Monetary Policy

Taken together with the rather steep drop in US industrial production, the risks of a full-blown and perhaps severe recession have undoubtedly grown. Unlike what the FOMC is trying to project via the federal funds rate, a rate that isn’t being fully complemented, either, at this point, visible economic risk is not just rising it is exploding.

The problem with all of this is that it’s now becoming apparent to everyone. The amount of mal-investment along with just how intertwined all the subsequent carry trades and more is becoming frightfully obvious and can no longer be hidden from view. The real problem now facing the Fed. which I believe they themselves did not fully comprehend was the extent in which all of this was: so blatantly obvious. Again: to anyone who truly wanted to look. Without the Fed’s interventionism – there is (and was) no market. And now with the raising of rates; no one will be able to miss or avoid that fact any longer. No matter how hard they try.

“If you’re pushing for lower management fees to save minimal basis points on a fund where you are unhappy with performance, as a fiduciary, you have to decide whether you want to keep that fund at all.”

“To the intelligent man or woman, life appears infinitely mysterious, but the stupid have an answer for everything.” ~Edward Abbey

Brazil has a new finance minister and the market is not happy. As BofAML puts it, "the focus turns now to the direction of the fiscal policy under the new FinMin, which should affect the recovery in confidence and thus growth. With mounting downside risks to growth that heavily weigh on the government’s revenues and the ongoing challenges in passing fiscal measures in Congress, tangible results over statements will now be needed to improve expectations over primary fiscal results ahead."

In the short term, increases in interest rates can be negative for gold. But, in the medium to long term rising interest rates are positive for gold as they were in the 1970s and the 2003 to 2006 period.

What happens the next time global GDP takes a nosedive when Central Banks have already used up all of their ammunition?

Moments ago, the House of Representatives just passed the $1.15 trillion spending bill that includes a $680 billion package of tax-break extensions, in a 316 to 113 vote, and will now move to the Senate, where its passage is likewise assured and will be signed by the president over the next few days. For those wondering what are the main components of the spending bill, here is a quick summary.

Yellen and her cohort have no clue, however, that all of their massive money printing never really left the canyons of Wall Street, but instead inflated the mother of all financial bubbles. So they are fixing to blow-up the joint for the third time this century. That was plain as day when our Keynesian school marm insisted that the Third Avenue credit fund failure this past week was a one-off event - a lone rotten apple in the barrel. Now that is the ultimate in cluelessness.

Following the latest BOJ statement, the market found itself wrongfooted assuming the BOJ was actually launching another episode of easing, sending the USDJPY soaring, until suddenly the realization swept the market that not only was the incremental action not really material, but even Kuroda spoke shortly after the announcement, confirming that "today's decision wasn't additional easing." The result was one of the biggest FX headfakes in recent days, perhaps on par with that from December 4 when EUR shorts were crushed, as the biggest carry pair first soared then tumbled and since the Yen correlation drives so many risk assets, also pulled down not only Japanese stocks but US equity futures.

Did algos finally figure out precisely what we said first thing this morning, namely that the market completely ignored what was a hawkish hike, and that as a result, what Yellen has done, now that the kneejerk reaction is over, is policy error, pure and simple?

It is widely assumed that the gold price must decline when the Federal Reserve is hiking interest rates. It seems logical enough: gold has no yield, so if competing investment assets such as bonds or savings deposits do offer a yield, gold will presumably be exchanged for those. There is only a slight problem with this idea. The simple assumption “Fed rate hikes equal a falling gold price” is not supported by even a shred of empirical evidence.

"Rising rates and falling profits are not a good combination for asset prices, so we will turn sellers of risk in early 2016."