This is a real disaster.
The ECB is living itself in La La Land. It is demanding that British Banks wishing to do business inside the Eurozone after BREXIT must obtain a license. While this is the same type of requirement for any foreign bank seeking to do business in the USA, the idea that the ECB wants to make sure that British banks are solvent is rather absurd. The reason Euro based banks are in danger of insolvency is because they are euro based bonds of all members as reserves. The British banks remained in British pounds and are head & shoulders above their Eurozone counterparts.
Good for her get out of the EU before it collapses.
We are watching the self destruction of a country, so sad.
I have warned that rates will rise BECAUSE the Federal Reserve will be criticized if they fail to do so when they are faced with a stock market that is rising. However, while one by one, several Fed officials have all signaled in recent days that the Fed is ready to resume raising interest rates as soon as this month, the real crisis for the Fed will be raising rates will strength the dollar and put even more pressure on Europe and emerging markets. Hence, the 64 billion dollar question is will the Fed abandon international policy objectives for domestic?
Janet Yellen speaks today in Chicago on the topic of the Fed’s economic outlook. The pundits will scan ever possible word for any hint whatsoever of how likely the central bank is to raise its key short-term rate after it next meets March 14-15, 2017. Traders in futures markets have put the probability of a rate hike at 75%, according to data tracked by the CME Group. Last week the odds were just 50/50. With the rally in the share market this week, many are now fearing a rate hike.
Many Fed officials are suggesting that the strengthening U.S. economy warns of higher inflation and a surging stock market has confirmed a potential rate hike. On Tuesday, William Dudley, president of the New York Fed, said the case for raising rates had “become a lot more compelling”. Robert Kaplan, of the Dallas Fed, said he thought the Fed would likely raise rates “in the near future.” Then Lael Brainard, a Fed board member, also said she thought the case for another hike was strengthening: “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation.” Jerome Powell, who is another board member, said on CNBC: “I think the case for a rate increase in March has come together, and I do think it is on the table for discussion.”
Back in the 1980s, we would get a phone call that the Fed will raise the rates that day. Banks were not proprietary traders as they are today back then so the calls were really to make sure people did not get hurt. That has become insider trading these days so what we get is Fed officially attempting to choreograph their intention for the very same purpose that the marketplace is not hurt by their actions.
Last December, the Fed raised its benchmark rate by a quarter-point to a range of 0.5 percent to 0.75 percent. It was its first increase since December 2015 following our turning point on the Economic Confidence Model 2015.75 which was October 1st, 2015. When the Fed raised its key rate from a record low back in December 2015, it did so right on target for the change in trend.
Domestic Policy Objectives will win out over International. This will only have the same impact of causing capital inflows for the dollar will rise. Yet the Fed has no choice. To do nothing will invite attacks by the Democrats who will say they are only helping the rich get richer watching the stock market rise irrespective of the economy. What we are facing is asset inflation FIRST. That means Draghi and the ECB will be in even a more difficult position trying to maintain negative interest rates that have completely FAILED to revitalize the European economy. It has been 8 years of a complete brain-dead economic policy by the ECB. The question is will the ECB be compelled to end its failed policy and raise rates itself? Talk from behind the curtain is that Yellen keeps telling Draghi is is wrong.
There are at lot of professional traders who really lack the in-depth knowledge of the historical track record of how markets really trade because they have not traded something like this which is similar to 195 blast-off or the bull market into 1929. This is a special type of market and it requires real research to survive plus skills along with nerves of tungsten.
You have bond traders talking their own books. Bond Traders aren’t pricing in more rate increases but rather moving forward the timing of the next move. The Bond Traders don’t believe the stock market hype about the sudden prospect for a burst of economic growth. Consequently, they remain bearish on stocks expecting a meltdown and bonds to soar. The Bond Traders say that any policy action is not warranted on the mere hint of a possibility of economic gains. They add that even the potential for higher rates from an increasingly worried Fed could create financial instability and would certainly ratchet up the cost of any new federal spending. They remain oblivious to the capital inflows into the blue-chips because of political uncertainty looking in Europe.
