The conditioning of the population to accept falling rates continues

Short term rates set to fall in a stable economy

Where does this leave us today? As I already noted, the U.S. economy is in a very good place, with the unemployment rate near a 50-year low, inflationary pressures muted, expected inflation stable, and GDP growth solid and projected to remain so. Moreover, the federal funds rate is now in the range of estimates of its longer-run neutral level, and the unemployment rate is not far below many estimates of u* [the structural rate of unemployment consistent with “maximum” employment]

Sustaining Maximum Employment and Price Stability – U.S. Fed Vice Chair, Richard H. Clarida (Economic Club of New York, New York, May 30th)

Despite what most in the alt-financial media are proclaiming, the macroeconomic data here in the United States seem to be consistent with stable economic growth. As we can tell from today’s speech, the Fed’s Vice Chairman seems to agree.

So why are Clarida and the Fed most likely going to begin lowering rates later this year? It’s because they must lower soon. Since they have announced they are going to begin buying up long-term Treasuries again, global yields have fallen quite a bit. The only outlier is the Fed funds rate.

The vice chairman of the Federal Reserve on Thursday identified factors that would cause the central bank to lower interest rates — but didn’t point out what could cause it to move rates in the opposite direction.

The speech from Richard Clarida to the Economic Club of New York appears to be moving the Fed slowly in the direction where markets already are, toward an interest-rate cut at the end of the year.

Clarida says low inflation, global risks could get Fed to cut interest rates – Market Watch, May 30th

The Market Watch article continues with a quote from today’s speech;

U.S. Fed Vice Chair, Richard Clarida; He  swears to know the truth, but to hide the reality

“However, if the incoming data were to show a persistent shortfall in inflation below our 2% objective or were it to indicate that global economic and financial developments present a material downside risk to our baseline outlook, then these are developments that the Committee would take into account in assessing the appropriate stance for monetary policy,” [Clarida] said.

Fed officials have been insisting over the last few months that inflation will pick up from levels that are running short of its target. Data released earlier Thursday revised lower inflation readings from the first quarter.

The reasons why inflation and interest rates continue to fade

Despite all the Cassandra calls for some sort of “big bang” (i.e. a jump in inflation and a large spike in global bond yields), price growth remains subdued and bond yields continue to fall. But why?

I understand it all seems so counter intuitive, given the historically low rate of unemployment, or as Clarida says, “the structural rate of unemployment consistent with “maximum” employment.” But if we analyze the current dynamic of the global central bank intervention, the answer is actually fairly straightforward.

There is only one way to get ahead in a sea of deflationary red ink

Last year, I was concerned that the U.S. Fed and ECB  were going to purposely pull the plug on the entire system. Recall how we were parsing all the interviews and speeches in light of what I thought was a seriously flawed game plan. In the wake of last decade’s manufactured crisis, the global central banks decided to place the global economy on a financial IV-drip, and last year it seemed as if they planned to remove it.

But that is all in the rear view mirror as it turned out to be a bluff to see how far they could go before the markets began to collapse. They clearly could not get away with much.

Okay. Now the Fed and ECB will begin buying debt again and will work to lower rates across the entire yield curve. So why is there no inflation?

The financial big bang took place in 2008-2009. For the first time sovereign debt supply overwhelmed organic demand

If we were to pick a year that we could call the big bang, I would choose 2008-2009. This period marked the first time that the incremental organic demand for global sovereign debt was less than the new supply. That period was so crucial to the global financial system, because for the first time bond supply overtook demand. Prior to the 2008 collapse, the elevated asset markets helped to keep demand for sovereign debt high enough. But as asset prices fell, the demand quickly fell behind supply, and the governments were confronted with a situation they had never faced before in modern history. Who was going to buy their debt?

If bond yields were to spike and inflation was to take hold as people like Martin Armstrong theorize, this would have been the time. But the central banks stepped in to save the day. Since it is clear that there will never be any debt “jubilee” and that all outstanding debts will remain due, the debt will always place a drag on the vitality of the economy. All this debt, regardless of who holds it, needs to be serviced. This creates a massive deflationary force as the economy struggles to pay the interest and the growing principal amounts as they come due.

There is only one way to save yourself from lower rates
There is tremendous opportunity with negative rates. Ironically, it doesn’t mean going into debt unless there is offsetting income

It doesn’t matter if rates are low, or even negative. The principal remains and grows mightily as the central banks buy up all the extra supply that the global investors cannot absorb. There will be no government bankruptcies with debt forgiveness and the amount of U.S. Treasuries can grow forever. The Fed will buy it all up.

So, the governments have found the answer to all the calls for balanced budgets. They don’t have to worry anymore; they can spend as much as they want and inflation won’t grow. In fact, with the central banks buying up all the extra supply, inflationary forces will diminish over time. Sure, the asset markets will rage higher as the monetary equivalents of sovereign debt skyrocket in amount, but that money stays in the financial shell and will help to raise asset prices over time.

With low inflationary pressures from this deflationary red ink and free movement of input factors across national borders, interest rates can stay low and move lower. For those who understand this system and own the assets, it will feel like paradise.

