en 'Hawkish' Fed Fail? Yield Curve Flattens Most Since 2016 As Dollar Spikes <p>More dismal housing data, a VIX 9 handle, and bank stocks ripping higher (despite a big flattening in the yield curve) - just another day in Fed-land...</p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="" width="560"></iframe></p> <p>&nbsp;</p> <p>Stocks and the long bond unchanged post-Fed, Gold down and dollar up...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 420px;" /></a></p> <p>&nbsp;</p> <p>S&amp;P and Dow ended the day just higher at record highs!!! thanks to post-fed dip-buying panic as Trannies surged...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 350px;" /></a></p> <p>&nbsp;</p> <p>VIX was &#39;handled&#39; back down to a 9 handle (first 9-handle close since July)... of course...look at the panic-bid in stocks as VIX was crushed in the last few minutes (to get S&amp;P green)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 302px;" /></a></p> <p>&nbsp;</p> <p>AAPL was notably hit, now down 5% from when the iPhone 8 was unveiled...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>As WSJ notes, <strong>Apple acknowledged problems with cellular connectivity in its newest smartwatch</strong>, raising questions about the device&rsquo;s most significant feature days before it goes on sale in stores in the U.S. and other countries. In a statement Wednesday, Apple said the problem connecting to cellular networks occurs when the Apple Watch Series 3&mdash;the first watch from Apple to feature an LTE chip for cellular service&mdash;joins &ldquo;unauthenticated Wi-Fi wireless networks without connectivity.&rdquo; <strong>Apple said it is &ldquo;investigating a fix for a future software release.&rdquo;</strong></p> <p>Financials kneejerked higher today again but retailers snd Utes were weak...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 292px;" /></a></p> <p>&nbsp;</p> <p>5Y Yields spiked most on the day (+5bps) but 2Y was the headline grabber, moving to its highest since Dec 2008 (but notably still below The Fed&#39;s 1.50% expectation for Dec...</p> <p><a href=""><img height="312" src="" width="600" /></a></p> <p>&nbsp;</p> <p>The long-end of the curve rallied on the day as the short-end snapped higher (in yield), crushing the yield curve...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>but Bank stocks didn&#39;t care about details like that...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p><strong>This is the biggest flattening of the yield curve since Dec 2016</strong>.</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="en">Yellen: &quot;rate hikes will be needed to sustain the economic expansion&quot;</p> <p>So rate cuts now hurt the economy?</p> <p>&mdash; zerohedge (@zerohedge) <a href="">September 20, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>5Y Yields are back at the same level as when the JUly FOMC meeting hit..</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 319px;" /></a></p> <p>&nbsp;</p> <p>and 30Y Yields ended the day lower...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>Another signal of Fed Fail is the fact that breakevens plunged today...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>The market still sees a 37% chance that The Fed won&#39;t hike In December...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 250px;" /></a></p> <p>The Dollar Index spiked on The Fed&#39;s &#39;hawkish&#39; statement, jumping by the most since January... (NOTE - this merely moved the dollar index back to payrolls levels)...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>Despite the dollar gains, WTI prices held on to gains on the day after DOE data with RBOB fading...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 328px;" /></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="951" height="92" alt="" src="" /> </div> </div> </div> Apple Apple Inc. Bond Bond Economy Fail Federal Open Market Committee Federal Reserve System Finance Financial markets Fixed income LTE chip Money VIX wi-fi Yield Yield Curve Yield curve Wed, 20 Sep 2017 20:02:46 +0000 Tyler Durden 603869 at What, No Hurricane Bounce? Ford Idles 5 North American Plants In Wake Of Slumping Car Sales <p><a href=""><em>Authored by Mike Shedlock via,</em></a></p> <p>As initially reported by the Census Department, motor vehicle sales were up 1.2% in July following a 0.9% gain in June. At the time, I commented,<strong><em> &ldquo;This is unbelievably bizarre in the face of actual auto sales reports.&rdquo;</em></strong></p> <p>The Census Bureau revised sales estimates much lower in September as noted in&nbsp;<a href="" rel="noopener" target="_blank">Retail Sales Unexpectedly Decline, Huge Negative Revisions in June and July: Reflections on &ldquo;Bizarre&rdquo; Sales&nbsp;Reports</a>.</p> <p><strong>Today we learn <a href="" rel="noopener" target="_blank">Ford to cut production at five North American vehicle plants</a> due to rising inventory and slumping sales.</strong></p> <p><a href=""><img class="alignnone size-large wp-image-48098" height="393" src=";h=393" width="529" /></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Ford Motor Co said on Tuesday it plans to <strong>idle five North American vehicle assembly plants for a total of 10 weeks to reduce inventories of slow-selling models.</strong></p> <p>&nbsp;</p> <p>The plants affected include <strong>three assembly plants in the United States and two in Mexico,</strong> the company said in a statement.