Lunes 08/31/15 Semana del empleo

[Fenix]

Since 2014 Foreign Central Banks Have Withdrawn 246 Tons Of Gold From The NY Fed

Submitted by Tyler D.
08/30/2015 14:14 -0400


First it was Germany who redeemed 120 tons of physical gold in 2014; then it was the Netherlands who "secretly" redomiciled 122 tons of gold; then this past May, we learned that Austria would be the third "core" European nation to repatriate most of its offshore gold, held primarily in the Bank of England, redepositing it in Vienna and Switzerland.

In short, beginning in 2014 and continuing through today, the gold "bleeding "from the vault located 90 feet below street level at 33 Liberty Street (and which may or may not be connected by a tunnel to the JPM gold vault located just across the street at 1 Chase Manhattan Plaza) has continued. As the chart below shows, while central banks assure the population that there is nothing to worry about when it comes to paper money, and in fact it is the evil ISIS terrorists who plot and scheme to crush the benevolent Fed with their terroristy "gold dinars" and if not that then their made in Hollywood propaganda movies, they have been quietly pulling gold from the biggest centralized depository of global gold in the world: the New York Federal Reserve.

According to the latest just released monthly update of foreign official assets held in custody at the NY Fed, in July the total holdings of foreign earmarked, i.e., physical, gold declined to just over $8 billion when evaluated at the legacy "price" of $42.22 per ounce. In ton terms, this means that after declining below 6000 tons in January, for the first time since FDR's infamous gold confiscation spree, the total physical gold held at the NY Fed dropped another 9.6 tons in July, down to 5,950 tons.

This is the lowest amount of gold held by the NY Fed in custody in decades, is the 18th consecutive month of flat or declining gold, and when added to previous outflows, amounts to 192 tons of gold withdrawn in the past 12 months, and a whopping 246 tons pulled since the start of 2014.

Indicatively, during the last crisis period, starting in March 2007 and lasting through November 2008, foreign central banks withdrew gold for a total of 20 out of 21 consecutive months, repatriating a grand total of 409 tons of gold. The last period of peak redemption culminated with the failure of Lehman in September 2008, the near failure of AIG in October and November 2008, coupled with the Fed's bailout of the western financial system.

If past is prologue, one should ask: what current or future event is driving the ongoing redemption of gold from the NY Fed this time?

[Fenix]

Austrian Economics Is Now Equivalent To Terrorism Thanks To Latest Islamic State "Gold Standard" Propaganda Clip
Submitted by Tyler D.
8/30/2015 - 14:16

What better way to mute demands for a return to sound money and the gold standard, than by making them equivalent to jihadist terrorism? Why, there are none, which may explain the hilarious appearance of the "Islamic State's" latest 55-minutes pro gold standard YouTube clip, which is nothing but a crash course in Austrian economics.




Did The Fed Intentionally Spark A Commodity Sell-off?
08/30/2015 17:00 -0400
Submitted by Leonard Brecken

The intention here is the bring facts to light so the public can decide.

I’m not quite sure what to believe on how and why oil prices remain more than 50 percent below free cash flow break even for most independent E&P companies. I know for sure it’s not just one reason and is more likely a confluence of events.

Part of the reason oil prices broke new six-year lows is tied to hedge funds shorting equities and pressuring equity pricing through shorting oil. Another reason is the desire of private equity firms to buy assets on cheap and some banks seeking M&A fees. Obviously OPEC policy has a part to play. There is also no doubt that EIA statistics mistakenly leave the impression that production has remained resilient throughout the summer. But the spark that set the ball in motion was the dollar strength as every major money center bank in the U.S. recommended going long EU equities and long the dollar because of further monetary easing in Europe.

The inverse correlation between the U.S. dollar and oil prices in June was virtually 100 percent, but that has changed more recently, as I have noted previously. At that time, investors here in the U.S. plowed into biotechnology and technology and went short oil as if they knew what assets central banks were going to buy and not buy based on all the free money from Europe and Japan.

Since the financial crisis began the cozy relationship between money center banks and the Federal Reserve, since the bail outs, is well known. For example, Goldman Sachs’ deep ties to the U.S. government are notorious and, not surprisingly, they led the charge in calls for a downturn in oil. So has the media, as I have extensively documented all year here.