Negative rates do not get these nations off the hook. Their amount of outstanding debt principal will spiral much higher than from what any negative rate may shave. In addition, the 10-year UST may one day be yielding -1.0%, but that could be in a world of -2.0% inflation, so the real burden will always grow. The only people who win in a regime of falling rates are the asset holders. Joe-Six Pack takes the bath as taxes and debts rise higher for him, while he has no offsetting assets.

Richard Clarida, the Fed Vice Chair knows exactly why inflation is low. He knows it’s low for the same reasons I am saying. The world is sinking in a sea of deflationary red ink and there is absolutely no hope for an escape. I don’t care how low rates go, we will all die on a global debt plantation. The only ones who will survive the longest will be the ones who own the income-generating assets.

It is easy to see where interest rates are heading when we know our adversary

Most see chaos, I see order

Predicting the direction of bond yields over time is not very difficult when one understands the conspiracy for a global financial dictatorship and can properly interpret the actions of the central banks with that end goal in mind.

I marvel at the consternation of the Wall Street analysts and alt-financial “gurus” who seem to think that a recession is imminent, because the 10-year UST yield continues to fall.

The Wall Street consensus predicts rising yields. How can it be so wrong?

These prognosticators either have no understanding of the conspiracy or a distorted version of it and refuse to believe that the direction of the yield curve has essentially lost all meaning.  Even worse, the alt-financial media play up the angle that the central banks have lost control and that a catastrophe is in the making. You and I know better. It is this illusion of impending doom that provides the central banks all the reasons they need to continue buying up the world for their owners. Moreover, the manufactured global nation-state friction seems to have been auspiciously timed for the central banks.

Look at these GDP projections. They are hardly recessionary, but the media have us so scared, we will believe anything.

THE CONFERENCE BOARD ECONOMIC OUTLOOK, 2018-2019
Real GDP Growth – Percentage change, seasonally adjusted annual rates (Updated May 9th)

2018 2019 2018 2019 2020
1st
half*
2nd
half*
I Q*
II Q
 III Q IV Q ANNUAL
ANNUAL
ANNUAL
Real
GDP
3.2 2.8 3.2 2.2 2.3 2.2 2.9 2.7 2.1

* Actual

Misdirection by the mainstream, poor alt-financial analysis

The mainstream outlets run cover for the central banks to dispense fear, so that the central banks can embark on more QE. The alt-financial media play off the mainstream and preach catastrophe and doom. Both the mainstream media and alt-media work to ensure the program moves forward.

The stock market and economic outlook in the United States are “deteriorating,” according to an analysis from one of Wall Street’s top investment banks.

Renewed trade tensions and a slump in economic data — ranging from falling durable goods and capital spending to a downshift in the services sector — has put U.S. profits and economic growth at risk, Morgan Stanley warned Tuesday.

“Recent data points suggest US earnings and economic risk is greater than most investors may think,” wrote Michael Wilson, the firm’s chief U.S. equity strategist.

Falling interest rates are sending a warning signal to the stock market – CNBC, May 28th

The mainstream business outlets, like CNBC and Bloomberg, continue to report that the curiously dropping 10-year UST yield is a harbinger for an upcoming recession. Their analysis will flatly deny that the central banks control the entire yield curve. Their stories serve up the same arguments that the controlled U.S. Federal Reserve dishes out.

Look at this offering from the alt-financial media. I came across a post this afternoon from ZeroHedge titled, Yield Curve Flashing Biggest Recession Signal Yet: Shilling Thinks It Started!, and it illustrates my point. While these types of articles serve a number of purposes, they deliver a lot of profit to the owners of the disinfo-front, Zero Hedge. As I write it has already received about 45,000 views.

Back to the analysis….

The brightest analysts on Wall Street refuse to believe that bond market movements have become meaningless. This blog could replace these well-paid analysts as a better predictor

I look at the above chart, and conclude that the U.S. Fed will soon lower the Fed funds rate, because the yields offered up by short-term USD-based assets are much higher than any other larger developed economy. The U.S. Fed has been admitting that it needs to go back into the market and scoop up longer-dated Treasuries to keep their yields falling over time. This will ensure that the U.S. government stays in business for the indefinite future.

The Fed will need to keep a lid on the USD by lowering the Fed funds rate and moving to buy up longer-dated Treasuries. This will diminish global yield differentials

It is not difficult to comprehend why the U.S. dollar continues to defy gravity. How can the U.S. 10-year UST remain above 2.2% when the German, Japanese, and Swiss equivalents yield -0.14%, -0.07%, and -.52%, respectively?  Take a look at the chart below. The only nations with higher yields are poor credits.