</p> <p>&nbsp;</p> <p>The vehicle models include the <strong>Ford Fusion and Lincoln MKZ midsize sedans, the Ford Focus compact car, the Lincoln Continental and Ford Mustang, Ford Fiesta and the Ford Transit van.</strong></p> <p>&nbsp;</p> <p><strong>The factories involved employ more than 15,000 people,</strong> according to Ford&rsquo;s website. The company did not say how many of those workers would face temporary layoffs.</p> </blockquote> <h3><u><strong>Ford Inventory Numbers</strong></u></h3> <ul> <li>111 days&rsquo; supply of unsold Mustangs</li> <li>87 days&rsquo; supply of Fusions</li> <li>103 days&rsquo; supply of Transit vans</li> <li>162 days&rsquo; supply of Lincoln Continentals</li> </ul> <p><strong>Automakers aim for 65 to 70 days of inventory of most models.</strong></p> <p>Note that production cuts are on the way <strong>despite the expected bounce in sales due to hurricane damage.</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="482" height="296" alt="" src="" /> </div> </div> </div> Auto Sales Automotive industry Bureau of the Census Business Census Bureau Census Department Environment Ford Ford CD3 platform Ford Fusion Ford Motor Company Henry Ford Lincoln Continental Lincoln MKZ Lincoln Motor Company Mexico Mid-size cars Sedans Transport Wed, 20 Sep 2017 19:50:00 +0000 Tyler Durden 603828 at Warren Buffett Predicts Dow 1,000,000; But There's A Catch... <p>The Wall Street Journal won the award for the greatest "Shock And Awe" financial headline of the day when it published a story earlier entitled "<a href="">Warren Buffett Says the Dow Is Going Over One Million</a>."&nbsp; The 'Oracle of Omaha' apparently made the 'bold' prediction at the 100-year anniversary celebration of Forbes magazine in which he also said that <strong>"being short America will continue to be a loser’s game."</strong>&nbsp; Here are the highlights from WSJ:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>You heard it from Warren Buffett first: the Dow Jones Industrial Average is headed above one million.</strong></p> <p>&nbsp;</p> <p>The blue-chip stock benchmark is likely to be above that milestone in a hundred years’ time, the Berkshire Hathaway Inc. chief executive and chairman said Tuesday night.</p> <p>&nbsp;</p> <p><strong>“The Dow will be over a million</strong> and that is not a ridiculous forecast at all if you do the math,” he said.</p> <p>&nbsp;</p> <p><strong>“Being short America has been a loser’s game,” </strong>he said. <strong>“And it will continue to be a loser’s game.”</strong></p> </blockquote> <p><img src="" alt="Warren" width="600" height="310" /></p> <p>&nbsp;</p> <p>And while the title may make you want to drop everything you're doing, throw all your cash in the DOW and retire early...a bit of simple math reveals that a more appropriate title for the Wall Street Journal's "Shock And Awe" piece from early today might have been: <strong>"Warren Buffet Predicts Dow Will Massively Underperform Historical Returns Over the Next Century."</strong></p> <p>In reality,<strong> 'Dow $1,000,000' in 100 years would indicate an abysmal CAGR of just 3.9% pre-tax,</strong> or closer to just 3% post-tax returns per year (assuming tax rates don't trend toward 90% over the next 100 years).</p> <p>Taking a look back, the <strong>Dow has returned 5.7% annually over the past 100 years and 9.3% annually since 1980 </strong>when the modern era of equity bubbles first started to really take off.</p> <p><a href=" - DOW.jpg"><img src="" style="width: 600px; height: 335px;" /></a></p> <p>&nbsp;</p> <p>Finally, just to put all this in context, if the Dow were to grow at the same annualized rate of 9.3% that it has grown at since 1987, <strong>then a more reasonable 100-year price target for the Dow would be just over $140 million</strong> instead of the $1 million predicted by Buffett...</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="789" height="407" alt="" src="" /> </div> </div> </div> Berkshire Hathaway Business Business Dow 30 Dow Jones & Company Dow Jones Industrial Average Dow Jones Industrial Average Finance Financial data vendors Money Reality The Wall Street Journal Wall Street Journal Warren Buffett Warren Buffett Wed, 20 Sep 2017 19:35:00 +0000 Tyler Durden 603866 at Hurricane Maria Floods San Juan, Knocks Out Power Across Puerto Rico <p>Even after weakening to a category 4 storm shortly before making landfall along the southeastern coast of Puerto Rico, Hurricane Maria caused unprecedented devastation to the cash-strapped island and knocking out electricity for all of its 3.4 million residents. Worse still, the island&rsquo;s governor has said it could be months before power is restored to all customers, according to the <a href=";SECTION=HOME&amp;TEMPLATE=DEFAULT&amp;CTIME=2017-09-20-13-15-42">Associated Press. </a></p> <p>The strongest storm to hit Puerto Rico in nearly 90 years tore off roofs and doors and caused flooding across the island &ndash; including in downtown San Juan, including the capital&rsquo;s Hato Rey financial district. Its 20+ inches of rain, 9 nine-foot storm surge and 155 mph winds hammered the island&rsquo;s fragile power grid, which had yet to be fully repaired from the damage caused by Hurricane Irma just two weeks ago.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 248px;" /></a></p> <p>Many of residents had yet to see their power restored after Irma&rsquo;s assault, and thousands remained in government-run shelters.