banks in the world (ECB & BoJ) desperately shoveling money into the financial system, with the largest (the Federal Reserve), valiantly trying to mop it up with tighter monetary policies. I understand both sides of the argument, but I am not nearly smart enough to know for sure which way we are headed. If someone tells you they know for certain, you should probably ignore them. The truth of the matter is that this is uncharted territory and how the global financial system will react to these different forces is unknown. But as I sat thinking about the situation, it occurred to me that we might be in the midst of an anti-Tepper moment. The Federal Reserve is concerned about the excessively easy financial conditions. They have already overseen two large bubbles over the past couple of decades, and they don’t want another on their resume. This explains why even in the absence of inflation, they continue to tighten monetary policy. They have adopted a third mandate - financial conditions. What do I mean about an anti-Tepper moment? When Tepper called the bottom, he did so because he believed stocks would rise because either; the economy would improve, or the Fed would come in with QE. Either way would be positive for stocks. In the current environment, we have the opposite situation. Either the economy rolls over (which should be bad for stocks), or it bounces, at which point the Federal Reserve continues on its tightening path (which could also be bad for stocks). The market is surprised at how the Federal Reserve has not wavered in the face of the recent poor inflation releases. Many market participants believe the Fed will take their foot off the brake. Well, to remove any doubt, a couple of days ago, the Fed’s third most influential member, NY President Bill Dudley made it clear that the Fed’s message from the FOMC meeting would not change. From Bloomberg: Federal Reserve Bank of New York President William Dudley aligned himself with Chair Janet Yellen in declaring his expectation that a tight labor market will eventually trigger a rebound in inflation data that has been unexpectedly weak in recent months. “We’re pretty close to what we think is full employment,” Dudley said Monday in Plattsburgh, New York. “Inflation is a little bit lower than what we would like, but we think if the labor market continues to tighten, wages will gradually pick up, and with that, we’ll see inflation get back to 2 percent.” Yields on U.S. Treasuries rose and the dollar advanced after Dudley’s comments. Fed officials last week raised their benchmark interest rate for the third time in six months and pushed ahead on plans to begin reducing the central bank’s $4.5 trillion balance sheet later this year – a move that may also tighten policy, in the face of growing concerns over stalled inflation. In remarks that Dudley largely echoed, Yellen said at the time she expected the U.S. economy would continue to expand at a moderate pace for “the next few years.” Dudley, viewed as an influential voice on the rate-setting Federal Open Market Committee, also sounded a positive note on the U.S. economy overall, while saying the central bank wanted to tighten monetary policy “very judiciously” to avoid derailing the expansion that began in mid-2009. In a Bloomberg survey of economists earlier this month, respondents put a 60 percent probability, based on the median estimate, on the expansion running through at least July 2019 and thereby reaching 121 months, topping the 10 years of gains during the 1990s. “I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go,” Dudley said Monday. “This is actually a pretty good place to be.” The Fed’s preferred measure of inflation, after stripping out food and energy components, slowed to 1.5 percent in the 12 months through April, well short of the central bank’s 2 percent target. That has puzzled economists because it comes as unemployment has consistently declined and stood at a 16-year low of 4.3 percent in May. “If we were not to withdraw accommodation, the risk would be that the economy would crash to a very, very low unemployment rate, and generate inflation,” Dudley said.“Then the risk would be that we would have to slam on the brakes and the next stop would be a recession.” The Federal Reserve is not concerned about their inability to meet their inflation mandate over the short run. Instead, they are focused on the possibility of the Phillips Curve causing a spike in inflation they can’t control, but even more importantly, they are petrified about easy financial conditions causing another bubble. As long as employment does not collapse, then regardless of short run inflation readings, the Federal Reserve will continue to tighten 25 basis points every other meeting. I realize this is not a consensus call. In fact, the market has already abandoned this trajectory. Not only that, but the Federal Reserve will implement their plan to gradually wind down their balance sheet at the first available opportunity. They have prepared the market, and there is no sense waiting. Yet the bond market does not agree. The market is looking at recent economic performance and pricing out this possibility. And no wonder. Look at the CitiBank economic surprise index which measures the deviation from consensus for