Wednesday, February 22, 2017

Why Raise Rates?

Everywhere on CNBC are the talking heads lamenting that the Fed is behind the curve.
Bob 'Cool Breeze' Pisani asks, "why not raise in May?"
Santelli is always mad at the Fed. That is his default position.

Yet the dollar stays strong....
And the long bond hangs steady.
And Trump and Congress seem to have no decisions imminent on whether austerity or fiscal stimulus.
They are pushing through tax cuts, unless we consider border taxes, which may raise costs for the little people.
Autos are bought almost entirely with credit...
We have a rental housing crisis.....
Farm labor is getting kicked out of the country....
Social programs are under assault....
N. Korea rattling sabers...
Russia?....
Iran?....
Syria?....
Trump places govt. hiring on hold.
Most appointees not appointed.

I see quite a bit of uncertainty for the Fed to consider.

gh

Tuesday, February 14, 2017

Fed Balance Sheet

Janet Yellen discussing the Federal Reserve Boards bloated balance sheet and the need to reduce holdings at a time that they find it will not hurt growth. (to paraphrase)

I am reminded of the lessons in Reminiscences. When you have a big position you have to wait for the right time to turn around. Given the size of the balance sheet I suspect they will have to wait a while longer. Buyers are disappearing from the bond market and the fiscal side is simmering.

Now is not the time.

Quote, "We will wait for greater clarity."

gh

Monday, February 13, 2017

Worldwide Inflation

"Inflation is always and everywhere a monetary phenomenon."

Milton Freidman


Famous quote. Inflation is the result of devalued currencies.

Stock markets rocketing up all over the world.
Commodities strong. Lumber..... Steel....Silver....

Most people watch their domestic currency and lament strength. Lament the difficulty of putting people to work exporting goods. Populism strong. "Do Something!" they yell.

I think all currencies are going down in value. We must stop seeing them only in relation to each other. The fruits of the currency wars are getting ripe!


The reference points are resetting.

Control risk,

gh

Wednesday, January 11, 2017

Confidence in a Conman?

Today was interesting.

Today was the day that President-elect Donald Trump had a press conference. All was well until Donald Trump started to speak. At that point stocks went down, bonds went up sharply.
And the U.S. Dollar went down rapidly.

With this market reaction to the amateurish clown we have elected to be leader of the free world in mind, I couldn't help but think that a weak U.S. Dollar would be in the interest of Russia.

Russia depends on oil and gas for hard currency income. Energy is about the only game they have.

If the world loses confidence in the leadership of the United States, and the United States economy, the currency will suffer, interest rates will ultimately rise, stagnation and inflation will set in, furthering the weakness in the dollar as the citizens focused on the stock indexes scream for stimulus.

The winner will be Russia and the oil exporters around the world.

If there is a bigger and more focused reason for Russia and Putin to meddle I can't help but think it may be the price of oil.



On a side note: Have you noticed uranium lately?

Control risk,
gh

Thursday, December 22, 2016

Interest Rates and Energy




The easiest oil and gas has been tapped.

The recent declines in energy prices were the result of overproduction that was the result of new technology combined with ultra-low interest rates. Easy money.

The breakeven price of oil and gas is higher than 20 yrs ago.

Now interest rates are rising. There may be a reflexivity in the relationship of interest rates and oil/gas production. The cost of money may inhibit drilling and the rising cost of energy may cause interest rates to rise.

Energy production is much more money intensive than in the past.

Natural gas prices on the rise.

Control risk,

gh

Thursday, December 15, 2016

Putin as an Honorable Leader

Just for the record. Putin is a dick.

gh

A Monetary Phenomenon?

I am conflicted.


Economist Milton Freidman famously said, "inflation is always and everywhere a monetary phenomenon."

The U.S. stock markets are supposedly going up on the promise of Trumpian inflation, aka fiscal stimulus with borrowing. Bonds are selling in anticipation. The Federal Reserve board raised short term rates. So the U.S. Dollar continues its rise to the sky.

