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US Services PMI Rebounds To 14-Month Highs As ‘Hope’ Soars

Following yesterday’s jump in US manufacturing PMI, Market reports the January flash Services PMI also spiked (after dropping for 2 months) to match manufacturing at 55.1 (notably above the 54.4 expectations). This is the highest Services print since Nov 2015. Hope remains the biggest driver of this ‘soft’ survey data with growth expectations for the next 12 months were the greatest since May 2015.



Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The improvement in service sector business conditions follows the news earlier in the week that manufacturing also enjoyed a bumper start to the year. The two PMI surveys collectively point to the economy growing at an annualised rate of just over 2.5{e92785ee740f94a83fc90c6a87194b4ad5e655218be4369ff8f2633ee322067f} in January, and puts the US on a strong footing to achieve faster growth in 2017.


“Although the strong dollar is hitting exports, domestic demand clearly remains buoyant. Companies reported one of the highest inflows of new business for a year and a half as demand lifted higher at the start of 2017.


“Job creation also remained encouragingly solid, and especially impressive given current high overall levels of employment in the economy.


“Job gains are linked to increased optimism about the economic outlook. Business expectations of future growth are at their highest for just over one and a half years.


“The strong start to 2017 and bullish mood for the year ahead adds to our expectation that we will see the Fed hike rates a further three times in 2017.”

IHS Markit currently forecasts that the US economy will grow by 2.3{e92785ee740f94a83fc90c6a87194b4ad5e655218be4369ff8f2633ee322067f} in 2017, up from 1.6{e92785ee740f94a83fc90c6a87194b4ad5e655218be4369ff8f2633ee322067f} in 2016.

for the full article, go here

Posted in News and Events by Ford Saeks on January 31, 2017.

Like Everything Else, History Repeats (Almost Exactly) Because Power Truly Corrupts

by   click here of full article

With both the Bank of Japan and Federal Reserve today undertaking policy considerations at the same time, it is useful to highlight the similarities of conditions if not exactly in time. As I wrote this morning, what the Fed is attempting now is very nearly the same as what the Bank of Japan did ten years ago. In the middle of 2006, after more than six years of ZIRP and five years of several QE’s, the Bank of Japan judged economic conditions sufficiently positive to begin the process of policy “exit” by first undertaking the rate “liftoff.”

If you read through the policy statement from July 2006 it sounds as if it were written by American central bank officials in July 2016. Swap out the year and the country and you really wouldn’t be able to tell the difference.

“Japan’s economy continues to expand moderately, with domestic and external demand and also the corporate and household sectors well in balance. The economy is likely to expand for a sustained period…The year-on-year rate of change in consumer prices is projected to continue to follow a positive trend.”

With incoming data judged as meeting predetermined criteria (they were somewhat “data dependent”, too), the Bank of Japan voted to raise their benchmark short-term rate but were careful, just like the Fed since December, to assure “markets” that it would be a gradual change only in the level of further “accommodation.”

“The Bank has maintained zero interest rates for an extended period, and the stimulus from monetary policy has been gradually amplified against the backdrop of steady improvements in economic activity and prices…”
On the future path of monetary policy, the Bank will conduct monetary policy by carefully assessing economic activity and prices. The Bank will adjust the level of the policy interest rate gradually in the light of developments in economic activity and prices if they follow the projection presented in the Outlook Report. In this process, an accommodative monetary environment ensuing from very low interest rates will probably be maintained for some time.

As with almost everything with regard to global monetary policies, the Fed merely copied the Bank of Japan with about a decade lag (give or take a few years). The idea of “lower for longer” wasn’t made in the USA, it was designed and first implemented overseas by the Japanese. Every policy statement since the FOMC’s December rate decision could have easily just reprinted what I quoted above.

