Category Archives: Money

Recession Incoming or Something Worse? 2/10 Spread Collapses, by Tom Luongo

A classic indicator of impending recession is when the yield curve inverts. In other words, short maturity bonds yield more than longer maturity bonds. From Tom Luongo at tomluongo.me:

UPDATE: Now stocks are selling off and the 2/10 spread is less than 10 basis points.  Gold, however, refuses to sell off while the euro pulls back versus the dollar.

Mike Shedlock over at Mishtalk noted yesterday that there have been a couple of troubling inversions in the U.S. yield curve recently.  They happened in the 2/3 and 3/5 year space.

Mike went on to say that the normal recession indicator, the 2/10 spread, may not invert before the economy turns down.

For further discussion, please see First Inversion in Seven Years: Can a Recession be Far Off?

I repeat my assessment:

  • The classic recession signal that most follow is a 2-10 inversion. I doubt we see a 2-10 inversion before recession hits.
  • My call: There will not be the warning nearly everyone is waiting for

I don’t mean to rain on Mike’s parade, because I fundamentally agree with him that the Fed is raising rates into a global slow-down but the 2/10 spread is collapsing this morning pretty quickly.

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Tick Tock, by Jim Quinn

It’s only a matter of time before it all blows up. It’s probably already started. From Jim Quinn at theburningplatform.com:

“This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion. As the quantity of money in circulation and deposits subject to check increases, there prevails a general tendency for the prices of commodities and services to rise. Business is booming. Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever. It must come to an end sooner or later. For paper money and bank deposits are not a proper substitute for non-existing capital goods. Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis. It has happened again and again in the past, and it will happen in the future, too.” – Ludwig von Mises – 1952

Image result for recession

As the von Mises quote proves, economic cycles, artificial booms created by Federal  Reserve easy money and delusional human nature are cyclically constant across the decades. Anyone with an ounce of critical thinking skills realizes the current artificial boom, created by a feckless Fed captured by Wall Street banks and corrupt Washington politicians who took Dick Cheney’s “deficits don’t matter” mantra to obscene levels, will end in another financial crisis. Our Deep State controllers have “solved” a financial crisis caused by too much debt by tripling down on more debt.

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The Fed Is Now Addicted to Easy-Money Policy, by Thorsten Polleit

The Fed will have a tough time curing its own addiction to easy money, much less the economy and financial markets’. From Thorsten Polleit at mises.org:

“I think we have much more of a Fed problem than we have a problem with anyone else”, said US President Donald J. Trump on 20 November 2018. While the press, mainstream economists, and bankers cry wolf, the US President hits the nail on its head: The Fed is the source of significant economic and political trouble. By issuing US dollar out of thin air, it sets into motion unsustainable booms, which sooner or later turn into bust.

What is more, the Fed, expanding the US dollar quantity through credit expansion, nurtures the “deep state”: Providing it with the financial means to buy voter consent; to increase its impact on all walks of peoples’ lives; to make possible its aggressive military adventures on a world-wide scale; and to keep alive and kicking its monetary system – that couldn’t survive without an ever deeper state.

Viewed from this perspective, is it not good news that the Fed wants to tighten its policy further? Well, the truth is that Fed interest rate changes do not and cannot solve any problems caused by the Fed’s meddling with interest rates in the first place. By its very nature, monetary policy inevitably creates economic distortions – which appear in the build-up and bursting of speculative frenzies and the notorious boom and bust cycles.

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A Golden Renaissance – Precious Metals Supply & Demand, by Keith Weiner

Gold is honest money. As such, it’s discarded and denigrated by dishonest regimes of all stripes. From Keith Weiner at acting-man.com:

Battles for Civilization

A major theme of my work — and raison d’etre of Monetary Metals — is fighting to prevent collapse. Civilization is under assault on all fronts.

Battling the barbarians at the gate… [PT]

There is the freedom of speech battle, with the forces of darkness advancing all over. For example, in Pakistan, there are killings of journalists. Saudi Arabia apparently had journalist Khashoggi killed. New Zealand now can force travelers to provide the password to their phones so the government can go through all your data, presumably including your gmail, Onedrive, Evernote, and WhatsApp.

China is now developing a “social credit” system, to centrally plan the economy and control citizen behavior. Canada has made it a crime to call someone by the wrong gender pronoun. Even in the US, whose First Amendment has (mostly) stood as a bulwark against censorship now has a president who threatens antitrust action against Amazon, because its CEO Jeff Bezos owns the Washington Post, which prints things he does not like.

On college campuses, professors are harassed if they say one thing that the professional sensitives are sensitive to. If a controversial speaker is invited, he risks an angry mob coming to disrupt his talk (or worse).

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Investors Are Going to Get Scalped, by Bill Bonner

If the yield on the Treasury ten-year note goes up another percentage point, it will spell doom for the stock market. So says Bill Bonner at bonnerandpartners.com:

We spent a delightful, long Thanksgiving weekend in the country, entertaining children and grandchildren. Not once did we open our laptop computer or look at the headlines.

But now, it is another workweek, and we’re back on the job. As usual, we are looking at dots… and wondering how they got to be so goofy.

Particularly Moronic

This morning, for example, brings a particularly moronic news item from CNBC. The report tells us that the Dow has another 2,000 points left to drop before recovering:

More than half of the members of the CNBC Global CFO Council think the Dow Jones Industrial Average will fall below 23,000 – roughly 2,000 points from its current level – before the stock market barometer is ever able to top the 27,000 level. The 23,000 level would equate to another 8 percent in decline among the Dow group of stocks before the selling stops.

But hey… why stop there?

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Oil Sends A “Crude Warning”, by Lance Roberts

Weakness in the price of oil often signals weakness in the overall economy. From Lance Roberts at realinvestmentadvice.com:

Oil Sends A “Crude Warning”

As with many Americans, I am on the road with the family making the traditional holiday rounds. Of course, my family is more “The Griswolds” than “The Waltons. but even with all of the antics, comedy, and occasional drama, it is always an enjoyable time of the year.

However, I did wake up from my tryptophan-induced coma long enough to pen a few thoughts on the crash in crude oil and the message it is sending.

On Monday, I am publishing an article on the fallacy that “falling energy prices are an economic boost.” It isn’t, and we dig into all the reasons why in that article.

However, the short version is that oil prices are a reflection of supply and demand. Global demand has already been falling for the last several months and oil prices are now waking up that reality. More importantly, falling oil prices are going to put the Fed in a very tough position in the next couple of months as the expected surge in inflationary pressures, in order to justify higher rates, once again fails to appear. The chart below shows breakeven 5-year and 10-year inflation rates versus oil prices.

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Forget Nordstream 2, Turkstream is the Prize, by Tom Luongo

Turkey moves farther and farther outside the US orbit. From Tom Luongo at tomluongo.me:

While the Trump Administration still thinks it can play enough games to derail the Nordstream 2 pipeline via sanctions and threats, the impotence of its position geopolitically was on display the other day as the final pipe of the first train of the Turkstream pipeline entered the waters of the Black Sea.

The pipe was sanctioned by Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan who shared a public stage and held bilateral talks afterwards.  I think it is important for everyone to watch the response to Putin’s speech in its entirety.  Because it highlights just how far Russian/Turkish relations have come since the November 24th, 2015 incident where Turkey shot down a Russian SU-24 over Syria.

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