economic releases. The US economy has rolled over hard. And in doing so, the bond market has eased off their expectations of the Federal Reserve tightening The market had previously been pricing in almost a 60% chance of a December Fed Funds hike, but with the recent economic weakness, that has fallen to less than 30%. The bond market is calling the Fed’s bluff. They are in essence saying, “we don’t think you will tighten in the face of a slowing economy.” And here is where I think the market’s miscalculation lies. I agree that in the past the Federal Reserve did in fact blink and failed to tighen. Yet the difference was that during those periods, the economy was rolling over, but financial conditions were worsening at the same time. The stock market was selling off and credit spreads blowing out. That is the exact opposite of today! The way I see it, going forward either one of these two things will happen. The stock market will realize the economy is weak, and risk assets will sell off. Or, the economy will bounce, and the Fed will shock the market by continuing to tighten. All the Fed would need to do is follow through on their guidance and the front end of the bond market would get destroyed. They wouldn’t even need to get more hawkish. Simply not blinking will cause a tremendous amount of pain. Don’t mistake my forecast on a belief the Federal Reserve is suddenly becoming responsible. I fully expect them to ease once financial conditions back up. There is simply too much debt, and there would be too much pain associated with a more traditional level of interest rates. Yet over the short run, the Fed will keep raising until they cause the tightening of financial conditions. I respect the fact that the Federal Reserve does not control the private creation of money. There is a chance the Fed might not be able control a melt up, and that they will find themselves behind the curve. After all, that scenario is what I have been predicting for some time now. That is why I am buying at-the-money puts instead of just shorting outright. I am taking advantage of the fact that vol is so cheap. But where I differ from some of my more bearish brethren, is that I am going to short out of the money puts against my long put position. If we get a decline of 10%, I will no longer be bearish. At that point, the Fed will once again be taking their foot off the brake, and eventually even pushing down on the accelerator. So I will forsake the payoff from a big crash, and play for the smaller correction only. On the other side of the ledger, I am buying bond puts. Although everyone is bearish on the economy, I look at the chart of the Citibank Economic Surprise Index that is being passed around and wonder, who doesn’t realize the economy has underperformed? If I had to guess, I would err on forecasting that this index surprises to the upside in the coming months, not the other way round. The flattening of the yield curve makes this part of the trade tricky, and I am still deciding the best way to play it. But I think you should be short fixed income, not long. And once again, the dirt cheap vol makes buying options a much better play than outright shorts. Seven years ago when Tepper made his bold call, the Fed was trying their best to get stocks higher. At that point, no one believed, and it took guts to ride along in the Fed’s wagon. Today, the Fed is trying to keep financial conditions from becoming too easy, and once again no one believes. As Marty Zweig famously said, “don’t fight the Fed.” Sometimes it’s that simple.
Authored by 720Global's Michael Lebowitz via RealInvestmentAdvice.com, “Are you kidding? Are you kidding? No one knows what you’re doing.” – Economist John Taylor in response to William Dudley’s (President Federal Reserve Bank of New York, Vice Chairman of the Federal Open Market Committee) comment that the Federal Reserve (Fed) has been very clear in their discussions about monetary policy. For the last few years the Fed has repeatedly emphasized that they want to be as open and transparent about monetary policy actions as possible. Amid those reassurances, amateur and professional Fed watchers continue to be flummoxed by the vagaries of language used in speeches, lack of adherence to implied actions and outright contradictions between their words and deeds. As evidenced by the opening quote, one wonders whether they are being intentionally delusory or whether their hubris makes them genuinely oblivious to their own obfuscations. Confusion In 2012, the Fed published a Statement on Longer-Run Goals and Monetary Policy Strategy (LINK). That statement has been updated each January since. The opening sentence of that statement contains an interesting modification to its “dual” mandate: “The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates.” While maximizing employment and engineering stable prices are the official congressionally mandated objectives, the term “moderate long-term interest rates” has never been a part of the congressional mandate. Needless to say, this is confusing and erroneous. Ironically, with regard to its intent to explain monetary policy decisions as clearly as possible, the statement continues: “Such clarity facilitates well-informed decision-making by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.” So