http://www.zerohedge.com/fullrss2.xml/wp-content/plugins/uBillboard/capitalistexploits.at/2012/01/japan-official-media-announcement en 'Dovish' Fed Admits Inflation Weaker, Says Balance Sheet Unwind To Start "Relatively Soon" http://www.zerohedge.com/news/2017-07-26/dovish-fed-admits-inflation-weaker-says-balance-sheet-unwind-start-relatively-soon <p>With &#39;zero&#39; expectations for a rate-hike today, all eyes are focused on any shifts in The Fed&#39;s balance sheet normalization timeline (<em><strong>&quot;balance sheet unwind to start relatively soon&quot;</strong></em>) and its most-recently-dovish inflation outlook (following the weak June CPI print, The Fed now says <em><strong>&quot;inflation seen rising to 2%&quot;</strong></em> but is weaker&quot;).</p> <p>Key takeaways from FOMC:</p> <ul> <li><strong>Balance sheet reinvesting to continue `for the time being,&#39; normalization plan to begin `relatively soon&#39;</strong></li> <li><strong>Headline and core inflation `have declined,&#39;</strong> and the word `recently&#39; after this phrase from the June statement is omitted today</li> <li>Inflation running below 2%, the descriptor tweaked from the `somewhat below&#39; in the June statement</li> <li><strong>No dissents</strong></li> </ul> <p>Additional headlines</p> <ul> <li>Fed holds rates unchanged, <strong>repeats inflation seen rising to 2%</strong></li> <li>Fed: labor mkt strengthened, activity rising moderately</li> <li>Fed: <strong>job gains have been solid, unemployment has declined</strong></li> <li>Fed:<strong> household spending, fixed investment continued to expand</strong></li> <li>Fed: overall and core inflation declined, are running below 2%</li> <li>Fed repeats <strong>mkt-based inflation compensation gauges remain low</strong></li> <li>Fed repeats survey-based inflation measures little changed</li> <li>Fed repeats<strong> inflation to stay &lsquo;somewhat below&rsquo; 2% in near term</strong></li> <li>Fed repeats risks to outlook appear <strong>&lsquo;roughly balanced&rsquo;</strong></li> </ul> <p>Expectations were The Fed will reveal the timing of its balance sheet unwind in September and wait to hike interest rates again until December.</p> <p><strong>Note that loss of the word &quot;recently&quot; before the language around inflation declining. That&#39;s relevant. It nods at the fact that the dip in inflation has been more long-lasting. </strong></p> <p>Intriguingly, <strong>The ECB decided to shake up the market just minutes before The Fed&#39;s statement</strong>...</p> <ul> <li>*NOWOTNY: EURO-AREA GROWTH HAS IMPROVED BUT INFLATION LAGGING</li> <li>*NOWOTNY: ECB MUST RECONSIDER POLICY WITH DEFLATION RISK GONE</li> <li>*ECB&#39;S NOWOTNY SEES <strong>RISK OF DISTORTIONS WITH NEGATIVE RATES</strong></li> <li>*ECB&#39;S NOWOTNY SAYS AGREES WITH WEIDMANN WHO SAID THIS IS <strong>TIME TO SLOWLY GO OFF GAS</strong></li> <li>*ECB&#39;S NOWOTNY SEES NEED TO <strong>DISCUSS TECHNICAL ASPECTS OF QE END</strong></li> </ul> <p>Which sent the USD lower...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed6.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed6_0.jpg" style="width: 600px; height: 315px;" /></a></p> <p>*&nbsp; *&nbsp; *</p> <p>Rate-hike odds for July have been zero for almost two months...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed1.jpg"><img height="255" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed1_0.jpg" width="600" /></a></p> <p>&nbsp;</p> <p>Notably the<strong> Fed Balance sheet really starts to shed assets in August</strong> (double July&#39;s) then accelerates again in November bigly...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed5.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed5_0.jpg" style="width: 600px; height: 222px;" /></a></p> <p>&nbsp;</p> <p><strong>Since The Fed hiked rates, &#39;hard&#39; data has continued to weaken</strong> (even relative to marked-down expectations) as &#39;soft&#39; data has bounced hard...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed4.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed4_0.jpg" style="width: 600px; height: 307px;" /></a></p> <p>&nbsp;</p> <p>Since the June rate-hike (and The Fed&#39;s warning about stretched valuations), the S&amp;P is higher and bonds and bullion are down (equally)...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed2.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed2_0.jpg" style="width: 600px; height: 286px;" /></a></p> <p>&nbsp;</p> <p>But the dollar has done nothing but freefall...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed3.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed3_0.jpg" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>Will we get a full card?</strong></span></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed.jpg"><img height="415" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed_0.jpg" width="600" /></a></p> <p><a href="https://twitter.com/PrestigeEcon/status/889988505773932545/photo/1"><em>h/t @PrestigeEcon</em></a></p> <p>*&nbsp; *&nbsp; *</p> <p>Full Redline Statement below:</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed7.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_fed7_0.png" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="307" height="179" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170726_yellen.jpg?1501089616" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/dovish-fed-admits-inflation-weaker-says-balance-sheet-unwind-start-relatively-soon#comments Business CPI Deflation Economy European Central Bank fed Federal Open Market Committee Federal Reserve System Financial economics fixed Inflation Inflation targeting Interest rate Macroeconomics Monetary economics Monetary policy Money Unemployment US Federal Reserve Wed, 26 Jul 2017 18:04:26 +0000 Tyler Durden 600541 at http://www.zerohedge.com "Stop Trading Gold & Silver Now" - 30 Year Veteran http://www.zerohedge.com/news/2017-07-26/stop-trading-gold-silver-now-30-year-veteran <h2>Ruminations on Gold&nbsp;by Soren K.</h2> <p>Enda Glynn's original headline and analysis is below. &nbsp;Feel free to skip to it if you are looking for technicals. We had to change the headline&nbsp;for fear the post would look like click bait. For we are jaded Gold people.</p> <h3></h3> <h3>Bitter Gold Traders</h3> <p>But Enda's enthusiasm is genuine. And that pisses us off. As veterans &nbsp;of so many failed &nbsp;formations&nbsp;in Gold we are a bit cynical. Maybe it is us. Perhaps it&nbsp;is we that are the problem. To be a Gold bull over the last 20 years is to be demoralized constantly. Not unlike living with a narcissist&nbsp;idiot &nbsp;or a Jehovah witness that won't take an aspirin. They cannot &nbsp;get it but we keep thinking they will someday and&nbsp;we stick around, hoping for Gold's enemies to take that aspirin. But it never comes. It never &nbsp;will.</p> <p>We&nbsp;are the idiots for believing someday that Gold's price will reflect its true value. The idiots&nbsp;that control Gold's price will never let &nbsp;it reflect its true value. And that is because they aren't idiots. Just an unholy alliance of&nbsp;globalist academics, coin operated politicians, and financial hucksters looking to make a commission. Gold is just too hard to brand for them to make a profit. And so, we&nbsp;are the idiots. I&nbsp;can live with that.&nbsp;</p> <p>As to the&nbsp;title's second half:&nbsp;I began "trading" commodity futures in 1987 as an intern &nbsp;on a Lehman Brother's retail equity desk. I've been witness to every commodity scandal from the Sumitomo Copper play, to the MG Oil trade, to the Ashanti 1999 Gold squeeze, various Oil and NG plays and&nbsp;everything in between having anything to do with Energy or Metals. And let's not forget Tyson Foods' payoff to Hillary Clinton with the "Winners to HRC / Losers to Tyson" account split. My&nbsp;firm at the time handled some of that flow. And &nbsp;the "I" &nbsp;pronoun is a composite &nbsp;of 4 people contributing to this missive to stop trading metals.</p> <h3></h3> <h3>Price is Not &nbsp;Value</h3> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Price is the boat in the water. Value is the anchor dropped and sitting on the ocean floor. The &nbsp;rope between anchor and boat are its volatility. The waves are price moving events. Gold is not volatile, its rope is not long from boat to anchor. But Gold is in a tiny, private ocean where some spoiled kid can make waves any time he wants to and push the price as far away as he can from the value. All he has to do is tell a producer client to sell, or turn on his stop-fishing algorithm - Fay Dress&nbsp;</em></p> </blockquote> <h3></h3> <h3>The Cross of Gold</h3> <p>Some examples Gold investors have had to battle over the last 50 years include: &nbsp;</p> <ul> <li>Blatant Manipulation -&nbsp;&nbsp;Not just down, but up as well. Manipulation destroys a market's integrity and&nbsp;thus causes all but the deepest pocketed and &nbsp;the &nbsp;most connected to play. <em>&nbsp;You'd have to be an idiot (or a nethical person who can resist temptation) to NOT&nbsp;manipulate &nbsp;a market that can be cornered &nbsp;with $1Trillion when &nbsp;your bank already manipulates LiBoR and&nbsp;Bonds.</em></li> <li>Market Structure - disincentivizes long ownership via collateral requirements, and other things like asymmetric access and&nbsp;information in a globally traded product.</li> <li>Contract Size - The contract itself is too big for participation by the regular public. It should be traded in grams, not 1000's of ounces. This causes longs to be overly leveraged as specs and makes true investors unable to afford delivery. <em>Remember how long it took to get Stocks/ Bonds to eliminate fractional prices? That was to protect their franchises via keeping &nbsp;tick increments large. Contract size does &nbsp;the same thing</em></li> <li>Old Boys Network- the concentration of power is in too few hands. <em>Producers who are represented (and fleeced) by their &nbsp;bankers, accounting rules, rehypothecation for example</em></li> <li>Stupid Money - Funds used to trading FX and bond markets&nbsp;are&nbsp;poorly educated on the propensity of Gold's liquidity gaps on exit time. Thus they create the volatility that kills themselves&nbsp;by trying to use stop losses on huge unfillable positions. <em>Druckenmiller and Soros make money in Gold by happily giving up 1% on exit trades, and they are&nbsp;the smart ones. Its not always a spoof&nbsp;</em></li> <li>Western "Investment" Philosophy- &nbsp;we are trained to chase&nbsp;rising asset prices because of disingenuous marketers. We are now collectively Giffen good longs who buy on fear of "missing out"</li> <li>Retail as Exit Strategy - the use&nbsp;of retail investors to offload positions via&nbsp;"buy recommendations" using so called research as marketing materials.</li> <li>Government &nbsp;Backstop - &nbsp;at the extreme;&nbsp;&nbsp;government intervention to stop Buffet taking delivery of&nbsp;Silver in 1997, the Hunt brothers being forced to liquidate by COMEX members and producers (the shorts) who asked for Gov't intervention. The deal that Greenspan &nbsp;cut with Rubin to loan US Gold for GS carry trades in 1993-ish&nbsp;</li> <li>Press &nbsp;Bashing - Find me an article where &nbsp;Gold &nbsp;is in the headline in a positive way by the mainstream press. And&nbsp;make sure it doesn't have the word BUT after the&nbsp;compliment.</li> <li>The Inherent Conflict of Interest in Broker- Dealers - Metals players can &nbsp;act as Principal, Agency, recommender, and more without being in violation of any Regulatory laws. That is a license&nbsp;to steal</li> </ul> <p>Maybe it is us, but why do we keep insisting Gold is a store of value when so many aspects of the market are stacked against it? Why do we even look at the&nbsp;daily prices? That only makes us vulnerable to salesmen saying: "Buy GLD on CNBC"</p> <h3>The Late Bill Hicks makes our point about&nbsp;Marketers for us</h3> <p>&nbsp;</p> <h3>Gold Has intrinsic Value, But Value and Price are not &nbsp;the Same thing</h3> <p>We know Gold is the best, truest store of value on earth when it is in our hands because it does not rust, it is inert, it cannot be synthesized, and because of its malleability and ductile characteristics as well as its conductivity, if it were to ever be cheaper than copper, it would be completely consumed for those &nbsp;characteristics.</p> <p>We also know Gold futures and GLD are&nbsp;the worst trading vehicle on earth for us because&nbsp;of its liquidity gaps, homogeneous players, contract size, and susceptibility to manipulation. We &nbsp;trade &nbsp;it going in withoureyes open. You should &nbsp;not trade it at all. Stop trading Gold. Buy a Gold mine instead if you believe the price will go up.&nbsp;</p> <p>To paraphrase Peter &nbsp;Lynch:</p> <p>Price is the boat in the water. Value is the anchor dropped and sitting on the ocean floor. The &nbsp;rope between anchor and boat are its volatility. The waves &nbsp;are events. Gold is not volatile, its &nbsp;rope is not longfrom boat to anchor. But Gold &nbsp;is in a tiny, private ocean where some &nbsp;kid can make waves any time he wants to &nbsp;push the price as far away as he can from the value</p> <h3></h3> <h3>Idiots Rule</h3> <p>Gold fund traders, with few exceptions are the sheeple; that keep getting fleeced. And in the process they run over the public's feeble attempts to protect its own wealth.&nbsp;</p> <p>Why does anyone trade Gold from the long side if they've no intention or resources&nbsp;to take delivery? What is the point of marketing an asset that is supposed to be bought on dips as a store of wealth and thus&nbsp;a hedge for fiat debasement, as something that should instead&nbsp;be chased in rallies?