While Buffet says we are not in a bubble, there are people like Jeffrey Saut at Raymond James who says he will be on the sidelines, choosing not to participate in something he does not understand. Saut said: “Folks, I have been in this business for over 46 years, and observing markets with my father for 54 years, and I have never experienced anything like what is currently happening.”
This is how REAL bull markets run. They run up because people are not in and they want to buy dips while short players keep getting stopped out.
This is the most difficult type of market to trade because it requires CONFIDENCE and CONVICTION. We will be devoting time to how to understand this type of market at the Hong Kong WEC. Given the possibility of a visa war between the USA and EU, some Europeans may want to consider the Hong Kong session.
The EU Dream of creating a federalized Europe is collapsing. The immigration crisis was created by Merkel solely for he personal popularity was collapsing due to her hard stance against Greece. The Eurozone is collapsing and Brussels still refuses to recognize that they have gone too far beyond a mere trade union trying to create one government of Europe.
Hollande previous said that forcing Europe into a single federalized government was to end European War. This European Project has created the risk of internal civil war by trying to force an agenda upon a people no different than what Napoleon and Hitler attempted using military strength. Today, Brussels seeks the same end goal – a single European State.
COMMENT: The Insanity of the EU Bureaucrats and the European Court of Justice (ECJ – The Vnuk Case Summary: In August 2007 Slovenian Damijan Vnuk working on a farm was injured when the farmer who was parking his tractor and trailer in a barn accidentally reversed into the ladder Vnuk was up on. Vnuk sued for compensation to the amount of €15,944.10. Slovenian courts rejected his claims by saying that the tractor was at the time not being used as a method of transport but one of propulsion to manoeuvre the trailer attached. The case was then referred to the ECJ. In September 2014, the ECJ ruled in Vnuks favour interpreting the European Motor Insurance Directive to mean that any motor vehicle must have third party insurance regardless of whether they are on private or public land. In framing their judgment the ECJ (whose decision can not be appealed) extended the scope to the point where many other activities including motorcycle and motorsports are now affected, and because the ECJ is the highest court in the European Union there is no possibility of appeal. This now means in theory that any motorized vehicle used on any type of private or public land must be covered by third party insurance. As well as affecting all motorsport vehicles, it could affect electric bicycles, sit-on lawnmowers, golf buggies, mobility scooters, segways and even motorised ride-on children’s toys. The seriousness of the situation prompted the UK’s Motorcycle Industry Association (MCIA) in December 2016 to issue a stark warning that British motorsport could end due to the EU ruling.
KMS
REPLY: This is how judges seriously alter the entire economy. They make decisions that are then so broadly applied that they really change everything and defeat democracy. In the USA, Congress NEVER made taxes apply to worldwide income. That was simply the Supreme Court ruling that Congress did not exempt it so they must have included it. This type of interpretation seriously disrupts everything. This is what Justice Scalia was against and he employed what is called “STRICT CONSTRUCTION” meaning if it does not expressly authorize something, then the court has no power to expand the interpretation. This is what the ECJ has just done and it will drastically alter the European economy compelling everyone to get insurance on everything.
The judiciary MUST be stopped. It must be restricted to Strict Construction, for otherwise, judges get to create laws based solely upon what they think. This eliminates any possible democratic process. It is effectively Judicial Tyranny. If a law does not expressly apply to something, it should not be interpreted to apply by judges. Put this on the list of structural reforms we MUST incorporate after the Crash and Burn.
Healthcare costs have continued to outpace inflation and just about everything else within the economy. Generally speaking, prices rise when demand increases relative to supply. The scheme of Obamacare was to force the youth to buy healthcare they did not need to pay for everyone else. The fines have been less than the costs so many of the youth just pay the fine. Forcing people to buy insurance to artificially lower the costs failed because healthcare is no different and has risen, not declined, with the false rise in demand.
Additional forces have also been contributing namely political decisions from Obamacare, additional taxes, and increased regulations have combined to impact healthcare costs. There has also been the notorious increase in lawsuits which influence the cost of malpractice insurance for medical practitioners forcing costs to also rise. Congress would never introduce Tort Reform because there are too many lawyers who would see their big paydays vanish.
