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Thinking Rosenberg has the dots connected on the sort of world economic conditions, even here in the U.S. Here in Idaho I’m seeing falling gas prices – now below $3 – which is highly unusual for us this time of year. We always see the prices at the pump jacked up during the summer tourist season when everyone wants to go to Yellowstone and the Tetons and other places, including places for rafting and fishing.
This year we saw the usual hike at the beginning of summer but prices have fallen ever since from $3.50 to $2.90
Think your other article from Orsley is more spot on about the gov’t debt situation. Just sayin’
Hoping we see a revival of the gold bull next week after the consolidation of the last couple of weeks.
Today’s bond market intimidates no one. Threatening – or even firing – the head of a central bank for not cutting rates – is a non-issue for today’s bond market. Ditto massive deficits. Why worry about supply, myriad excesses or politicizing monetary management when the magic of QE can make everything good?
Today’s “crazy” is incredibly dangerous. No check and balances. Markets have lost the capacity to self-adjust and correct. Sovereign debt, the foundation of global finance, has succumbed to unprecedented price distortions – and it only gets worse from there: The Speculative Blow-Off for Global Financial Assets. And I appreciate it all appears reasonable and unsustainable – so long as securities prices continue to inflate. But it will function poorly in reverse. The crazier things get the more unsustainable Bubble prices become.
Gold surged dramatically in recent weeks, powering higher to a decisive bull-market breakout. Gold’s first major secular highs in years have really improved sentiment, with bullishness mounting. But gold-futures buying fuel is largely exhausted, after the colossal amount expended to catapult gold back over $1400. That leaves this metal at high risk of suffering a major selloff, a healthy correction in an ongoing bull market
Core crude PPI (the earliest stage of the production process) fell 0.5% after declining 4.5% in May and 1.2% in April. The YoY trend, which was already firmly in negative terrain, melted further – to -9.6% in June from -8.6% previously. Deflation risks dominate.
Chinese domestic demand is hurting really bad seeing as imports sagged 7.3% in June from year-ago levels. Exports contracting alongside that also speaks to punky demand conditions globally. Stock markets are in a world of their own but the economic backdrop is really sluggish.
I see a lot of noise in these latest CPI and PPI reports. The US economy is slowing and the latest JOLTS data showed hefty pullbacks in job openings and hirings. The backup in bond yields is going to present a nice buying opportunity in Treasuries.
The words “uncertainties” and “risks” were ubiquitous in today’s FOMC minutes. They showed up a combined 48 times compared to 36 in the minutes released seven weeks prior. Hefty rate cuts coming
July 10 – Financial Times (Tommy Stubbington): “In the bizarro world of global debt, even bonds from Europe’s emerging markets are spewing out negative yields. Sky-high bond prices… are increasingly spilling into what was once considered risky territory. All of the Czech Republic’s euro-denominated debt, for example, now trades at sub-zero yields… Short-dated Hungarian bonds and a growing slice of Poland’s debt are following suit, with Warsaw’s 10-year yields just fractionally above zero. Emerging market investors, who traditionally viewed these markets as their domain, are being forced to look further afield for returns, fueling a debt rally from Croatia to Kazakhstan.”
Bizarro World, indeed. Why is financial history strewn with markets succumbing to bouts of end-of-cycle insanity? The obvious answer is greed – greed that became deeply ingrained after a protracted period of being richly rewarded (with fear and caution punished mercilessly). The longer the cycle the more intense and resilient the greed dynamic. The more of the “house’s” money available to gamble, the more extravagant the bets. I would add that prolonged cycles typically have some type of underlying government support that over time comes to underpin confidence and risk-taking (playing an especially critical role late in the cycle).
The great late-twenties Bubble doesn’t inflate if not for confidence that the Federal Reserve possessed both the will and capacity to sustain the boom. The mortgage finance Bubble doesn’t inflate without implicit Treasury mortgage debt guarantees and the prevailing view “Washington will never allow a housing bust.” The ongoing historic Chinese Credit Bubble deflates years ago without faith that Beijing will backstop virtually the entire financial system. Confidence that global central bankers will do “whatever it takes” to sustain the boom is fundamental to the ongoing inflation of the all-encompassing “global government finance Bubble.”
