Wednesday, September 20, 2017

Counterfeiting and Money Laundering At Its Finest: Fed To Begin Balance Sheet Unwind

If there's one thing everybody can be sure of after today's FOMC rate announcement (spoiler alert: fed funds remain unchanged), it's that the officials at the Federal Reserve will continue to tell everybody that everything is under control, until it's obvious that nothing is under control.

What the Fed will embark upon beginning in October is selling off the assets it purchased during and after the Great Financial Collapse (GFC), thos being primarily mortgage backed securities (MBS, AKA, toxic bond waste) and Treasury bills, notes, and bonds.

Of the two, the treasury issuance will be much less of a problem unloading than the MBS, since treasuries come with an implied guarantee that they're as good as the federal government's full faith and credit promise to repay... with interest and return of principal.

Those toxic mortgage backed securities, which the Fed likely purchased at or near par (100% of value), will be more of a challenge, but, being the central banker to the world, the Fed has nothing about which to worry.
Many of these MBS contain tranches of mortgages minted during the sub-prime crisis. Many of them are worthless. Many more are worth less than half of par value.

But, that does not worry the Federal Reserve, because, since they want to shrink their balance sheet, they can just sell them at whatever price they can get, because they - unlike just about any other entity in the known universe - can just print more money if they need it.

So, $4.4 trillion is going to be wound down to probably under $1 trillion over the course of six to ten years. Some of the mortgage backed securities are performing, many are not. They're in default. Somebody will buy them, ostensibly, because if not, they remain on the Fed's balance sheet - at par value.

It's ludicrous. The Fed will, let's say, sell what they consider to be $500 billion of MBS which is in fact worth maybe, $100 billion. They'll write the $400 billion off their books, in effect, taking a loss. It won't matter. It's gone. It's all just accounting, and, since the Fed doesn't report to the IRS, IMF, BIS, or anybody for that matter, they'll just whistle past the grave of homes lost or stolen by vicious, unscrupulous bankers, who, by the way, will probably be the ones repurchasing - at pennies on the dollar - the very same MBS they unloaded onto the Fed.

And, just for good measure, those very same banks will try to enforce their rights on those bonds, triggering another round of financial shenanigans, this time going after people who thought they bought properties with good title, only to learn that there are claims on them, claims that were hidden in the bowels of the Fed's books for five, six, seven or eight years.

It's the best counterfeiting and money laundering operation that's ever been hatched, and it will all be done out in the open because 99% of the people in the world don't actually understand how it all works.

In the long run, it's all flimflammery of the flimsiest variety, but our glorious central counterfeiters and money launderers just do business that way.

As they say in investing, gambling, and, supposedly, now, banking, "easy come, easy go."

At the close, Wednesday, September 20, 2017:
Dow: 22,412.59, +41.79 (+0.19%)
NASDAQ: 6,456.04, -5.28 (-0.08%)
S&P 500: 2,508.24, +1.59 (+0.06%)
NYSE Composite: 12,147.50, +15.77 (+0.13%)

Stocks at All-Time Highs Awaiting Fed Unwind

In what could be a truly historic day for equity investors, stocks sit at all-time highs prior to Wednesday's FOMC rate policy announcement, which is also expected to include a definitive start date of the Federal Reserve's asset disposal program, as the central bank begins to unload up to $4 trillion of assets into the market.

All of the major indices closed at record levels on Tuesday, setting up the FOMC announcement as the ultimate "bell ringer" at the tippy-top of the year-year-plus bull market, the second longest in history.

While it is improbable to call the closing quotes of September 19 the absolute top, it may make some sense to keep stops close, just in case the market has telegraphed the turn.

A turn in markets is usually more subtle, most often without warning, but, considering the fantastical nature of finances in the days of general central bank control, this may be as good a time as any to sit on the sidelines or dispose ones portfolio of risky equity assets.

A complete report will be posted after the close today. The FOMC rate decision is scheduled for 2:00 pm ET.

