Stealing Deflation

By Steve Saville

“…central bankers are thieves. They are stealing our deflation.”

If you listen to the top central bankers of the world talk for long enough you will come away with the impression that central banks are attempting to give us “price inflation”, as if rising prices were beneficial. However, nobody wants to pay more for stuff. In fact, rational people prefer to pay less, not more. Therefore, when central banks claim to be giving us “price inflation” what they are really doing is stealing the “price deflation” from which we would otherwise benefit.

We are told that a general expectation of rising prices is important, because if people start expecting prices to be lower in the future then they will curtail their spending in the present. This, apparently, will lead to an economically-disastrous downward spiral in which the general expectation of lower prices leads to reduced spending and reduced spending leads to even lower prices.

The economic ‘logic’ contained in the idea that expectations of higher prices are needed to promote present-day spending explains why companies like Apple can never sell anything. After all, who in their right mind would buy an Apple product today when they can be sure that a better product will be available at a lower price by this time next year?

And just imagine how bad it would be if prices trended lower throughout the entire economy the way they do in the computing and mobile communications industries. There would be almost no spending anywhere! That operation to save your life that you have scheduled for next week could be postponed until healthcare charges have declined to much lower levels. And all of the eating you were planning on doing over the next few months could be delayed indefinitely in anticipation of more attractive food prices. And there would never be a good reason to buy a house or a car because each year you did without these things, the more of a bargain they would become and the better off you would be for not having bought earlier.

Also, try to imagine how bad it must have been before there were central banks to guarantee a continuous rise in the general price level. If expectations of rising prices are needed to promote spending and growth, then in pre-central-bank days, when money often increased in purchasing-power from one year to the next, there must have been almost no spending anywhere in the economy. That is, there must have been relentless economic contraction. Thankfully, we now have people like Ben Bernanke, Janet Yellen, Mario Draghi and Haruhiko Kuroda to save us from such a predicament.

The point that hopefully hasn’t been totally obscured by my sarcasm is that central bankers are thieves. They are stealing our deflation. It isn’t fair to compare them with common burglars, though, because common burglars don’t claim to be doing you a favour while they make off with your valuables.

Debt vs. Equity

By Tom McClellan

Corporate Debt vs. Equity in the Stock Market

Credit Market Debt as a Percentage of the Market Value of Corporate Equities, corporate debt
November 27, 2015

I came across this chart this week on FRED.  For the uninitiated, FRED is the Federal Reserve Economic Database, operated by the St. Louis Federal Reserve Bank.  It is a genuine treasure trove for those who are into economic or financial data.

Continue reading Debt vs. Equity

Trust and Oil

By Monetary Metals

Monetary Metals on Trust, Gold and Oil

biiwii comment: Back in 2013 I commented about some lunatic portraying gold as having “spiritual value” and noted, among many other times over the years that “gold just is“.  Well?…

Soggy Dollars

First, there’s a word for someone who buys gold in the hope its price will rise. This word is not investor, but speculator.

Second, statistical anomalies cannot be asserted as proof of manipulation. Also, the article is giving the reader the blueprint for a no-brainer way to profit by the mistakes of the manipulators. If it were that easy, then people would be doing it.

Third, with gold there is nothing to trust. Gold just is.  Which is rather the whole point. If market makers are scalping for basis points, that may affect some hedge funds but it has no effect on you.

Can Investors Trust the New Gold Fixing?

Pure Gold

Contango works the same way in oil as it does in gold. Speculators bid up the price of oil in the futures market, and arbitrageurs buy spot crude to carry it for them. The basis keeps widening as this trade occurs. The only difference is that in gold, there’s always space in the warehouse. In the case of crude, storage capacity is finite, expensive, and (we assume) progressively more expensive. This article is written by someone who gets it.

Oil Prices Have Moved Into ‘Super Contango’

Applied Materials & the Semiconductor Sector

By Biiwii

Applied Materials Runs to Target

We highlighted AMAT in an NFTRH+ update on October 22.  I bought it as a laggard ‘catch up’ play after taking profits on the SMH Semiconductor ETF.  I then took profits too soon on AMAT, but that’s me all too often.

Here is one of 2 charts used (a daily and a weekly) in the original update. I have turned the RSI green and added a resistance zone to the chart.  The original target was 18 and the trade should be ending for those who took it as a trade.

applied materials (amat) weekly chart

It was hard to buy the Semis (SMH) at the September low but somebody had to do it.  Now the technical traders are getting on the Semi sector.  Good for them, they are momentum chasing technical fly boyz.