</p> <p>Brokers do not have investors, they have traders. As a &nbsp;one time student of Graham &amp; Dodd's Securities Analysis, and a &nbsp;protege of a CFA who drilled me on value versus price, I find it stupid to tell someone to INVEST in something because it has gone up. To buy it because &nbsp;"The train is leaving the station" . These are not investment recommendations.&nbsp;</p> <p>When you buy a stock with&nbsp;a PE of 20, you are buying a company that is expected to take 20 years to make &nbsp;back the money you invested. That is an important corollary of understanding PE. Investment&nbsp;means buying with money you do not need for a long period of time. Anything less than a 5 year time horizon is not an investment in a business, it is a speculation on a stock. Gold is a hedge for all &nbsp;your investment&nbsp;risk and should be held indefinitely</p> <h3></h3> <h3>Gold is money. Silver is Not</h3> <p>It may not be government accepted currency, but it is money. And it is the last thing left competing with paper money on earth. That&nbsp;is incentive enough to do everything in a governments &nbsp;power to dissuade investment in it.</p> <p>Cryptos are NOT MONEY. They are&nbsp;a currency and well suited as a transfer of wealth from one medium to another. &nbsp;But they are&nbsp;not money yet. And wont be accepted as money until &nbsp;governments and Banks &nbsp;can co-opt their use for &nbsp;"our benefit and protection".</p> <p>Silver<em> is not</em> money for the same &nbsp;reason &nbsp;Gold <em>&nbsp;is</em> money. Silver is &nbsp;used industrially,&nbsp;is "consumed", and its supply is more readily grown if needed. Gold is not consumed or destroyed</p> <p>Gold will continue to be money until one of 2 things happens</p> <ol> <li>An industrial use is found for it which will make it consumed, destroyed or irrecoverable. This will&nbsp;&nbsp;drive up the price and make it no longer a stable reflection of buying power</li> <li>Gold is Synthesized&nbsp;- in &nbsp;which&nbsp; case its value is related to the cost of making it.</li> </ol> <p>That is a paraphrase of Peter Bernstein's great book&nbsp;<a href="https://www.amazon.com/Primer-Banking-Bernsteins-Finance-Classics/dp/0470287586">A Primer on <strong>Money</strong>, Banking, and <strong>Gold</strong>&nbsp;</a></p> <h3></h3> <h3>BlockChain is Key to complete Monetization</h3> <p>The question is, &nbsp;if Gold &nbsp;is money, and&nbsp;the world will not allow it to be currency, what happens to it? This is where the blockchain phenomenon comes in. Imagine instant delivery (supply verification) of quantities less than 100 ounces? Imagine &nbsp;the cost savings dealers&nbsp;&nbsp; would enjoy and&nbsp;thus be able to sell gold in small increments like coins or grams with instant payment and delivery verification? Imagine banks without credit departments and offices &nbsp;that play the float on your money. Imagine thousands of unemployed credit department lawyers. We can, but it is a dream. Do you even&nbsp; know how much&nbsp; revenue banks make on L.O.C.s for deals; it's a lot. </p> <p>Gold may never &nbsp;be a government approved currency again. But it will continue to be money, and technologies like blockchain will make it more valuable as the pipeline between buyer and seller are made more secure.</p> <p>In the meantime, stop trading Gold. Own it and&nbsp;keep the percentage you have as part of your portfolio stable &nbsp;whether that be 1, 5 of 10% . Stop playing&nbsp;the paper trading game. Think like China, buy&nbsp;to store wealth, not create it. Buy dips, not rallies.</p> <p>But if you trade it as we do, keep your eyes open to the forces&nbsp;that influence it.&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>&nbsp;Fuck the price. Focus on the value. Use price to buy undervalued and sell overvalued. Keep its weighting constant in your overall portfolio. But stop trading it because&nbsp;some salesman told you to.&nbsp;</em></p> </blockquote> <p>That said, &nbsp;here is Enda's EW analysis which &nbsp;is still spot on. And obviously &nbsp;Enda has not been demoralized yet!&nbsp;</p> <p>Now if you will excuse us, we have to put in our buy order at $1231 for a day trade...</p> <p>The Soren K. Group is&nbsp; comprised of 4 writers, 3 of which remain anonymous. They are Bon Scott (Banker), Brian Johnson ( Hedge Fund Partner), and Fay Dress (Professor of Finance). The 4th is Vince Lanci. All write individually and collaboratively under the name Soren K.</p> <h2>By Mandate: Gold Price Today. The Irony is Not Lost on Us</h2> <p><img src="http://www.zerohedge.com/sites/default/files/images/user238352/imageroot/2017/07/20/525.PNG" width="513" height="400" /></p> <p>Click <a href="http://www.kitco.com/Gold-price-today-USA/">HERE for Price</a>, Not Value</p> <p><span style="color: #535567; font-family: din; font-size: 20.4px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: #ffffff; text-decoration-style: initial; text-decoration-color: initial; display: inline !important; float: none;">Read more by<span>&nbsp;</span></span><a href="https://www.marketslant.com/user/soren-kgroup" style="margin: 0px; padding: 0px; border: 0px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-variant-numeric: inherit; font-weight: normal; font-stretch: inherit; font-size: 20.4px; line-height: 1.5em; font-family: din; vertical-align: baseline; box-sizing: border-box; color: #1d64a0; text-decoration: none; transition: all 0.2s ease; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: #ffffff;">Soren K.Group</a></p> <p>&nbsp;</p> <h2>"Bullish signals keep on coming in GOLD"</h2> <p><em>by <a href="http://bullwaves.org/">Enda Glynn of&nbsp;BullWaves.org</a></em></p> <p>Written July 25th Post Close</p> <p>GOLD began its decline into a possible wave 'ii' brown today.<br />The declines look corrective so far so the overall interpretation remains the same.</p> <p>I have labelled the initial decline off the high as wave 'a' pink.<br />Wave 'b' pink could be underway as I write, and wave 'c' should follow.<br />The decline so far looks like it could be the start of a flat correction.<br />This would trace out a 3,3,5 internal structure.</p> <p>The previous fourth wave low of one lesser degree lies at 1234.97.<br />1231.96 is the 50% retracement level.<br />This is a nice cluster of support and forms the likely target for wave 'ii' brown.</p> <p>One measure of sentiment I follow Is the 'daily Sentiment index'<br />This index is compiled by tradefutures.com.<br />The index is now rising off an extreme low of 14% bulls among futures traders, which was registered last week.<br />Another sure sign that the market is turning up now in a big way!</p> <p>In fact, the more I look at the larger price structure, the more I think that 1550 is a minimum target, this rally may well take out the all time high if my hunch proves correct and the market begins a new impulse wave rather that a large degree correction.</p> <p>For tomorrow;<br />Watch for a continued decline in wave 'c' pink to complete a three wave correction.<br />once wave 'ii' is complete, we will have another bullish&nbsp;<a href="http://bullwaves.org/elliott-wave-trading-signals/">Elliott wave signal</a>&nbsp;in place.</p> <h2>30 min</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/07/Gold-30-min-15.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/07/Gold-30-min-15.jpg" width="1349" height="581" /></a></p> <h2>4 Hours</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/07/Gold-4-hour-5.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/07/Gold-4-hour-5.jpg" width="1342" height="583" /></a></p> <h2>Daily</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/05/Gold-daily-1.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/05/Gold-daily-1.jpg" width="1348" height="573" /></a></p> <p><strong>My Bias:</strong>&nbsp;Long towards 1550<br /><strong>Wave Structure:</strong>&nbsp;ZigZag correction to the upside.<br /><strong>Long term wave count:</strong>&nbsp;Topping in wave (B) at 1550<br /><strong>Important risk events:&nbsp;USD: New Home Sales, Crude Oil Inventories, FOMC Statement, Federal Funds Rate.&nbsp;</strong></p> <p>GOLD began its decline into a possible wave 'ii' brown today.<br />The declines look corrective so far so the overall interpretation remains the same.</p> <p>I have labelled the initial decline off the high as wave 'a' pink.<br />Wave 'b' pink could be underway as I write, and wave 'c' should follow.<br />The decline so far looks like it could be the start of a flat correction.<br />This would trace out a 3,3,5 internal structure.</p> <p>The previous fourth wave low of one lesser degree lies at 1234.97.<br />1231.96 is the 50% retracement level.<br />This is a nice cluster of support and forms the likely target for wave 'ii' brown.</p> <p>One measure of sentiment I follow Is the 'daily Sentiment index'<br />This index is compiled by tradefutures.com.<br />The index is now rising off an extreme low of 14% bulls among futures traders, which was registered last week.<br />Another sure sign that the market is turning up now in a big way!</p> <p>In fact, the more I look at the larger price structure, the more I think that 1550 is a minimum target, this rally may well take out the all time high if my hunch proves correct and the market begins a new impulse wave rather that a large degree correction.</p> <p>For tomorrow;<br />Watch for a continued decline in wave 'c' pink to complete a three wave correction.<br />once wave 'ii' is complete, we will have another bullish&nbsp;<a href="http://bullwaves.org/elliott-wave-trading-signals/">Elliott wave signal</a>&nbsp;in place.</p> <h2></h2> <h2>USDJPY</h2> <h2>30 min</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/07/usdJpy-30-min-16.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/07/usdJpy-30-min-16.jpg" width="1349" height="585" /></a></p> <h2>4 Hours</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/07/usdJpy4hr-5.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/07/usdJpy4hr-5.jpg" width="1348" height="583" /></a></p> <h2>Daily</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/07/usdjpydaily.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/07/usdjpydaily.jpg" width="1357" height="582" /></a></p> <p><strong>My Bias:</strong>&nbsp;LONG<br /><strong>Wave Structure:</strong>&nbsp;rally in wave [C]<br /><strong>Long term wave count:</strong>&nbsp;wave [C] is underway, upside to above 136.00<br /><strong>Important risk events:&nbsp;JPY: n/a. USD: New Home Sales, Crude Oil Inventories, FOMC Statement, Federal Funds Rate.&nbsp;</strong></p> <p>The short term action in USDJPY was very encouraging today.<br />The price continued to rise impulsively off the recent low,<br />and broke back up through the 50% retracement level at 111.64,<br />all positive signs so far.</p> <p>The price structure is tracing out a possible wave '1' pink and it is beginning to look like a five wave form on the very short term charts.<br />If the current rise breaks 112.42,<br />That will help the&nbsp;<a href="http://bullwaves.org/traders-guide-elliott-wave/">bullish case</a>&nbsp;immensely from here.</p> <p>For tomorrow;<br />As usual,<br />We await a bullish Elliott wave signal off the recent low in the form of 5 waves in the direction of the trend,<br />and 3 waves against.</p> <h2>DOW JONES INDUSTRIALS</h2> <h2>30 min</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/07/Dow-30-min-15.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/07/Dow-30-min-15.jpg" width="1352" height="583" /></a></p> <h2>4 Hours</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/07/Dow-4-hour-4.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/07/Dow-4-hour-4.jpg" width="1349" height="582" /></a></p> <h2>Daily</h2> <p><a href="http://bullwaves.org/wp-content/uploads/2017/06/Dow-daily.jpg"><img src="http://bullwaves.org/wp-content/uploads/2017/06/Dow-daily.jpg" width="1359" height="582" /></a></p> <p><strong>My Bias:</strong>&nbsp;market topping process ongoing<br /><strong>Wave Structure:</strong>&nbsp;Impulsive 5 wave structure, possibly topping in an all time high.<br /><strong>Long term wave count:</strong>&nbsp;Topping in wave (5)<br /><strong>Important risk events:&nbsp;USD: New Home Sales, Crude Oil Inventories, FOMC Statement, Federal Funds Rate.&nbsp;</strong></p> <p>The DOW rallied about 150 points today to a new all time high,<br />And then came an immediate decline to begin a possible wave 'ii' pink.</p> <p>I have shown a three wave structure underway in wave 'ii' pink off the recent high.<br />The interim low was at 21574 today,<br />So a<a href="http://bullwaves.org/category/elliott-wave-analysis/">&nbsp;three wave decline</a>&nbsp;in wave 'ii' pink should finish at or just below that level tomorrow.</p> <p>A further break above 21655 will likely signal wave 'iii' pink has begun.<br />The 4hr RSI broke above the centreline again today in a final bullish signal for this rally.</p> <p>On a side note:</p> <p>I have noticed that President Trump has referenced the recurring stock market highs as a direct resultant of the new administrations policies.<br />I would advise against taking credit for the bull market.<br />Because you may well be held accountable for&nbsp;<a href="http://bullwaves.org/category/elliott-wave-blog/">bear market</a>&nbsp;to come!</p> <p>If wave 'ii' completes tomorrow, then we can expect wave 'iii' to break out to new all time highs again before the week is out.<br />The initial target for wave 'iii' pink lies in the region of 21877,<br />This is a Fibonacci 161.8% projection of wave 'i' pink off the wave 'ii' low.</p> <p>For tomorrow;<br />Watch for wave 'ii' to complete in the region of 21550.<br />And for wave 'iii' to begin from there.