</p> <p>Rivers overflowed and the winds downed trees and damaged homes and buildings, including several hospitals. The storm slowly lost power as it traversed the island and was recently downgraded to a category 3 storm after its windspeeds slowed to 115 mph, according to <a href="">Bloomberg</a>.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 277px;" /></a></p> <p>Maria and its life-threatening winds are expected to linger over the island for between 12 and 24 hours.</p> <p>Widespread flooding was reported across the island, with dozens of cars half-submerged in some neighborhoods and many streets turned into rivers. People calling local radio stations reported that doors were being torn off their hinges and a water tank flew away.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 271px;" /></a></p> <p>Gov. Ricardo Rossello said more than 11,000 people, and nearly 600 pets, were staying in government-run shelters.<br />In one neighborhood, nearly 80% of homes were destroyed, according to initial estimates.</p> <blockquote class="twitter-tweet" data-partner="tweetdeck"><p dir="ltr" lang="en">Hurricane Maria&rsquo;s winds rip side off building in San&nbsp;Juan <a href=""></a> <a href=""></a></p> <p>&mdash; Whywebs (@WhyWebsCoM) <a href="">September 20, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>Felix Delgado, mayor of the city of Catano on the northern coast of Puerto Rico, told a local TV station that 80 percent of the homes in a neighborhood known as Juana Matos were destroyed.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 258px;" /></a></p> <p>El Nuevo Dia newspaper reported that 80 percent of homes in a small fishing community near San Juan were damaged, and that an emergency medical station in the coastal town of Arecibo lost its roof, while communication was severed with several emergency management posts. A hospital and a police station reported broken windows, and a tree fell on an ambulance.</p> <p>Maria killed at least seven people on the island of Dominica, government officials said, and two people in the French territory of Guadeloupe as it barreled through the Caribbean. It also caused widespread damage on St. Croix, one of the U.S. Virgin Islands. By comparison, Hurricane Irma killed 84 people when it tore through the Caribbean two weeks ago.</p> <p>Maria dumped as much as 25 inches of rain on the island, the NHC said. Storm surges, when hurricanes push ocean water dangerously over normal levels, could be up to 9 feet. The heavy rainfall could cause life-threatening flash floods and mudslides, it added.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;This a catastrophe we&#39;re going through,&quot; said Madeline Morales, 62, a saleswoman in San Juan who abandoned her coastal home before the storm hit to seek refuge in a hotel on higher ground.</p> </blockquote> <p>Maria was the strongest hurricane to hit Puerto Rico since 1928, when the San Felipe Segundo hurricane hammered the island, leaving about 300 people dead, according to the NWS. Maria has so far killed at least nine people across the Caribbean, including 7 in Dominica and 2 in Guadeloupe.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 406px;" /></a></p> <p>Before hitting Puerto Rico, Maria ripped off roofs and downed trees as it passed west of St. Croix, home to about half of the U.S. Virgin Islands&#39; 103,000 residents, as a rare Category 5 storm, the top of the five-step Saffir-Simpson scale.</p> <p>Federal Reserve Chairwoman said that damage from Maria, Harvey and Irma would weigh on US GDP growth during the third quarter, though the effects would quickly dissipate. She expressed her sympathies for the victims, and her sympathies on behalf of the board.</p> <p>Some 65 to 70 percent of the buildings on St. Croix were damaged by the storm, said Holland Redfield, who served six terms in the U.S. Virgin Islands senate.</p> <p>Maria may cause $45 billion of damage across the Caribbean, with at least $30 billion of that in Puerto Rico, said Chuck Watson, a disaster modeler at Enki Research in Savannah, Georgia. he cost to Puerto Rico could reach at least 10 percent of its gross domestic product, said Joe Myers, founder and president of AccuWeather Inc. in State.</p> <p>Governor Ricardo Rossello Wednesday asked President Donald Trump to declare Puerto Rico a disaster zone.<br />&nbsp;</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="833" height="429" alt="" src="" /> </div> </div> </div> Caribbean Disaster Donald Trump Environment Federal Reserve Federal Reserve flash Geography of North America Gross Domestic Product History of the Caribbean Hurricane Hortense Hurricane Hugo Lesser Antilles Newspaper Okeechobee hurricane Puerto Rico Puerto Rico U.S. Virgin Islands senate US Federal Reserve Weather Wed, 20 Sep 2017 19:20:26 +0000 Tyler Durden 603868 at Back To Rehab Or Continue Chasing The Dragon <p><em>Authored by <a href="">720Global&#39;s Michael Lebowitz</a>, via <a href=""></a>,</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em><span style="color: #993300;">&ldquo;There is no other agency of government which can overrule actions that we take.