Really Looking for Inflation, Part 1

By Jeffrey Snider

Most people have been looking at Jerome Powell’s Chairmanship of the Federal Reserve as continuity, a comprehensive extension of Janet Yellen’s (and therefore Bernanke’s). This would by nature include all the nasty habits Chairman Yellen had picked up during her one term. At the top of that list is the word “transitory”, particularly how it came to be used during her tenure in a manner wholly inconsistent with its meaning.

This expression she applied mostly to inflation, or as if somehow a valid excuse for the central bank missing its inflation target (mandate) for the last half of Bernanke’s second term as well as the entirety of her own. Six years cannot fall inside the definition of transitory. But when you have no other alternate theory?

At his Humphrey-Hawkins mandated testimony last month, Jerome Powell briefly mentioned the other undershoot. This one happens to be the very factor that policymakers are counting on for transitory to end. Alongside a great many economic problems, worker wage rates have remained stagnant in nominal terms, and atrocious in real terms even with low calculated inflation.

Powell, however, is upbeat (when is he not?) Wages, he told Congress, “should increase at a faster pace as well,” for one because inflation has been “as likely reflecting transitory influences that we do not expect will repeat.’’ Weak wages are transitory, too?

Continue reading Really Looking for Inflation, Part 1

It’s Not Bad Trade Deals–It’s Bad Money, Part 2

By David Stockman

In Part 1 we made it clear that the Donald is right about the horrific results of US trade since the 1970s, and that the Keynesian “free traders” of both the saltwater (Harvard) and freshwater (Chicago) schools of monetary central planning have their heads buried far deeper in the sand than does even the orange comb-over with his bombastic affection for 17th century mercantilism.

The fact is, you do not get an $810 billion trade deficit and a 66% ratio of exports ($1.55 trillion) to imports ($2.36 trillion), as the US did in 2017, on a level playing field. And most especially, an honest free market would never generate an unbroken and deepening string of trade deficits over the last 43 years running, which cumulate to the staggering sum of $15 trillion.

Better than anything else, those baleful trade numbers explain why industrial America has been hollowed-out and off-shored, and why vast stretches of Flyover America have been left to flounder in economic malaise and decline.

But two things are absolutely clear about the “why” of this $15 trillion calamity. To wit, it was not caused by some mysterious loss of capitalist enterprise and energy on America’s main street economy since 1975. Nor was it caused—c0ntrary to the Donald’s simple-minded blather—by bad trade deals and stupid people at the USTR and Commerce Department.

Continue reading It’s Not Bad Trade Deals–It’s Bad Money, Part 2

Trump and Tariffs – Not a New Risk

By Michael Ashton

Last week, the stock market dove in part because President Trump appeared to be plunging ahead with new tariffs; on Monday, the market recouped that loss (and then some) as the conventional wisdom over the weekend was that Congress would never let that happen and so it is unlikely that tariffs will be implemented.

I’m always fascinated by market behavior around events like this. Investors seem to love to guess right, and to put 100% of their bet on an outcome that depends on being right. Here’s what I know about tariffs – prior to last week, if there was a risk that tariffs would be implemented that risk was not priced into the markets. And markets are supposed to price risks. Regardless of what you think the probability of that outcome is, surely the probability is non-zero and, therefore, ought to be worth something on the price. Putting it another way: if I was willing to pay X for the market when I wasn’t worried about the possibility of the detrimental effect of future tariffs, then assuredly I will pay less than X once I start to consider that possibility. Although the outcome may be binary (there will be increasing tariffs and decreasing free trade, or there won’t be), the risk doesn’t have to be either/or.

This is one of the things that irritates me about the whole “risk on/risk off” meme. There is no such thing as “risk off.” Risk is ever-present, and an investor’s job is not to guess at which risks will actually present themselves, but to efficiently preserve as much upside as possible while protecting against downside risks cheaply. Risk management is really, really important, but it often seems to get overlooked in the ‘storytime’ that 24-hour market news depends on.