Major 10Y Yield Day Weekly Monthly Yearly Date
US 2.27  0.11 -0.11% -0.11% -0.27% -0.50% May/28
UK 0.93  0.13 -0.13% -0.13% -0.23% -0.35% May/28
Japan -0.07  0.00 0.00% % 0.00% -0.09% May/27
Germany -0.14  0.03 0.00% -0.04% -0.13% -0.42% May/27
Canada 1.58  0.08 -0.08% -0.08% -0.15% -0.62% May/28
Switzerland -0.52  0.04 0.01% -0.05% -0.13% -0.41% May/27
India 7.15  0.25 -0.25% -0.25% -0.27% -0.61% May/28
Greece 3.18  0.77 -0.77% -0.79% -0.59% -1.62% May/28
France 0.25  0.01 -0.01% -0.04% -0.11% -0.41% May/28
Netherlands 0.04  0.01 -0.01% -0.10% -0.14% -0.45% May/28
Spain 0.79  0.04 -0.04% -0.09% -0.23% -0.83% May/28
Italy 2.68  0.08 -0.08% -0.08% 0.09% -0.43% May/28
Mexico 7.97  0.10 -0.10% -0.10% -0.15% 0.22% May/28
Portugal 0.94  0.05 -0.05% -0.19% -0.19% -1.24% May/28
New Zealand 1.77  0.04 -0.04% -0.04% -0.16% -0.91% May/28
Australia 1.53  0.15 -0.15% -0.15% -0.27% -1.20% May/28

Let’s take a look at the The Conference Board’s Economic Forecast for the U.S. Economy, which was updated on May 8, 2019.

THE CONFERENCE BOARD ECONOMIC OUTLOOK, 2018-2019
Percentage change, seasonally adjusted annual rates (except where noted)

2018 2019 2018 2019 2020
1st
half*
2nd
half*
I Q*
II Q
 III Q IV Q ANNUAL
ANNUAL
ANNUAL
Real
GDP
3.2 2.8 3.2 2.2 2.3 2.2 2.9 2.7 2.1
Real
Consumer
Spending
2.2 3.0 1.2 2.9 2.7 2.6 2.6 2.5 2.5
Residential
Investment
-2.4 -4.1 -2.8 1.1 1.1 1.3 -0.3 -1.7 1.5
Real
Capital
Spending
10.1 4.0 2.7 6.1 6.0 5.4 6.9 4.8 5.2
Exports 6.4 -1.6 3.7 3.4 3.5 3.7 4.0 2.5 3.7

* Actual Value

These are hardly recessionary numbers and though they may have drifted lower over the past couple weeks, the U.S. economy can withstand relatively higher rates than the rest of the developed economies. But the agenda calls for the central banks to coordinate on a massive scale and guide global sovereign bond yields lower over time. Thus, the U.S. Fed must embark on a dovish program to lower yields across the entire yield curve.

This blog knows what to look for in the U.S. Fed arguments while the million-dollar, all-star analysts cannot come to terms with the grim analysis we dispense on an ongoing basis. The entire global economy and financial system are centrally managed from stem to stern.

I conclude the elites are doing an excellent job. Why do I say this? Because, they are consolidating the world’s wealth and deftly guiding the new world order agenda, while appearing to be inept improvisers. The IV-drip is firmly in place and can be withdrawn at will, but it seems the elites want this to continue for at least a few more years.

Why plan for the future if the world is going to end?

Many young people today think civilization may not exist when they’re of retirement age

Lori Rodriguez, a 27-year-old communications professional in New York City, is not saving for retirement, and it isn’t necessarily because she can’t afford to — it’s because she doesn’t expect it to matter.

Like many people her age, Rodriguez believes climate change will have catastrophic effects on our planet. Some 88% of millennials — a higher percentage than any other age group — accept that climate change is happening, and 69% say it will impact them in their lifetimes. Engulfed in a constant barrage of depressing news stories, many young people are skeptical about saving for an uncertain future.

Young people blame climate change for their small 401(k) balances – MarketWatch, May 25th

For many of the unwashed, younger folk, they have fallen victim to their education and Netflix viewing. Many believe on a visceral level that the world won’t be around by the time they reach retirement age.

Many alt-media followers don’t bother to plan either
So many collapse preachers have come and gone, while the sun comes up everyday

This MarketWatch article, which was forwarded to me by a subscriber, got me thinking about the alt-media and its effect on their followers.

Specifically, my observation is that many followers of the alt-financial world are not properly planning for the future. Why bother if the world is going to collapse? The elites promote the survival prepper shows, because that is how they want their viewers to plan. Plan for the collapse that always seems just around the corner. Now, that is exhausting, which, of course, is the intent.

I recall the William Cooper podcasts from the early 1990’s. He was preaching systemic economic and market collapse and warned to get into gold and silver. While gold and silver have moved higher in those subsequent 25-30 years, those heeding these warnings have paid a terrible opportunity cost. Think of all the better performing assets, especially those that spin-off income like real estate, businesses, or stocks. Mr. Cooper’s intentions may have been genuine, but it is difficult to claim he was objective when his largest advertisers were gold dealers and survival supply sellers. But most of the alt-media financial experts have conflicts-of-interest and are often disingenuous. They have to promote their particular bias, because it generates revenue for them. If they change their minds as the evidence rolls in, they lose subscribers and money.