following the erroneous statement in the opening regarding their mandate, they then provide a lecture on the importance of Fed clarity to our democratic society. Furthermore, the document is mislabeled as it contains nothing on monetary strategy. The statement only discusses goals presented in an obtuse fashion based on their congressional mandate which they confounded in the first sentence. As for monetary policy strategy (and to emphasize the point) the document conveys nothing coherent about the reaction function of the policy-setting body under scenarios where deviations from the goals emerge. The members of the Fed have gone to great lengths in countless speeches, congressional testimonies and press conferences to portray a decision-making body that is disciplined and rigorous. Further, they incessantly attempt to set the record straight about their positive contribution to prior periods of economic and financial instability. In their view, they have never been complicit in creating economic malaise and always play the role of the good physician coming to the aid of the country in troubling economic periods. As demonstrated via the confusion mentioned above, their perspective is inconsistent and deceptive. To offer an illustration of such inconsistencies: At the end of 1997, the 6-month average rate of inflation as measured by the Core PCE deflator (the Fed’s preferred inflation measure) was 1.43%, the average unemployment rate was 5.2% and the average Fed Funds rate was 5.50%. At the end of 2003, the 6-month average rate of inflation (Core PCE) was 1.87%, the average unemployment rate was 5.98% and the average Fed Funds rate was 1.0%. While there are a variety of other considerations for the economy when analyzing the two periods, data related to the two mandated objectives of the Fed were similar and trending in the “right” direction (inflation up, unemployment down). Despite those facts, the Fed Funds interest rate differential between the two periods, 4.50%, is enormous. Contrary to the insistence of the Fed, there is substantial evidence that the long period of low interest rate policy followed by well-telegraphed quarter-point interest rate hikes preceding the financial crisis of 2008 were major factors in generating the instabilities that almost bankrupted the financial sector. Now, consider conditions today. The average rate of inflation (Core PCE) for the last 6-months is 1.82%, the average unemployment rate is 4.50% and the Fed Funds rate was just increased to 1.00% following 7 years at essentially 0.00%. Taking into account the size of the Fed’s balance sheet ($4.4 trillion) due to quantitative easing, the level of Fed-provided accommodation remains extraordinary even when compared to the aggressively easy monetary policy of the early 2000’s. The argument for a more normal policy stance is stronger today than it was in either of the two prior instances, and yet the Fed’s stance is stubbornly and unjustifiably extreme. In fairness, no two time periods are the same and policy responses are never identical. However, if the intent of monetary policy actions are aimed at ensuring the health of the economy, then it is also plausible and logical that policy, improperly applied may produce sick and unstable conditions. Interestingly, that fact is freely acknowledged by current Fed members with regard to monetary policy of the 1970’s and the Great Depression era. Why then, are the increasingly aggressive and interventionist policies of the last 20 years not a concern or even considered a factor in causing the recent boom-bust cycles by those very same Fed members? Even more importantly, why does the market acquiesce and encourage what are certain to be revealed as major policy errors? The good news is that a lot of money can be made by investors who properly identify central banker mistakes. Summary Current Fed policy is grossly inconsistent with the actions they have taken in the past and the rules they themselves have discussed in post-crisis years. Evidence of that fact abounds. There is an acute lack of clarity about the strategy for policy normalization, specifics about what dictates their decision-making and how they will go about it. In the late 1970’s and early 1980’s, Paul Volcker was so clear about his policy objectives that he rarely needed to discuss them when he made public comments. Despite the difficulties associated with extracting the country from prior bad monetary policy, everyone knew his intent was to conquer run-away inflation and restore healthy economic growth. Given the data comparison above and their mandate, there are sound reasons for the Fed to be much more aggressive in raising the Fed Funds rate and reducing the size of their balance sheet. The truth is they are concerned that such “hawkish” actions might greatly reduce the prices of many financial assets. Despite the short-term pain, acknowledging that current eye-watering valuations of many assets are predicated on Fed policy and not fundamentals would seem to be a prudent first step toward “normalization”. Watching the Fed Chairman evade direct answers on the topics of bubbles and policy normalization leaves no doubt that confusion, not clarity, will continue to be the Fed’s tool of choice.
