By Heisenberg Report
They say you can’t fix stupid, which I suppose means the world shouldn’t get its hopes about about the upcoming trade talks between China and the U.S.
On Wednesday, China’s Ministry of Commerce said the U.S. has invited a Chinese delegation to Washington later this month, ostensibly to try and break a stalemate on trade before the Trump administration moves ahead with tariffs on an additional $200 billion in Chinese goods. That escalation, if realized, would trigger a response from Beijing in the form of differentiated duties on $60 billion in U.S. imports, setting the stage for the Trump administration to “go to $500 billion” (as the President put it last month).
According to the New York Times (and there were similar reports out on Thursday), Steve Mnuchin will attempt to pressure China to strengthen the yuan when the two sides meet in Washington.
Continue reading You Can’t Fix Stupid: U.S. Treasury Will ‘Pressure’ China To Strengthen The Yuan
By Steve Saville
[This post is a brief excerpt from a recent TSI commentary]
During the first three quarters of 2016 we were open to the possibility that a new cyclical gold bull market got underway in December of 2015, but over the past 18 months we have been consistent in our opinion that the December-2015 upward reversal in the US$ gold price did NOT mark the start of a bull market. Since late-2016 there have been some interesting rallies in the gold price, but at no time has there been a good reason to believe that we were dealing with a bull market. That’s still the case. The question is: what will it take to set a new cyclical gold bull market in motion?
The simple answer is that it will take a US equity bear market. However, this is not a practical answer because in real time there often will be no way of differentiating the first 6-9 months of an equity bear market from an intermediate-term bull-market correction. The most practical answer we can come up with is that it will take an upward reversal in the yield curve.
Continue reading The Next Major Gold Rally
By Robyn Pennacchia
Jason Kessler is not having a good week. First, no one came to his special white people party in Washington, D.C. There were like, thirty people there, in total — which is far fewer people than congregated this weekend in almost any place in America that is not a private residence.
By Jeffrey Snider
It was never really all that much. The best that might have been said was that it was a pause in the building of renewed deflationary pressures. The dollar had “risen” again especially in April and May, but then traded sideways through July. It wasn’t a rebound or even much that was positive, just less immediate heaviness.
That appears to be over with now in August; always August. The dollar is on the move which means the eurodollar is deficient. The squeeze is back and it is being felt almost across the board. Copper is down again as is gold. The metals are, and have been for years, quite clear as to what all this is.
Continue reading Collateral Silos And The Deflationary Gold Rush
By Anthony B. Sanders
(Bloomberg) — America’s growing debt pile may force the Federal Reserve to stop shrinking its balance sheet before the year is out, according to Credit Suisse Group AG analyst Zoltan Pozsar.
With bank reserves at the Fed being pared, the U.S. central bank will soon have to make a choice between activating an overnight facility for repurchase agreements or halting its balance-sheet reduction earlier than many market participants expect, the former U.S. Treasury adviser wrote in a note Monday.
He indicates that policy makers are unlikely to pursue the option of a new facility until alternatives have been exhausted, meaning a premature end to the taper is the most likely outcome. Royal Bank of Canada analysts said last month the balance-sheet runoff could end as early as 2019, while Goldman Sachs strategists in May said they’re assuming an end around April 2020.
Continue reading Fed May End Taper This Year Amid Regime Rethink, Says Zoltan!
By Kevin Muir
Wild day in the markets. Emerging markets are getting crushed like a 1980s teenage nerd asking the head cheerleader to prom. As I write this, the EEM ETF is down roughly 3% on the day, and down more than 7% over the past week.
We’re past some simple mid-summer-illiquid shenanigans and definitely into the biting-on-the-pillow stage.
Continue reading Emerging Market Contagion
By Heisenberg Report
Now tell us, Paul Ryan, do you still think he was “just trolling people”?
Late last month, facing withering criticism for his obsequious performance in Helsinki, Donald Trump threatened to revoke the security clearances of the following intelligence and security officials:
- Former CIA Dir. Brennan
- Former FBI Dir. Comey
- Former DNI Clapper
- Former NSA Dir. Hayden
- Former National Security Adviser Rice
- Andrew McCabe
The rationale? Well, their criticism of Trump, number one, but also the “monetization” of their clearances.
