Real Interest Rates

Bubble, Bubble, Toil, And Monetary Policy Trouble

In his recent note “Treacherous Market Conditions,” Scotiabank's Guy Haselmann attempted to outline the precarious position the FOMC has put itself in. The Fed’s depleted ammunition applies greater pressure on its attempts to ensure a strong recovery; yet, as Haselmann hinted, the Fed is in a race against time, because risks to financial stability aggregate with each passing day, while economic benefits approach zero. Despite differences as to the extent and degree of financial risks, FOMC members have (finally) become aware that they have arisen. Draghi seems to share concerns about bubble conditions... and now the BIS fears that a "persistently aggressive monetary policy risks exacerbating collateral damage."

GoldCore's picture

Gold surged 1.6% in euros to €928/oz after the historic ECB announcement to adopt negative interest rates. Cheap money, financial repression and currency debasement are classic recipes for short term financial and economic gains. Throughout history, they have been the easy options for emperors, kings, queens and governments. They are the easy option for the ECB and central banks today.

The Eight Characteristics Of Stock Market Manias

This time is different - check; Moral Hazard - check; Easy Money - check; Overblown growth stories - check; No valuation anchor - check; Conspicuous consumption - check; Ponzi finance - check... and, of course, Irrational exuberance: check!

Janet Yellen's First Monetary Policy Speech - Live Feed


Markets will be hanging on every word of what is likely Janet Yellen's first monetary policy speech and even more so the Q&A afterwards as she suggests that a considerable time is more than 6 months, and the delicate balance she has to play between admitting the economy is ugly while admitting that QE is over no matter what... all the while maintaining some semblance of credibility. One has to wonder if the ripfest rally of the last 24 hours is a buy the rumor ramp ahead of a sell the Yellen news event as once again she is tested...

GoldCore's picture

The EU agreement on a common rulebook for handling bank failures, including bail-ins, is in danger of unravelling over the fine print restricting when a state can intervene to rescue a struggling bank. It is important to realise that not just the EU, but also the UK, the U.S., Canada, Australia, New Zealand and most G20 nations have plans for depositor bail-ins ...

Guest Post: The Screaming Fundamentals For Owning Gold

The reasons to hold gold (and silver), and we mean physical bullion, are pretty straightforward. So let’s begin with the primary ones:

  1. To protect against monetary recklessness
  2. As insulation against fiscal foolishness
  3. As insurance against the possibility of a major calamity in the banking/financial system
  4. For the embedded 'option value' that will pay out handsomely if gold is re-monetized

The punch line is this: Gold (and silver) is not in bubble territory, and its largest gains remain yet to be realized; especially if current monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Bill Gross On Dead Cats And "Flattering" Bull Markets

Bill Gross lost "Bob" this week. The death of his cat sparked some longer-term reflection on the hubris of risk-takers, the mirage of magnificent performance, and the ongoing debate in bond markets - extend duration (increase interest rate risk) or reduce quality (increase credit risk). As the PIMCO boss explains, a Bull Market almost guarantees good looking Sharpe ratios and makes risk takers compared to their indices (or Treasury Bills) look good as well. The lesson to be learned from this longer-term history is that risk was rewarded even when volatility or sleepless nights were factored into the equation. But that was then, and now is now.


Futures Surprise Nobody With Now Mundane Overnight Levitation

Being that markets are unrigged and all, at least according to every single proponent of HFT that is, futures have done their overnight levitation as they have every day for the past month driven by the one staple - the Yen carry trade - even if in recent days the broader market slump during the actual daytrading session mostly impacted biotechs yesterday. And since any news is good news, we don't expect today's main event, the ECB's rate announcement and Draghi press conference, both of which are expected to announce nothing new despite Europe's outright inflationary collapse which most recently dropped to 0.5%, the lowest since 2009.

'Cash-On-The-Sidelines' Fallacies And Restoring The "Virtuous Cycle" Of Economic Growth

As we explained in great detail recently, the abundance of so-called cash-on-the-sidelines is a fallacy, but even more critically the we showed the belief that these 'IOUs of past economic activity' would immediately translate into efforts to deploy them into future economic activity is also entirely false. Simply put,  there is no relationship between corporate cash and subsequent capital expenditure, nor is the level of capital expenditure even well-correlated with the level of real interest rates. At this point, as John Hussman explains, it should be clear that the mere existence of a mountain of IOUs related to past economic activity is not enough to provoke future economic activity. What matters instead is the same thing that always matters: Are the resources of the economy being directed toward productive uses that satisfy the needs of others?

10 Warnings Signs Of Stock Market Exuberance

Imagine that you are speeding down one of those long and lonesome stretches of highway that seems to fall off the edge of the horizon.  As the painted white lines become a blur, you notice a sign that says "Warning."  You look ahead for what seems to be miles of endless highway, but see nothing.  You assume the sign must be old therefore you disregard it, slipping back into complacency. A few miles down the road you see another sign that reads "Warning: Danger Ahead."  Yet, you see nothing in distance.  Again, a few miles later you see another sign that reads "No, Really, There IS Danger Ahead."  Still, it is clear for miles ahead as the road disappears over the next hill.  You ponder whether you should slow down a bit just in case.  However, you know that if you do it will make you late for your appointment.  The road remains completely clear ahead, and there are no imminent sings of danger.  So, you press ahead.  As you crest the next hill there is a large pothole directly in your path.  Given your current speed there is simply nothing that can be done to change the following course of events.  With your car now totalled, you tell yourself that there was simply "no way to have seen that coming." 

Goldman's 5 Key Questions For Janet Yellen

Fed Chair Janet Yellen will deliver her inaugural monetary policy testimony on February 11 and 13. Her prepared remarks will be released at 8:30amET and the testimony will begin at 10amET. Goldman, unlike the market of the last 3 days, believes that Ms. Yellen is likely to "stick to the script" in her first public remarks since taking over from Bernanke but they look for additional color on the following issues: (1) the recent patch of softer data; (2) the Fed's thinking on EM weakness; (3) the hurdle for stopping the taper; (4) the amount of slack in the labor market; and (5) the future of forward guidance.