&rdquo;</span>&nbsp; </em></p> <p><em>&ndash; Alan Greenspan</em></p> </blockquote> <p>The Federal Reserve (Fed) currently expects real economic growth for the foreseeable future to average below 2.00%. Japan, the United Kingdom, and the European region are forecasting an even more anemic pace. <strong>On numerous occasions, we have detailed the reasons the United States and many foreign nations are mired in economic stagnation. </strong>At the top of our list, is the over-reliance on debt and the burden that decades of debt-driven-consumption policies have inflicted upon economic activity. To not only accommodate existing debt, but promote more debt, Keynesian schooled central bankers have presided over extremely easy monetary policy for years. <strong>Policy has been administered through a combination of low-interest rates and more recently, as desperation escalates to keep the economic engine from sputtering, money printing.</strong></p> <p>In &ldquo;<a href=""><em>How Much is too Much</em></a>&rdquo; we shared the following graph that plots the exponentially increasing amounts of stimulus supplied by the Fed to combat recessions and &ldquo;sub-par&rdquo; economic growth.</p> <p><a href=""><img class="alignnone size-full wp-image-23722" src="" style="width: 600px; height: 324px;" /></a></p> <p>The graph above, and many others comparing the actions taken by central banks over the last 30-40 years provides sufficient scale to understand the use of the word &ldquo;extraordinary&rdquo; to describe policy resulting from the Great Financial Crisis of 2008.</p> <p>We thought it was worthwhile to extend the study to help you fully grasp the sheer lunacy of what has taken place over the last nine years. <strong>The fascinating chart below plots the size of the Bank of England&rsquo;s (BOE) balance sheet as a percentage of GDP since the year 1700.</strong></p> <p><a href=""><img class="alignnone size-full wp-image-23723" src="" style="width: 601px; height: 333px;" /></a></p> <p><em>Data Courtesy: St. Louis Federal Reserve (FRED) and Bank of England</em></p> <p>The size of the BOE&rsquo;s balance sheet is nearly equivalent to the amount of stimulus supplied by the BOE. <strong>Note the red circle highlighting the sharp increase from 1929 to 1947. This period covered three devastating events for the United Kingdom. </strong>In 1929, the Great Depression began and strangled growth worldwide. At the time, the British Pound was the reserve currency, so the stifling of global trade imposed inordinate demands on the British Pound. Approximately ten years later they were heavily involved in WWII. The UK declared war on Nazi Germany in 1939 and experienced extensive destruction to their cities and infrastructure. In 1944, as the war was nearing an end, the Bretton Woods agreement was signed which marked the beginning of the end for the pound as the world&rsquo;s reserve currency.</p> <p>During this tumultuous 18-year period, the BOE&rsquo;s balance sheet increased 180%, marking a significant change in the trend of the prior 250 years. <strong>Now consider that, over the last eight years, the amount of stimulus supplied by the BOE has increased 251%. Given the contrast, this graph effectively conveys the seriousness of the current economic situation in the UK and is symptomatic of all developed economies.&nbsp; </strong></p> <p>Given that the U.S. Federal Reserve was established in 1913, we do not have historical data comparable to what is shown in the BOE graph. That said, using various sources and the generous help of others (special thank you to Brett Freeze &ndash; <a href="">Global Technical Analysis</a>), we came up with the following chart going back to the Fed&rsquo;s inception.</p> <p><a href=""><img class="alignnone size-full wp-image-23724" src="" style="width: 601px; height: 333px;" /></a></p> <p><em>Data Courtesy: Global Technical Analysis and St. Louis Federal Reserve (FRED)</em></p> <p><strong>Like the BOE graph above, the contrast of recent growth of the Fed&rsquo;s balance sheet (+428%) is nothing short of alarming. The fact that this posture has been sustained now for nearly a decade and is producing the weakest recovery on record is even more disconcerting.</strong></p> <p>The graph below shows the tremendous growth of Japan&rsquo;s and Europe&rsquo;s central bank balance sheets since the crisis.</p> <p><a href=""><img class="alignnone size-full wp-image-23725" src="" style="width: 601px; height: 308px;" /></a></p> <p><em>Data Courtesy: Bloomberg </em></p> <h3><u><strong>Summary</strong></u></h3> <p><strong>There is clearly something wrong when a central bank prints money in rapidly growing amounts.</strong>&nbsp; Such a departure from prior trends enables other undesirable events to transpire. The Fed, Wall Street, and the media serve up complicated economic explanations for why this time is not different from the past. The evidence provided in these charts argue something is very different.</p> <p><strong>Our experiences during the Great Financial Crisis provided first-hand evidence of the instabilities caused by too much debt. The years since have been the denial of that evidence as the debt burden has only grown larger. There is little doubt that the years to come will eventually bear witness to the resolution.</strong></p> <p>The charts above illustrate that central bankers have been desperately trying to use liquidity to offset the prior excesses. However, this is not a liquidity problem it is an insolvency problem. Egregious improper use of their balance sheets has only made the prospects for resolution worse as zombie banks, companies, and consumer debt that should have been liquidated are imprudently allowed to survive.