To be sure, the risk of tariffs coming out of the Trump Administration is not new…it’s just that it has been ignored completely until now. Right after Trump’s election, in our Quarterly Inflation Outlook I wrote about which elements of Trump’s professed plans were a risk to steady inflation. The one area which I felt could be the real wildcard leading to higher inflation as a result of policy (as opposed to higher inflation from natural dynamics, which are also a risk as interest rates normalize) was the possibility of a Trump tariff. Here is what I wrote at that time – and it’s poignant today:

Continue reading Trump and Tariffs – Not a New Risk

Trump Advisor Cohn Resigns, S&P 500 Futures Slide (Tariffs Are A BAD Idea)

By Anthony B. Sanders

Goldman Sach’s Gary Cohn has resigned from the Trump Administration, allegedly over Trump’s threat of imposing tariffs on steel and aluminum.  It is not the resignation of Cohn that is causing the jitters (there are plenty of smart, free trade advocates around). It is the realization that a destructive tariff may be a reality (and the resulting retaliatory tariffs).

(Bloomberg) — The prospect of escalating protectionism depressed European and Asian stock markets on Wednesday as President Donald Trump’s plans to punish foreign imports appeared to gather force. U.S. equity futures slumped, while most government bonds climbed.

The Stoxx Europe 600 Index headed for the first drop in three days, led by mining and auto shares. Gauges in Asia slid earlier as investors mulled the implications of the resignation from Trump’s administration of economic adviser Gary Cohn, a free-trade proponent. News that the White House is considering clamping down on Chinese investments and imposing broader tariffs added to the gloom.

Cohn’s resignation “shows that within the Trump administration the pendulum is swinging toward anti-trade,” said James Cheo, an investment strategist at Bank of Singapore. “What we should be watching out for is how other countries react in response to the tariffs.”


As a general rule, trade tariffs are a BAD idea. They are often levied by a country to protect it’s industries from foreign competition. The history on tariff wars is bleak, such as the Smoot-Hawley Tariff Act that was signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods, allegedly to protect infant industries.

Continue reading Trump Advisor Cohn Resigns, S&P 500 Futures Slide (Tariffs Are A BAD Idea)

China Going Boom

By Jeffrey Snider

For a very long time, they tried it “our” way. It isn’t working out so well for them any longer, so in one sense you can’t blame them for seeking answers elsewhere. It was a good run while it lasted.

The big problem is that what “it” was wasn’t ever our way. Not really. The Chinese for decades followed not a free market paradigm but an orthodox Economics one. This is no trivial difference, as the latter is far more easily accomplished in a place like China. Economists do love their Keynes, a doctrine that falls on a different part of the same spectrum as Communism.

At the 17th Communist Party Congress way back in 2007, the idea of the “harmonious society” was in trying to strike some balance between growth and living with growth. Rapacious transformation had uglied for a great many the simple basics of human life. The Chinese understandably did not want to give up the economy for it, however.

In seeking that balance, the 17th Party Congress altered slightly Chinese communism. Party officials there going back to Mao had always sought to make sure of their distinct version of political, social, and economic doctrine. Communism in China wasn’t Communism in Russia and the Soviet Union, though you’d be forgiven for mistaking the vast similarities.

For a very long time, starting in the eighties and early nineties, there was an embrace of markets as if that would define China’s ideological difference. After the massacre at Tiananmen Square, as well as the fall of Soviet Russia, a more Western embrace seemed almost easy by comparison. That included total dollarization in money as well as economy. China opened a bit, and the “dollars” flowed in.

Continue reading China Going Boom

Eighteen European Countries Have Negative 2Y Sovereign Yields

By Anthony B. Sanders

Italy’s Banca Monte Dei Paschi Siena Down From 9,097 Euros In May 2007 To 3 Euros Today

Is Europe out of the woods yet? Nope. Eighteen European countries have negative 2-year sovereign yields. Not a good sign.


Italy has positive YoY GDP growth (1.61%), but the second highest Debt as a percentage of GDP (after Greece).