At the Close, Tuesday, September 19, 2017:
Dow: 22,370.80, +39.45 (+0.18%)
NASDAQ: 6,461.32, +6.68 (+0.10%)
S&P 500: 2,506.65, +2.78 (+0.11%)
NYSE Composite: 12,131.73, +20.28 (+0.17%)

Tuesday, September 19, 2017

Dow Jones Industrials, S&P 500 Mark New All-Time Highs; Fed To Unwind Massive Fake Balance Sheet

All is well!

At the Close, Monday, September 18, 2017:
Dow: 22,331.35, +63.01 (+0.28%)
NASDAQ: 6,454.64, +6.17 (+0.10%)
S&P 500 :2,503.87, +3.64 (+0.15%)
NYSE Composite: 12,111.45, +31.31 (+0.26%)

Following a truly boffo week past, the mid-point of September brings more record-breaking on the stock exchanges.

Just ahead is a roadblock to progress, as the FOMC begins a meeting on Tuesday, concluding Wednesday with what should be a statement covering plans to begin unwinding its $4.5 trillion portfolio of Treasuries and mortgage backed securities.

Remember, many of those mortgage-backed securities which the Fed holds (lots of them 20 or 30 years in length) are largely worthless, and, since the Fed purchased them at par (ha, ha), they'll be selling at a loss.

Of course, it's all just worthless paper in any case, so, if the Federal Reserve paid $100 million for mortgage toilet paper X, and they sell it for $30 million, the result is a 70% loss, or a cool $70 million. Multiply that into the billions which the Fed held and that balance sheet will erode pretty quickly.

The effort is going to be largely deflationary, as opposed to what many analysts believe will be an inflationary tsunami driving interest rates sky high.

There's also the question of just who will be buying the mortgage toilet paper. Will it be the very same banks which issued it in the first place back in 2006-2009? That is a somewhat likely outcome, or, as karma dictates, what goes around, comes around.

Couldn't happen to a better bunch of banker crooks.

Have a happy.

Friday, September 15, 2017

Dow Posts New All-Time High; Retail Sales Miss, Inflation Higher In August

With a 45-point gain on Thursday, the Dow Jones Industrial Average set a new all-time closing high (22,203.48), putting an exclamation mark on what has been an incredibly fruitful week for investors.

With a small gain last Friday, the Dow has now gone five straight sessions without posting a loss. The blue chip average is up 405 points for the week (1.86%) and despite some discouraging data prior to Friday's open, it appears set to finish the week on a healthy note.

The data Friday morning that sent futures lower was a pickup in inflation according to the CPI figures for August, showing a 0.4% increase, due largely to a spike in retail gas prices and a 0.5% increase in the rent factor. On a year-over-year basis, the index is up 1.9%, closing in on the Federal Reserve's two percent target rate.

Retail sales were down 0.2% in August, with the largest contributor to the decline the drop in auto sales which slumped 1.6% for the month after being flat in July.

With inflation up slightly (and understandably) and sales down, the Fed will find itself once again in a box on rate increases and likely do nothing when the FOMC meets next week. Some mention of the winding down of their enormous, $4.1 trillion balance sheet is expected and that could move markets, although the Fed has been extremely cautious to commence the wind-down as it could spark inflation, a market selloff or other unforeseen consequences.

Nonetheless, stocks are poised for another solid week while the economy appears to be slowing gradually during the third quarter.

At the Close, Thursday, September 14, 2017:
Dow: 22,203.48, +45.30 (+0.20%)
NASDAQ: 6,429.08, -31.10 (-0.48%)
S&P 500: 2,495.62, -2.75 (-0.11%)
NYSE Composite: 12,062.62, +7.44 (+0.06%)

Wednesday, September 13, 2017

Stocks on Track for Awesome 3rd Quarter Returns

Spoiler Alert: Depending on how your money is allocated, your third quarter 2017 401k, pension or retirement fund statement is going to look pretty good when you get it the first or second week of October.