The future will be brighter if we plan properly

I have corresponded with many people my age and older since I started this blog in 2016 and most of them regret heeding the advice of the so-called experts in the alt-media. The past 30 years have flown by very quickly for me and I am grateful I broke free early on from the fear the alt-financial media engenders in its unwitting victims. But breaking free takes discernment and independent thought. I no longer heed the advice of Martin Armstrong, Steve Quayle, Alex Jones, RT, Zero Hedge, Daily Reckoning, KWN, or the agenda shills like Jim Rogers or the Sovereign Man. They all sell fear and catastrophe and bank on you listening, so they can peddle their products and services.

I get it; the world is a Talmudic toilet bowl. I produce for this blog, because on many levels I have already effectively withdrawn from society. I no longer work for others nor run a business. My friends no longer really communicate with me and my wife will not discuss this stuff with me as she views it too disturbing.

The problem with this toilet bowl is that the vast majority of humanity prefer this brand of toilet bowl to all the previous toilet bowls. Since many in the Christian remnant have convinced themselves that Jesus is coming back in the next decade, they don’t bother to properly plan for the future. They latch on to the advice of the internet prophets, but will most likely be  severely disappointed when Jesus doesn’t come to right the ship as anticipated. This disappointment will manifest when they are older and broke. I recall all the money I spent last decade on prophecy and survivalist conferences. What a waste for me, but the promoters made money.

We need to plan for the most likely outcomes. Our courses of action cannot be based upon some future outlier event. We need to take the proper steps now to ensure our long-term financial survival. This philosophy will provide us with the flexibility we need as our circumstances evolve. Ironically, those who are planning for some event that will most likely never appear, will be the least able to handle that event.

The future may be a morally bleak one, but imagine how bleak it will be if we are broke and older and then need to depend on the system in the future. That is one sobering thought.

Austria joins Portugal in seeking to tap China’s bond market, but the market is small

Countries tap Panda bond market to help relations, not for costs

Austria is working on plans to sell Panda bonds as it races with Portugal to become the first euro-zone country to issue debt in the Chinese currency.

Austria’s Treasury Agency signed a memorandum of understanding with Industrial and Commercial Bank of China Ltd. to cooperate on a plan for Austria’s government to issue Panda bonds, according to a release dated April 28 on the official WeChat account of ICBC. The bank was named lead underwriter and bookrunner for the deal, with Bank of China and HSBC as joint lead underwriters, the statement said.

Austria would be the highest-rated sovereign to issue Panda bonds, helping to deepen ties between the two countries, according to the statement. In December, Xinhua reported that Portugal was actively preparing to issue such bonds.

Austria Joins Portugal in Seeking to Tap China’s Bond Market – Bloomberg, April 29th

According to the Bloomberg article, China set up the panda bond market more than a decade ago for offshore issuers of yuan debt. Issuance slumped when China devalued the yuan in 2015, igniting fears of continuous depreciation. In 2016 and 2017, authorities began opening the domestic market to help offset capital outflows and promote greater use of the yuan.

China has vowed to push ahead with opening its bond market to foreign investors, with People’s Bank of China Deputy Governor Pan Gongsheng saying in January it was crucial for the development of the nation’s financial markets. Bloomberg Barclays Global Aggregate Index started adding the country’s government and policy bank notes in April. There are 275 billion yuan ($41 billion) of Panda bonds outstanding, according to Bloomberg-compiled data.

Poland was the first European sovereign to print Panda bonds in August 2016, followed by Hungary’s debut offering in July, 2017.

According to Dinheiro Vivo, Portugal’s Treasury will issue debt for three years. It is expected to finance 2 billion RMB, about 260 million euros. The interest payable will only be closed on the day of the transaction, but the cost should be above the euro bonds. This Tuesday in the secondary market, investors are accepting to lose money to hold Portuguese debt. The three-year bond trades at a negative rate of -0.223%.

The reasons for the sluggishness in the building of the Panda bond market are straightforward. While borrowers may seek to build relations with the Chinese Communist government, the bonds do come with a number of costs that diminish its practicality. First, the yuan’s central management requires buyers of this debt outside of China to hedge their yuan exposure, which is often very costly to investors. Second, Portugal’s interest rate will be higher. Currently, investors are paying to hold Portugal’s similar durationed, euro-denominated debt. According to investing.com, Portugal’s three-year euro bond is currently yielding -0.223%. Third, Portugal has to work directly with the underwriters for placement of the bonds, in a fashion similar to corporate bond underwriting.

Portugal would never attempt to create a large pool of Panda bonds for its borrowings. The interest costs alone would preclude this. But, it is clear that Portugal plans to continue building its relations with the ChiCom government, thus a few hundred million in Panda bond borrowings could help to grow relations as their bilateral trade expands over time.

 

Market Update – Chart and market analysis; Oil, gold, stocks, bonds, and investment sentiment

Note: Click all charts to enlarge

Oil

I want to point out why I was bearish on oil this past weekend. I mentioned on Sunday’s podcast that a test of the 100-week mva was imminent ($59.80). Oil not only didn’t hold the 50-week mva, but it failed miserably at the 100-week test.