With the Italian elections a complete mess (like their economy and banking system), problem-child bank, Banca Monte Dei Paschi Siena, continues its downward drift.

Continue reading Eighteen European Countries Have Negative 2Y Sovereign Yields

China Property Outlook

By Callum Thomas

This week the “Chart of the Week” is focused on the outlook for China’s property market.  The Chinese property market is perhaps one of the most important markets in the world, if not the most.  What happens to this market has direct flow-on effects to global commodity prices, emerging markets and commodity producers, and considerable influence on the cyclical macroeconomic and risk backdrop domestically.

The chart comes from a report on the outlook for China’s economy (and the impact on the balance of risk vs opportunity for Copper prices).  Basically the chart shows the average year-on-year price change across the largest 70-cities in China against our leading indicator.  The key conclusion being that the Chinese property market is about to head into a slowdown.

The leading indicator incorporates interbank market interest rates, government bond yields, money supply growth, and property stock relative performance.  Historically these factors have proven to offer a good lead on the outlook (and have helped me call tops and bottoms in this very cyclical market!), and the economic logic behind these factors is sound e.g. interest rates have a direct impact on financing costs.

In terms of the implications, it really depends on whether the outcome is a slowdown or a downturn.  Given the lead-indicator has stabilized there is some hope that it will be just a slowdown (a downturn would be where property prices go into contraction, leading the property sector into recession).  However the impact of a slowdown will still be felt across global markets, as it will impact on construction and raise downside risks for commodities.

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Hey, Donald: It’s Not Bad Trade Deals—It’s Bad Money (Part 1)

By David Stockman

The global trading system’s newly activated one-man wrecking crew was at it over the weekend. Mustering up his best Clint Eastwood impression, Trump invited the Brussels trade bureaucrats to make his day. Retaliate against Harley’s Hogs, Jim Beam’s bourbon and Levi’s Skinny Jeans, proclaimed the Donald, and you folks are going to find yourself neck deep in BMW’s:

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!

Let us reiterate what we said last week. This is not just another case of Trump banging on a twitter keyboard that doesn’t push back—-unlike the courts, most of the Dems, much of the Congressional GOP and a goodly part of his cabinet.

On the matter of trade policy, by contrast, the Donald has considerable unilateral running room owing to the vast presidential powers bestowed by section 232 of the 1962 trade act and section 301 of the 1974 trade act. The former authorizes protectionist measures, including tariffs, to safeguard “national security” and the latter authorizes such measures in order to enforce US trade agreements or to counter “unfair” foreign trade practices.

Continue reading Hey, Donald: It’s Not Bad Trade Deals—It’s Bad Money (Part 1)

Not For The Faint-Hearted: Full Week Ahead Preview

By Heisenberg

There’s no shortage of event risk in the week ahead. This is not going to be for the faint of heart.

Chief among concerns is of course Trump’s trade war, pre-announced last Thursday, much to the surprise and chagrin of damn near everyone, including investors.

The decision on steel and aluminum tariffs rattled markets and although some Trump surrogates have suggested it shouldn’t come as a surprise given Wilbur Ross’s recommendation and, perhaps more to the point, candidate Trump’s promise to try and restore lost “greatness” by propping up dying industries, everyone was assuming that rationality (or some semblance thereof) would ultimately prevail.

Long story short, everyone was wrong.

While some analysts are still holding out hope that the rhetoric will turn more conciliatory going forward, Peter Navarro didn’t exactly inspire much confidence on Sunday. Make sure and stay tuned to Trump’s Twitter feed or maybe Fox & Friends for the latest updates on this because if we learned anything on Thursday, it’s that unless you’ve got a direct line to Wilbur Ross (which I guess would mean having two Campbell’s Soup cans joined together with a string), the first people to know what the next step is are Fox anchors and Donald Trump (in that order).

Bottom line:

The dollar managed to eke out a gain last week and it will obviously be in focus again as it’s being pulled between the twin deficit boondoggle and the administration’s weak dollar by proxy policy on one hand, and higher rates/a more hawkish Fed on the other.