That's because the rally that started in March, 2009 is still alive and well here in September, 2017.

For instance, if you're a blue chip kind of person, the Dow Jones Industrial Average ended May just below 21,000. Two-and-a-half months later, it's broken through 22,000 and is poised for more gains through the end of the September. The Dow is tracking for roughly a five percent gain for the quarter. That's 20% annualized. Who knew this investing stuff was so easy?

In case you're a tech spec, the NASDAQ began the quarter at 6200 and just yesterday broke through to a new all-time high, above 6450. The gain is just over 4%, a little less than the Dow.

For those widely diversified, say, in an index fund tracking the S&P or NYSE, the 500 started June rocketing through 2420 and is currently just below 2500. Again, the profit is around 4%. The NYSE Composite has gone from 11,600 to over 12,000 in the quarter. That 400 point gain is less than four percent, but very safe and sound.

There are just 13 trading days remaining in the third quarter and no impediments for stocks to continue making new high after new high.

Happy returns!

At the Close, Tuesday, September 12, 2017:
Dow: 22,118.86, +61.49 (+0.28%)
NASDAQ: 6,454.28, +22.02 (+0.34%)
S&P 500: 2,496.48, +8.37 (+0.34%)
NYSE Composite: 12,057.12, +46.86 (+0.39%)

Monday, September 11, 2017

Stocks Erase Previous Week's Losses with Monday Gains; US Government Debt Surpasses $20 Trillion

Within the first few moments after the opening bell, the major indices - with the notable exception of the NASDAQ - had eviscerated the losses from last week. The NASDAQ almost wiped off last week's 75-point loss, but not quite. The other indices moved radically higher, the S&P setting a new all-time closing high, as did the NYSE.

Hurricane Irma failed to live up to disaster speculation, President Trump seems to have found his best stride, picking off the budget, debt ceiling and disaster relief debates all in one fell swoop, and the tensions over North Korea seem to have subsided, for the present.

Thus, stock investors saw smooth sailing to push already inflated prices even higher with nary a care for valuation. It is this very sort of nonchalance that usually leads to major corrections, but one has failed to materialize. That's not to say that it won't, but, with the Federal Reserve and their cohorts in centra banking picking up any slack, there is no reason to end any rally.

All of this enthusiasm for stocks occurs after this past Friday the US government debt surpassed the magical $20 trillion mark, which gives one pause to ponder the wisdom of markets. Albeit, the mainstream news media failed entirely to report this salient fact.

As the saying - attributable to John Maynard Keynes - goes, "Markets can remain irrational longer than you can remain solvent."

Hedge accordingly.

At the Close, Monday, September 11, 2016:
Dow: 22,057.37, +259.58 (+1.19%)
NASDAQ 6,432.26, +72.07 (+1.13%)
S&P 500: 2,488.11, +26.68 (+1.08%)
NYSE Composite: 12,010.37, +122.39 (+1.03%)

Sunday, September 10, 2017

Stocks Post Down Week With Irma, FOMC Approaching

Since topping out in late July and early August, stocks have gyrated sideways to lower, with the Dow Jones Industrial Average finishing the week with a marginal (0.06%) gain Friday, enduring a losing week for all the major indices.

The losses were not great, the NASDAQ taking the brunt of the declines, down 1.17 percent for the week, while the NYSE composite was off just a quarter of a percent.

Facing a FOMC meeting in two weeks (Sept. 19-20) and the aftermath of yet-undetermined damages from hurricane Irma in Florida, Wall Street probably won't need much cheerleading to forge upward since the potential damages from Irma have been wildly overstated and the tone from the Fed continues to be accommodative. What may be worrying will come Thursday morning, when initial unemployment claims are announced prior to the opening bell.