And US monetary officials are making the same mistake the Japanese made; they would only get as far as a second rate hike in early 2007 because of it. The reason is the same as now – they mistook the absence of contraction as if it were the start of stable, renewed growth. Not paying any attention to actual monetary conditions, it didn’t matter how narrow the data was in furtherance of that interpretation; BoJ policymakers saw what they wanted to see and used that as if the appropriate standard. In their case it was the CPI back on the plus side (but only temporarily), while in the US since 2014 it has been the official unemployment rate that excludes far too many.

abook-sept-2016-fomc-boj-rate-hikes-cpi abook-sept-2016-fomc-boj-rate-hikes-gdp

No matter which side of the “output gap” which central bank preferred, none of it was real. It was and remains nothing more than confirmation bias because policymakers on all sides in all times will not allow their rigid ideology to admit that “stimulus” doesn’t work. After so many years of it where it only increases through time, as the BoJ admits in its 2006 statement, you would think that it wouldn’t take such a slanted perception to find its effects; they should be obvious due to an obvious recovery. Instead, because it had and has taken years, the criteria by which “stimulus” is to be judged is first whittled and then left to a single number.

Even many Japanese see it that way, as St. Louis Fed President explained earlier this year in May.

After pushing to raise rates at the beginning of the year, he voted against a rate increase in April and he said he’s still thinking about June. “If you talk to people in Tokyo, they say, ‘Well, we’ve been through this and tried all these things and you guys are just following us,’ ” he said in the interview. “I hope that’s not exactly true.”

It is true because the FOMC has no idea what it is doing, just like Bank of Japan officials about a decade before them. Rather than learn from all the experimentation, the power and prestige still, somehow, afforded to all of them is just too much to give up. They would clearly rather keep themselves on top of the political power structure as it relates to the economy than to admit what is increasingly obvious (a second time) and allow a real recovery that doesn’t need them – and, in fact, won’t ever come about until they get the hell out of the way.




Posted in News and Events by Ford Saeks on September 26, 2016.
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The Fed Is Preparing for Negative Rates—Here’s the Sign Everyone Missed

Submitted by John Mauldin via MauldinEconomics.com,

I think it’s possible that the Fed will push rates below zero when the next recession arrives.

I explained why a few months ago in my free weekly column, Thoughts from the Frontline, at Mauldin Economics.

In that regard, something important happened recently. And not many people noticed. I’ll do a quick review to explain.

In Congressional testimony last February, a member of Congress asked Janet Yellen if the Fed had legal authority to use negative interest rates. Her answer was this:

In the spirit of prudent planning we always try to look at what options we would have available to us, either if we needed to tighten policy more rapidly than we expect or the opposite. So we would take a look at [negative rates]. The legal issues I’m not prepared to tell you have been thoroughly examined at this point. I am not aware of anything that would prevent [the Fed from taking interest rates into negative territory]. But I am saying we have not fully investigated the legal issues.

So as of then, Yellen had no firm answer either way.

A few weeks later, she sent a letter to Rep. Brad Sherman (D-CA). He had asked what the Fed intended to do in the next recession and whether it had authority to implement negative rates.

She did not directly answer the legality question, but Sherman took the response to mean that the Fed thought it had the authority. Yellen noted in the letter that negative rates elsewhere seemed to be having an effect.

(I agree that they are having an effect; it’s just that I don’t think it’s a good one.)

Yellen’s claims are a clear sign the Fed is prepared to dive

Fast-forward a few more weeks to Yellen’s June 21 congressional appearance. She stated that the Fed does have legal authority to use negative rates but denied any intent to do so.

“We don’t think we are going to have to provide accommodation, and if we do, [negative rates] is not something on our list.”

 I’m concerned about the legal authority question. If we are to believe Yellen’s sworn testimony to Congress, we know three things:
  1. As of February, Yellen had not “fully investigated” the legal issues of negative rates.
  2. As of May, Yellen was unwilling to state the Fed had legal authority to go negative.
  3. As of June, Yellen had no doubt the Fed could legally go negative.

When I wrote about this in February, I said the Fed’s legal staff should be disbarred if they hadn’t investigated these legal issues. Clearly they had.

Bottom line: by putting the legal authority question to rest, the Fed is laying the groundwork for taking rates below zero.

I’m sure Yellen was telling the truth when she said in June that the Fed had no such plan. But, plans change.

The Fed says it’s data dependent. If the data shows we’re in recession, I think it is very possible the Fed will turn to negative rates to boost the economy.

