The Reflation Trade

Or the rate of change of inflation over time –  The Inflation rate is declining over time, but it remains positive. (Their verbiage – not mine.)

Central Banks despite their huge and sustained injections, can’t effect change… Yet… despite massive efforts Globally.

#CHINACPI #DISINFALTION
China CPI

 

 

 

 

 

 

 

China faces greater economic risks internally – The PBOC will need to mobilize once again, even with massive RMB injections.

Global reflation is failing while Debt extends.

#REFLATION #INFLATION
Global Reflation

 

 

 

 

 

We must consider what Central Banks will employ.

I don’t believe Monetary efforts will assist in preventing a further decline. Governments are going to be required to spend and spend at a pace unseen in Human History.

 

Reversals

We should see reversals in all Markets prior to Labor Day – September 4. Equities should retrace prior to the next drop. These are quite normal and given the market is well controlled on low volumes – quick and sharp reversals should be expected.

The Fear trade will quietly die off and begin a rapid re-adjustment or be moved aside for further gains later this year or it will simply implode under its own weight.

Technically – it’s been a very sloppy set of Markets. They do remain quite technical – hitting targets to the tick in many instances.

More on this Tomorrow. I remain bearish – Intermediate Term – on the Metals Complex, with a retest of the prior 2015 lows ahead at minimum – here are the qualifications:

Support is building underneath the PM Complex – 1220 to 1240 – a break of 1220 leads me to believe we will hit 1170 and should be break this level – the lows will be retested. Upside remains 1338 at the weekly downtrend – The monthly is 1362.50 – this is opened as well, but may be a stretch.

It’s going to become volatile once again – although in reverse once the Dollar begins to shake off the 92.50s and move higher. 91.88 remains the warning sign the DX could head lower still.

The Trade War is now front and center… bumpy road ahead.

Delta

I had a profit Target for the ES @ 2264 during the 2016 Election cycle. We completed and exceeded it by a wide margin – the draw was to 2520 as I suggested back in December based upon channel continuation – we hit 2488. Not too far off, if it is indeed complete for this move.

We never had a pullback – it may well have finally arrived.

During 2015 & 2016 – August served as retracement month for the Broad Indices. Will August of 2017 provide a pullback into support?

We will know shortly – we broke the longs on the sideways consoldiation trade. There is the potential for a new measured move from Lows to Highs.

Resistance is 2475 – with 2478 as the 12 tick overhead absolute.

We have broken a number of technical Longs on the YM as well… a break of trend and failed the series.

The Dollar remains above the absolute support @ 91.88, but remains a very Negative setup – The Yen is straddling the 111s with 109s on deck.

The NQ is no different – same rules apply.

Shorts will chase the swoon down, setting up the next short at the  new draws off the bottom – I will complete those when available.

The Crude Oil inventory will set the trade going forward – resolution of consolidation – up or down.

The DX/JPY is within its fifth week of spreading. Last week was a large consolidation. Overnight we sold off… leading us back to 109.50 & 109.35.

110.25s would be the next entry into the trend.

Gold & Silver continue to rally inside of their longer term trends – 1288/91 and 1338 are in play. The overnight daily draw hit to the tick off the 6/6 highs to the 7/7 lows.

I’ve had to flip at this juncture and reverse the trade. There is no short trade, not yet. It’s been blown out and when the market moves against your thesis – you obey.

Everything is about to flip – this is the markets message.

Every week we have rallied into the close of the week – the one exception – last week. Support levels traded while the DX/JPY found support. Gold & Silver retest the 38.2% and 50% Short. The resistance levels are DX/JPY – we need to watch the pair closely for pullbacks that lead to new highs and higher yearly highs.

Silver is breaking up, the next measured long would trade off a retracement – by the numbers.

The Bond Market has been defending Long setups for Six Months… a pullback is to be expected – then resumption of the trend.

Everything is about to change – we need to adapt and obey.

 

Ceteris Parabis

The INDU chart below should beef interest – Typically the ES (E-mini) leads the YM (Dow/Indu) while the TF (Russell) and NQ tend to lead/lag at pivotal junctures time.

Lately the YM has led the ES – almost dragging it along for the ride… and with good reason: backyard barbecues discuss the DOW on balance.

Dow Jones Industrials
Dow Jones Industrials P&F

 

 

 

 

 

 

 

Consider the timeframe the above chart represents. The rise is quite large in percentage terms when annualized.