</p> <div class="field field-type-filefield field-field-image-blog"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_blog" width="634" height="631" alt="" src="http://www.zerohedge.com/sites/default/files/images/user238352/imageroot/524.PNG?1501092118" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/stop-trading-gold-silver-now-30-year-veteran#comments B+ Bear Market Bond China COMEX Copper Crowd psychology Crude Crude Oil Day trading Dow 30 Economic history of the Netherlands Economy Elliott Wave Elliott wave principle Fibonacci Finance Gold Lehman LIBOR Matter Monetization New Home Sales NG Precious metals Share trading Stop Trading stop-fishing algorithm Technical analysis Volatility Wind wave Wed, 26 Jul 2017 18:02:01 +0000 Vince Lanci 600540 at http://www.zerohedge.com What's Next For Obamacare Repeal: A Primer From Goldman And Citi http://www.zerohedge.com/news/2017-07-26/whats-next-obamacare-repeal-primer-goldman-and-citi <p>As reported earlier, after yesterday's surprising Senate GOP "victory", when it found the bare minimum number of votes to open debate on Republican Healthcare legislation, Republicans suffered an immediate defeat just hours later when the Senate <a href="http://www.zerohedge.com/news/2017-07-26/chaos-still-reigns-senate-gop-health-care-plan-rejected">voted soundly against </a>(with 9 Republicans joining Democrats) a "Repeal and Replace" of Obamacare. Shortly, the Senate is expected to vote on a clean Repeal bill (it was originally scheduled for noon but was pushed back to 3:30pm) which, however, is also not expected to have the 51 votes necessary to be approved. There is still some hope that a scaled-down "skinny" bill will find the needed support, earlier in the day the Freedom Caucus said they are against a fully pared down bill, which suggests that there will likely be no progress on either repealing (and replacing) Obamacare nor passage of a Republican alternative.</p> <p>So what happens next? </p> <p>To answer that question, overnight Goldman's Alec Phillips released a report on the Health Care Debate, which it summarizes is "<strong>Hanging by a Thread</strong>." Here is what the current state of affairs is according to Goldman:</p> <ul> <li>Surprisingly, Senate Republicans have prevailed in a procedural vote on health legislation, setting up a debate on changes to the House-passed bill and a vote on a final Senate proposal later this week.</li> <li>The odds of an overhaul of the ACA remain low, in our view. <strong>There is a somewhat greater probability that the individual and employer insurance mandates could be repealed, though we believe the status quo is more likely to be maintained here, as well.</strong></li> <li>If the Senate manages to pass a health bill this week, the effort to reach a House-Senate compromise could overlap with the debt limit and spending authority deadlines at the end of September, further complicating both sets of issues.</li> </ul> <p>And here are some key Q&amp;As excerpted from the latest Goldman note:</p> <p><strong>Q: What happens next? </strong></p> <p>The Senate health care bill is being considered under the “budget reconciliation” process, which has special rules for debate. Specifically, debate is limited to 20 hours, not counting amendments, so no filibuster is possible. The Senate is likely to debate several amendments to the House bill, including those offered by Republican leaders and by individual senators. However, we note that congressional budget rules could prevent any amendments that reduce the budgetary savings in the bill to below the $133 billion in net savings CBO estimates the House bill would achieve. Once all amendments have been considered, the Senate will vote on the final bill, potentially late on July 27 or July 28.</p> <p><strong>Q: Now that debate has started, does this mean the Senate is likely to pass a health bill? </strong></p> <p>The outcome is unpredictable but <strong>in our view the effort looks more likely to fail</strong>. The two Republican senators who voted against the opening procedural vote seem unlikely to support whatever the final legislation is that emerges from this week’s debate. This would mean that all remaining Republican senators would need to support the final product. While this is clearly possible, it is not at all clear that there is any single approach that can win 50 votes at this point.</p> <p><strong>Q: What changes will the Senate vote on?</strong></p> <p>The Senate has already voted down its first amendment to the House bill. This would have replaced the House bill with the Senate Republican-authored Better Care Reconciliation Act (BCRA). The Senate looks likely to vote on several additional proposals over the coming days, including but not limited to:</p> <ul> <li>Full repeal of the ACA coverage and tax provisions after a two-year delay, similar to what Congress passed and President Obama vetoed in 2015;</li> <li>A proposal to provide states with greater flexibility to use Medicaid funds to provide coverage in the insurance exchanges; and</li> <li>A so-called “skinny repeal” proposal that would strike only the individual and employer mandates and potentially the medical device tax.</li> </ul> <p>The House-passed bill, known as the “American Health Care Act” (AHCA), could also be subject to a vote if none of the other amendments pass. We expect that in addition to the items listed above, senators will offer other amendments and that some of these will also come up for a vote, though few are likely to pass. Ultimately, the approach with the greatest chance of success appears to be repeal of the mandates while leaving most other aspects of the ACA in place. At this point, few other approaches appear likely to find sufficient Republicans support.</p> <p><strong>Q: What does all of this mean for ACA repeal?</strong></p> <p>Our base case remains that Congress will fail to enact a meaningful reduction in the subsidies or taxes established under the ACA. We believe there is little chance that an overhaul such as the AHCA or BCRA will become law, in light of concerns among centrist Republicans regarding repeal of the Medicaid expansion and subsidies under the ACA, and the unpopularity of the replacement proposals, even among Republicans.</p> <p><strong>Q: What about a so-called “skinny repeal”?</strong></p> <p>While the “skinny repeal” might face less resistance than the broader approaches, we are nevertheless somewhat skeptical it could become law. At earlier stages in the health care debate this year, we highlighted an approach targeting a few unpopular provisions like the individual mandate, rather than the entire ACA, as a possibility, albeit one that would only be considered as a last resort. In theory, such an approach would allow Republicans to claim that they had repealed an important aspect of the law without reducing insurance subsidies. Also, because the CBO has estimated that repealing the individual mandate would reduce the deficit by more than $400bn over ten years, it would easily satisfy the budgetary savings target, and some of the excess savings could be used to address problems created by the mandate repeal.</p> <p>However, even the “skinny repeal” faces obstacles. First, like the broader repeal effort, it has been estimated to increase the number of uninsured. CBO estimates that the number of uninsured individuals would increase by 15 million individuals if the individual mandate is repealed; the effect of repealing the employer mandate is unclear but is likely to be small compared to the individual mandate. This is likely to be less politically controversial than estimates of the AHCA or BCRA, which would have increased the number of uninsured by 22 to 23 million people by 2026 according to CBO. However, repealing the individual mandate would reduce enrollment of younger and healthier individuals, thereby increasing average premiums for those who remain insured. CBO estimates premiums would increase by 20% as a result of adverse selection, though the actual cost to enrollees would likely rise by less, since ACA subsidies are tied to premiums and would also rise.</p> <p><strong>Q: What would this mean for other issues relevant to financial markets?</strong></p> <p>If the Senate approves health legislation this week, it would add further uncertainty to the upcoming debt limit and spending deadlines at the end of September. Congress must extend spending authority before the end of the fiscal year on September 30, and we expect that the debt limit will need to be raised at almost exactly the same time. In light of likely opposition to both efforts from some conservative Republicans and the need for 60 votes in the Senate for both matters, we have expected that both bills would pass with a combination of Republican and Democratic votes. If the debate over health care spills over into September as well, this could further complicate an already difficult set of fiscal deadlines, potentially raising the probability of a federal government shutdown and raising the risk that Congress cuts it extremely close in raising the debt limit.</p> <p>We have expected incremental developments on tax reform over the next several weeks, but have not expected a formal proposal to be released until after the fiscal deadlines just noted are resolved in late September or early October. If the Senate manages to pass healthcare legislation, this would add to the list of reasons not to expect a detailed tax reform proposal until October or later.</p> <p>* * *</p> <p>Separately, according to Citi's Dana Peterson, with the door opened for new ideas on the AHCA, there are three possible alternatives that Republican Senators might pursue.</p> <ul> <li><strong>Repeal Now, Replace Later – </strong>This is an old idea that would repeal Obamacare, but set the effective date several years into the future.</li> <li><strong>Bipartisan Obamacare Fix </strong>– Republicans would shift gears to retaining the main tenants of Obamacare, but work with Democrats.</li> <li><strong>Think Outside of the Box </strong>– Republicans may write new legislation or amend the House AHCA to shift control over public health care to state governments.</li> </ul> <p>And while Citi notes that given the limited path forward for the AHCA itself, repeal now, replace later is the most likely of several alternatives for Obamacare overhaul near-term, however it does note that the Senate is looking for Alternatives in case all current options fail.</p> <p>Here's Citi with what the path ahead looks like:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Republicans are now considering alternative options for Obamacare overhaul over the course of this week as it debates the House passed AHCA bill.</p> <p>&nbsp;</p> <p><strong>Repeal Now, Replace Later</strong> – This is an old idea that would repeal Obamacare, but set the effective date several years into the future. During this time, legislators would work to craft text to replace the bill. Republicans attempted a simple repeal two years ago, and also considered it again this January. The plan was disregarded in favor of proceeding with the AHCA that would repeal and replace substantial aspects of Obamacare. Currently, the idea is back en vogue: Obamacare repeal would be legislated now, but the law’s effective date would be post-dated for 2019, after the 2018 midterm elections. McConnell is leaning towards this option with the support of House Republicans, who passed a repeal-only bill this year.</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/citi%20AHCA%20chart.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/citi%20AHCA%20chart_0.jpg" width="500" height="293" /></a><strong>&nbsp;</strong></p> <p>&nbsp;</p> <p><strong>Bipartisan Obamacare Fix </strong>– Republicans would shift gears to retaining the main tenants of Obamacare, but work with Democrats to stabilize the health exchange markets, guarantee insurance payments for care for the poor, and fix other troubled elements of the existing framework. This week, both Democrats and Republicans will be allowed to propose amendments to the Obamacare overhaul process. A bipartisan solution is gaining traction among Republicans (e.g. McCain; McConnell, himself, has floated this idea) and Democrats (Schumer).</p> <p>&nbsp;</p> <p><strong>Think Outside of the Box </strong>– Republicans may write new text or amend the House bill shifting control over public health care to state governments. Senators Graham (R-SC) and Bill Cassidy (R-LA) propose converting some revenue generated by Obamacare tax provisions and redirecting Medicaid funding into block grants that would be delivered to the States to finance affordable health care options. This would be a similar regime to the Welfare Reform Act of 1996. Unless amended to the House AHCA bill that was passed, this new legislation would not be executed via reconciliation, and would require 60 “yes” senate votes to avoid filibuster and ensure passage. Key Graham-Cassidy proposals:</p> <ul> <li>Insurance mandates for individuals and employers repealed.</li> <li>Requirement to cover pre-existing conditions retained.</li> <li>Tax on medical devices repealed. Tax on high earners retained.</li> <li>Federal Medicaid funding to the states would continue to grow, adjusted for inflation. More flexibility for the states in spending Medicaid money.</li> <li>Federal money for health care distributed as tax credits, subsidies, health savings account premiums and other ways as the states dictate.