Last week's spike of 62,000 of the 298,000 total, was largely attributable to Hurricane Harvey, as Texans sought government assistance. Similar spikes were seen after major hurricanes Katrina in 2005 and Sandy in 2012. However, the surge may be masking a breakdown in hiring and staffing as the US economy plods its way toward the important holiday season.

Full employment, a mandate of the Federal Reserve, is as close as its going to get, with unemployment nationally being reported at under five percent, historically the level understood to be full employment. Such a level - even if, as the case may be, many of the jobs are part-time - is not sustainable over the long haul. Companies will trim when profits are threatened, as has been the case throughout multiple trips through the business cycle.

Whether the government statisticians will provide true figures of the employment condition is another matter altogether. The Labor Department is congested with assumptions and adjustments which often distort the true picture.

Unless the FOMC goes rogue at their next meeting and actually raises the federal funds rate (highly unlikely), there's little to keep stocks from making a rebound, though it's probably going to be short-lived and thinly traded. The overall trend remains slightly to the downside.

At The Close, 9/8/17:
Dow: 21,797.79, +13.01 (+0.06%)
NASDAQ: 6,360.19, -37.68 (-0.59%)
S&P 500: 2,461.43, -3.67 (-0.15%)
NYSE Composite: 11,887.98, +8.37 (+0.07%)

For the week:
Dow: -189.77 (-0.86%)
NASDAQ: -75.14 (-1.17%)
S&P 500: -15.12 (-0.61%)
NYSE: -30.13 (-0.25%)

Friday, September 8, 2017

Stocks Have Nowhere To Go, Set Up For Losing Week

As dull a session as there has been for many months, Thursday's action was muted and indecisive, with stocks trading in very tight ranges.

There's some concern over the coming effects of hurricane Irma, the disaster of the week that has captured the attention of people who are afraid of shadows and dark rooms.

With the media, with help from Florida's Governor, officials from FEMA and other officious morons panicking the entire population of the Sunshine State, the expected destruction had better be significant or stocks will spend Monday of next week making up for lost time and lost profits.

In the meantime, there's ample evidence exhaustion in the equity markets, while significant action in bonds and precious metals with gold and silver scoring large gains on the day and the 10-year note yield plummeting back to levels not seen in ten months, below 2.06%.

All of this points toward a potential bloodbath Friday and the first losing week in the past three for the main indices.

With minutes until the opening bell on Friday, futures are down significantly, with the Dow futures trending lower by some 60 points.

Keep you stops close, this could get ugly.

At The Close, 9/7/17
Dow: 21,784.78, -22.86 (-0.10%)
NASDAQ: 6,397.87, +4.55 (+0.07%)
S&P 500: 2,465.10, -0.44 (-0.02%)
NYSE Composite: 11,879.61, +6.69 (+0.06%)

Wednesday, September 6, 2017

Stocks Bounce, but Fail to Erase Previous Losses; Congressional Republicans in Shock

Stocks rebounded from Tuesday's drubbing, but not nearly enough to erase the damage done, a classic dead cat bounce.

News was heavy, most of it coming out of Washington, where President Donald Trump reportedly reached agreement with congressional democrats on not only a debt ceiling increase but funding for hurricane Harvey victims and at least the outline of a continuing resolution. The proposed legislative deal would fund the government through December 15, upsetting - only in Washington - Republicans, who hoped for a longer debate on all of the issues.

Obviously, Trump has determined that with friends like his fellow Republicans in congress, he doesn't need enemies, thus making compromises with Democrats. It's actually - for a fellow who's supposedly not a politician - pretty smart politics. Republicans, included Senate majority leader, Mitch McConnell and House leader, Paul Ryan, were reportedly angered over the development.

Wall Street was immediately impressed, though stocks tailed off noticeably into the close.

Trump also tamped down recent bellicosity toward North Korea, hoping that China would do more to keep leader Kim Jong-un on a short leash.