Except, in my opinion, it won’t work.

Posted in News and Events by Ford Saeks on August 1, 2016.
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Oil Jumps Despite Saudi Plans For “Significant Output Growth”; Kuwait Unveils Plans For Record Production Surge

A day after oil tumbled to the lowest level in weeks, it has once again started to climb, ignoring the changing dynamic in the oilsands region where the fire has now moved away from critical Canadian oil infrastructure, and is instead focusing on concerns about supply disruptions not just out of Canada but also a series of attacks on Nigeria’s oil infrastructure which pushed the country’s crude output close to a 22-year, cumulatively knocking out 2.5 million barrels of daily production.

However, two stories that oil traders are ignoring in today’s action is the latest out of Saudi Arabia where Saudi Aramco, the state oil company, announced it was raising production to capture more customers as it pushes ahead with what could be the world’s biggest stock market listing next year the FT reported earlier. Additionally, Kuwait’s head of research at state-owned Kuwait Petroleum said the country aims to produc a record 4 million a barrels a day by 2020, a major increase of nearly 50{e92785ee740f94a83fc90c6a87194b4ad5e655218be4369ff8f2633ee322067f} compared to its recent 2.8mmbpd output recorded in March.

FOMC minutes released

First, back to Saudi Arabia, where in some of the first comments since a major government reshuffle at the weekend, Saudi Aramco chief executive Amin Nasser emphasized the company’s willingness to compete with rivals, putting oil producers from regional adversary Iran to US shale producers on notice.

“Whatever the call on Saudi Aramco, we will meet it,” he said during a rare media visit to the headquarters of the state oil company in Dhahran. “There will always be a need for additional production. Production will increase upward in 2016.”

As we noted over the weekend when analyzing the recent Saudi oil minister succession, Mohammed bin Salman, deputy crown prince, hinted that

the kingdom could easily accelerate output to more than 11m b/d as Iran, Riyadh’s regional rival, tries to attract customers after years of sanctions. Saudi Aramco, which pumps more than one in every eight barrels of crude globally, is at center of a reform program being pushed by Prince Mohammed, who has emerged as the man holding the main levers of power in Saudi Arabia.

Last year Saudi Arabia’s crude output averaged 10.2m b/d, Mr Nasser said, the highest annual level on record. He indicated the increase in 2016 would supplant high-cost output in other parts of the world, which has started to decline after almost two years of falling prices. “We are seeing a global increase in demand,” said Mr Nasser, citing growing consumption in India, the US and other parts of the world. He was explicitly focusing on China where as noted before, the Saudis have lost substantial ground to Russian exports and are rushing to retake market share as Chinese teapot refineries have boosted production in recent months.

As the FT adds, Nasser did not specify how much Aramco’s production will rise in 2016, but said the company was prepared to meet additional domestic demand this summer, when the country’s output usually rises to meet heightened domestic electricity demand as the use of air-conditioning soars. Last June production reached a high of 10.56m b/d.

Nasser added that Saudi Arabia’s production capacity was 12.5m b/d with all but 500,000 b/d controlled by Aramco. He also said that the latest stage of an expansion project at the Shaybah oilfield in the south-east would be finished in a couple of weeks, adding 250,000 b/d of production capacity and taking the field’s output to 1m b/d. This would help offset falling output at other, mature fields.

But while the Saudi production boost remains speculative, another OPEC member nation that is set to see its output soar in

the coming months is Kuwait, which is targeting an almost 50{e92785ee740f94a83fc90c6a87194b4ad5e655218be4369ff8f2633ee322067f} increase in oil production over the next four years in a bid to secure future economic growth for the oil-dependent nation, a Kuwaiti oil official said on Tuesday.

Speaking at the Platts Crude Oil Summit in London, Abdulaziz Al Attar, head of research at state-owned Kuwait Petroleum Corp., said the country aims at producing 4 million a barrels a day by 2020 and maintaining that level through 2030, reiterating its goal of ramping up production.