&nbsp; It is just an eventuality that the Minsky moment will arrive &ndash; the time when extensive amounts of debt must be written off, losses taken and financial institutions re-capitalized. When that day arrives, the central bankers and their sledge hammers of monetary policy will not have the precision required to patch the problems yet again. At that point, they can either allow the economy to naturally deleverage in what would certainly be a painful economic event or they can print even more money in further attempts to reflate the economy. Experience has shown that the second option, while it delays the inevitable, is every bit as painful as the first. Our guess is they will select option two and desperately try to kick the can as long as possible and extend the charade of the past few years.</p> <p><strong>Like a drug addict chasing the proverbial dragon, the world&rsquo;s central bankers are faced with the painful choice of rehab to break the grip of easy money or an on-going downward spiral toward economic demise.</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="593" height="269" alt="" src="" /> </div> </div> </div> Alan Greenspan Bank of England Bank of England BOE British Pound Business Central bank Central Banks Debt Economics Economy Economy of the United States Federal Reserve Federal Reserve System Finance Financial crisis of 2007–2008 Germany Great Depression Great Recession Japan Monetary Policy Money Presidency of George W. Bush recovery Reserve Currency Stock market crashes Technical Analysis United Kingdom US Federal Reserve Wed, 20 Sep 2017 19:05:00 +0000 Tyler Durden 603855 at Yellen "Does Not Fully Understand Inflation" So Here It Is Explained In Just One Chart <p>In what has been the most stunning admission by Janet Yellen so far during her press conference, the Fed Chair said that "we don't fully understand inflation" and added that the "shortfall of inflation this year is more of a mystery." </p> <p>With all due respect, it's not. But since the Fed is often confused, we would like to do the central bank a favor and "explain" inflation, or the lack thereof as the Fed laments, with just one chart.</p> <p><a href=""><img src="" width="500" height="366" /></a></p> <p>To simplify enough that everyone on the FOMC will understand, here it is: </p> <ul> <li><strong>Real economic prices</strong>: no inflation.</li> <li><strong>Asset prices: </strong>rampant, and in some case soaring, inflation.</li> </ul> <p>And just in case there is still confusion, here is Goldman:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The long economic cycle that we have been enjoying is, in part, a reflection of loose monetary conditions and low interest rates. Exhibit 17 is a simple but effective way to demonstrate this effect. Taking data back to 2009, the start of the period of extraordinary monetary policy, we can see a very big difference between ‘prices’ in the real economy – measures of wages, consumer price inflation, house prices, commodities – and asset prices. Also shown here is the long-run average nominal GDP growth and nominal GDP growth over this period for the US and Europe (in red). <strong>Financial assets have significantly outstripped both nominal GDP growth and inflation in the real economy, largely as a result of rates staying low.</strong></p> </blockquote> <p>So, dear Janet, the next time you are so worried about the "shortfall" in inflation, maybe just pull up a random ticker...</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="500" height="288" alt="" src="" /> </div> </div> </div> Business Economics Economy Federal Open Market Committee Federal Reserve System Gross domestic product Inflation Inflation targeting Janet Yellen Macroeconomics Monetary inflation Monetary Policy Monetary policy National accounts Nominal GDP Nominal income target Real versus nominal value US Federal Reserve Wed, 20 Sep 2017 18:53:45 +0000 Tyler Durden 603867 at Watch Live: Janet Yellen Explains How Unwinding The Fed's Balance Sheet Will Be Like "Watching Paint Dry" <p><strong>Is &#39;the committee to save the world&#39; about to &#39;unsave the world&#39;?</strong> Not according to The Fed who see their balance sheet unwind as <strong>boring a &quot;watching paint dry.&quot; </strong></p> <p>Of course, aside from the fact that The Fed has been unable to forecast its way out of a paper bag for decades, more than a few market participants believe otherwise, <a href="">including BofA who recently warned</a>...<strong><em>&quot;the paint may be drying but the wall is about to crumble.&quot;</em></strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong><a href="">&quot;If Bonds Are Right, Stocks Will Drop Up To 20%</a>.&quot;</strong> This point can be summarized simply as follows: there is $1 trillion in excess TSY supply coming down the line, and either yields will have to jump for the net issuance to be absorbed, or equities will have to plunge 30% for the incremental demand to appear.</p> <p>&nbsp;</p> <p><strong>An unwind of the Fed&rsquo;s balance sheet also increases UST supply to the public</strong>. Ultimately, the Treasury needs to borrow from the public to pay back principal to the Fed resulting in an increase in marketable issuance<strong>. We estimate the Treasury&rsquo;s borrowing needs increase roughly by $1tn over the next five years due to the Fed rolloffs. </strong>However, not all increases in UST supply are made equal. This will be the first time UST supply is projected to increase when EM reserve growth likely remains benign. <strong>Note both the 2003-06 and 2009-13 increase in UST supply were met with the largest increase in Chinese buying of USTs. With this unlikely to repeat, we believe price sensitive buyers need to step up. </strong></p> <p>&nbsp;</p> <p>Our analysis suggests <span style="text-decoration: underline;"><strong>this would necessitate a significant rise in yields or a notable correction in equity markets to trigger the two largest remaining sources (pensions or mutual funds) to step up to meet the demand shortfall</strong></span>. Again, this is a slower moving trigger that tightens financial conditions either by necessitating higher yields or lower equities.