But greed and governmental support are insufficient to inflate Bubbles. Bubbles are fueled by Credit. I would add that “money” is also key. Credit booms can’t survive to become “protracted” without the expansion of perceived safe and liquid (money-like) Credit instruments (enjoying insatiable demand). Some monetary disturbance that takes root. A self-reinforcing expansion of “money” and Credit foments Monetary Disorder and, if not contained, culminates in a parabolic spike in the prices of speculative assets.
July 9 – Bloomberg (Samuel Potter, Laura Benitez, and Anooja Debnath): “The global bond rally is so fierce that even on an off-day investors keep piling in. Such is the frenzy for government debt just now that Italy, long considered Europe’s fiscal problem child, on Tuesday attracted demand of around 17.5 billion euros ($19.6bn) for bonds that won’t mature until 2067. With yields near the lowest since before the populist coalition came to power in June 2018, investors fell over themselves to allocate to the 3 billion euro offering… Negative yields are creeping in at Europe’s fringes. The number of corporate junk bonds trading with a sub-zero handle in euros now stands at 14 — at the start of the year there were none. Money managers are killing it on debt that won’t mature for nearly 100 years.”
…buying from central banks in the first five months of this year is 73% higher than a year earlier, with Turkey and Kazakhstan joining China and Russia as the four biggest buyers…
Completely agree with Orsley and his take on why the Fed HAS to cut. It’s all about the debt.
Gov’t spending in combination with rising rates is a killer for gov’t debt and expenditures.
Rate cut has nothing to do with a weakening economy, Government spending keeps a big part of the economy chugging ahead. That includes companies like mine that do work for the Dept. of Energy and Dept. of Defense.
Rates above zero are unsustainable for US gov’t debt.
We’ve seen this farce before, as Bloomberg details, when Lehman went bust, the mother of four was a portfolio manager at its investment arm, but before that, in May 2007, Gomez-Bravo became cautious on U.S. risk and issued warnings on corporate health– which bear echoes with the intense hunt for yield today.
This is the main point you should chew on this weekend; you may disagree with my data deterioration theme which gives the Fed reasons to cut, but do not miss this important point why the Fed will cut:
Rising deficits which causes increase treasury supply at a time when foreigners are losing their appetite to fund the US govt (as noted above in the bond auction) means the Fed needs to talk dovish/cut rates/provide accommodation/inject liquidity in order to keep yields from rising. We saw what happens when front end yields like 1y1y rise above 3% as it did in Q3 2018; the system breaks.
As I said in Tuesday’s note, we are seeing this issue play out in the FF/IOER spread whose widening is purely on the back of too much government debt sitting on bank balance sheets. The Fed is struggling to control front end rates and you cannot have rates rising or this whole economic cycle and market will fall apart.
The Fed has to ease, long-term economic trends show data deterioration, but there appears to be a bit of inflation creeping into the pipeline, i.e. stagflation. That all means steeper curves and now higher gold prices.
I think we’ll all sleep a little easier this weekend, as at least u have to back a truck up, or kick the door in to get our stash…instead of merely employing some 16 yr old, whose lack of personal hygiene triggers smoke alarms, fire alarms and peels paint….
so we’re allowed a few pips up…notice NEM is well under the scum cosh, pulling Hui back.
The short possy in NEM must be 100 of times the float…meanwhile the regulators are passed out from another epic Friday lunch, courtesy of Jamie and the Boys.
Sort of drifting lower towards the close, nothing unusual from any other day at this point.
Still given the recent strength of the dollar, I think we’re doing pretty well at least in gold.
Shares and silver have a long way to go. If some folks make the right call and the bull is on, silver and the shares will make them a lot of money. JMHO
The EVERYTHING BUBBLE is still alive and well after 10 yrs…and I guess the runt of the litter, gold, is going. to be dragged up. with it…or so the theory goes…N’yuk! N’yuk!
Yep, I see that the rates on the Ten Year have come back in and now are sitting at 2.11%, also see the USD is giving up some ground and pm’s are actually acting accordingly.
PM’s are definitely not screaming to the upside, but the HUI is back above 200 which is nice to see.
Gold is actually starting to outperform the dollar. Imagine what might happen if the dollar really fell?
The liars on the 3 biz channels. never mention anything about RSIs-COTs-too bullish sentiment…they talk. as if it were all quite normal and debt and all the macro problems didnt exist…
But gold goes from 1300. to 1411 [just now]. and everybody’s shi**ing their pants…
no need complaining about it…it. is. what it is…All that. said, one can still extract his pound of flesh from this rigged. system if one’s eyes are open…
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