Investment/Trends

Sweden’s deflated economy: Sub-zero conditions

"Sweden’s economy, which it oversees, grew three times faster than the euro zone’s in 2010 and dodged Europe’s double-dip recession in 2012-13. The Riksbank felt confident enough in recovery to start raising interest rates in 2010. The Riksbank worried that rising household borrowing and soaring house prices could lead to trouble down the road. It therefore opted to 'lean against the wind', in central bankers’ parlance, and deflate the credit boom before it burst catastrophically. It seems instead to have taken the air out of everything but exuberant markets. Unemployment in Sweden has held steady, while Swedish private-sector debt as a share of GDP is higher now than it was in 2010." Continue reading →

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When Zero’s Too High: Time preference versus central bankers

"Central banking has taken interest rate reduction to its absurd conclusion. If observers thought the ECB had run out of room by holding its deposit rate at zero, Mario Draghi proved he is creative, cutting the ECB’s deposit rate to minus 0.10 percent, making it the first major central bank to institute a negative rate. Can a central-bank edict force present goods to no longer have a premium over future goods? Armed with high-powered math and models dancing in their heads, modern central bankers believe they are only limited by their imaginations. More than half a decade of zero interest rates has not lifted anyone from poverty or created any jobs—it has simply caused more malinvestment." Continue reading →

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The Fed’s Dreaded Dilemma: A Weak Economy Plus Inflation

"The fact that the Fed’s PCE index is showing inflationary pressure is significant, since it is essentially designed to lowball price increases. The CPI gives a 31 percent weighting to shelter costs and a 17 percent weighting to transportation (read as rent and gasoline), which the PCE basically cuts in half. By reducing the volatility of its preferred inflation gauge, the Fed essentially gives itself the leeway to maintain a looser policy longer. But the fact that the PCE is on the rise leaves the Fed in a conundrum, having said for years now that it would act when inflation reaches an annualized 2 percent, a level that is fast approaching." Continue reading →

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Fed Still on Red Alert

"It’s bad enough that central bankers create money out of nowhere to buy bonds. Now it turns out that’s not all they’re buying. A study by global research firm Official Monetary and Financial Institutions Forum (OMFIF) states global public investors 'as a whole appear to have built up their investments in publicly quoted equities by at least $1 [trillion] in recent years.' The percentage of financial advisors who are bullish on the stock market jumped to 62.2%, the fifth straight week this indicator has been above the key 55% level. Other noteworthy tops came in August 1987 (60.8%), October 2007 (62%), and December 2004 (62.9%)." Continue reading →

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Bill Bonner: The Greatest Fraud Ever

"Banks – with the happy connivance of the Fed – create new money. Corporations use it to buy their own shares. Central banks buy shares too. Besides, buying stocks seems to please everyone who matters. Investors are happy. Speculators are happy. Economists are happy. Politicians are happy, too. After all, a rising stock market means the economy is getting better, doesn’t it? But there is a heavy price to pay, dear reader. The financiers end up owning more of the real businesses… the real enterprises… the real houses… the real output of the real economy. Wall Street firms own more houses. And more stocks. All are bought with money that they – or their cronies – created." Continue reading →

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U.S. Economy Shrank in First Quarter by Most in Five Years

"The U.S. economy contracted in the first quarter by the most since the depths of the last recession as consumer spending cooled. Gross domestic product fell at a 2.9 percent annualized rate, more than forecast and the worst reading since the same three months in 2009, after a previously reported 1 percent drop. It marked the biggest downward revision from the agency’s second GDP estimate since records began in 1976. Business investment fell at a 1.2 percent annualized rate, compared with a previously reported 1.6 percent annualized drop. Companies reduced their spending on structures at a 7.7 percent pace, and spending for equipment fell 2.8 percent, today’s report showed." Continue reading →

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On The Fed’s (Tentative) End to Bond Purchases in October

"The current plan is that–so long as the economy doesn’t crash–the Fed will taper to $25 billion in August, then $15 billion in September, and then wipe out the remaining $15 billion in October. Here’s a chart showing the behavior of the S&P500 versus the monetary base. It used to be the case that the stock market bounced around with little relation to the Fed’s asset purchases. But since early 2009 and the introduction of QE programs, the stock market and the Fed’s bond buying have moved in virtual lockstep. Let me ask you this: Do you think the S&P should be hitting all-time highs because of how great the underlying economic fundamentals have been the last few years?" Continue reading →

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Federal Reserve likely to end QE stimulus program in October

"The Federal Reserve is set to end its economic stimulus program in October, bringing to an end the controversial five-year-old scheme even as officials said there were signs that the US economy was still in trouble. Officials have been winding down their monthly purchases of Treasury bonds and mortgage-backed securities since January, but had not set an end date for the scheme. Controversial from the outset, QE was designed to keep long-term interest rates down and encourage investors to back stocks or corporate debt in order to stimulate the economy. Stock markets have hit record highs under QE yet the unemployment rate remains high and there are continuing signs of weakness." Continue reading →

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Corporate Bonds Are The IEDs Of Monetary Central Planning

"The Fed’s sustained, heavy-handed financial repression has generated the greatest ever scramble for yield, and it is now entering its seventh year. Consequently, speculators and bond fund managers are all in the same side of the boat. And all but the most intrepid traders are scared to death to short the Fed, fearing that any day it might uncork yet another round of bond market repression. So we have basically a highly artificial one-way market in corporate bonds—both investment grade and high yield. Very recently yields in the latter touched an all-time low of 4.87%, meaning that after inflation and taxes there is virtually no room for losses on securities that are called 'junk bonds' for a reason." Continue reading →

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Bulgarian Pres. Blames ‘Lack Of Faith In Institutions’ For Bank Runs

"Bulgarians’ lack of faith in institutions sparked runs on two banks and triggered the worst financial crisis in 17 years, the nation’s president said. 'Let me make this very clear: there is no banking crisis in my country, but there is a crisis of confidence,' Rosen Plevneliev said today. With low trust in institutions, rumors, attempts at destabilization and speculative attacks can 'create a panic,' the president said. The central bank blames an 'organized attack' of 'criminal actions' for the run on First Investment Bank. Corporate Commercial Bank lost deposits because of a dispute between a majority shareholder and a large depositor, Capital newspaper reported June 18, citing unidentified people." Continue reading →

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