According to MarketWatch, such an increase would mark a 44{e92785ee740f94a83fc90c6a87194b4ad5e655218be4369ff8f2633ee322067f} jump on Kuwait’s output of 2.77 million barrels a day in March, according to the latest monthly report from OPEC. It would also be the country’s highest output level ever, according to Bloomberg data. “We also intend to provide fuel stock capabilities to counter for seasonality and domestic energy demand,” Al Attar said at the conference.

The comments come after a three-day strike in Kuwait sent its oil production tumbling to 1.5 million a day in April. However, Al Attar brushed off concerns that similar events would significantly impact production in the future. “I don’t think there will be any future risks of strikes,” he said. The oil representative said Kuwait plans to grow domestic refining capacity to 1.4 million barrels a day and boost international cooperation.

So while the world awaits that elusive jump in demand which is the catalyst for all this upcoming excess production, in the meantime oil continues to pile up. And, as Reuters, writes, with plenty of crude available, refiners have produced large volumes of gasoline and diesel, threatening to swamp demand despite the coming U.S. summer driving season.

According to Oystein Berentsen, managing director for crude at Strong Petroleum in Singapore, “crude cannot go up without support from products, and that support is not there at the moment, and more refineries are coming out of turnarounds so there will be more products and tanks are getting full.

For now, however, oil is doing precisely that, going up as algos have resumed control over the trend and supply/demand imbalance fundamentals have been put squarely away for the time being.

Article source: http://www.zerohedge.com/news/2016-05-10/oil-jumps-despite-saudi-plans-significant-output-growth-kuwait-unveils-plans-record-

Posted in News and Events by Ford Saeks on May 24, 2016.
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Why “The Fed Can’t Save Us”: The Simple Explanation From Austrian Business Cycle Theory

The Fed Can’t Save Us

By Robert P. Murphy of Mises Institute


In December, the Fed hiked its target for the federal funds rate, which is the interest rate banks charge each other for overnight loans of reserves. Since 2008 the Fed’s target for the Fed Funds Rate had been a range of 0 percent – 0.25 percent (or what is referred to as zero to 25 “basis points”). But last month they moved that target range up to 0.25 – 0.50 percent. Ending a seven-year period of effectively zero percent interest rates.

From our vantage point, we already see carnage in the financial markets, with the worst opening week in US history. This of course lines up neatly with standard Austrian business cycle theory, which says that the central bank can give an appearance of prosperity for a while with cheap credit, but that this only sets the economy up for a crash once rates begin rising.

However, there is something new in the present cycle. The Fed is trying to raise rates while simultaneously maintaining its bloated balance sheet. It is attempting to pull off a magic trick whereby it can keep all of the “benefits” of its earlier rounds of monetary expansion (i.e., “quantitative easing” or “QE”) while removing the artificial stimulus of ultra-low interest rates. As we’ll see, this attempt will not end well, for the Fed officials or for the rest of us. In the meantime, Ben Bernanke will look on with concern, writing the occasional blog post and perhaps giving a speech about poor Janet Yellen’s tough predicament.

Austrian Business Cycle Theory

One of the seminal contributions of Ludwig von Mises was what he called the circulation credit theory of the trade cycle. In our times, we simply call it Austrian business cycle theory, sometimes abbreviated as ABCT. The Misesian theory was subsequently elaborated by Friedrich Hayek, and it was partly for this work that Hayek won the Nobel Prize in 1974.

In the Mises/Hayek view, interest rates are market prices that perform a definite social function. They communicate vital information about consumer preferences regarding the timing of consumption. Entrepreneurs must decide which projects to start, and they can be of varying length. Intuitively, a high interest rate is a signal that consumers are “impatient,” meaning that entrepreneurs should not tie resources up in long projects unless there are large gains to be had in output from the delay. On the other hand, a low interest rate reduces the penalty on longer investments, and thus acts as a green light to tie capital up in lengthy projects.

So long as the interest rate is set by genuine market forces, it gives the correct guidance to entrepreneurs. If consumers are willing to defer immediate gratification, they save large amounts of their income, and this pushes down interest rates. The high savings frees up real resources from current consumption — things like restaurants and movie theaters — and allows more factories and oil wells to be developed.