</li> </ul> <p>&nbsp;</p> <p><strong>Of the possible options, repeal now, and replace later is the most likely in our view. </strong>Importantly, <span style="text-decoration: underline;"><strong>this scenario would be consistent with our longstanding expectation that repealing and replacing Obamacare would not be possible ahead of the 2018 midterm elections</strong></span>. While Republicans were swept into office partly on promises to gut the Obama era legislation and replace it with a cheaper and more flexible alternative, voters have since soured on the existing strategy that would leave many of them vulnerable to losing access to health care obtained under Obamacare. Indeed, 60 percent of persons that have benefited from Obamacare live in states that voted overwhelmingly for Republicans in the 2016 elections.</p> <p>&nbsp;</p> <p>As Republicans explore other options, <strong>the death of repeal/replace would not occur without collateral damage to GOP aims for comprehensive tax reform</strong>. Republicans chose to address Obamacare repeal <span style="text-decoration: underline;"><strong>and</strong></span> replace ahead of tax reform for two reasons: (1) belief that it would be a simple task; and (2) because repeal and replace would help with the scoring of tax reform. Obamacare repeal and replace would both lower future outlays and the expected revenue base, both of which are useful for paying for proposed tax cuts under the Byrd Rule. The Byrd Rule prohibits changes in tax and mandatory spending laws that would increase federal budget deficits beyond the window (e.g. 10 years) specified by the reconciliation instructions. The AHCA facilitates tax reform in the following manner:</p> <ul> <li><strong>Outlays </strong>– If we consider the latest CBO scoring of the AHCA, repeal and replace would have reduced Medicaid outlays by $756 billion over the next decade. This is a sizable amount of savings that could be credited to offsets to tax cuts.</li> <li><strong>Revenues </strong>– Repealing many of the Obamacare taxes suggested by the most recent Senate AHCA revisions would have lowered the base of expected revenues by $210 billion over ten years. If the base of future revenues is lower, then Republicans would have to find fewer offsets (e.g. revenue generators elsewhere) to pay for proposed tax cuts to avoid violating the Byrd rule.</li> </ul> </blockquote> <p>Citi's Concluding Thoughts: "<em>The failure of the Senate to salvage the House passed AHCA bill so far, means that other potentially more difficult avenues for improving Obamacare will have to be taken. <strong>These options will probably be lengthier, require bipartisanship (i.e. Republicans risking 2018 votes from the base by reaching across the aisle to Democrats), and a tougher slog towards comprehensive tax reform, in our view</strong></em>"</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="840" height="526" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/mcconnell%20teaser_5.jpg?1501090572" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/whats-next-obamacare-repeal-primer-goldman-and-citi#comments 111th United States Congress 115th United States Congress American Health Care Act Barack Obama Congress Fail Filibuster in the United States Senate First Amendment Health Internal Revenue Code Medicaid None Obamacare Pat Tiberi Patient Protection and Affordable Care Act Politics President Obama Republican Party Senate Social Issues United States United States federal budget Wealth in the United States Wed, 26 Jul 2017 17:47:04 +0000 Tyler Durden 600538 at http://www.zerohedge.com Sessions To Announce Leak Investigations Following Several Trump Outbursts http://www.zerohedge.com/news/2017-07-26/sessions-announce-leak-investigations-following-several-trump-outbursts <p>After a week of being publicly blasted by President Trump, Attorney General Jeff Sessions is reportedly preparing to launch a series of investigations into leaks that have emanated from various intelligence agencies since Trump's election last November.&nbsp; </p> <p>The first word of the leak investigations was leaked, as ironic as that is, to <a href="https://www.washingtonpost.com/world/national-security/the-standoff-between-trump-and-sessions-escalates/2017/07/25/5a51f3fc-7172-11e7-8f39-eeb7d3a2d304_story.html?utm_term=.c5befdaff9d3">The Washington Post</a> yesterday after a couple of anonymous "U.S. officials" said that Sessions and the Justice Department were preparing to announce more criminal investigations into leaks of sensitive intelligence that have appeared in media reports.</p> <p>Meanwhile, Trump's new Communications Director, Anthony Scaramucci, appeared on Fox &amp; Friends earlier this morning to confirm the same.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>"I think he [Sessions] has a plan that he's put together, and at some point, I don't know if it will be today or tomorrow or next week, he'll announce that plan."</strong>&nbsp; </p> <p>&nbsp;</p> <p><strong>"We have to crack down on leaks on a number of different fronts</strong>.&nbsp; There seems to be a number of holdovers from the Obama administration that are not helping."</p> </blockquote> <p><iframe src="https://www.youtube.com/embed/p6hWEVOJ5Zo" width="600" height="337" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>Of course, the Sessions investigation announcement will come only after the Attorney General suffered through days of very public outbursts from the President...<strong>outbursts which the mainstream media will undoubtedly continue to portray as an attempt by the White House to coerce the DOJ into launching a 'witch hunt' to track down their anonymous sources and conceal all that "Russian collusion" evidence that has so far evaded them.</strong> </p> <p>Speaking at a press conference in the Rose Garden just yesterday, Trump said the following...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>"I want the attorney general to be much tougher on the leaks from intelligence agencies</strong> which are leaking like rarely have they ever leaked before at a very important level.&nbsp; These are intelligence agencies, we can not have that happen."&nbsp; </p> </blockquote> <p>...and <strong>went on to imply that Sessions' job may hinge on his ability to crack down on the persistent leaks...</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"I'm very disappointed with the Attorney General.&nbsp; But we will see what happens.&nbsp; Time will tell.&nbsp; Time will tell."</p> </blockquote> <blockquote class="twitter-video"><p dir="ltr" lang="en">"I want the attorney general to be much tougher on the leaks from intelligence agencies," Trump says of Sessions <a href="https://t.co/Okz2bwUl4f">https://t.co/Okz2bwUl4f</a> <a href="https://t.co/f6yrQtvCQr">pic.twitter.com/f6yrQtvCQr</a></p> <p>— CBS News (@CBSNews) <a href="https://twitter.com/CBSNews/status/889933633619992578">July 25, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>&nbsp;</p> <p>Meanwhile, the A.G. has also been blasted in series of recent tweet storms from the President for everything from recusing himself from the 'Russian Investigation' to failing to pursue Hillary's past transgressions.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">Why didn't A.G. Sessions replace Acting FBI Director Andrew McCabe, a Comey friend who was in charge of Clinton investigation but got....</p> <p>— Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/890207082926022656">July 26, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p dir="ltr" lang="en">...big dollars ($700,000) for his wife's political run from Hillary Clinton and her representatives. Drain the Swamp!</p> <p>— Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/890208319566229504">July 26, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p dir="ltr" lang="en">Attorney General Jeff Sessions has taken a VERY weak position on Hillary Clinton crimes (where are E-mails &amp; DNC server) &amp; Intel leakers!</p> <p>— Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/889790429398528000">July 25, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p dir="ltr" lang="en">Problem is that the acting head of the FBI &amp; the person in charge of the Hillary investigation, Andrew McCabe, got $700,000 from H for wife!</p> <p>— Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/889792764363276288">July 25, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>&nbsp;</p> <p>Of course, with 1,000's of people employed by our various intelligence agencies, people who are highly skilled at covering their tracks, we, for some reason, <strong>suspect that Sessions will find it difficult to meaningfully slow the pace of anonymously-sourced stories hitting the New York Times and Washington Post. </strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="775" height="432" alt="" src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017.07.25%20-%20Trump%20Sessions.JPG?1501085949" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/sessions-announce-leak-investigations-following-several-trump-outbursts#comments American people of German descent Andrew McCabe Climate change skepticism and denial Department of Justice Director of the Federal Bureau of Investigation Dismissal of James Comey DOJ Donald Trump FBI Federal Bureau of Investigation Federal Bureau of Investigation James Comey Jeff Sessions New York Times Obama Administration Obama administration Russian interference in the 2016 United States elections Twitter Twitter United States United States intelligence agencies White House White House Wed, 26 Jul 2017 17:35:00 +0000 Tyler Durden 600536 at http://www.zerohedge.com Seattle's Minimum Wage Supporters Continue To Ignore The Facts http://www.zerohedge.com/news/2017-07-26/seattles-minimum-wage-supporters-continue-ignore-facts <p><a href="https://mises.org/blog/seattles-minimum-wage-supporters-ignore-facts"><em>Authored by Andrew Syrios via The Mises Institute,</em></a></p> <p>In what has become a<strong> running joke</strong> amongst those skeptical of the claim that minimum wage increases have no effect on unemployment, a recent report by the Employment Policies Institute <a href="https://fee.org/articles/governments-15-minimum-wage-advocates-arent-paying-their-interns/" target="_blank">showed that <strong>174 of the 184 co-sponsors</strong></a><strong> of a bill to raise the federal minimum wage to $15 an hour <u>hired unpaid interns</u></strong>.</p> <p>My personal favorite example of this type of this is when the <strong>Freedom Socialist Party, which was pushing for an even more ridiculous $20 minimum wage, <a href="http://dailycaller.com/2014/10/17/seattle-socialist-party-wants-20-per-hour-minimum-wage-offers-13-per-hour-for-website-manager/" target="_blank">posted ads</a> for new employees offering $13 an hour.</strong></p> <p>The party&rsquo;s national secretary doused himself in irony to defend his organization <a href="http://www.huffingtonpost.com/2014/10/18/socialist-13-hour_n_6008432.html" target="_blank">by saying</a> <strong><em>&ldquo;We&rsquo;re practicing what we&rsquo;re preaching in terms of continuing to fight for the minimum wage... But we can&rsquo;t pay a lot more than $13.&rdquo;</em></strong></p> <p>Hmmm, <strong>perhaps some of the unemployment a higher minimum wage would bring might actually be beneficial.</strong> Maybe we&rsquo;ve gotten this whole debate wrong&hellip;</p> <p>At the federal level <strong>Nancy Pelosi <a href="http://nymag.com/daily/intelligencer/2017/05/pelosi-promises-to-pass-usd15-minimum-wage-if-dems-take-house.html" target="_blank">promised</a> to pass a $15 an hour minimum wage if the Democrats take control of the House in 2018. </strong></p> <p>Increasing the federal minimum wage across the nation is far more vulgar than increasing a state or city minimum wage. Having spent some time in New York recently, I can definitely understand the desire to increase wages. When a 350 sq. ft. studio that lacks enough space for anything more than a mini fridge rents for $2500 a month, taxes are through the roof and a pack of cigarettes costs $13, it can be hard to get by. Artificially raising the minimum wage isn&rsquo;t going to fix that, but the desire to is understandable.</p> <p>New York State may have the <a href="https://en.wikipedia.org/wiki/List_of_U.S._states_by_income#States_ranked_by_per_capita_income" target="_blank">seventh highest median per capita income</a> in the country, but the cost of living vary wildly by city and state throughout the United States. The Mises Institute&rsquo;s Ryan McMaken <a href="https://mises.org/blog/if-sweden-and-germany-became-us-states-they-would-be-among-poorest-states">showed</a> that once you have accounted for the different costs of living in different states, &ldquo;New York ($26,152) is now the state with the lowest median income due to its very high cost of living.&rdquo;</p> <p><em><strong>And they want to put a one-sized-fits-all $15 minimum wage across the whole country?</strong></em> From Podunk, Kansas to Midtown Manhattan, the geniuses in Washington will decide the minimum someone can agree to work for someone else. Whatever would we do without such wise bureaucrats to guide us?</p> <p><strong>In Podunk, Kansas, a $15 minimum wage would be catastrophic.</strong> But even in large, wealthy cities, the minimum wage offers no panacea. The most notable example of this is Seattle, which put in motion a gradual increase to a $15 an hour minimum wage back in 2015.</p> <p>Now a $15 minimum wage in a city like Seattle was unlikely to ever be disastrous. The city is so expensive that wages are generally much higher than they are in other parts of the country. In 2015, the median household income in Seattle was <a href="http://www.city-data.com/city/Seattle-Washington.html" target="_blank">$80,349</a> while it was only <a href="https://fred.stlouisfed.org/series/MEHOINUSA672N" target="_blank">$56,516</a> in the United States on the whole. In other words, Seattle&rsquo;s median income was 42 percent higher than the American average.