Inflation is not consistent with a strong currency. If the U.S. Dollar is strong and remains strong then by definition the currencies of other nations are weak. They will get the inflation from weak currencies. They will get the benefits of higher food prices and higher fuel prices. (LOL) They will get the benefit of unrest and riots. Isn't this how the Arab spring started? Wasn't it high prices that raised interest rates in 2007? And the U.S. will have a leader not anticipated to be a humanitarian.

I am baffled as to how higher interest rates will help housing. I am baffled how a strong dollar will encourage exports and lead to domestic manufacturing.

I can see why other governments might have to raise their own interest rates to stop domestic inflation. I do not see how this helps economic growth.

I do not see how the piles of debt in U.S. Dollars are easier to pay off with a strong dollar.

Yet the bankers and stock touts are giddy with anticipation of future profits.

Yikes!

gh

Wednesday, December 14, 2016

Money is King


Money is King. Trump is money and money is King.

I am reminded of the kings of centuries past who fought wars amid royal extravagance and ran up debts galore. When the peasantry was asked to pay more in taxes it was met with sullen resistance that eventually became outright rebellion. Usually before things came to this point the king and his court would come up with some scheme to raise money. This often took the form of a scheme to sell the people stocks or bonds with the chance of riches for all. In the end everyone had to face the fact that there was no wealth to create out of thin air, and that the schemes were just that.

The Federal Reserve is coming out with some sort of interest rate increase today. In the past any threat to a rise in rates send shudders through financial markets. Not so much now. The King has promised prosperity for all. And all expect the Fed to drag their heels on any limits to the creation of money. All are looking forward to inflation and do not expect any institution concerned with money creation to stand in the way of everyone getting rich. We may be at the start of a fantastic time in the world and the country that may last for years and may give the illusion of properity. Inflation is a joyous event to those with debt. The prospect of debts becoming smaller is intoxicating. I wonder how the peasants will react to higher prices for goods after they realize any wage gains will not keep up with the rate of inflation. When they are dissappointed yet again there will be hell to pay. This may take some years.


Tuesday, December 13, 2016

U235?

I am waiting for the tweet about nuclear energy....

This resource would fit all of the things that King Donald would like.

Infrastructure.
Rebelliousness.
and it will piss of the greens...

Nuclear facts


gh

Sunday, December 4, 2016

Trump Nation







                                        
                                                                                                 The Economist photo


We are three weeks into a new era.

President elect Donald Trump continues to cause alarm among many as he goes about his business of staffing a cabinet. Most of his picks seem intentional to cause further divide amongst a divided electorate in the United States.

The antics and blunders of Trump also cause alarm around the world. China relations being the latest example.

An initial rally in the stock market and selloff in bonds seems to anticipate increased federal government spending. At the same time there appears to be a coalescing of efforts to rescind many of the social safety nets, and thus a new cause for discord.

Trump raises questions about the role of the President of the United States with his personal intervention in the United Technology/Carrier deal. What will the role of the new federal govt be with regard to market forces?

The bond market seems to anticipate government borrowing and currency devaluation even as the U.S. Dollar strengthens. I think the dollar rally will be temporary as the uncertainty over Trump administration policies increases.

Brexit was the epitome of uncertainty.  Trump is reinforcing the tenets of his policy that lend to global uncertainty. How long this uncertainty lasts is up to those in control of influencing Mr. Trump and his policies. And, upcoming elections in Europe have the potential to add to the influence of nationalist and populist sentiments, leading to a general decrease in international trade. To my mind populism and protectionism means higher prices.

Rising interest rates were something that the right wing in the U.S. have been actively encouraging. The Tea Party movement was strident in its criticism of the Federal Reserve and central bank policies worldwide. It remains to be seen how they temper their criticisms in the face of actual Fed tightening with a Republican in power.

It could be that we are at a moment where winds change in a direction that precipitates a storm. Probably centered on the bubble in bond prices that has taken hold over decades.

My sentiment has turned bearish for the short term to medium term. There is much uncertainty about the future and I think this must have a bearing on those who control the largest purse strings.
Rising interest rates will surely weigh down asset prices, stocks included, and the stock market has a huge influence on mass psychology in our financial economy where savings are defined by stock and bond holdings.

Sleep well,

gh