</p> </blockquote> <p>However, we&#39;re sure that Janet Yellen,<strong><em> just months away from leaving the sinking ship,</em></strong> will calm all fears during today&#39;s press conference...</p> <p><a href=""><img src="" style="width: 561px; height: 285px;" /></a></p> <p>Live Feed:</p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="" width="560"></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="611" height="311" alt="" src="" /> </div> </div> </div> Business Economics Equity Markets Federal Reserve System Janet Yellen Janet Yellen US Federal Reserve Wed, 20 Sep 2017 18:25:00 +0000 Tyler Durden 603863 at S&P Loses 2,500, Gold Tests $1300 As Fed Flattens Yield Curve <p><strong>As Yellen&#39;s press conference began</strong>, Gold and stocks legged lower, taking out $1300 and 2500 respectively..</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 437px;" /></a></p> <p>&nbsp;</p> <p>As we detailed earlier, the dollar spiked higher and the yield curve spiked lower following The Fed&#39;s hawkish statement. <strong>2Y yields hit their highest since Dec 2008...</strong></p> <p><strong><a href=""><img height="313" src="" width="600" /></a></strong></p> <p>&nbsp;</p> <p><strong>As December rate hike odds jumped to 63%.. so still not completely buying The Fed&#39;s plan...</strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 250px;" /></a></p> <p>&nbsp;</p> <p>The dollar spiked...</p> <p><a href=""><img height="302" src="" width="600" /></a></p> <p>&nbsp;</p> <p>But the yield curve cracked notably flatter... as the long-end was unimpressed.</p> <p><a href=""><img height="306" src="" width="600" /></a></p> <p>&nbsp;</p> <p>This is not what The Fed, or the banks, were hoping for. How long before bank stocks wake up?</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p><strong>This is the biggest flattening in 5s30s since Dec 2016.</strong></p> <p>For now, gold is down, the dollar is up...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 351px;" /></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="965" height="507" alt="" src="" /> </div> </div> </div> Business Federal Reserve System Financial markets Fixed income Politics Spiked Structure US Federal Reserve Yield Yield Curve Yield curve Wed, 20 Sep 2017 18:24:50 +0000 Tyler Durden 603865 at Fed Begins Balance Sheet Unwind, Expects One More Rate Hike In 2017 <p><strong>Today&#39;s the day. </strong></p> <p>On Nov 25, 2008 The Fed announced it would begin buying assets for its own account to save the world. In Oct 2014, The Fed ended its QE3 buying program but continued to reinvest the proceeds to maintain its $4.4 trillion balance sheet. <strong>Today, Janet Yellen announced the balance sheet will be allowed to normalize, with reinvestments slowed/stopped starting in October</strong>.</p> <p>Headlines:</p> <ul> <li><strong>*FED: HURRICANES UNLIKELY TO ALTER ECONOMY&#39;S COURSE MEDIUM TERM</strong></li> <li>*FED: JOB MKT STRENGTHENED, ECONOMIC ACTIVITY RISING MODERATELY</li> <li><strong>*FED KEEPS RATES UNCHANGED, PLANS BALANCE-SHEET RUNOFF IN OCT.</strong></li> <li>*FED FORECASTS STILL SIGNAL ANOTHER 2017 HIKE, 3 MORE IN 2018</li> <li>*FED REPEATS RISKS TO OUTLOOK APPEAR ROUGHLY BALANCED</li> <li>*FED SAYS FOMC VOTE WAS UNANIMOUS</li> <li><strong>*FOUR FED OFFICIALS SEE NO MORE 2017 HIKES, UNCHANGED FROM JUNE ( Eleven Fed officials now see one more hike in 2017 versus just eight in June.<br />- market odds only 50%)</strong></li> </ul> <p>As expected, the Fed announced it will begin reducing bond reinvestments, starting by $10 billion per month and growing to $50 billion. This is what the Fed&#39;s tapering looks like in context:</p> <p><a href=""><img height="332" src="" width="500" /></a></p> <p>The Fed cut long-term rates:</p> <ul> <li><strong>*FED ESTIMATE OF LONGER-RUN FUNDS RATE 2.8% VS 3% IN JUNE</strong></li> </ul> <p>... or specifically, 2.75%, which assuming 2.0% inflation as the Fed does, <u><strong>implies a 0.75% real funds rate. So much for growth potential.</strong></u></p> <p>The rest of the forecasts were kept largely in line, with the Fed seeing slightly lower inflation in 2018 vs June and a modest drop in the unemployment rate in 2018 and 2019.