Once again, the XOP ETF technical failure foretold of oil’s upcoming drop. Now that the United States is the largest oil producer, the movement of the XOP often telegraphs future WTI market action. In this case, it was down.

-XOP closed down at $27.10, down 5.7% today. Even with oil at a lower price, the technical damage is severe. The XOP is telling me that more pain is coming.
-A poorly performing XOP does not mean that shale oil is a passing fad. Quite the contrary. Most of the shale oil E&P’s should not be in business. Many have excellent assets, but poor controls and high costs of capital. Their assets will be bought by the largest producers (e.g. CVX, XOM) for low prices.
-OXY paid too high a price for APC. CVX did the right thing to walk away. Based on the XOP’s price action, there will be plenty of opportunities for the largest players to piece together excellent property portfolios for cheaper prices. Patience will win.
-The shale region is the only place in the world where small producers can drill and extract oil profitably. Most regions around the world are already controlled by the largest vertically-integrated firms. This will be the case in the shale fields as well where low cost of capital is key.

The XOP telegraphed the oil movement this week. It also proved accurate in predicting last year’s swoon as well

Gold

Gold hovers at the 100 week mva, while silver (the line, left axis) plumbs further depths. Given the global situation, gold should be above 1,300.

-While gold has moved up this week, if we consider the current circumstances, its movement has been very feeble. Given the higher than average Large-Spec. net-long COT position, any good news could send the price tumbling below support. I have to believe that tomorrow’s COT report will be even more stretched.
-Gold needs to move above $1,300 immediately or else it risks breaking down to the 50-week mva on any good news.
-Silver keeps lagging as well as platinum (below).

Platinum looks especially weak, like silver. It briefly broke below 800 again today. Gold is defying gravity.

Stocks

Despite all that is going on, the S&P 500 futures look to be holding support for now

-The Fed has tried to temper the market’s enthusiasm for a Fed funds rate cut, and still stocks remain elevated.
-The Dow futures are clinging to the 50-week mva, while the Nasdaq futures are still above it.

Bonds

The 10-year UST yield is breaking through support. Bond prices continue to move higher above resistance.

-As predicted, the UST longer-dated yields continue to fall. Though the Fed is pretending to sound hawkish, the trading community already has other ideas.
-I have to believe the Fed will continue to be dovish, especially if the trade situation heats up.
-It is impossible to be bearish on any asset class under this situation. If you are scared, just sit in cash. The equity market sentiment is very bearish and bearishness is at very high levels.

Bullish sentiment continues to sink lower

Trade headlines have continued to have a negative impact on stock prices, and in turn sentiment levels, over the past week. The AAII investor sentiment survey saw bullish sentiment decline sharply once again this week falling to 24.71% compared to 29.82% last week. To think that just two weeks ago bullish sentiment was at 43.12%, which was the highest reading of the year. Falling 18.41% from this recent high, the current decline is the largest two-week drop in bullish sentiment since 6/6/13 when it fell 19.5% over the two previous weeks.

Bullish sentiment is near the historic low range.

This week’s reading of 24.71% is well below the historical average of 38.21%. In fact, it is over 1 standard deviation below it, something that can be considered a bit extreme and raising expectations for some type of mean reversion. When bullish sentiment reaches an extreme low by historical standards, forward equity market performance has typically been stronger than average. The last time survey respondents showed this little optimism was in late December of last year; right around the time of the market bottom.

We will see….

QE May Be Over, But the Fed’s U.S. Debt Hoard Is About to Soar

  • Anyone betting against the asset markets in the long-term will face an uphill battle.
  • The Alt-financial media continue to swing and miss (by intention?)
  • Another alt-financial non sequitur. If money growth and U.S. Treasury levels (monetary assets) are set to continue spiraling higher, how can anyone conclude that the asset markets will collapse?
  • How can the dollar (and all others) be debased on a wholesale level, yet everything priced against it, especially assets, falls in relation?
  • I submit the current Fed balance sheet growth estimates are still too low and that as time moves forward, they will be revised higher. They can’t dump it all on us at once.

As soon as next year, analysts say the Fed will resume large-scale buying of debt securities — this time just U.S. Treasuries — in amounts that may ultimately exceed its crisis-era purchases. According to an estimate by Wells Fargo & Co., the central bank’s balance sheet will rise past its historic peak as it adds over $2 trillion to its Treasury debt holdings in the next decade.

Of course, it won’t be called QE, which President Donald Trump has urged the Fed to restart. Rather than trying to drive down long-term interest rates to boost growth, the purchases are intended to replace the Fed’s mortgage-bond holdings gradually as they mature and to keep ample reserves in the banking system. But the effect, some say, will nevertheless be largely the same.

“For anybody that has been in the market for the last 10 years, it will feel like QE,” said Priya Misra, global head of rates strategy at TD Securities. “Once again the Fed will be the single largest buyer of Treasuries and (this time) in a non-QE world. This will be a very bullish Treasury-market dynamic.”

QE May Be Over, But the Fed’s U.S. Debt Hoard Is About to Soar – Bloomberg, May 21st

Keep stacking… Income-generating assets

We have talked about this for the past three years; there is no way the Federal Reserve can stop buying U.S. Treasuries ever again.