Federal Reserve vice-chairman, Stanley Fischer announced that he would retire from his position on October 13, a surprise leaving open one of the most prestigious seats in Washington and a puzzler for Fed watchers. Fischer cited personal reasons for his decision, but speculation is that the departure has more to do with health than money, but suspect that Janet Yellen will be out at the culmination of her term in February.

Hurricane Irma continued to barrel towards Florida, the Fed's beige book revealed that members thought the economy was showing signs of improvement, though the continuing bemoaning over a lack of inflation was prominent.

While stocks improved modestly, the effect was greater on fixed income and precious metals. Gold and silver halted their recent advances and bond yields rose, with the 10-year note increasing to 2.11%

Overall, nothing was settled, except that Washington might actually avoid the drama that usually surrounds debt ceiling and budget debates, which is actually quite a positive development.

Trump making deals? Who knew?

At the Close, 9/6/17:
Dow: 21,807.64, +54.33 (+0.25%)
NASDAQ: 6,393.31, +17.74 (+0.28%)
S&P 500: 2,465.54, +7.69 (+0.31%)
NYSE Composite: 11,872.92, +45.77 (+0.39%)

Tuesday, September 5, 2017

Bonds Don't Lie As Risk Rears Ugly Head At Stocks

Sooner or later, all good things come to an end, and it appears that the 101 month bull run in US equities is just about over.

All things considered, from global uncertainty (think North Korea, and immigration, currently) to underfunded pensions (about half of the states' public retirement funds) to the upcoming debate over the debt ceiling and nothing looks really positive about the American economy, the same one that has limped along at less than three percent annual growth for almost nine years.

Last Friday's miss on the non-farm payroll data certainly didn't help matters on Monday as once-giddy speculators were morose and confused, many seeking the safety of bonds.

While a somewhat ugly day for stocks, bonds were bid with gusto, the 10-year note getting so much action it hit its lowest yield since two days after Trump's election, crashing to 2.06%, on what turned out to be the best day for bond bulls since Brexit (June, 2016). It's fairly obvious by now that the benchmark 10-year will be yielding below two percent soon, the level it was occupying prior to the surprise presidential election of Donald J. Trump.

In an odd way, stock pickers may have an opening or two. Since bond yields are horrible, stocks, though vastly overvalued, may be worthwhile investments for those willing to take the risk. On the other hand, there may not be many stocks which are able to perform well through a prolonged recession, possible debt defaults around the world and a demographic nightmare that makes all other metrics pale by comparison.

Spoken of before in this space, the demographic dilemma cannot be understated. All of the developed nations are aging, starting with Japan and Germany, and older people simply do not spend as much or with as much frequency as younger folks. Aging populations are settled in their ways, move slowly (if at all) and are very conscious of their spending habits, many of them on fixed incomes.

That said, inflation is virtually impossible, pricing power for companies difficult if at all attainable. All that's left is financial engineering, cooking the books and keeping the creditors in the dark or off the doorstep.

Even the mighty Dow Industrials slipped again, for the ninth time in the last 20 sessions. The popular index is down more than 500 points over that span.

Precious metals also had a solid day, again, continuing the trend begun mid-August.

Stocks have crossed the rubicon.

At the Close, 9/5/17:
Dow: 21,753.31, -234.25 (-1.07%)
NASDAQ: 6,375.57, -59.76 (-0.93%)
S&P 500 2,457.85, -18.70 (-0.76%)
NYSE Composite: 11,827.15, -90.93 (-0.76%)

Saturday, September 2, 2017

Was September 1st a Market Reality Check? Gold Hits One-Year High

On Friday, after it was announced that August non-farm payrolls had increased by a less-than-expected 156,000, stock futures ramped higher heading into the opening bell on Wall Street.

Stocks did indeed gain, on the twisted hope that a soft labor market would chill Fed ambitions to raise interest rates and/or begin to wind down their massive, $4 trillion balance sheet when the FOMC meets September 12 and 13.