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 208px;" /></a></p> <p>More forecast details:</p> <p><strong>Longer-run median unemployment rate 4.6% compares to previous forecast of 4.6% at June 14, 2017 meeting</strong></p> <ul> <li>2017 median jobless rate at 4.3% vs 4.3%</li> <li>2018 median jobless rate at 4.1% vs 4.2%</li> <li>2019 median jobless rate at 4.1% vs 4.2%</li> <li>2020 median jobless rate at 4.2% vs n/a</li> </ul> <p><strong>Longer-run real GDP median projection of 1.8% compares to previous forecast of 1.8%</strong></p> <ul> <li>2017 median GDP growth 2.4% vs 2.2%</li> <li>2018 median GDP growth 2.1% vs 2.1%</li> <li>2019 median GDP growth 2.0% vs 1.9%</li> <li>2020 median GDP growth 1.8% vs n/a</li> </ul> <p><strong>Longer run PCE inflation median at 2.0% compares to previous forecast of 2.0%</strong></p> <ul> <li>2017 median core PCE inflation 1.5% vs 1.7%</li> <li>2018 median core PCE inflation 1.9% vs 2.0%</li> <li>2019 median core PCE inflation 2.0% vs 2.0%</li> <li>2020 median core PCE inflation 2.0% vs n/a</li> </ul> <p><strong>Longer run Fed funds median at 2.8% compares to previous forecast of 3.0%</strong></p> <ul> <li><strong>2017 median Fed funds 1.4% vs 1.4%</strong></li> <li><strong>2018 median Fed funds 2.1% vs 2.1%</strong></li> <li><strong>2019 median Fed funds 2.7% vs 2.9%</strong></li> <li><strong>2020 median Fed funds 2.9% vs n/a</strong></li> </ul> <p>* * *</p> <p>The big story, however, was the dots, <strong>where 12 Fed members now expect a rate hike in December vs 4 </strong>who believe rates wil stay unchanged. Also, one Fed member see two more rate hikes before the end of the year, or a 50 bps rate hike in December.</p> <p><a href=""><img alt="" src="" style="width: 501px; height: 393px;" /></a></p> <p>According to the &quot;dots&quot;, <strong>the median target for 2019 is 2.688% vs 2.938% in June; longer-run median is 2.75% vs 3% in June; 2020 median debuts at 2.875%. </strong>The median end-2017 dot is 1.375%, while in 2018 it rises to 2.125%, unchanged from previous. In June, only the 2019 median changed, declining to 2.938% from 3%</p> <p>Forecast ranges narrow for 2018, 2019; longer-run widens:</p> <ul> <li>2017 range 1.125%-1.625%, unchanged</li> <li>2018 range 1.125%-2.725% vs 1.125%-3.125% in June</li> <li>2019 range 1.125%-3.375% vs 1.125%-4.125% in June</li> <li><strong>2020 range 1.125%-3.875%</strong></li> <li><strong>Long-run range 2.25%-2.5% vs 2.5%-3.5% in June</strong></li> </ul> <p>A curious observation here is that the median 2020 dot (2.875%) is <strong>higher </strong>than the median Longer Run dot (2.75%)</p> <p>A comparison of the dots vs the market:</p> <p><a href=""><strong><img alt="" src="" style="width: 600px; height: 149px;" /></strong></a></p> <p>Here are the maturing assets that will not be reinvested over the coming months...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 145px;" /></a></p> <p>Many market participants appears to believe that The Fed has given investors plenty of notice that they would begin to unwind their balance sheet and so the actual event will be like &quot;watching paint dry.&quot; This seems more than a little disingenuous given the great levels of confidence embued into the actual QE process to save the world.</p> <p>As one wit on Twitter noted, <em><strong>&quot;If I tell you everyday for 6 months that I am going to cut off your head on 9/20... you are prepared, but how will you react on 9/21?&quot;</strong></em></p> <p>We shall see.</p> <p>*&nbsp; *&nbsp; *</p> <p>Since the July FOMC Meeting, gold is the biggest gainer as the dollar loses ground...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>*&nbsp; *&nbsp; *</p> <p>Notably the Taylor Rule (and the balance sheet-adjusted version) is implying <strong>The Fed should be about as tight as its been in decades...</strong></p> <p><a href=""><img height="307" src="" width="600" /></a></p> <p>&nbsp;</p> <p>And of course, here is what The Fed is really worrying about - they&#39;ve lost control...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>December Rate Hike Odds were at 53% heading into the statement...</p> <p><a href=""><img src="" style="width: 600px; height: 249px;" /></a></p> <p>&nbsp;</p> <p>Market liquidity flatlined heading into the FOMC statement...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 482px;" /></a></p> <p>This might help explains the three-card-monty game The Fed is playing, <a href="">courtesy of ING</a>, is the definitive &quot;cheat sheat&quot; matrix laying out all possible permutations of what can happen tomorrow, as well as the most likely market reaction.</p> <p><a href=" sheet fomc.jpg"><img src="" style="width: 600px; height: 415px;" /></a></p> <p>&nbsp;</p> <p>Full Statement redline below:</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 690px;" /></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="1024" height="576" alt="" src="" /> </div> </div> </div> Bond Business Committees Economic policy Economics Economy Economy of the United States fed Federal funds rate Federal Open Market Committee Federal Reserve System Financial services headlines James B. Bullard Janet Yellen Janet Yellen Monetary policy Money Open market operation Twitter Twitter Unemployment US Federal Reserve Wed, 20 Sep 2017 18:05:36 +0000 Tyler Durden 603864 at "If This Trade Doesn't Work, You Can Blame Me..." <p><em><a href="">Authored by Kevin Muir via The Macro Tourist blog,</a></em></p> <p>In July I wrote a piece titled, <a href="">&ldquo;Is the real US Dollar Pain Trade Lower?&rdquo;</a>. At the time the US dollar was sucking wind, but many traders were still playing for a bounce. <strong>The prevailing wisdom was that the Fed&rsquo;s tighter monetary policy, combined with Trump&rsquo;s business acumen, along with a tax reform bill, and topped off with a massive short covering surge from emerging market US dollar denominated issuers, would ensure the two-year US dollar rally would continue.</strong></p> <p><a href=""><img height="370" src="" width="500" /></a></p> <p>In the article, I quoted Luke Gromen, who said, <strong><em>regarding a move down to 80 in the DXY, &ldquo;&hellip;while COT (committment of traders) [data] shows more are cautious on the USD, as best I can tell, there isn&rsquo;t a soul that thinks this kind of move is even possible.