It is largely acknowledged that after a decade of unprecedented monetary accommodation in the US and abroad, bond markets are extremely overvalued. Globally, central banks are trying to slowly deflate this bubble but the beast created is not easily broken. A decade of manipulating bond prices has created a small consortium of large balance sheet traders who trade the most liquid Treasury market in a high volume fashion, thus setting global rates much lower than historical norms. This manipulation reallocates billions in interest payments from badly needed investors such as pensions to a few hedge funds and banks. These practices end up costing the government much less in interest costs so these gargantuan bad practices continue (Over a trillion of US Treasuries trade daily in cash and futures markets and there are only 14 trillion Treasuries. Additionally, foreigners own half and the Fed owns 2.5 Trillion – clearly too high of volume compared to securities available). These questionable trading practices have rallied long term Treasuries over 50 basis points in just the past month – a substantial move. Even more spectacularly, this happened when the Fed raised the Fed Funds Rate 25 bps and said they expect 1.75% in further increases, set out their path to trillions in future bond sales to reduce their balance sheet and the government is planning on issuing ultra-long dated bonds. Yes, it’s clear to see that the Fed’s manipulative practices from the last decade has turned the bond market into something resembling the wild west. This will end tragically with systemic issues in the bond market. This has been the modus operandi of the Fed for the last 20 or so years. Over accommodate the economy with easy monetary police, create systemic issues and resolve with more accommodative policies. This time around, the blame will be placed squarely on monetary policy and the Fed knows it. To try to limit the calamity from the insanity in the bond market, the most dovish of Fed officials have been trying to limit these manipulative strategies and slowly steer rates out of the upper stratosphere and on a path to normalization. We continue to get economic data showing the economy is not only normal but poised to overheat with accelerating inflation. GDP of 3% and inflation of 2% does not justify depression era level of rates. Home prices just surged to a new record high! No. History shows rates should be at least 2% to 3% higher. Long term Treasuries could have market losses of 50% if rates normalized and you could still argue they are overpriced. When markets are this overpriced, the probability of a severe parabolic move to higher yields is elevated. The Fed knows this and wants to change this environment before the forgetful public gets scorched again. Recently, New York Federal Reserve President William Dudley, a dovish member of the FOMC, stated that he is confident that economic expansion has a way to run and strong labor markets will eventually trigger a rebound in inflation. Tragically, the media barely touched on these comments and longer dated bonds rallied on high volume. Short dated bond yields have not been moving lower. There are too many bonds available, they are priced right on top of current funding costs and this part of the interest rate curve is difficult to manipulate. Even more obvious of the Fed in unison trying to deflate the bond market bubble, uber-dovish Federal Reserve Bank of Boston President Eric Rosengren said that the era of low interest rates in the United States and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision making process. This is as high of an alarm that can be rung – and just rung by one of the most accommodative of FOMC members. Media – please report and make the public aware of these risks that now even the Fed feels compelled to highlight these issues. How can there be comments like this and the public still is invested in this investment class? What’s the excuse going to be this time around when there are significant losses in the bond market. I missed those Fed speeches? These Fed comments acknowledge there is a serious problem in the bond market and they are trying to encourage a more rational pricing function in rates – good luck. The only way to create normality in the bond market after such buildup of risks from the most accommodative monetary policy in the worlds history is a financial crisis that will put these manipulative trading strategies out of business. And that leads to different issues that can leach into slower economic growth. The Fed has to pick their poison. It appears they want this mispricing of bonds to come to an end. Unfortunately, it appears they are fine with a slow end to these practices. A slow end means risks will continue to build and the end will be that much more painful and destructive. We all know the longer you wait to take your medicine, the sicker and more painful the situation becomes. I just hope the patient isn’t left in critical condition from the Fed’s medicine again. by Michael Carino, 6/21/17 Michael Carino is the CEO of Greenwich Endeavors, a financial service firm, and has been a fund manager and owner for more than 20 years. He has positions that benefit from a normalized bond market and higher yields. Do you?
Подписывайтесь на канал: http://goo.gl/Rpsm62 Смотрите видео по Форекс: https://goo.gl/SNF0Ho Курс евро/доллар продолжил снижаться на торгах во вторник, достигнув нового месячного минимума на отметке 1.1119. Индекс цен производителей в Германии снизился на 0.2% в годовом исчислении. Инфляция остается основной проблемой, которая не позволяет ЕЦБ начать ужесточение кредитно-денежной политики вопреки положительным экономическим индикаторам Еврозоны. Судя по всему, европейский регулятор будет придерживаться мягкой политики и не приступит к снижению закупок активов еще достаточно долгое время. Ситуация в США полностью противоположна Еврозоне. Представители ФРС готовы следовать своим планам по ужесточению монетарной политики в этом году, несмотря на то, что восстановление экономики США явно отстает от прогнозов. Уильям Дадли поддержал котировки доллара, заявив, что дальнейшее повышение ставок необходимо для укрепления экономики. Дифференциал процентных ставок не может не сыграть решающую роль в определении дальнейшей динамики движения пары. Скорее всего, мы наблюдаем начало среднесрочного нисходящего тренда. В нашем прогнозе на сегодня предполагаем дальнейшее снижение курса евро/доллар к уровням поддержки 1.1100, 1.1080 и 1.1060.
В руководстве Федеральной резервной системы рассматривают возможность использования отрицательных процентных ставок, в случае если американская экономика вновь столкнется с серьезным кризисом.