On the other hand, oil inventories on paper in the U.S. were rising into the fall of last year for sure while the economy was weakening in the U.S. and in China, the largest importer of commodities. So the merits of weaker commodity prices stand on their own to an extent. The correction to $70 from $100 was justified, but the crash to levels not seen since the crisis of 2008-2009 are overblown. Now the cries comparing the 2015 crisis to the 1986 oil demise rise as well. Are economic conditions that bad?

For oil, demand has greatly accelerated, in fact. Then why go long the riskier, higher beta technology that, at their highs and still to this day, are still being pumped? To make matters worse, record short positions in oil futures and equities still exist, eclipsing even the 2008-2009 meltdown. So where did this long tech, short commodity trade derive from and why? One possibility is the Federal Reserve itself; either indirectly, through monetary policy, or directly.

When the markets corrected last fall, Fed officials did not shy away from additional use of monetary policy or Quantitative Easing (QE). The cries from Wall Street were as loud as ever for it.

By early 2015, the economy had weakened, and GDP dropped below 2 percent growth on an annual basis. But Wall Street’s cries were largely silent, other than to say the Fed shouldn’t raise rates. The Fed, on the other hand, instead of threatening to ease, is instead threatening to tighten; the opposite of what we heard when markets fell similarly in 2014. The question is, why the change, despite fundamentals weakening?

One theory is that some within the Fed realized that QE wasn’t working, and never worked, thus another path was needed. But what alternative did they have, since rates were already ZERO?

So maybe they changed course and took a strong dollar policy vs. a weak one to intentionally weaken the commodity sector and thus boost consumer spending. Throughout this down turn, that message has been repeated by Yellen herself many times, as a source of economic stimulus and for sure has been repeated over and over in the media and the talking heads of Wall Street.

Wall Street is notorious for not fighting Fed policy, so they turned to other asset classes such as technology to blow that bubble up even further. But then why was there such a desire to close the Iran deal so suddenly, which would further add to global oil supply?

This theory isn’t as farfetched as it initially seems, especially considering that Wall Street has been investing based on central bank policies for 6 years now, moving money where easing occurs around the globe and putting very little into real fundamentals. It’s something to consider in explaining prices.

[Fenix]

A Very Unexpected Statement From A Central Banker: "We Are Merely Reacting To A Situation We Did Not Create"
Submitted by Tyler D.
08/30/2015 - 17:44

"Sometimes the criticism directed at our policies implicitly attributes responsibility for the low interest-rate environment to central bank policies. But the truth is precisely the opposite: central banks are simply reacting to and trying to correct a situation that they did not create."

- ECB vice president Vittor Constancio



The End Of "The Permanent Lie" Looms Large
Submitted by Tyler D.
08/30/2015 - 15:05

For the moment, to paraphrase Alexander Solzhenitsyn, the “permanent lie [has become] the only safe form of existence”.

But the world cannot postpone, indefinitely, dealing decisively with the economic, resource management, social and political challenges we face.

[Fenix]

Jackson Hole Post-Mortem: "Door Still Fully Open To September Lift Off"

Submitted by Tyler D.
08/30/2015 18:25 -0400


Curious why the S&P futures have opened down some 0.6%, wiping out the entire late-Friday ramp? The reason is that as SocGen summarizes it best, following the Jackson Hole weekend, we now know that despite Bill Dudley' platitudes "the door is still fully open to Fed liftoff in September."

Here is how SocGen describes a Fed whose posture still hints at a September rate hike:

Jackson Hole vs Market Consensus



Analysing the speeches and papers from Jackson Hole, we note several “gaps” to the market consensus. Top of the list, Vice-chair Fischer struck a slightly less dovish tone suggesting that all options remain open with respect to a September liftoff. New research presented, moreover, showed that US inflation is less influenced by FX rates than some in markets fear. BoE Governor, for his part, played down the China slowdown noting this did not yet warrant a change to BoE strategy. Vice President Constancio also sounded confident in the ECB’s ability to close the output gap and raise inflation. More worrying, RBI Governor Rajan warned that central banks should not be overburdened and noted mispricing of certain assets. Also notable was the apparent lack of discussion on what tools central banks have left to fight new downside risks; and this at a time when one of the more effective QE channels of emerging economies’ leverage expansion has lost its punch. A topic perhaps for the 4-5 September G20 in Ankara.