</p> <p>That being said, increasing the costs of labor is still going to decrease its demand. Early on, economist Mark Perry noted, with the imperfect data he had available, <a href="http://www.aei.org/publication/early-evidence-suggests-that-seattles-radical-experiment-might-be-a-model-for-the-rest-of-the-nation-not-to-follow/" target="_blank">that the unemployment rate seemed to increase</a> after the passage of the bill. Anecdotal evidence, such as McDonalds and others <a href="https://www.thenewamerican.com/economy/economics/item/24699-mcdonald-s-response-to-15-minimum-wage-automation-in-every-store" target="_blank">rapidly switching to automated self-order kiosks</a>, also trickled out. But with more time having passed, we have a better vantage point to evaluate the law.</p> <p>Now we have a <a href="https://evans.uw.edu/sites/default/files/NBER%20Working%20Paper.pdf" target="_blank">study</a> from the University of Washington that demonstrates that the new minimum wage law &ldquo;&hellip;reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent.&rdquo; Not a disaster for a wealthy city like Seattle, but it&rsquo;s not good. And it&rsquo;s more proof of what you should expect from basic economic theory.</p> <p>This story gets much more interesting though, as another <a href="http://irle.berkeley.edu/files/2017/Seattles-Minimum-Wage-Experiences-2015-16.pdf" target="_blank">study</a> from the University of California Berkeley showed no effect. What gives? The title of Daniel Person&rsquo;s <a href="http://www.seattleweekly.com/news/seattle-is-getting-an-object-lesson-in-weaponized-data/" target="_blank">article</a> on the subject gives away the punchline, &ldquo;The City Knew the Bad Minimum Wage Report Was Coming Out, So It Called Up Berkeley.&rdquo; Here&rsquo;s how Person describes what happened,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>While the Berkeley report&hellip; was cheered in many corners of the web, one blogger at&nbsp;<em>Forbes</em>&nbsp;<a href="https://www.forbes.com/sites/michaelsaltsman/2017/06/21/the-problems-with-a-new-study-on-seattles-15-minimum-wage/#65b0a8ca156a" target="_blank">called foul.</a></strong>&nbsp;Michael Saltsman is an avowed critic of higher minimum wages&hellip; [and he] raises a good question, pointing to a paragraph on the title page of the study that says <strong>the Berkeley report was &quot;prepared at the request of the Mayor of Seattle.&quot;&nbsp;</strong>This was odd, Saltsman noted, given that the city was already funding&nbsp;<a href="https://evans.uw.edu/sites/default/files/Final%20Report%20to%20City%20of%20Seattle%20-%20Nonprofit%20Response%20to%20Minimum%20Wage%20Ordinance%20041417.pdf" target="_blank">a series of six studies&nbsp;</a>from the University of Washington on the impacts of the wage law. Why look outside the city for research when taxpayers are already funding local number crunching?</p> <p>He had a theory: Those UW studies just weren&rsquo;t positive enough. <strong>Saltsman pointed out that Reich is a go-to academic for proponents of a $15-an-hour minimum wage across the country.</strong></p> </blockquote> <p>After contacting the mayor&rsquo;s office and looking into the matter further, Person believes the timeline is as follows,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The UW shares with City Hall an early draft of its study showing the minimum wage law is hurting the workers it was meant to help; the mayor&rsquo;s office shares the study with researchers known to be sympathetic toward minimum wage laws, asking for feedback; those researchers release a report that&rsquo;s high on Seattle&rsquo;s minimum wage law just a week before the negative report comes out.</p> </blockquote> <p><strong>As Person puts it, Seattle &ldquo;weaponized data&rdquo; to vindicate its minimum wage increase.</strong></p> <p><strong>The criticism that because Seattle&rsquo;s overall economy is booming that that somehow detracts from the minimum wage hindering it in any way is also false.</strong> As Jonathan Meer <a href="http://www.nationalreview.com/article/449080/seattle-minimum-wage-university-washington-study-critics-wrong" target="_blank">observes</a>,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>This is exactly backward: If Seattle is growing faster than expected, then the counterfactual comparison group is not keeping up as well at it should be, understating the extent of the job losses. It also seems strange to claim that low-wage work will do worse in good economic times, when the recent evidence of the Great Recession shows the opposite. More to the point, recent research shows that the negative impacts of the minimum wage are higher during economic downturns, not boom times.</p> </blockquote> <p>Finally, it would be worth addressing the often-heard point that recent studies have disproven the idea that minimum wages increase unemployment. Or in other words, that apparently the cost of labor behaves completely differently from other goods. In a review of over 100 studies, economists David Neumark and William Wascher <a href="http://www.nber.org/papers/w12663.pdf?new_window=1" target="_blank">found that</a>,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&hellip;there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage. However, the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. <u><strong>A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. </strong></u>In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries.</p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="231" height="145" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170726_min.jpg?1501084948" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/seattles-minimum-wage-supporters-continue-ignore-facts#comments Economy Employment Policies Institute Employment Policies Institute Labor Labour law Law Living wage McDonalds Minimum wage Minimum wage in the United States Minimum wage law Mises Institute Mises Institute Nancy Pelosi New York State Politics Recession Socialism Socialist Party Unemployment Unemployment University of California University of California University of Washington Wage Wed, 26 Jul 2017 17:24:00 +0000 Tyler Durden 600528 at http://www.zerohedge.com FOMC Preview: Just 2 Things To Watch For In Today's Fed Statement http://www.zerohedge.com/news/2017-07-26/fomc-preview-just-two-things-watch-todays-fed-statement <p>Unlike the June Fed meeting, the FOMC announcement at 2pm today is expected to be an uneventful affair: as DB's Jim Reid pointed out earlier, "given its late July and given the Fed will likely announce an end to balance sheet reinvestment in September (starting from October), <strong>this could be a relatively dull meeting."</strong></p> <p><strong>Big picture: </strong>the FOMC is expected to keep interest rates unchanged at this meeting at 1.00%-1.25%, after hiking last month. According <a href="http://www.ransquawk.com">to RanSquawk,</a> all analysts surveyed by Reuters expect the Fed to keep rates unchanged<strong>. The m</strong><strong>arket agrees with them: Fed Funds currently price in a 0% chance of a rate hike today.<br /></strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/20170726_fed1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/20170726_fed1_0.jpg" width="500" height="212" /></a></p> <p>And, as BofA notes, the market is clearly not expecting any Fed balance sheet reduction today either:</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/bofa%20balance%20sheet%201.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/bofa%20balance%20sheet%201_0.jpg" width="500" height="260" /></a></p> <p>With no press conference from the Fed Chair Yellen or Summary of Economic Projections released at this meeting, focus will be on the accompanying statement for the Fed’s views on inflation and any timing on the beginning of normalising the balance sheet. </p> <p>Indeed, there are just two things to watch in today's press conference-free FOMC statement:<span style="text-decoration: underline;"> <strong>(1) any hints that Fed balance sheet reduction will be announced in September and (2) adjustments to the language discussing the recent disappointment in the rate of inflation </strong></span>(after 4 consecutive CPI misses).</p> <ul> <li><strong>On inflation:</strong> the previous statement said the Fed still expects inflation (PCE) to stabilise around the Committee’s objective of 2.0% in the medium term, although on a 12-month basis was still expected to remain below 2.0%. Deutsche Bank say the Fed “will need to acknowledge the further decline in inflation since the June meeting” but should keep their medium-term view unchanged. Since the last meeting, Yellen spoke to Congress and although she noted that it was mostly temporary factors holding inflation down, she said she “recognised the dangers of persistently undershooting the Fed’s 2.0% target.”</li> <li><strong>On the balance sheet</strong>: The Fed appears to be committed to shrinking its balance sheet, with most analysts expecting an announcement by the end of the year. The Fed’s most recent forward guidance has suggested that the start of balance sheet normalisation will be implemented in 2017, provided the economy evolves in line with expectations. Most analysts are not expecting an announcement of the start date of balance sheet normalisation at this meeting but there could be a tweak in the language. HSBC say the Fed could announce that they will begin balance sheet normalisation “relatively soon”, opening the door for a September announcement, to begin shortly after. In her semi-annual testimony to Congress, Yellen said she “expects balance sheet reduction to begin soon”.</li> </ul> <p>In terms of explicit phrasing changes to the FOMC statement, according to BNP's Paul Mortimer-Lee - who has been relatively bearish on the US economy recently - one of most important potential changes to the FOMC statement will be <strong>whether the Fed drops "somewhat" </strong>in its description of core inflation below target. It would be a "big sift if dropped and would show Fed losing faith in its own projections." Mortimer-Lee also lays out "what could be a shocker at FOMC? <strong>1 rate hike - close to impossible; 2 announce balance sheet adjustment &lt;20%;&nbsp; hoist white flag on inflation = 25%</strong>"</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">What could be a shocker at FOMC? 1 rate hike - c. impossible; 2 announce balance sheet adjustment &lt;20%; hoist white flag on inflation = 25%</p> <p>— Paul Mortimer-Lee (@MortimerleePaul) <a href="https://twitter.com/MortimerleePaul/status/890203804708327424">July 26, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>In similar vein, Citi thinks that it is more likely than not that <strong>the revised statement will use a phrase like “relatively soon” to signal that the committee plans to announce balance sheet reduction in September. </strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"This should provoke little market reaction as (1) most clients we speak with expect such a change (2) Chair Yellen used this phrase in Congressional testimony two weeks ago (3) Fed balance sheet reduction related news has provoked little reaction from long end rates and currencies and (4) this is a marginal change from the current language: “T<strong>he Committee currently expects to begin implementing a balance sheet normalization program this year.”</strong></p> </blockquote> <p>Citi concedes that even if there is no change to the balance sheet normalization language the bank's call would "<strong>remain for a September balance sheet reduction announcement followed by a December rate hike." </strong>The June FOMC meeting followed three significant downside misses to core CPI for March, April and May. June core inflation (received subsequent to the June FOMC) was stronger than March-June but still weak at 0.12% MoM.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>In June the committee noted that inflation “declined recently” and “is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.” It was noted that “the Committee is monitoring inflation developments closely.” This language still characterizes well the FOMC view of inflation, suggesting only small tweaks may be in order.</p> </blockquote> <p>In the June press conference Yellen focused on the transitory nature of the slowing. But subsequently, Fed officials, including Chair Yellen, have been a bit more inclined to attribute some persistence to the slowdown in inflation. The medium term view of inflation returning to 2% has not changed substantially for the core of the committee. The July statement may acknowledge that risks to inflation are “two sided,” but we would be surprised to see, and take as dovish, any wavering in confidence that inflation will stabilize around 2 percent. Apart from inflation, the statement that “<strong>job gains have moderated</strong>” may be revised to indicate they remain robust.</p> <p>* * * </p> <p><strong>Parsing the statement, Bank of America expects the following textual changes:</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="text-decoration: underline;"><em><strong>Paragraph 1: Current conditions</strong></em></span><strong><em> </em></strong></p> <p>&nbsp;</p> <p>We think the language is likely to be tweaked to reflect the latest data. As such, we expect a <strong>more positive assessment about job growth given the strong gain in June, but a more cautious tone around household spending</strong>. The FOMC may also note the recent weakness in core inflation is *<strong>partly</strong>* a result of a few unusual reductions in certain categories of prices. As Chart 1 shows, even trimmed measures of core inflation have continued to slide, making it hard to argue the recent weakness is entirely transitory. </p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/bofa%20fomc%20preview.