People think I am a chart guy but a chart is only part of the story and IMO those who think of charting as a stand-alone discipline in trading or investing are another flavor of the various cults and casino patrons that populate the financial markets.

Sure, the daily SOX has an intriguing little bullish looking pattern but the weekly is not so bullish.  We covered this and a brief fundamental take (book-to-bill ratio) in a public post at yesterday and in a more detailed NFTRH update the day before.  I have also ‘channel-checked’ with a former colleague and I’ll be sharing his ‘boots on the ground’ information in NFTRH 371 this weekend.

The Semi equipment sector (AMAT, LRCX, KLAC, etc.) was the bullish economic canary in January 2013 and it could be setting up that way again, this time going the other way.  Funny how the fundamentals are turning even as many of these stocks rip higher.  Good old Wall Street (cue our Feb. 2014 criticism of the 3D Printing promotion):

3D Printing; No Barrier to Future Losses for Investors

This is another somewhat sermonizing post from your friends at simply asking you to realize that the market is an ecosystem of technical and fundamental analysis.  Just ask shell shocked gold traders all these years later.  Fundamentals matter, and we had a big positive one out of the forward-looking Semi’s in January 2013.  Now we have a whole other kettle of chips.

Hey, have a great Thanksgiving if you are celebrating!

And Still it Comes

By Jeffrey Snider @ Alhambra

…the PBOC’s main balance sheet asset is “foreign assets” comprising all sorts of securities and accounts spread across the global banking system…

Very quietly, the PBOC has been fixing its middle exchange rate against the dollar higher and higher (in dollar terms). Today’s reference rate was 6.3895, up from 6.378 a week ago, with the CNY exchange coming close to 6.40 again for the first time since the disastrous period in late September. Unlike August, there has not been the flood of scolding “currency war” rhetoric, perhaps suggesting that there is now wider recognition that this world isn’t quite so simple. Not surprisingly, aside from geopolitics today, commodities have been nothing but sinking (copper futures almost traded below $2 yesterday) as have other “dollar” indications like gold and even Swiss francs (which continues to flirt with 1.02).

Continue reading And Still it Comes

Janet Yellen Responds as a Central Banker Would

By Biiwii

Janet Yellen goes on the defensive…

Let’s try to untangle the web of Fed-speak going on here.  “Reality” for our purposes is defined as my opinion, obviously.

Yellen Defends Seven Years of Low Interest Rates in Letter to Nader


Warning that “an overly aggressive increase in rates would at most benefit savers only temporarily,” she argued in the letter released Monday in Washington that the Fed’s seven-year era of zero rates had sheltered American savers from dramatic declines in the value of their homes and retirement accounts.


It was a thing called deflation, which is a natural corrective to man-made, currency-compromising monetary policy that leverages the ‘value’ inherent in official ‘money’ in service to asset appreciation.  Periodically, this ‘money’ becomes valued as liquidity as the monetized economy deleverages from the official Fed-sponsored inflation (in this case, Alan Greenspan’s commercial credit bubble).  In other words, the “value of their homes” was a false economic signal to begin with.  So what she is saying is that the Fed’s seven-year era of zero rates have been a tool employed to forestall, you guessed it… reality.


“Many of these savers undoubtedly would have lost their jobs or pensions (or faced increased burdens from supporting unemployed children and grandchildren),” if the Fed had not acted with such force, she wrote.


Yes indeed, they would have.  That would have been due to the fallout from from the last time the Fed acted to delay an economic deleveraging.  So what you are saying Ms. Yellen, is that you have employed a different flavor (government vs. commercial credit) of the same solution that was in actuality, the cause of the problem to begin with.  See?  The consumer is now hopped up on government credit instead of mortgage products on this cycle.  From FloatingPath

government credit to the consumer, answer to janet yellen


Repeating that she and most of her colleagues expect the pace of policy tightening to be gradual after liftoff, Yellen said “overly aggressive” rate hikes could also undercut the economic expansion and force the Fed to reverse course back to zero, drawing a parallel with Japan, where rates have been stuck near zero for the past 25 years.


It’s a Kabuki Dance.

janet yellen does a kabuki dance


Yellen’s letter responded to a plea from a “group of humble savers” that included consumer advocate Ralph Nader frustrated by low returns gained from traditional bank deposits and money-market accounts.

“We want to know why the Federal Reserve, funded and heavily run by the banks, is keeping interest rates so low that we receive virtually no income for our hard-earned savings while the Fed lets the big banks borrow money for virtually no interest,” it read. “It doesn’t seem fair to put the burden of your Federal Reserve’s monetary policies on the backs of those Americans who are the least positioned to demand fair play.”