17,900 to 22,000 in just over 8 months… 18.6% (since December of 2016) or 24.8% annualized. it’s doubling time is now every 2.82 years.

From December of 2016 – the DOW would be @ 36,000 before September of 2019.

Exchange Pileup

Alan Greenspan warned of further disorderly adjustments to interest rates – he see’s a Bubble – He would know as King Bubble Maestro.

Equity bears screeching excesses in the Equity market would be better served observing bond prices according Greenspan. Bonds are an actual bubble and when it bursts, it’s bad Juju for everyone.

“By any measure, real long-term interest rates are much too low and therefore unsustainable,” the former Federal Reserve chairman, 91, said in an interview. “When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.”

Equities will suffer with bonds – surging real interest rates will challenge one of the few remaining valuation cases that looks Passively upon U.S. equity prices – or so the Maestro suggests.

The Fed’s Model assumes – while bonds increase faster than stocks – Equity investors are correct in staying the course with the lower inflated asset.

The tremendous irony above is the Federal Reserve is on hold for now.

January 3, 2017 the 3 Month TBill was .0.53 – today it sits @ 1.07%. A double off the wall due to 2 interest rate hikes. the 30 Yr Bond began 2017 @ 3.04 – today it resides @ 2.89. Rapid compression tends to catch everyone off guard.

Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. When the short end of the yield curve exceeds the long end of the curve – market sentiment suggests that the long term outlook is poor and that the yields offered by long-term fixed income will continue to fall.

Price be damned… unless of course the Fed permits Global forces to pick up control of the short end.

In which case we would see the precursor in motion – which it is well under way. The 6e/7e (Euro) is spiking to complete and fill a gap @ the 120 level. The Dollar is completing a downtrend and looking to establish a base from which to reverse. Real Interest Rates will begin to rise dramatically.

This is not good for Gold, nor Silver – the DX could actually fill the overhead Gap @ 108. That would be a very messy issue for the metals – my thesis remains as such and why I am extremely bearish on the Precious Metals Complex.

We are within a few days to a week of this setup completing. could it drag on for another week? It could, but I do not believe it will. Many believe this is Bullish for Gold and Silver – history has shown time and again – it is not.

Prepare accordingly, I’m looking for the blowoff in Equities and Metals to be followed by a rather large decline, one that warrants a large Hedge against Price.

IMF says Dollar overvalued; Euro, Yen, Yuan broadly in line with fundamentals

The International Monetary Fund on Friday said that the U.S. dollar was overvalued by 10 percent to 20 percent, based on U.S. near-term economic fundamentals, while it viewed valuations of the euro, Japan’s yen, and China’s yuan as broadly in line with fundamentals.

The IMF’s External Sector Report – an annual assessment of currencies and external surpluses and deficits of major economies – showed that external current account deficits were becoming more concentrated in certain advanced economies such as the United States and Britain, while surpluses remained persistent in China and Germany.

While the report assessed the euro’s valuation as appropriate for the eurozone as a whole, it said the euro’s real effective exchange rate was 10-20 percent too low for Germany’s fundamentals, given its high current account surplus.

Britain’s pound, meanwhile, was assessed as up to 15 percent overvalued compared to fundamentals, which include a high level of uncertainty over Britain’s post-Brexit trading relationship with the European Union.

The Fund said the dollar’s appreciation in recent years was based on its relatively stronger growth outlook, interest rate hikes versus looser monetary policy in the eurozone and Japan, as well as expectations for fiscal stimulus from President Donald Trump’s administration.

But so far this year, the dollar index, .DXY the broad measure of its value against other major currencies, is down more than 8 percent this year and is off to the worst start to a year since 2002.

The IMF recommended that U.S. authorities take steps to shrink a current account deficit that remains too large, by reducing its federal budget deficit and passing structural reforms to increase the savings rate and improve the economy’s productivity.

“It’s important to address imbalances, because if they’re not dealt with appropriately and through the right policies, we could have a backlash in the form of protectionism,” IMF Research Division Chief Luis Cubeddu told a news conference.

Cubeddu said that the persistence of current account surpluses in export countries such as China and the growth of deficits in debtor countries such as the United States suggested that the problem would not clear up automatically.

“That is, prices, savings and investment decisions don’t seem to be adjusting fast enough to correct imbalances. This partly reflects rigid currency arrangements, but also certain structural features, like inadequate safety nets, barriers to investment, which leads to undesirable levels of savings and investment,” he said.