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/bofa%20fomc%20preview_0.jpg" width="500" height="187" /></a></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><em><strong>Paragraph 2: Economic outlook:</strong></em></span><strong><em> </em></strong></p> <p>&nbsp;</p> <p>The FOMC is unlikely to change the characterization of economic activity or the labor market, in our view. We also think it will note that near-term risks to the economic outlook appear roughly balanced, as Chair Yellen reiterated at the semi-annual monetary policy testimony. On the inflation outlook, we expect them to note that inflation has remained subdued despite the low rate of unemployment. However, they are likely still to reiterate that they expect inflation to stabilize at the 2% target over the medium term. This would be a way of implying that the Phillips Curve relationship has weakened, as we demonstrate in Chart 2, but that Fed officials are still assuming that it is relevant. </p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;"><strong>Paragraph 3: Policy decision</strong></span></em><strong><em> </em></strong></p> <p>&nbsp;</p> <p>We expect the FOMC to double down on the commitment to normalize the balance sheet. In the June statement, the statement read as "the Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated". <strong>We think this will likely be changed to read that the Committee expects to begin implementing a balance sheet normalization program *soon*. </strong>This would, in our view, send a message that the FOMC is on track to announce the change at the September meeting. It is possible the FOMC goes a step further and explicitly signals the B/S normalization in September by stating the change will occur at the "upcoming meeting". </p> <p>&nbsp;</p> <p><strong>It is also possible, although a low probability in our opinion, that the FOMC announces balance sheet normalization at the meeting tomorrow.</strong> Fed officials have been consistent in the view that the time has come to begin shrinking the balance sheet. They have also made it clear that it is data independent; low inflation will not take them off course from starting the process. They believe it will be a non-event in the markets when it begins and it will be able to continue on autopilot. As such, <strong>we think it is possible Fed officials do not see a reason to wait for the September meeting. </strong>This would come as a surprise to the markets, however, and it is not the Fed's intention to deliver surprises.</p> </blockquote> <p>* * * </p> <p><strong>Market reaction: </strong></p> <p>Overall, this meeting should not be a game changer as the Fed tend to communicate changes to policy relatively far in advance and there has been no indication that they will venture too far from the script at this meeting. Barclays say that “an announcement on balance sheet normalization in July would leave open the possibility of two additional rate hikes this year. This would likely send a more hawkish signal than warranted given the incoming data on activity and, in particular, inflation.” </p> <p><strong>What the Banks are saying:</strong></p> <p>Finally, courtesy of RanSquawk, here is a breakdown of what various sellside desks are expecting will be announced today:<strong>&nbsp;</strong></p> <ul> <li><strong>Goldman Sachs: </strong>We do not expect any policy changes at the July FOMC meeting and expect only limited changes to the statement, which will likely upgrade the description of job growth, but might also recognize that inflation has declined further. We think the statement is also likely to acknowledge that the balance sheet announcement is now closer to hand, and we continue to expect the FOMC to announce the start of it’s balance sheet normalization in September.</li> <li><strong>JPM: </strong>We expect no change in the funds rate target and no change in balance sheet policy (we think there is a ~20% chance for the Fed to begin the balance sheet normalization process at the Jul meeting). The policy guidance will likely signal an inclination to begin the normalization process in Sept but we don’t anticipate changes to the Fed Funds outlook. We expect the statement will sound more upbeat on the labor market, about similarly confident on growth, but more cautious on inflation.</li> <li><strong>Morgan Stanley: </strong>We expect the Fed to leave its interest rate target unchanged. The statement will likely indicate that the normalization of the central bank’s balance sheet will begin relatively soon, solidifying expectations for a September announcement. The Fed will also make a benign update on conditions, by saying that the economy continued to expand at a moderate pace and that the labor market is still strengthening; the Fed should also say that inflation is running below its 2% goal. Weak inflation data will continue to be a thorn in the Fed’s side for several months to come. The Fed will resume hiking rates in December.</li> <li><strong>Deutsche Bank: </strong>We do not expect the Fed to take any policy firming actions this week, partly because inflation has continued to surprise to the downside of late. In our view, policymakers will need to acknowledge the further decline in (PCE) inflation since the June meeting, but their medium-term view that inflation will return to target should remain unchanged. This would keep the door open for the Fed to begin its balance sheet normalization program as well as raise interest rates another 25 basis points by year-end. While it is possible that the Fed announces the former on Wednesday, we believe this holds a low probability. We continue to view the September meeting as the most likely timing for the Fed to announce the tapering of SOMA reinvestments, which would ostensibly begin in October.</li> <li><strong>Barclays: </strong>We expect the Fed to keep the target rate for the federal funds unchanged and expect few changes to the statement outside of balance sheet normalization. We believe the statement could point to an announcement on balance sheet policies at the September meeting. The risk to our view is that the FOMC announces its balance sheet normalization program at the July meeting since we believe the committee is eager to begin the process. That said, an announcement on balance sheet normalization in July would leave open the possibility of two additional rate hikes this year. This would likely send a more hawkish signal than warranted given the incoming data on activity and, in particular, inflation.</li> <li><strong>SocGen: We </strong>expect the Fed to announce the start of its balance sheet normalisation plan in September, but we acknowledge that it is a coin toss between this week’s meeting and the next one. In any case, we do expect a tweak in the paragraph on the balance sheet that should confirm the market’s expectation that the Fed will announce the shift in September.</li> <li><strong>HSBC: </strong>We expect the FOMC to leave the target range for the federal funds rate unchanged until December. We do not expect much change in the policy statement's assessment of current economic conditions or the economic outlook. We expect the FOMC to say that it expects to begin implementing a balance sheet normalisation programme "relatively soon," a change from the June policy statement that indicated the programme would begin "this year". This would allow the Committee to formally announce the start of disinvestment in September, for commencement in October. However, there is also the possibility that the FOMC could simply announce the change in balance sheet policy at the July meeting, for commencement in October.</li> <li><strong>RBC: </strong>This should be one of the more boring Fed releases in a while. There should be only modest adjustments to the characterization of the economic backdrop and we expect no change to the policy language. We think the announcement regarding the start of the balance sheet run-off comes at the September meeting when we also believe the committee will stand pat on rates (we expect the next hike in December).<strong><br /></strong></li> </ul> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="512" height="217" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/20170726_fed1.jpg?1501077459" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/fomc-preview-just-two-things-watch-todays-fed-statement#comments B+ B.S. Bank of America Bank of America Barclays Business Central bank Congress Core CPI CPI Deutsche Bank Economy fed Federal funds rate Federal Open Market Committee Federal Reserve System Financial services goldman sachs Goldman Sachs Inflation Inflation targeting Jim Reid Monetary Policy Monetary policy Money Morgan Stanley Open market operation Phillips curve RANSquawk Reuters SocGen Testimony Unemployment US Federal Reserve Wed, 26 Jul 2017 17:14:48 +0000 Tyler Durden 600516 at http://www.zerohedge.com Strong Demand For "Stopping Through" 5Y Paper, As Fed Looms http://www.zerohedge.com/news/2017-07-26/strong-demand-stopping-through-5y-paper-fed-looms <p>While yesterday's unexpectedly strong 2Y auction left many scratching their heads (<a href="http://www.zerohedge.com/news/2017-07-23/dollar-tumbles-fx-speculative-positioning-hits-multi-year-extremes">recall 2Y net specs are the shortest on </a>record, betting on ever higher short-end rates), today's sale of $34 billion in 5Y paper was just as strong, if not quite as perplexing as neither technical positioning, nor a hawkish Fed announcement in less than an hour would have as negative an impact on the price of the tenor. This was the highest yield for a 5Y auction since the 1.95% yield in March. </p> <p>And speaking of the auction results, it was almost as strong as yesterday's 2Y, pricing at a yield of 1.884%, stopping through the When Issued 1.892% by 0.8 bps, the biggest stop through since December 2016. The internals were similarly impressive, with foreign buyers, i.e. Indirects, taking down 69.8% of the auction, above last month's 65.2%, above the 6month average of 63.6%, and the highest since December 2016. Direct bidders were awarded 6.2%, weaker than the 9.2% in June, and below the 6M average of 6.8%. As a result, Dealers took down 24.1%, below the 25.6% in June, and well below the 6 month auction average of 29.6%.</p> <p>Overall, another very strong auction and what made it most interesting is that it priced with the Fed announcement due out in 50 minutes, which if this week's TSY sales are any indication, will be about as far from hawkish as possible.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/5Y%20auction%20july%202017.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/5Y%20auction%20july%202017_0.jpg" width="500" height="321" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1127" height="723" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/5Y%20auction%20july%202017.jpg?1501089037" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/strong-demand-stopping-through-5y-paper-fed-looms#comments Auction Auction theory Auctions US Federal Reserve Wed, 26 Jul 2017 17:12:37 +0000 Tyler Durden 600535 at http://www.zerohedge.com Trump Blocks Transgender Individuals From Military Service http://www.zerohedge.com/news/2017-07-26/president-trump-blocks-transgender-individuals-military-service <p>President Trump just sent liberal snowflakes across America scrambling with a 3-tweet statement sure to be the talking point that proves his fascist ways...</p> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"><p dir="ltr" lang="en">After consultation with my Generals and military experts, please be advised that the United States Government will not accept or allow......</p> <p>&mdash; Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/890193981585444864">July 26, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"><p dir="ltr" lang="en">....Transgender individuals to serve in any capacity in the U.S. Military. Our military must be focused on decisive and overwhelming.....</p> <p>&mdash; Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/890196164313833472">July 26, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"><p dir="ltr" lang="en">....victory and cannot be burdened with the tremendous medical costs and disruption that transgender in the military would entail. Thank you</p> <p>&mdash; Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/890197095151546369">July 26, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>The announcement represents a major shift in US military policy; the decision will affect nearly 150,000 active and/or retired/veteran people on service in the US military.</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/transgender_0.jpg" style="width: 500px; height: 465px;" /></p> <p>The DoD&#39;s response to the Trump tweets: &quot;Call the White House.&quot;</p> <blockquote class="twitter-tweet" data-partner="tweetdeck"><p dir="ltr" lang="en">DoD has responded to Trump tweets on transgender service in the military: &quot;Call the White House.&quot;</p> <p>&mdash; Elizabeth McLaughlin (@Elizabeth_McLau) <a href="https://twitter.com/Elizabeth_McLau/status/890212856905519104">July 26, 2017</a></p></blockquote> <script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script><p>Meanwhile, GLAAD calls Trump&#39;s announcement &quot;a direct attack on transgender Americans.&quot;</p> <blockquote class="twitter-tweet" data-partner="tweetdeck"><p dir="ltr" lang="en">MORE: <a href="https://twitter.com/glaad">@glaad</a> calls Trump&#39;s announcement &quot;a direct attack on transgender Americans.