Door still fully open to Fed liftoff in September ...



Comments by Fed Vice Chair Fischer kept the door open to a September rate hike. Speaking Saturday, he noted that at “At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual.” At the same time, he highlighted that “With inflation low, we can probably remove accommodation at a gradual pace. Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.”



Interestingly, while Fischer made reference to role of the dollar in potentially keeping US inflation low, new research from Harvard Economics Professor Gita Gopinath, (link here) suggested that the US economy is fairly “insulated” from foreign inflation/deflation pressures via exchange rates given that the bulk of US foreign trade in conducted in dollars. This is very much in line with the findings of our Chief US Economist, Aneta Markowska.



At present the market is pricing in a probability of just under 40% for a September rate hike, up from a low last week of 24% but still below our own baseline which sits above 50% and more dovish than our interpretation of the tone struck at Jackson Hole and recent data releases. Albeit that part of the Q2 GDP revision from 2.3% to 3.7% came from an inventory build, private demand was also robust. This week’s employment report is the key release ahead of the 16-17 September FOMC and we look for 250K. In addition to the economic data, financial conditions will play an important role in shaping the Fed’s liftoff decision; the recent stabilisation if confirmed should increase the odds.

* * *

Translation: while the Fed may or may not hike in September, the Fed itself does not know what it will do, less than three weeks until the September FOMC, but as we explained on Friday the higher the market rises, i.e., the looser financial conditions become, the higher the likelihood the Fed does hike in September after all... thereby forcing another sell off.

Good luck with that particular bit of circular logic.


Manipulation = Fragility
08/30/2015 18:30 -0400


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

In markets distorted by permanent manipulation the most powerful incentive is to borrow as much money as you can and leverage it as much as you can to maximize your gains in risk-on asset bubbles.

A core dynamic is laying waste to global financial markets: the greater the level of central bank/government manipulation, the greater the systemic fragility.

One key characteristic of this fragility is that it invisibly accumulates beneath the surface stability until some minor disturbance cracks the thinning layer of apparent stability. At that point, the system destabilizes, as it has been hollowed out by ceaseless manipulation, a.k.a. intervention.

There are a number of moving parts to this dynamic of steadily increasing fragility.

One is that any system quickly habituates to the manipulation, that is, the system soon adds the manipulation to its essential inputs.

For example: if you lower interest rates to near-zero, the system soon needs near-zero interest rates to remain stable. Raising rates even a mere percentage point threatens to fatally disrupt the entire system.

Another is that permanent intervention (i.e. manipulation, or to use a less threatening word, management) strips the system of resilience. When participants are rescued from risk by central bank/central state authorities, they take bigger and bigger gambles, knowing that if the bet goes south, the central bank/state will rush to their rescue.

One of the core sources of resilience is a healthy fear of losses. If you're going to face the consequences of your actions and choices, prudence forces you to either hedge your bets or diversify very broadly, so if bets in one sector go south you won't be wiped out.

Thanks to the permanent manipulation of central banks and states, trillions of dollars have concentrated in high-risk, high-yield carry trades that are now blowing up.

A third source of fragility in manipulated financial systems is the perverse incentives generated by cheap credit and assets bubbles. In markets distorted by permanent manipulation--near-zero interest rates, central bank asset purchases, quantitative easing, etc.--the most powerful incentive is to borrow as much money as you can and leverage it as much as you can to maximize your gains in risk-on asset bubbles.

Why this increases system fragility is obvious: when the bubbles pop, the debt has to be paid back. But once the assets drop enough, selling won't raise enough money to pay back the debt.

At that point, the borrowers are bankrupt, and the dominoes of debt topple the entire financial system.

Dave of X22Report and I discuss these dynamics in Central Banks Have Manipulated The Markets Which Will Ultimately Crash: (42:48)