The report said that while China’s yuan was broadly in line with its fundamentals, IMF models showed wide divergences with desired policies from a 10 percent overvaluation to a 10 percent undervaluation due to uncertainties over Beijing’s policy outlook.

The U.S. Treasury in April refrained from declaring China a currency manipulator despite Trump’s campaign promises to do so, citing Beijing’s interventions last year to prop up the yuan’s value in the face of capital outflows. But it kept China, South Korea, Taiwan, Germany and Switzerland on a monitoring list for large external surpluses.

The IMF said China’s current account surplus was growing again after declining in 2015 and 2016 and needed to be reduced. This should be achieved by rebalancing the economy away from investment and credit growth toward more consumption, with a stronger safety net, reforms to state-owned enterprises and opening Chinese markets to foreign competition.

The report also showed that the IMF considers Mexico’s peso and South Korea’s won both to be undervalued by 5-15 percent compared to their fundamentals. The Fund said it expects Mexico’s undervaluation to reverse as risks of protectionist U.S. policies dissipate, but South Korea needed to stimulate domestic demand to reduce a large current account surplus.

Reporting by David Lawder; Editing by Nick Zieminski, Bernard Orr – Reuters

*** The IMF is run by the ESF… consider this message track carefully.

Unravelling Velocity

The West’s authority will see another percipitous leg down.

US global hegemony, once again – is being kicked down the stairs by China and Russia.

All roads lead East as “Alternatives” have been put in place to the existing “World Order.”

Over a decade of positive trade balances resulted in imbalances and the hoarding of foreign exchange reserves, namely US Dollars.

Transparency, responsibility and respect for the Renminbi are the   purported aspirations. China’s campaign to include the Renminbi among the currencies of the basket that is used to value special drawing rights (SDR) and to set its interest rate is sowing rewards – namely Bond Connect.

Chinese Monetary Authorities have worked diligently to get out from under US control with their creation of the New Silk Road – Alternatives to the IMF, World Bank, and SWIFT system are well established.

The Asian continent, the Mid East and Africa and parts of Europe support their efforts as US hegemony has worn thin.

The US Treasury Market has lost its Global dominance – falling from 62% to 35% in a few short decades. It’s been a slow burn, but one that is about to gain immense momentum later this year.

Are you positioned for this untoward outcome.

I dearly hope so, the trend is your friend and it’s about to get sporty as the upcoming gyrations will indicate the exits are narrowing. A final push to levitate will induce a mass exodus.

 

The Credit Cycle

When the Fed raised its key rate from a record low back in December 2015 – a change in trend was assured. This trend is not about to change, irregardless of the numerous protests the Federal Reserve is bluffing. They are not – Domestic Policy initiatives favor Capital Inflows to the United States. Inflows have remained robust.

The dollar should rise, but is struggling. How long this period of consolidation for the DX continues is curious. It has the appearance of being extremely weak. 93 remains our target for the DX, this could provide immense support or a spectacular failure – one that, should the DX fail,  returns the Dollar to the 70s on an exchange basis.

The Federal Reserve has kept their word, for them to sit pat – continued asset inflation would be difficult. This appears counter-intuitive, it is not. Continued Zero Interest Rate Policy served its purpose until it was no longer effective. The pendulum is swinging back. Much has been made of calling the Fed on their bluff… 3 increases to the Fed Funds Rate later and there is no sign they are about to halt and reverse direction.

Mario Draghi and the European Central Bank will come under pressure in maintaining negative interest rates that have failed to reinvigorate the European economy. 8 years of economic policy has failed spectacularly and would seem to demand Europe’s pendulum begin to swing back to rate normalization.

The note of caution by Federal Reserve Board members have not deterred 25 basis point rate hikes – economic activity has contracted significantly since they began raising rates.

What is to lead us to believe they are about to reverse course?

The small gang of “Forecasters” who couldn’t shoot straight from the inception of this change in trend?

The Fed’s flip-flop – good cop, bad cop routine?

Economic contraction – did this prevent them from prior increases?

The Dollar will begin to drop when the European Central Bank begins to reverse course – until then it will either tread water above 93 or fail dramatically to the 70s once we have a clearer picture from Euroland.

I remain negative on the PM Complex, this most recent retracement is weak, underwhelming and has the appearance of building stored energy for the next decline. For things to look up would require Gold to remain firmly above 1237 for 5 to 10 trading days. Silver will require a move over 16.50 – one that hold for the same timeframe. Were Purchasing Power Parity truly at risk of a serious decline, Silver would be leading.