&quot; <a href="https://t.co/RZg8INueuu">https://t.co/RZg8INueuu</a> <a href="https://t.co/rxTMFSSz81">pic.twitter.com/rxTMFSSz81</a></p> <p>&mdash; ABC News Politics (@ABCPolitics) <a href="https://twitter.com/ABCPolitics/status/890214973649104897">July 26, 2017</a></p></blockquote> <script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script><p>And just like that, <a href="http://www.zerohedge.com/news/2017-07-16/caitlyn-jenner-exploring-senate-run"><strong>Caitlyin Jenner&#39;s Senate run gets a boost</strong></a>...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&quot;I felt a great disturbance in the Farce, as if <strong>millions of snowflakes suddenly cried out in terror</strong>, and were suddenly silenced. I fear something terrible has happened.&quot;</em></p> </blockquote> <p>Trump&#39;s decree could be a problem if this number is right:</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">There are, apparently, around 15,500 transgender individuals either serving on active duty or in the National Guard or Army Reserve already. <a href="https://t.co/2MMjjUgO21">https://t.co/2MMjjUgO21</a></p> <p>&mdash; Stig Abell (@StigAbell) <a href="https://twitter.com/StigAbell/status/890197581187436545">July 26, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>The Defense Department estimates as many as 7,000 transgender troops serve in the active-duty force of 1.3 million.</p> <p><strong>President Obama&#39;s final defense secretary, Ash Carter, issued a directive last year that permitted transgender troops to serve in the military, and to undergo reassignment surgery. </strong>That step left a decision for Trump Secretary of Defense James Mattis to make a decision on whether to allow new transgender troops to enter the military.</p> <p>It wasn&#39;t immediately clear what Trump&#39;s announcement would mean for the approximately 250 transgender people now serving openly in the U.S. military.</p> <p>Here is one Delta Force Operator&#39;s reality check (<a href="https://ijr.com/the-declaration/2017/06/900582-transgender-sensitivity-training-becomes-mandatory-army-delta-force-operator-issues-reality-check/amp/"><em>via IJR.com</em></a>)... All <a href="http://ijr.com/the-declaration/2017/06/900477-army-begins-mandatory-transgender-sensitivity-training-civilians-soldiers/" target="_blank">soldiers</a> in the U.S. Army are now required to take a 50-minute training course on transgender sensitivity. <a href="https://ijr.com/the-declaration/2017/06/900582-transgender-sensitivity-training-becomes-mandatory-army-delta-force-operator-issues-reality-check/amp/">Independent Journal Review </a>wanted to know what veterans who have trained thousands of soldiers&nbsp;to fight in combat think about the news.</p> <p>We spoke with U.S. Army Master Sergeant (Ret.) and Delta Force Operator Dale Comstock. <strong>Comstock has seen more war than the average American can wrap their head around. In fact, he&#39;s served in every major campaign from Grenada in 1983 to present-day conflicts.</strong></p> <p>Comstock said:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>This whole political-social experiment is not helping. </strong>The reality is, it&#39;s in the Army, it&#39;s in the Navy, it&#39;s in the military.<strong> And unless Mattis and Trump rescind all these policies and stop this madness, it&#39;s here to stay.</strong></p> <p>&nbsp;</p> <p><strong>It affects morale and combat readiness on many levels.</strong> At the end of the day, war fighting is about one thing: Killing people. It&#39;s about bringing home our guys alive. It&#39;s not about being sensitive to a transgender. This isn&#39;t corporate America, this is the military.</p> <p>&nbsp;</p> <p><strong>You can&#39;t just put some policy in place because you want people to feel equal. </strong>Most guys who join the military, especially special operations forces, were the boys who had dirt clod fights on the playground, wrestled and fist fought, stole each other&#39;s girlfriends, and pledged allegiance to the flag. And that same spirit and apex predator mindset goes with us into the military.&quot;</p> </blockquote> <p><em>For those <a href="https://williamsinstitute.law.ucla.edu/wp-content/uploads/Transgender-Military-Service-May-2014.pdf">curious</a>, here is a full breakdown on Transgender in US Military Service from <a href="https://williamsinstitute.law.ucla.edu/wp-content/uploads/Transgender-Military-Service-May-2014.pdf">the Williams Institute</a>:</em></p> <p><iframe class="scribd_iframe_embed" data-aspect-ratio="0.7729220222793488" data-auto-height="false" frameborder="0" height="600" id="doc_94161" scrolling="no" src="https://www.scribd.com/embeds/354773508/content?start_page=1&amp;view_mode=scroll&amp;access_key=key-RUVSEJKEiKabZpiTgcfF&amp;show_recommendations=true" width="100%"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="348" height="221" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170726_trans.jpg?1501074725" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/president-trump-blocks-transgender-individuals-military-service#comments American people of German descent army Business Caitlyin Jenner's Senate Climate change skepticism and denial Corporate America Department of Defense Donald Trump Donald Trump on social media Draft:Hector Sarmiento James Mattis National Guard navy Politics President Obama Reality Social Issues The Apprentice Transgender Twitter United States United States Army United States government US military US Military Service War White House Williams Institute WWE Hall of Fame Wed, 26 Jul 2017 17:04:27 +0000 Tyler Durden 600510 at http://www.zerohedge.com Howard Marks Sounds The Alarm On ETFs And Passive Investing, Again http://www.zerohedge.com/news/2017-07-26/howard-marks-sounds-alarm-etfs-and-passive-investing-again <p>Back in March 2015, Howard Marks was <a href="http://www.zerohedge.com/news/2015-03-26/what-would-happen-if-etf-holders-sold-all-once-howard-marks-explains">among the first to sound the alarm on the encroaching danger posed by both </a>ETFs in particular, and passive investing in general, when he memorably asked (rhetorically, for now), "<strong>what would happen, for example, if a large number of holders decided to sell a high yield bond ETF all at once</strong>?" and answered his own question: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"in theory, the ETF can always be sold. Buyers may be scarce, but there should be some price at which one will materialize. Of course, the price that buyer will pay might represent a discount from the NAV of the underlying bonds. In that case, a bank should be willing to buy the creation units at that discount from NAV and short the underlying bonds at the prices used to calculate the NAV, earning an arbitrage profit and causing the gap to close. But then we’re back to wondering about whether there will be a buyer for the bonds the bank wants to short, and at what price. <strong>Thus we can’t get away from depending on the liquidity of the underlying high yield bonds. The ETF can’t be more liquid than the underlying, and we know the underlying can become highly illiquid</strong>."</p> </blockquote> <p>Not to make a too fine a point of it, Marks underscored just how profound the role of liquidity can be at a time when everyone needs it, and none is available:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>In September 2008, AIG experienced serious liquidity issues (despite its $1 trillion balance sheet) when it couldn’t post $20-25 billion of liquid collateral related to credit default swap contracts written by one of its subsidiaries. The U.S. government stepped in as a result, lending support that eventually reached $182.3 billion, massively diluting AIG shareholders in the process.<strong> When you can’t meet a margin call because you have insufficient liquidity, that’s profound.</strong></p> </blockquote> <p>In the ensuing two years, while the ETF market has only gotten more "liquid" (at least in a time when liquidity wasn't actually needed), the underlying bond market has seen bid/ask spreads widen as liquidity in single-name securities has shrunk. This has not been a purely credit-linked concern, as increasingly more ETF-linked "events" have emerged in other asset classes, including the most liquid one: equities. </p> <p>Fast forward to today, when the Oaktree co-chairman, in his latest memo titled "<a href="https://www.oaktreecapital.com/insights/howard-marks-memos">There They Go Again... Again</a>" has not only shared his broader thoughts on markets and the current investing environment, as follows...</p> <ul> <li><strong>The uncertainties are unusual in terms of number, scale and insolubility </strong>in areas including secular economic growth; the impact of central banks; interest rates and inflation; political dysfunction; geopolitical trouble spots; and the long-term impact of technology.</li> <li>In the vast majority of asset classes, <strong>prospective returns are just about the lowest they’ve ever been.</strong></li> <li><strong>Asset prices are high across the board.&nbsp; </strong>Almost nothing can be bought below its intrinsic value, and there are few bargains.In general the best we can do is look for things that are less over-priced than others.</li> <li><strong>Pro-risk behavior is commonplace, </strong>as the majority of investors embrace increased risk as the route to the returns they want or need.</li> </ul> <p>... which however he doesn't go so far as describing it as a "bubble", but - among others - discusses his latest views on what many believe is the biggest risk to market structure and overall risk stability: ETFs and Passive Investing. </p> <p>And here, once again, Marks sounds the alarm on not only on ETFs, but the exponentially growing passive investor sector, which is soaking up hundreds of billions in capital from active managers, in the process creating perhaps what may be the biggest bubble ever, one which - ironically - takes place with no fundamental analysis whatsoever. The key quotes:</p> <p>Given the generally lagging performance of active managers over the last dozen or so years, as well as the creation of ETFs, or exchange-traded funds, which make transacting simpler, the shift from active to passive investing has accelerated.&nbsp; Today it’s a powerful movement that has expanded to cover 37% of equity fund assets.&nbsp; In the last ten years, $1.4 trillion has flowed into index mutual funds and ETFs (and $1.2 trillion out of actively managed mutual funds).</p> <p>* * * </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>As a product of the last several years, <strong>ETFs’ promise of liquidity has yet to be tested in a major bear market, particularly in less-liquid fields like high yield bonds.</strong></p> </blockquote> <p>* * * </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>... as ETFs attract capital, they have to buy large amounts of these stocks, further fueling their rise.&nbsp; Thus, in the current up-cycle, <strong>over-weighted, liquid, large-cap stocks have benefitted from forced buying on the part of passive vehicles, which don’t have the option to refrain from buying a stock just because its overpriced...</strong> Is Apple a safe stock or a stock that has performed well of late?&nbsp; Is anyone thinking about the difference? </p> </blockquote> <p>* * * </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>... what should we think about the willingness of investors to turn over their capital to a process in which neither individual holdings nor portfolio construction is the subject of thoughtful analysis and decision-making, and in which buying takes place regardless of price?</p> </blockquote> <p>* * * </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Like the tech stocks in 2000, this seeming perpetual motion machine is unlikely to work forever.&nbsp; <strong>If funds ever flow out of equities and thus ETFs, what has been disproportionately bought will have to be disproportionately sold.&nbsp; It’s not clear where index funds and ETFs will find buyers for their over-weighted, highly appreciated holdings if they have to sell in a crunch.&nbsp; </strong></p> </blockquote> <p>* * * </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Finally, the systemic risks to the stock market have to be considered.&nbsp; Bregman calls “the index universe a big, crowded momentum trade.”&nbsp; A handful of stocks – the FAANGs and a few more – are responsible for a rising percentage of the S&amp;P’s gains, meaning the stock market’s health may be overstated. </strong></p> </blockquote> <p>* * * </p> <p><em>More in the full excerpt below (<a href="https://www.oaktreecapital.com/insights/howard-marks-memos">source</a>):</em></p> <p><strong>Passive Investing/ETFs</strong></p> <p>Fifty years ago, shortly after arriving at the University of Chicago for graduate school, I was taught that thanks to market efficiency, (a) assets are priced to provide fair risk-adjusted returns and (b) no one can consistently find the exceptions.&nbsp; <strong>In other words, “you can’t beat the market.”&nbsp; </strong>Our professors even advanced the idea of buying a little bit of each stock as a can’t-fail, low-cost way to outperform the stock-pickers.</p> <p>John Bogle put that suggestion into practice.&nbsp; Having founded Vanguard a year earlier, he launched the First Index Investment Trust in 1975, the first index fund to reach commercial scale.&nbsp; As a vehicle designed to emulate the S&amp;P 500, it was later renamed the Vanguard 500 Index Fund.</p> <p>The concept of indexation, or passive investing, grew gradually over the next four decades, until it accounted for 20% of equity mutual fund assets in 2014.&nbsp; Given the generally lagging performance of active managers over the last dozen or so years, as well as the creation of ETFs, or exchange-traded funds, which make transacting simpler, the shift from active to passive investing has accelerated.