When asset market prices move higher, there may be less of an immediate need for the Fed to step in to the market, because assets provide collateral for more asset buying, especially U.S. Treasuries. But even when asset prices are high, eventually the Fed must take action to keep interest rates in line. Thus, additional UST purchases will be needed. The reasoning from the authorities may differ depending on the circumstances, but it all means the same thing. The Fed and all the major central banks will keep buying sovereign debt for as long as they want to keep the economy and financial markets moving forward.

All currencies are being debased together, so the results are less obvious. The central banks are all coordinating policy to keep this going for as long as the elites want. Even the PBOC and the Fed are working together to keep the agenda moving forward.  From what I can tell, they all have the power, tools, and ability to keep it going, and the wealthy owners of the assets are excited at these prospects.

Inflationary pressures can be kept in check as the continual debt buildup drains the economy of its buying power. More economic exertion is required to service the outstanding debt and anyone who does not possess income-generating assets will fall further behind.

Owner-occupied real estate will move higher, but the property tax burden and costs of ownership will move up as well. Owner-occupied housing will be a millstone to many current homeowners who are barely hanging on. This is why we see movement in the real estate industry to undermine the power of the broker and its commission structure.

We can look at some of the specific balance sheet holdings, like mortgage backs falling off, and scream calamity, but as long as the Fed continues to add to their UST holdings that is all that matters. Why is this? The U.S. sovereign yield curve must move lower over time and all other debt securities are priced off this yield curve.

May 19th Market Update – Stocks, bonds, gold, silver, oil, bitcoin, ethereum

May 19th Market Update – Stocks, bonds, gold, silver, oil, bitcoin, ethereum

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-All three domestic averages viewed with moving averages and what the next moves may be over the next few days into the next few weeks and months.
-As long as bonds perform well, we need to look at the markets from the long side going out to the intermediate term. Daily movement is dependent on the next trade story.
-German, Japanese, and Swiss bond yields go further negative. Swiss 10-year is yielding -0.48%. We firmly stated that the central banks controlled the yield curves and they clearly want sovereign yields to move lower.
-The domestic stock averages continue to outperform the rest of the developed world over the past year, but the European bourses have done better in the short term. If we account for dollar strength, the U.S. is still the winner.
-The next potential market mover, data wise, comes at 2pm, Wednesday, with the FOMC minutes.
As long as the UST 10-year continues to fall, I cannot recommend going short anything (except commods).
-It’s difficult to be bearish on real estate with fading UST yields, though the market looks heavy in aggregate.
-I would normally be neutral on gold here, but silver and platinum are poorly performing. As long as yields fade and the markets remain firm I am not bullish on gold.
Gold COT is severely stretched with spec longs accumulating a large net long. This is bearish for gold. When the impending catastrophe is averted,  the funds will need to sell once again.
-Gold should test the 1259 50-week moving average soon. It can’t stay above the 100-week and 50-day. Poor silver raises that probability. Platinum just got beat up and looks to be testing 800. Poor gold may not hold.
-Bitcoin shows great resilience. I am more bullish short-term on ETH here (somewhat still LTC, XMR, ZEC, BCH, XLM, XRP) as the ETH/BTC ratio is still near multi-year lows.
-Oil looks very top-heavy. A test of 100-day mva soon? That is just below 60.

The internet and the overconfidence bias are a lethal combination

Can we have an army of generals?
The internet has turned us into experts on everything

It seems that as we look things up on the Web, we become convinced that the information remains in our brains. It doesn’t. But we behave as if it does, and we’re not shy about claiming that it’s there.

In my role as a property manager and rehabber for my rentals, I often refer to YouTube when it comes to a number of issues. If I am replacing parts in a Delta kitchen faucet, for instance, I may search out YouTube to determine exactly how to replace the faucet’s gaskets and springs. While this strategy may not work for brain surgeons, does it really matter whether your auto mechanic can change your fan belt from memory or with an assist from a quick laptop search?

I don’t think we can conclude this is some terrible strategy on the surface, but my concern is that we are often unaware of the gaps in our understanding. Because our immediate answers are being filled, we are less inclined to seek out and fill in the holes, which are usually huge. I know firsthand how large these gaps can be when discussing economic and investment matters with others.  While they may have little formal background in the subject, they will act as if they are experts.

In my example of replacing kitchen faucet parts; while this may not seem complicated, it helps to have a comprehensive and tacit understanding of plumbing. Should I repair the faucet or replace it? What type of faucet makes the most sense in a rental versus an owner-occupied property? What type of faucet will take the most wear and tear? I have a good understanding of the house’s plumbing and entire drain/waste system, but is this knowledge needed to repair a faucet? On the surface, the answer is no, but having a mastery of how water and waste work in a plumbing system provides me with many intangibles that most weekend warriors lack. This unquantifiable knowledge gap is often the difference between success and failure in real estate investing.

The same goes with most other specialized endeavors, particularity with respect to money, finance, and economics.