&rdquo;</em></strong></p> <p><a href=""><img alt="" height="390" src="" width="500" /></a></p> <p>Yup, Luke was bang on correct,<strong> during the summer, precious few believed the US dollar would go down, forget about plunging more than 10%.</strong></p> <p><a href=""><img alt="" src="" style="width: 500px; height: 370px;" /></a></p> <p><strong>Earlier this year, according to most market participants, US dollar strength was inevitable due to all the reasons I suggested. </strong>Although Luke had been arguing his US-dollar-loss-of-reserve-currency-status theory for quite some time, apart from Grant Williams and some other hard money guys, Luke&rsquo;s theories were not gaining traction. Hedge funds were much more enamoured with the soothing sounds emanating from the USD bullish investing crowd. The idea of the US dollar losing its reserve status was laughable. I remember suggesting something to that effect to a colleague and he chuckled, &ldquo;what will possibly replace the US dollar? The Euro? The Yuan?&rdquo;</p> <p>Yet today, Luke is a rock star whose theories about the loss of US dollar reserve status are all the rage. Hedge funds and other traders are positioning their portfolios to take advantage of the coming US de-dollarization.</p> <p>Now, don&rsquo;t misconstrue this next part of my argument. Luke is a unique, big picture thinker that everyone should take the time to understand. No sense rehashing his arguments. Instead, if you haven&rsquo;t listened to it, head over to <a href="">MacroVoices to hear Luke&rsquo;s interview</a>. <strong>Although I agree with Luke&rsquo;s long term conclusions, my quibbles have all to do with the timing of this inevitability.</strong></p> <p><u><strong>Too many traders are expecting this to happen tomorrow.</strong></u> I have learned never to say never, but I don&rsquo;t think this sort of accelerated timing to be a high probability move. The de-dollarization of the financial system will not be an overnight event. It will be a long drawn out process. And in the meantime, the US dollar will go down, but more importantly, it will also go up. Let&rsquo;s not forget that there will be plenty of cyclical moves within a secular bear market.</p> <p><strong>Although I want to be bearish on the US dollar along with everyone else, I have learned the hard way that in today&rsquo;s market, this is not the correct bet.</strong> Over the past decade, trading has transformed into a zillion hedge funds arranged in a circle shooting at the tiny piece of alpha in the middle. <strong>Often the best trade is to fade the hedgies, regardless of how compelling their reasoning sounds.</strong></p> <p><strong>Taking the other side of this latest de-dollarization fad feels scary. It is not comfortable by any means.</strong> As I write this piece, I want to erase it and start over with another topic. Yet the hard trades are often the right trades&hellip; (either that, or you make a complete fool of yourself)</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 522px;" /></a></p> <p><strong>I am not sure what the catalyst will be for a US dollar move to the upside. Maybe it is a Fed that returns to their relatively hawkish ways. Maybe it will be an ECB that somehow manages to get the Euro to stop rising </strong>(as an aside, today the Euro poked its head above 1.20, and mysteriously, &ldquo;sources&rdquo; hit the financial news tape to jawbone it lower. It sure feels like the ECB doesn&rsquo;t want the EUR above 1.20) Maybe China or Japan, or whoever is the hot money these days, returns to buy US fixed income - after all, the US dollar is as cheap as it has been in quite some time. Regardless of the reason, the next surprise will not be a US dollar bear move, but instead a rally that catches everyone off guard.</p> <p><strong>Maybe I am early. Could be. Actually, it&rsquo;s most probable. </strong>There is also a chance that I am outright wrong, and that Luke&rsquo;s de-dollarization theory plays out much quicker than I expect. But I think the higher probability bet is that hedgies and the rest of the investing community got way too bullish on the US dollar over the past year. They got hurt, unwound it, and are now trying to make it back with a downside bet.</p> <p><strong>We have now hit the point where practically no one is recommending long positions in the US dollar. Well, lonely trades are my favourite kinds.</strong> I am buying US dollars, with the idea that I will leg into the position - half now, and half if it breaks to new lows. In yet another one of my painful lessons, I have learned that stepping in front of trending crowded trades is not easy. There is no rush. And most importantly, be careful! Volatility increases at turning points. Remember, the bottom is always lower than you expect.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 374px;" /></a></p> <p><em><strong>If the trade doesn&rsquo;t work, then you can blame me. I am happy to be your <a href="">Fall Guy</a>.</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="732" height="384" alt="" src="" /> </div> </div> </div> Alpha Bear Market China Currency Dollar Economy European Central Bank fixed Japan Monetary Policy United States dollar US Federal Reserve Volatility Yuan Wed, 20 Sep 2017 17:50:00 +0000 Tyler Durden 603852 at