The reaction Trump got to that threat was almost as bad as the reviews he got after the Putin press conference. Responses from the media, lawmakers and some of the officials in question ranged from fatalistic to incredulous to “surely he’s kidding.”
Continue reading So Much For ‘Just Trolling People’: Trump Revokes John Brennan’s Security Clearance
By Callum Thomas
Well it’s a mouthful of a title, but sometimes you just have to say exactly what’s in the post and today we’re looking at 4 charts-in-one… and they are about as topical as it comes. The charts come from our weekly Global Cross Asset Market Monitor: the top left is the US dollar index, the top right is an equal weighted emerging market currency index (25 currencies vs USD), the bottom left is an equal weighted index of 10 Asian currencies vs the USD, and the bottom right of course is the Renminbi against the US dollar (USDCNY). Bottom line is there is a big move underway across global foreign exchange markets right now, and it’s quite likely there’s more to come.
What’s driving this, aside from a few idiosyncratic issues (e.g. Turkey – which I believe is simply a symptom of a wider issue), is monetary policy divergence, a subtle desynchronization of global growth, and softening macro picture in China. Fed tightening (rate hikes and QT) is a key catalyst, and the trade war just adds fuel to the fire. I talked previously about how Fed tightening and a stronger dollar is going to put stress on emerging markets, and the charts above show basically this thesis in action. The biggest risk is that you get a feedback loop of stronger dollar >> EM stress >> stronger dollar >> and so on. As previously noted, the USDCNY going through 7 could be a critical test (aka nail in the coffin) for the low volatility environment, and as I write the USDCNY is trading just over 6.933, so this test may come sooner than you expect…
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By Jeffrey Snider
In December 1999, Princeton Professor Ben S. Bernanke wrote a relatively obscure paper largely denouncing the Bank of Japan’s shyness. Japan’s economy had by then been mired in its first Lost Decade, one which at that moment not everyone was sure should have been lost. It was fashionable at the time to pile on the BoJ.
Dr. Bernanke argued for extreme aggressiveness, truly radical experimentation. Big problems require equally big solutions. These were necessary because of the huge scale of the issue facing them. In conclusion, the future Fed Chairman wrote:
Japan is not in a Great Depression by any means, but its economy has operated below potential for nearly a decade. Nor is it by any means clear that recovery is imminent. Policy options exist that could greatly reduce these losses. Why isn’t more happening? To this outsider, at least, Japanese monetary policy seems paralyzed, with a paralysis that is largely self-induced. Most striking is the apparent unwillingness of the monetary authorities to experiment, to try anything that isn’t absolutely guaranteed to work. [emphasis added]
His larger point was valid, and poignant. In Japan’s case, as anyone’s might be in the same situation, there should be no stone left unturned when confronted by such a substantial break in economic function. A dislocation of that magnitude, meaning length of time if not depths to some 1930’s trough, demands emergency thinking rather than stolid patience almost to the point of indifference.
To be so relatively passive would be a crime, especially if the results were to be losing a decade of actual economic sufficiency. Dr. Bernanke argued for thinking way outside the box, for what else would be demanded by this sort of situation?
Continue reading Pure Corruption
By Callum Thomas
As the pressure comes down on global equities – particularly global Ex-US (and particularly emerging markets) – valuations have likewise come down. But the movement in valuations is so far relatively small. US PE10 valuations have clawed back much of the decline, while emerging market valuations have moved to new lows for the year, down -15% since the top now (and developed markets ex-US valuations are down -11%). This places the Emerging Markets PE10 at a 55% discount vs the USA and a 23% discount vs developed markets ex-US. I wonder though if we wont see even cheaper valuations and a wider discount for EM equities as Fed tightening and US dollar strength start to bite. Longer term, valuations will speak for themselves, but they will speak louder if they move to a more extreme level…
Continue reading Global Equity PE10 Valuations
By Tim Knight
General Electric has been falling for two solid years, having lost about two-thirds of its value. Let’s face it, ANY stock which can do that poorly in this completely fake, central-bank-supported, sugar-high of a market has got to have SERIOUS trouble. I thought it might manage to double bottom, but nope – – even with markets near lifetime highs, this piece of crap is breaking down to levels not seen since 2011.
Continue reading Bringing Bad Things to Life