You can search the internet for all the studies that confirm this; people who were asked to use the internet to find or confirm their answers to a series of questions gave, on average, higher ratings of their abilities than those who were asked not to consult the internet. The common results from all these various studies included:

  • An increase in confidence among internet users, not a decrease in confidence among those not allowed to consult the internet.
  • This increase was not due to access to information or even the use of the internet to get the information. It was the act of searching for that information that caused the increase in confidence.
  • They appeared to be conflating public knowledge (the internet) with the personal knowledge (what’s in their heads).
With the internet, everyone is an expert in Economics and Politics

As described by social psychologists David Dunning and Justin Kruger, the cognitive bias of illusory superiority results from an internal illusion in people of low ability and from an external misperception in people of high ability; that is, “the miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others.

Dunning–Kruger effect – Wikipedia

In other words, most people who think they are good at something are actually just confident fools. These people use that same confidence to mask their ignorance and incompetence. According to Dunning and Kruger, the actual experts underestimated their superior abilities by overestimating everyone else’s.

According to Investopedia, in a 2006 study entitled “Behaving Badly,” researcher James Montier found that a whopping 74% of 300 professional fund managers he surveyed believed that they had delivered above-average job performance. The majority of the remaining 26% of those surveyed believed that they were average in their performance. Nearly 100% of those surveyed felt that their performance was average or better. In actuality, of course, only 50% of a sample can be above average. This discrepancy suggests that many of these fund managers displayed an irrationally high level of overconfidence.

The worst part is that this survey was conducted with seasoned investing professionals. Perhaps these people weren’t as knowledgeable as they thought. We have discussed the Dunning Kruger effect in the past. Perhaps this can help answer why there are so many alt-financial “experts” who continually dispense poor advice, while continually making incorrect market predictions.

I used to believe that many of these alt-financial personalities were disinfo agents. But after analyzing many of them, I have to conclude that they are just incompetent. They may be disinfo agents, but not of their doing. Perhaps people much higher up than we are promoting the less-talented.

Truth is, the less we know about a subject, the more we tend to believe ourselves to be experts. It is only once we become experienced in a subject do we start to recognize the breadth and depth we have yet to learn. Stupid amateurs think they know it all.

So, if you are taking the advice of an expert in the alt-financial media, yet  not making money, keep the Dunning-Kruger effect in mind and look elsewhere for answers.

 

Over reliance on social media and the internet leads to poor financial, investment, and trading decisions

Trading and investing used to be a solitary endeavor…
Success in trading and speculating in the internet age requires us to be fiercely independent and free of confirmation bias. Most people will never be able to succeed.

Back in the mid 1990’s, when I set out to really learn to successfully trade and speculate, the internet was just in its infancy. There were no such things as YouTube, Facebook, or Google. Yahoo was the major player and there were very few financial charlatans and even less alt-financial websites like Zero Hedge. I received my masters degree in 1992 and back then I never even heard of the internet, let alone used it.

When I started out trading while working at Nasdaq, I relied on services like Bridge, Bloomberg, and Factset. While these providers dispensed enormous amounts of data, it was up to me to figure it all out. There were no self-proclaimed experts on YouTube or the social media platforms. I learned how to trade by reading books. I mastered the intricacies of the marketplace by direct observation. While traders often shared their opinions and thoughts with their peers, trading and speculating ultimately was thought of as an independent study.

One of the books I studied from over 20 years ago.

In the beginning, most of my research took place during the weekends. I would take the subway to my office and spend full days parsing market and stock information, while at night I would walk to the coffee shop and read books about fundamental and technical analysis. I relied on my own wits and abilities to forge ahead. Since the internet was just getting up to speed, there were few bloggers and showmen on the web to turn to for “help”.

…But not anymore
In the internet age, most alt-financial followers who try to learn to trade end up taking the easy way out by relying on other personalities who are there to exploit.

When I was starting out, there were no disingenuous shills on an ubiquitous media platform like Martin Armstrong, Zero Hedge, KWN, Sovereign Man, Daily Reckoning, Nomi Prins, GATA, Max Keiser, or RT to intentionally confuse, misdirect, and scare people into money-losing outcomes. All these people have something to sell. They exploit their followers and are great at it.

In addition, there are hundreds of self-proclaimed experts who populate YouTube with their trading advice. Unfortunately, most are trying to upsell a service or rely on advertisements. I get it; it is much easier to rely on someone else, because it takes a lot of work and sacrifice to become a good trader or investor. It takes an independent and objective mind and lots of study, and the influences of the internet are just too strong for most people to ignore.

I didn’t have to concern myself with Facebook’s propagation of social proof and confirmation bias. Most of the time, I only shared my findings and trades with 2-3 other people in direct communication and email. I eventually became successful enough to quit my job. That was back in 2001.

Most starting out now will continue to lose money, because they no longer take the time to independently learn the art of trading and speculating. They are too busy relying on other “experts” on the web and YouTube.