It is not – is this a trick, a distraction or a ruse?

We will find out shortly.

Irrevocable Decline of USA – 1/6

The United States is one of the poorest Nations on Earth.

We project health through our military pretending our Empire is secure. This is a farce, one that will not continue in perpetuity.

Why did we consent to Corporate De-Industrialization since the 1980s and reduce the working class to minimum wage serfs and welfare fixtures?

How has money replaced the citizens voice as K Street authored our laws for Corporate benefit.

Why are those living at the margin of subsistence hidden, secularized and segregated?

Fifty percent of our Nation lives in poverty. We are a First World Banana Republic – a despotic and dystopian shadow of our former selves.

The Glory Days of America are behind us and have been for some time.

LBJ’s “Great Society” became a welfare Queen, dependent on Government subsidies to eek out an existence filled with despair, apathy and rage. Food lines may not be visible only because technology has permitted them to remain in the shadows.

55% of the American population makes less than $30,000 a year.

At $1,021, real average gross rent in the United States was at its highest level in 2015 since this data series began in 2005 – it continues to rise. Real Estate Capital Stock remains in an uptrend – A trend that is displacing Americans and placing them in Section 8 housing and far worse – homeless.

The minimum living wage in the United States is approximately $17.20 per hour using the 2,080 annual hours worked or ~$35,800. This is not per household, but individual and this is simply to afford the basic necessities.

30%+ of single women live below the poverty threshold @ $12,082.

1 out of every 5 American children live in conditions of poverty.

The elderly are one of the fastest growing demographics – the Senior poverty rate will continue to expand for a generation. Many Baby Boomers will be reduced to poverty or required to work until they pass.

Medical expenses are the single largest cause of Bankruptcy across all demographics. There is no free lunch – the cost of Medical Insurance is extraordinary and rising.

Affordable Healthcare? Not on your life, and it often comes to this – lives.

People of Color have far and away this highest poverty rate @ ~25%. Hispanics follow closely behind @ ~22%.

For more than one half of the United States population, making enough money to merely subsist is an immense challenge.

Part 1 of 6

Crypto Currency (Klepto-Currency)

Crypto Currency has no real “value” – it will be assimilated once the herding purpose of Private CCs’ is complete.

Block chain technology is fascinating, but it overpromises and under delivers – as it fractured on several fronts, namely anonymity and scope/scale of the chain itself.

Use it to make a purchase and your anonymity is extinct, it was prior to said purchase FWIW – the Intelligence Community Comprehensive National Cybersecurity Initiative Data Center has it covered.

Suggesting any of this to any CC promoter and watch as their “Game” kicks into high gear.

The elimination of bounds serves a purpose – it allows the Credit Pyramid to expand.

How?

If you are a Central Bank and your Political hidden hand requires additional Credits… Treasury Issuance may not be required as an offset.

More Credit from nothing – this of course applies to Private Crypto Currencies as well. Central Banks can’t have that… and will not in time. The Power to “Coin Money” was abdicated in 1913, Banks around the Globe aren’t about to permit their consumers to Coin their own in perpetuity.

I believe this is called counterfeiting.

The reaction of the cryptomarket to the Federal Reserve announcement provides evidence that cryptocurrencies are seen as a safe-haven investment during times of significant fiat currency dilution.

For now, Private CC’s serve an acclimation purpose – readying the Public by creating a Mind Space that acknowledges their presence.

FedCoin will arrive when needed – likely with Universal Basic Income. Bitcoin is an inflationary currency, FedCoin will supplant BitCoin and extend the infaltionary schema.

Personally, I find it supremely ironic a number of Hard Money Advisors is touting “Coins” for investment.

It’s antithetical to everything they claimed to believe just a few shorts years ago. And yet, it’s all the rage – as long as they are making money and introducing new ICO’s from which they profit.

As the Fed continues to raise rates – demand for cryptocurrency is decreasing. Closing the Credit valve assured there is less newly created Credit that will flow into investments such as real estate, stocks, Gold, Silver and klepto-currencies.

It should be axiomatic investors will have less demand for assets that hedge against inflation. This hasn’t quite sunk in as of yet…

Consent is a given – no one’s going to ask, distractions abound. People prefer outcomes with known probability as opposed to outcomes where the probabilities are unknown. BitCoin and it’s ilk appear certain – they are not – the ability to extend the  credit Ponzi is all they have assured.

It will not be a Public utility – Central Banks will see to it.