&nbsp; Today <strong>it’s a powerful movement that has expanded to cover 37% of equity fund assets.&nbsp; In the last ten years, $1.4 trillion has flowed into index mutual funds and ETFs (and $1.2 trillion out of actively managed mutual funds).</strong></p> <p>Like all investment fashions, passive investing is being warmly embraced for its positives:</p> <ul> <li><strong>Passive portfolios have outperformed active investing over the last decade or so.</strong></li> <li><strong>With passive investing you’re guaranteed not to underperform the index.</strong></li> <li><strong>Finally, the much lower fees and expenses on passive vehicles are certain to constitute a permanent advantage relative to active management.</strong></li> </ul> <p>Does that mean passive investing, index funds and ETFs are a no-lose proposition?&nbsp; Certainly not:</p> <ul> <li>While passive investors protect against the risk of underperforming, they also surrender the possibility of outperforming.</li> <li>The recent underperformance on the part of active investors may well prove to be cyclical rather than permanent.</li> <li>As a product of the last several years, <span style="text-decoration: underline;"><strong>ETFs’ promise of liquidity has yet to be tested in a major bear market, particularly in less-liquid fields like high yield bonds.</strong></span></li> </ul> <p>Here are a few more things worth thinking about:</p> <p>Remember, the wisdom of passive investing stems from the belief that the efforts of active investors cause assets to be fairly priced – that’s why there are no bargains to find.&nbsp; But what happens when the majority of equity investment comes to be managed passively?&nbsp; Then prices will be freer to diverge from “fair,” and bargains (and over-pricings) should become more commonplace.&nbsp; This won’t assure success for active managers, but certainly it will satisfy a necessary condition for their efforts to be effective.</p> <p>One of my clients, the chief investment officer of a pension fund, told me the treasurer had proposed dumping all active managers and putting the whole fund into index funds and ETFs.&nbsp; <strong>My response was simple: ask him how much of the fund he’s comfortable having in assets no one is analyzing. </strong></p> <p>As Steven Bregman of Horizon Kinetics puts it, “basket-based mechanistic investing” is blindly moving trillions of dollars.&nbsp; <strong>ETFs don’t have fundamental analysts, and because they don’t question valuations, they don’t contribute to price discovery.&nbsp; Not only is the number of active managers’ analysts likely to decline if more money is shifted to passive investing, but people should also wonder about who’s setting the rules that govern passive funds’ portfolio construction.</strong></p> <p><strong>The low fees and expenses that make passive investments attractive mean their organizers have to emphasize scale.</strong>&nbsp; To earn higher fees than index funds and achieve profitable scale, ETF sponsors have been turning to “smarter,” not-exactly-passive vehicles.&nbsp; Thus ETFs have been organized to meet (or create) demand for funds in specialized areas such as various stock categories (value or growth), stock characteristics (low volatility or high quality), types of companies, or geographies.&nbsp; There are passive ETFs for people who want growth, value, high quality, low volatility and momentum.&nbsp; <em>Going to the extreme, investors now can choose from funds that invest passively in companies that have gender-diverse senior management, practice “biblically responsible investing,” or focus on medical marijuana, solutions to obesity, serving millennials, and whiskey and spirits. </em></p> <p>But what does “passive” mean when a vehicle’s focus is so narrowly defined?&nbsp; Each deviation from the broad indices introduces definitional issues and non-passive, discretionary decisions.&nbsp; Passive funds that emphasize stocks reflecting specific factors are called “smart-beta funds,” but who can say the people setting their selection rules are any smarter than the active managers who are so disrespected these days?&nbsp; <strong>Bregman calls this “semantic investing,” meaning stocks are chosen on the basis of labels, not quantitative analysis.&nbsp; </strong>There are no absolute standards for which stocks represent many of the characteristics listed above. </p> <p>Importantly, organizers wanting their “smart” products to reach commercial scale are likely to rely heavily on the largest-capitalization, most-liquid stocks.&nbsp; For example, having Apple in your ETF allows it to get really big.&nbsp; Thus Apple is included today in ETFs emphasizing tech, growth, value, momentum, large-caps, high quality, low volatility, dividends, and leverage. </p> <p>Here’s what Barron’s had to say earlier this month:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>With cap-weighted indexes, index buyers have no discretion but to load up on stocks that are already overweight (and often pricey) and neglect those already underweight.&nbsp; <strong>That’s the opposite of buy low, sell high.</strong></p> </blockquote> <p>The large positions occupied by the top recent performers – with their swollen market caps – mean that <strong>as ETFs attract capital, they have to buy large amounts of these stocks, further fueling their rise.&nbsp; Thus, in the current up-cycle, over-weighted, liquid, large-cap stocks have benefitted from forced buying on the part of passive vehicles, which don’t have the option to refrain from buying a stock just because its overpriced. </strong></p> <p>Like the tech stocks in 2000, this seeming perpetual motion machine is unlikely to work forever.&nbsp; <strong>If funds ever flow out of equities and thus ETFs, what has been disproportionately bought will have to be disproportionately sold.&nbsp; It’s not clear where index funds and ETFs will find buyers for their over-weighted, highly appreciated holdings if they have to sell in a crunch.&nbsp; </strong>In this way, appreciation that was driven by passive buying is likely to eventually turn out to be rotational, not perpetual.</p> <p>* * * </p> <p><span style="text-decoration: underline;"><strong>Finally, the systemic risks to the stock market have to be considered.</strong></span>&nbsp; Bregman calls “the index universe a big, crowded momentum trade.”<strong>&nbsp; A handful of stocks – the FAANGs and a few more – are responsible for a rising percentage of the S&amp;P’s gains, meaning the stock market’s health may be overstated. </strong></p> <p>All the above factors raise questions about the likely effectiveness of passive vehicles – and especially smart-beta ETFs. </p> <ul> <li><strong>Is Apple a safe stock or a stock that has performed well of late?&nbsp;</strong> Is anyone thinking about the difference?</li> <li>Are investors who invest in a number of passive vehicles described in different ways likely to achieve the diversification, liquidity and safety they expect?</li> <li><strong>And what should we think about the willingness of investors to turn over their capital to a process in which neither individual holdings nor portfolio construction is the subject of thoughtful analysis and decision-making, and in which buying takes place regardless of price</strong>?</li> </ul> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="640" height="360" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/howard%20marks%20teaser.jpg?1501087253" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/howard-marks-sounds-alarm-etfs-and-passive-investing-again#comments AIG Apple B+ Bear Market Bond Business Central Banks default Economic history of the Netherlands Exchange-traded funds Finance Funds High Yield Howard Marks Index fund Investment Investment management Money Mutual fund None Oaktree Passive management S&P S&P 500 Stock market the University of Chicago The Vanguard Group US government Volatility Wed, 26 Jul 2017 16:54:29 +0000 Tyler Durden 600532 at http://www.zerohedge.com Is The Fed Poised To Ignite A Violent Dollar Rally? http://www.zerohedge.com/news/2017-07-26/fed-poised-ignite-violent-dollar-rally <p>As ther world waits with bated breath for Janet Yellen&#39;s statement this afternoon - whiche is uniformly expected to be a nothing-burger, some are wondering if the recent flip-floppery by Yellen, Draghi (and even Kuroda with his &#39;actual&#39; tapering while lowering inflation expectations) does not leave today open to another modst shift back in The Fed&#39;s &#39;hawkishness&#39;. As Bloomberg&#39;s macro strategist warns, this sets the market up for a surprise and as he warns: &quot;<em><strong>Dollar risks are starting to seem skewed all one way: toward an immediate rally.</strong></em>&quot;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>There&rsquo;s extremely bearish positioning,</strong> that&rsquo;s failed to adapt to changing circumstances, into event risk that&rsquo;s structured to surprise in the opposite direction. <strong>That&rsquo;s an explosive mix.</strong></p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_usd.jpg"><strong><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_usd_0.jpg" style="width: 600px; height: 316px;" /></strong></a></p> <p>&nbsp;</p> <p>When something seems so obvious, your immediate instinct should be to ask<em><strong>, &quot;what&rsquo;s the catch?&quot; My problem is that this time, I just can&rsquo;t see one.</strong></em></p> <p>&nbsp;</p> <p><strong>The dollar is poised like a coiled spring against so many other currencies. </strong>Some of them have started to retrace on their own -- AUD, JPY and KRW as some examples -- but <u><strong>the FOMC can trigger all the rest at once today.</strong></u></p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_usd1.jpg"><u><strong><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_usd1_0.jpg" style="width: 600px; height: 318px;" /></strong></u></a></p> <p>&nbsp;</p> <p><strong>Investors have suddenly become inordinately focused on disappointing inflation data </strong>from the U.S. Inflation prospects have looked subdued for months so it seems completely irrational to expect the FOMC to use a meeting with no press conference to now significantly alter their guidance.</p> <p>&nbsp;</p> <p>The committee is attempting to normalize policy as a strong labor market and roaring financial assets give it a window to act, not because of runaway inflation.</p> <p>&nbsp;</p> <p><strong>Exceptionally&nbsp;easy financial conditions&nbsp;show policy makers still have room.</strong></p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/16/20170725_death.jpg"><img height="312" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/16/20170725_death_0.jpg" width="600" /></a></p> <p>&nbsp;</p> <p>It&rsquo;s completely fair to argue that they may start fearing deflation again at some point. <strong>But this isn&rsquo;t the meeting that they&rsquo;ll choose to radically shift the official stance.</strong></p> <p>&nbsp;</p> <p>And <strong>that stance is still that 2017 will see both the beginning of balance sheet reduction as well as another rate hike</strong>. Again, that won&rsquo;t change today.</p> <p>&nbsp;</p> <p>If anything, <u><strong>the risk is that they give an exact start date for balance sheet tapering and it&rsquo;s sooner than the market expects</strong></u>. Bloomberg Intelligence notes that&nbsp;an operational advantage of announcing a timeframe this week is that it would allow the Treasury to lay out its intended response in the quarterly refunding statement due Aug. 2.</p> <p>&nbsp;</p> <p><strong>The market is complacently short dollars as we enter the height of summer illiquidity.</strong> That&rsquo;s despite yields jumping higher on Tuesday, with U.S. terms-of-trade that have been improving all year, and with other major central banks -- the ECB, BOJ and RBA -- emphasizing their dovish credentials.</p> <p>&nbsp;</p> <p><strong>A dollar rally can be short but violent. The conditions and the catalyst are both primed and ready.</strong></p> </blockquote> <p>Does Cudmore have high conviction? His answer is clear..</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Yes. For a reason.</strong></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>What&rsquo;s the alternative?</strong></span> The FOMC sounds slightly more dovish? So what. The market&rsquo;s already very short dollars. It won&rsquo;t be inclined to add aggressively to that going into August.</p> <p>&nbsp;</p> <p>As&nbsp;I wrote&nbsp;on Monday, <em><strong>politics are a red herring and financial assets rarely move in a straight line. Beware the dollar jack-in-the-box.</strong></em></p> </blockquote> <p>He may be right - <em><strong>given the extreme &#39;short&#39; dollar positioning (dovish) and what is now a record short speculative position in 2Y Treasury Futures (hawkish)</strong></em>...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_usd11.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/07/26/20170726_usd11_0.jpg" style="width: 600px; height: 318px;" /></a></p> <p>The market hopes that Yellen doesn&#39;t misstep.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1168" height="619" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170726_usd1.jpg?1501072301" /> </div> </div> </div> http://www.zerohedge.com/news/2017-07-26/fed-poised-ignite-violent-dollar-rally#comments Bank of Japan Bloomberg Intelligence Business Central Banks Committees Currency Economics Economy European Central Bank Federal Open Market Committee Federal Reserve System Financial economics Inflation Janet Yellen Janet Yellen Macroeconomics Reserve Bank of Australia United States dollar US Federal Reserve Wed, 26 Jul 2017 16:40:43 +0000 Tyler Durden 600506 at http://www.zerohedge.com