Continue reading Not For The Faint-Hearted: Full Week Ahead Preview

Apocalypse Now (Retail Store-style): 23 Big Retailers Closing Stores As Wage Growth Only Back To 2009 Levels

By Anthony B. Sanders

Apocalypse Now! was a 1979 Francis Ford Coppola film starring, among others, Northern Virginia resident Robert Duvall as Lieutenant Colonel Bill Kilgore. Little did Coppola know that his immortal film would foretell the retail store apocalypse of the 2010’s.

This year, in an effort to save their businesses, the following retailers will close hundreds of their stores, according to Fox Business.

Abercrombie & Fitch: 60 more stores are charted to close

Aerosoles: Only 4 of their 88 stores are definitely remaining open

American Apparel: They’ve filed for bankruptcy and all their stores have closed (or will soon)

BCBG: 118 stores have closed

Bebe: Bebe is history and all 168 stores have closed

Bon-Ton: They’ve filed for Chapter 11 and will be closing 48 stores.

The Children’s Place: They plan to close hundreds of stores by 2020 and are going digital.

CVS: They closed 70 stores but thousands still remain viable.

Foot Locker: They’re closing 110 underperforming stores shortly.

Guess: 60 stores will bite the dust this year.

Continue reading Apocalypse Now (Retail Store-style): 23 Big Retailers Closing Stores As Wage Growth Only Back To 2009 Levels

The Two Janets and the Perfect Storm Ahead

By David Stockman

The Bloomberg news crawler this morning is heralding the heart of our thesis: Namely, that “flush with cash from the tax cut”, US companies are heading for a “stock buyback binge of historic proportions”.

This isn’t a “told you so” point. It’s dramatic proof that corporate America has been absolutely corrupted by the Fed’s long-running regime of Bubble Finance. Undoubtedly, the C-suites view the asinine Trump/GOP tax cut not as a green light to invest and build for the long haul, but as manna from heaven to pump their faltering share prices in the here and now.

And we do mean a gift just in the nick of time. The giant Bernanke/Yellen financial bubble is finally springing cracks everywhere, putting corporate share prices and executive stock option packages squarely in harms’ way.

So what could be more timely and efficacious than an enhanced, government debt-financed wave of stock buybacks to rejuvenate the speculative juices on Wall Street and embolden the robo-machines and punters for another round of buy-the-dip?

Continue reading The Two Janets and the Perfect Storm Ahead


By Doug Noland

After posting an intra-week high of 25,800 on Tuesday, the DJIA then dropped 1,583 points (6.1%) at the week’s Friday morning low (24,217) – before closing the session at 24,538 (down 3.0% for the week). The VIX traded as low as 15.29 Tuesday. It then closed Wednesday at 19.85, jumped as high as 25.30 on Thursday and then rose to 26.22 in wild Friday trading, before reversing sharply to close the week out at 19.59.

Friday’s session was another wild one. The Nasdaq Composite rallied 2.6% off early-session lows to finish the day up 1.1%. The small caps were as volatile, with an almost 1% decline turning into a 1.7% gain. The Banks had a 2.8% intraday swing and the Broker/Dealers 2.4%. The Biotechs had a 3.7% swing, ending the session up 3.2%. The Semiconductors swung 3.3%, gaining 1.8% on the day.

Friday morning trading was of the ominous ilk. Stocks, Treasuries, commodities and dollar/yen were all sinking in tandem. The VIX was surging. Japan’s Nikkei dropped 2.5% in Friday trading, with Germany’s DAX down 2.3% and France’s CAC losing 2.4%. The emerging markets (EEM) were down as much as 1.7%. For the week, the DAX sank 4.6% and the Nikkei fell 3.2%. Curiously, bank stocks outside of the U.S. came under notable pressure. European banks (STOXX) dropped 3.5%, Hong Kong’s Hang Seng Financial Index 4.5% and Japan’s TOPIX Bank index 3.4%.

Continue reading Cracks