Yellen told the group that lower borrowing costs helped make large purchases more affordable for American consumers, supporting the economy and creating “millions of jobs.”


I didn’t know Ralph Nader was still around.  I remember him from when I was a kid, and I am pretty old.  To answer your question Ralph, the Fed has been keeping rates so low in order to make sure that enough of the economy deleverages from previous Fed-induced moral hazards.  The Fed has held savers in suspended animation in an effort to make powerful and abusive interests whole again.  It is these interests that matter to the Fed, not regular people.

As to the last paragraph, the average American consumer cannot make large purchases without ample credit (see graph above).  Households are no doubt better off today than they were in 2009 but again, we are talking about the cure being the disease.  Yellen is justifying a new flavor of the policy that created the “Great Recession” as the media came to call it.  It was not a great recession, it was a deflationary episode that unwound the Greenspan Fed’s excesses, and then deflation was kicked down road by the Bernanke/Yellen Feds as if it were just an empty can of Budweiser.

Gold Price Drop of 6 Nov

By Monetary Metals

Another Look at the Gold Price Drop of 6 November

The prevailing view in the gold community is that banks are speculators who bet on a falling price. To begin, they commit the casino faux-pas of betting on Do Not Pass at the craps table. When everyone wants the price to go up, the banks seem to want it to go down. Uncool.

In contrast to this view, ours is that the banks are arbitrageurs. They aren’t betting on price, they are profiting from the small spreads in between bid and ask, spot and future, future and Exchange Traded Funds.

We thought we would revisit the crash of Nov 6. Recall that our last look was at spot and futures. The quote on spot did not respond to the drop for 79 long seconds. We believe that this was a simply a delay in updating the quote, as spot quotes displayed by the data providers are indicative only. They are not tradeable.

This time, let’s look at the futures market and the leading gold exchange traded fund, GLD.

The Bid and Ask Prices of GLD and the Dec Future
Nov 6 GLD and Future, gold price

First, notice the time period of the graph. The whole thing occurs in just under a second, at 13:30:01 London time.

Second, note that this occurred an hour before the NYSE opens, so the bid-ask spread on GLD is much wider than normal.

Third, it’s fascinating to see the immediate aftermath of the crash. There’s even a brief period when the bid in the future appears to be above the ask. We are inclined to believe that’s an artifact of the quoting process. But perhaps, in the heat of the moment, the ask price fell below the bid. someone may have had nine nice long milliseconds to take the bank to the cleaners.

Fourth, after that period—around the :555ms mark—we see a relatively flat bid on GLD and ask on the future. So how do we explain the slowly but steadily rising bid on the futures? Our read is that once the selling pressure is over, the market returns to normal with the tight bid-ask spread being achieved by the bid rising near to the ask. We don’t have an opinion on the unstable ask on GLD. Perhaps the market makers were moving it around guessing where things would settle. There may have been some intermittent buying too, thus the upward pressure on the ask while the bid is table flat.

One last thing to note. It does appear as if GLD sold off first. In this data series, the bid and ask prices on GLD drop 24 milliseconds before the future reacts. However, we cannot rule out that this may be an artifact of the quoting process. GLD and futures trade on different exchanges, and it’s possible that the clock on one exchange server could be 25ms ahead of the other.

Monetary Fiasco

By Doug Noland

Credit Bubble Bulletin: Monetary Fiasco

All great monetary fiascos are forged upon a foundation of misperceptions and flawed premises. There’s always an underlying disturbance in money and Credit masked by supposed new understandings, technologies, capabilities and superior financial apparatus.

During the nineties “New Paradigm” period, exciting new technologies and “globalization” were seen unleashing a productivity and wealth miracle. The Greenspan Fed believed this afforded the economy an accelerated speed limit. With inflation and federal deficits believed conquered, there was little risk associated with low rates and an “asymmetrical” policy approach to support the booming economy and financial markets. The Fed significantly loosened the reins on finance precisely when they needed to be tightened.

The nineties were phenomenal from a financial perspective. Total system Debt about doubled to $25.4 TN. Remarkably, Financial Sector borrowings surged more than 200% to $8.2 TN. Outstanding Agency (GSE) securities ballooned from $1.267 TN to end the decade at $3.916 TN, for growth of 209%. Securities Broker/Dealers (liabilities) jumped 212% to $1.73 TN. “Fed Fund and Repo” expanded 112% to $1.655 TN. Wall Street “Funding Corps” rose 387% to $1.064 TN. Securities Credit surged 414% to $611 billion.

Continue reading Monetary Fiasco

What Time is it?

By Grey Beard

what time is it? by Grey Beard
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