However, if the interest rate drops not because of genuine saving, but instead because the central bank electronically buys assets with money created “out of thin air,” then entrepreneurs are given a false signal. They go ahead and take out loans at the artificially cheap rate, but now society embarks on an unsustainable trajectory. It is physically impossible for all of the entrepreneurs to complete the long-term projects they begin.

In the beginning, the unsustainable expansion appears prosperous. Every industry is growing, trying to bid away workers and other resources from each other. Wages and commodity prices shoot up; unemployment and spare capacity drop. The economy is humming, and the citizens are happy.

Yet it all must come crashing down. In a typical cycle, price inflation eventually rises to the level that the banks become nervous. They halt their credit expansion, allowing interest rates to start rising to a more correct level. The tightening in the credit markets causes pain initially for the most leveraged operations, but gradually more and more businesses are in trouble. A wave of layoffs ensues, with large numbers of entrepreneurs suddenly realizing they were too ambitious. The painful “bust,” or recession, sets in.

This Time Is Different (Sort of)

Since the financial crisis of 2008, the stock market’s surges have coincided with rounds of QE, and the market has faltered whenever the expansion came to a temporary halt. The sharp sell-off in August 2015 occurred when investors thought the first rate hike was imminent (it had been scheduled for September 2015). That particular hike was postponed, but after it went into effect in December, we soon saw the market tank to 2014 levels.

As we would expect in times of Fed tightening, the official monetary base has fallen sharply in recent months, but this doesn’t mean that the Fed is selling off assets (as it would in a textbook tightening cycle). Indeed the Fed’s assets have been constant since the end of the so-called taper in late 2014.

This is unusual since the monetary base and the Fed’s total assets typically move in tandem. Yet since late 2014, there have been three major drops in the monetary base that occurred while the Fed was dutifully rolling over its holdings of mortgage-backed securities and Treasuries, keeping its total assets at a steady level.

The explanation is that the Fed has been testing out new techniques to temporarily suck reserves out of the banking system, while not reducing its total asset holdings.

Meanwhile, the Fed in December bumped up the interest rate that it pays to commercial banks for keeping their reserves parked at the Fed. I like to describe this policy as the Fed paying banks to not make loans to their customers.

What Does It All Mean?

So why is the Fed trying to tighten the money supply without selling off assets as it has done in the past? It boils down to this: In order to bail out the commercial and investment banks — at least the ones who were in good standing with DC officials —as well as greasing the wheels for the federal government to run trillion-dollar deficits, the Federal Reserve in late 2008 began buying trillions of dollars worth of Treasury debt and mortgage-backed securities (MBS). This flooded the banking system with trillions of dollars of reserves, and went hand in hand with a collapse of short-term interest rates to basically zero percent.

Now, the Fed wants to begin raising rates (albeit modestly), but it doesn’t want to sell off its Treasury or MBS holdings, for fear that this would cause a spike in Uncle Sam’s borrowing costs and/or crash the housing sector. So the Fed has increased the amount that it is paying commercial banks to keep their reserves with the Fed (rather than lending them out to customers), and — for those institutions that are not legally eligible for such a policy — the Fed is effectively paying to borrow the reserves itself. By adjusting the interest rate the Fed pays on such transactions, the Fed can move the floor on all interest rates up. No institution would lend to a private sector party at less than it can get from the Fed, since the Fed can create dollars at will and is thus the safest place to park or lend reserves.

We thus have the worst of both worlds. We still get the economic effects of “tighter monetary policy,” because the price of credit is rising as it would in a normal Fed tightening. Yet we don’t get the benefit of a smaller Fed footprint and a return of assets to the private sector. Instead, the US taxpayer is ultimately paying subsidies to lending institutions to induce them to charge more for loans, while the big banks and Treasury still benefit from the effective bailout they’ve been getting for years.