Those were the thoughts of traders in the morning, but, when the NASDAQ fell briefly into the red mid-morning, sentiment seemed to take on a more sober tone, as the reality of a stuttering recovery over the past eight years - fueled primarily by massive infusions of freshly-created cash by central banks and historically-low interest rates - might actually be - rather than good news - bad news.

All of the major indices finished with gains, but they were hardly of the kind that one could take comfort in as the long Labor Day weekend commenced.

Rather, the afternoon session was mild, largely belonging to fixed assets, as precious metals traded briskly. Gold went into the weekend trading at a one-year high, $1320.40 the ounce, silver, while it didn't make any historic high marks, gains 16 cents, ending at $17.50, a mid-point range advantageous to speculation on both sides of the trade.

The 10-year note firmed up at a 2.15% yield and crude oil, in the aftermath of hurricane Harvey, regained its footing, trading higher in the afternoon to $47.35 per barrel.

Was this a wake-up call for equity traders and general market participants?

Doubtful. But, it is somewhat instructive to take into account that the second-longest bull market in history has been built on promises, fallacies, distortions, and the conjuring of more than $14 trillion worldwide.

Bull markets all end. And this one, 101 months old, is more likely to end sooner than later.

At the Close, 9/1/17:
Dow: 21,987.56, +39.46 (+0.18%)
NASDAQ: 6,435.33, +6.67 (+0.10%)
S&P 500: 2,476.55, +4.90 (+0.20%)
NYSE Composite: 11,918.08, +42.39 (+0.36%)

For the Week:
Dow: +173.89 (+0.80%)
NASDAQ: +169.69 (+2.71%)
S&P 500: +35.50 (+1.37%)
NYSE Composite: +106.05 (+0.90%)

Friday, September 1, 2017

Great News! August Jobs Numbers Miss; Stocks Aim For Moon Shot

Bad news is still good news on Wall Street.

According to the impeccable source of all financial excitement, Yahoo! News,

The August jobs report is out and it’s a miss.

The U.S. economy added 156,000 nonfarm payrolls in August while the unemployment rate rose slightly to 4.4%, according to the latest figures from the Bureau of Labor Statistics.

Economists were looking nonfarm payrolls to grow by 180,000 in August while the unemployment rate was expected to hold steady at 4.3% near a post-crisis low. The BLS noted in its report that Hurricane Harvey had “no [discernible] effect” on the employment data for August.

Wage growth was also a disappointment, with average hourly earnings rising 0.1% over the prior month and 2.5% over last year. Earnings were expected to rise 0.2% over the prior month and 2.6% over the prior year. A rise in wages is seen by economists as portending an uptick in inflation, which has disappointed this year.

The rest of the story is here.

After ten years of the most tepid "recovery" on record, and despite $14 trillion of magic money creation by the central banks of the developed countries (adding in China, it's more like $18 trillion), poor employment data is still greeted with smiles by stock jockeys, because it means the economy is not really recovering and the Fed and other globalist central banks cannot realistically raise interest rates.

That means the punch bowl will be refilled with easy credit and the bubbly stock market can advance to every higher levels of insanity.

Forget that the average P/E of S&P 500 stocks is four standard deviations above the norm, that government pension shortfalls threaten the retirement of millions of aging Americans. Forget that wages have been stagnant for 17 years running. Just buy more stocks and everything will turn out just fine.

It's madness. Nothing, absolutely nothing will change until the day comes when it all changes at once. But that day may still be years away because the central banks and government number crunchers will see to it that the veil is never removed from the eyes of ordinary people who will be taxed and regulated into the ether.

There are no jobs. Party on!

At the Close, 8/31/17:
Dow: 21,948.10, +55.67 (+0.25%)
NASDAQ: 6,428.66, +60.35 (+0.95%)
S&P 500: 2,471.65, +14.06 (+0.57%)
NYSE Composite: 11,875.69, +70.62 (+0.60%)