McDonald’s is starting to replace people with auto-self-serving. Now Wendy’s is doing the same thing. Wendy’s plans to install self-ordering kiosks at 1,000 stores by the end of 2017. McDonald’s already beat them to the punch but we are witnessing this trend in many other businesses as well, such as movie theaters and airports. Corporate costs will decline with robots and automated order machines contributing to increasing corporate profits since they are not lowering prices. American Airlines is really anti-consumer. They charge $200 to speak someone to change your ticket when the ticket cost is even just $174. Healthcare costs rising faster than everything else will force companies to abandon workers whenever possible and this is impacting both manufacture as well as services.
So, what is the issue? Is it really just hourly wages? No! Any business with more than 25 employees are being hit with rising healthcare costs that amount to a monopoly from which the only possible relief is to eliminate people. Many small companies have tried to pay healthcare and have been forced to keep raising the deductible. Effectively, healthcare is devolving into catastrophic coverage. Many doctors are refusing to take people on government programs including Medicare because the government cheats them and is slow to pay.
Bill Gates may have been great at creating Microsoft, but when it comes to economics and law, he is off in the Cloud lost in his mind. What he has come out as a solution is to tax machines as if they are people? Gates said, “You’d think we’d tax the robot at a similar level” as humans and then the taxes a company pays would support society? So we become a world of couch potatoes?
Just maybe, we stop the subsidizing of healthcare, introduce Tort Reform, and replace government workers with robots to eliminate taxation on the people. That would be one alternative if we are looking at this new future world. In places like Greece, it is the government that accounts for 40% of GDP. In the USA, Fiscal Year 2017 is estimated at a total of all US government spending, federal, state, and local, to be $7.04 trillion. This will be 36% of GDP.
The US National Defense will be 4% of GDP while government pensions will be 7% plus government healthcare will be 8% compared to welfare is only 2%. Even education is 6% and that is highly questionable for it is really subsidizing the socialist philosophy. Our problem is government workers – not welfare or even military.
We need robots to replace government.
It was the speech that most claimed lacked substance that just did exactly what most thought it couldn’t – rally global stock markets. Yes, Japan’s Biz Cap-Ex released at 3.8% compared to the previous 1.3%; that woke markets, then Manufacturing PMI released a smidgen worse but when the JPY started to fall, everyone blamed Trump. The fact that the market has re-priced a March hike from 50% to 80% hardly made the pages. The Nikkei loved the weaker Yen especially moved were key exporters all adding to the strong 1.5% rally. Shanghai and Hang Seng were small better bid (bit disappointing as China PMI better than expected) but in late US trading the futures market have added an additional 1% across the board.
I find it quite amusing that the pages announcing in Asian time zone “no substance”, lacked detail and disappointing – suddenly claim that $1tln will help infrastructure and defence stocks. Europe benefitted both on data and action as fresh money finally found its way into the market. All core indices saw gains of around 2% whilst both the Euro and GBP traded weaker. Mixed bag of tricks on the data front but probably a tad better for Germany which did see a small sell-off in bunds but then treasuries were down nearly 2pts so probably not that exciting really!
The US market could not wait to open with a 100 point gain seen in the opening minutes. By lunchtime time we were over 300 points higher, breaking both the psychological 21k for the DOW and the 2400 level for the S+P. Data was mixed initially but finished better (ISM 56 forecast was released at 57.7) with most talking FED. Towards the close we are pricing in a 80% chance of a move in March but many may wish to wait Janet Yellen when she speaks Friday. Given the DXY recent performance (now around 101.75), the rise of the S+P (+7% YTD) and 2yr yields their highest in nearly 8yrs the chances are this could be the start of the FED back in play.
2’s closed 1.28% (+5bp), 10’s at 2.46% (+10bp), Bunds 0.0.28% (+8bp) closes US/Germany spread at +218bp. France 0.91% (+3bp), Italy 2.11% (+4bp; can you really believe Italy trades 35bp through the USA!!!), Greece 6.75% (-22bp), Turkey 10.66% (+7bp), Portugal 3.89% (+6bp) and finally Gilts 1.19% (+4bp).
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