It Can’t Last

Will the Fed be able to keep the game going? In a word, no. We’ve already seen that even the tiniest of interest rate hikes has gone hand in hand with a huge drop in the markets. Furthermore, the Fed’s subsidies to the banks are now on the order of $11 billion annually, but if they want to raise the fed funds rate to, say, 2 percent, then the annual payment would swell to more than $40 billion. That is “real money” in the sense that the Fed’s excess earnings would otherwise be remitted to the Treasury. Therefore, for a given level of federal spending and tax receipts, increased payments to the bankers implies an increased federal budget deficit.

Janet Yellen and her colleagues are stuck with a giant asset bubble that her predecessor inflated. If they begin another round of asset purchases, they might postpone the crash, but only by making the subsequent reckoning that much more painful.

You don’t make the country richer by printing money out of thin air, especially when you then give it to the government and Wall Street. The Fed’s magic trick of raising interest rates without selling assets can’t evade that basic reality.

Posted in News and Events by Ford Saeks on April 21, 2016.

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Posted in Uncategorized by Ford Saeks on February 24, 2016.

Technical Indicators Explained

Technical Indicators ExplainedHello again, traders. Today’s topic is indicators.

The vast majority of traders – 90 percent or more, possibly 99 percent of all traders – rely on indicators of some sort.  This is understandable in the beginning, especially unless and until a trader understands how the market works for real and how it generates the information that it does.

Indicators, sadly, do not indicate anything of a specifically useful nature.

They are merely a visual display of a compilation of data points or parameters that a given indicator measures from historical market activity.  Some measure a series of closing prices, some measure the magnitude of certain moves over a series of bars or candles while others assess volume or price disparities, etc.  However, no matter how much data any indicator (or compilation of indicators) can measure or how recent the data or how “fast” the indicator is set to, it is still all just a representation past tense behavior.  They do not “forecast” a thing. 

Posted in Trading Basics by Ford Saeks on December 15, 2014.

Trading Basics Part 4: A Brief Overview of the E-Mini S&P

In part one of our trading basics seriesInvest Word Button Representing Saving Stocks And Interest, we discussed that stocks are minute percentages of a company’s ownership. In part two, we covered what an index is, and the different types. In part three, we gave an overview of what futures and commodities are, and how trading them works. With this foundation established, today we’re going to conclude our series with a brief overview of the E-mini S&P, courtesy of our Head Trader.

Even if a trader does not trade the S&P futures, most traders follow the S&P 500 and monitor its present value throughout each trading day. It’s the single most important barometer of overall market sentiment and it’s used as a gauge by traders and investors of all levels worldwide.  That being the case, it makes the most sense to trade the index itself, as the strength or weakness of the S&P 500 affects all other markets all over the world. Especially equity markets, and certainly individual issues here in U.S. markets.

Posted in Trading Basics by Ford Saeks on November 5, 2014.

Trading Basics Part 3: What are Futures and Commodities?

Cash marketIn part one of our trading basics series, we discussed that stocks represent minute ownership in companies. In part two, we reviewed what an index is, and the different types. Now we’re going to cover what futures and commodities are.

What are commodities?

Generally speaking, a commodity is a class of goods used in the production of other end products. Examples include energy (crude oil, natural gas, gasoline, jet fuel, etc.), agricultural (such as corn, soybeans, wheat, rice, coffee, cocoa, sugar, cotton, etc.), livestock (lean hogs, pork bellies, live cattle, etc.) and metals (gold, silver, copper, platinum, etc.).

Posted in Trading Basics by Ford Saeks on November 3, 2014.

Trading Basics Part 2: What is an Index?

Stock market indexIn part one of our stock trading basics series, we explained that stocks are minute percentages of a company’s ownership, and they are traded on exchanges. Now we’re going to cover what an index is, and the different types out there today.

The first index: Dow Jones Industrial Average

Just before the turn of the century, in May of 1896, Charles Dow and his business associate Edward Jones first calculated and published their index, aptly named the Dow Jones Industrial Average (DJIA).
At the time, there may have been some 100 – 120 publicly traded entities. Charles Dow was the editor of the Wall Street Journal (WSJ), so he and Jones tracked the price movements of those stocks and published them in the WSJ. Thus, the concept of the index (one of several indices developed by Dow) was formed.

Posted in Trading Basics by Ford Saeks on October 29, 2014.