Trading is ultimately an individual pursuit and when a person is wrapped up trying to learn some one else’s trading techniques and programs, they end up spending too much time trying to interpret what someone else is saying and miss the opportunity to build their own strategies. We need to adapt to our personalities. Have faith, but understand that trading and investing depends on the person in the mirror; not some charlatan or salesman on the web, regardless of how personable they may be.

Okay, enough said on this. Let’s move on.

Most social media users are poorer because of it

Anyone who says that social media is a net benefit is deluding him or herself; unless, of course, he is one of the few that use it to exploit others.

You’re not going to like this.

Millennials spend more time on social media than older generations: People ages 25-34 spend 141 minutes per day on it, versus 105 for the 35-44 set. And that could be hurting both their finances and mental health.

Indeed, nearly half of millennials (49%) say that their spending habits have been influenced by the photos and experiences their friends share on social media, compared with only about one-third of Americans in general, according to a data survey of more than 1,000 Americans by financial firm Charles Schwab.

The dark reason so many millennials are miserable and broke – MarketWatch, May 14th

What gets me is that people admit to spending about 141 minutes a day on social media. The true numbers on these surveys are probably much higher.

Other surveys have uncovered similar trends: Roughly two in three millennials think that social media has a negative impact on their financial well-being, according to a 2018 survey of more than 2,000 millennials from financial firm Fidelity.

Data released in 2018 by mobile bank firm Varo Money found that 53% of millennials admit to buying something they saw advertised on social media.

And a 2018 survey from Allianz Life shows that more than half of millennials (57%, versus just 28% of Gen Xers and 7% of boomers) say they’ve spent money they hadn’t planned to because of something they saw on social media.

The dark reason so many millennials are miserable and broke – MarketWatch, May 14th

The internet and social media are turning the world into a debt sharecropper plantation. With the web, less effort goes into research, while it encourages adverse financial behavior

According to the article, not only can social media wreak havoc on our finances, it can also hurt our mental health. Younger adults who use social media a lot are at a higher risk of depression, and people who use many different social media sites are at higher risk for anxiety and depression. What’s more, the more time people spend on social media, the more likely it is they feel socially isolated — with people who spend more than two hours swiping through social media sites nearly doubling their risk of feeling socially isolated.

Just look at how the boom/bust cycles in most asset classes are speeding up and have become much more frequent. We may think that having instant access to information creates normal markets, but the advent of the internet has brought irrationality. It has engendered the overconfidence bias in the least talented and reaffirms our confirmation biases. Income and net worth disparities have widened in step with the evolution of the world wide web. This is not a coincidence.

I look at asset markets such as real estate, stocks, cryptos, gold, etc., and have to believe that the internet has played a role in this insanity. For every person that profits, many more lose, because those who profit, profit big.

Most successful, financially-free traders I know live simple lives and do not spend all that much money supporting a lifestyle. Many think that successful traders and investors have to live in expensive houses and drive fancy cars, but my experience has been quite different. I view money as a necessary tool and if I were being pressured to spend to keep up I would be out of business. Successful traders and investors can control their spending, so they can build up an income-generating balance sheet as they get older.

If I were a social media junkie, I would be a lot poorer as the urge to conform is powerful. I know I am not immune to these pitfalls, which is why I deleted my Facebook account in 2013 after I started investing in real estate again. If more people are getting poorer, perhaps they need to turn off social media and break free of its bondage. Social proof leads to perpetual poverty and social media turns most of its users into sharecroppers on a debt plantation.

The Slowdown in U.S. Housing Market Is Helping Landlords Raise Rents

The housing market is clearly slowing…

In research released today; according to Zillow:

  • In April, the median home value fell 0.1% from March, the first time the market has posted a monthly decline in seven years.
  • A more stable metric—year-over-year declines—shows U.S. home values up just 6.1% from last April. That’s below annual growth of 7.5% in April 2018.
  • 16 of the largest 50 metros posted home value declines in April and have had flat or falling home values since January, raising our confidence that they indeed have reached a peak.
In aggregate, the chart looks top-heavy, but…
(Year over year price growth) …When we break down the national market according to three tiers, the bottom third is still performing better than the pricier homes. All segments have posted year over year growth. Changes to the IRC since 2017 have been the primary cause for the widening growth disparity.

While one month does not make a trend, it is important to continue analyzing the ongoing data stream. We have discussed in prior analyses how the residential real estate market is more managed than in the past, specifically with respect to the mortgage market and with tighter zoning and more restrictive building codes. This management distorts the supply/demand dynamic, which results in higher equilibrium prices.

The latest changes to the IRC have placed higher priced homes at a comparative disadvantage to the lower priced segments and these results are clearly established in the chart above. This is one of the reasons why I prefer acquiring investment properties in the bottom half of the market. Another reason why I prefer the lower end of the market is because home builders can no longer profitably build in this segment. They stick to the higher priced areas and this is another reason why high-end value growth is lagging.

Rising transaction costs are too expensive for many home buyers and sellers. Many are just staying in place.

It’s expensive to sell an existing house and then buy another home. For example, if the sold house and the newly purchased home are roughly the same value, the out and in costs can be as high as 10%.

For example; broker commission, transfer & recordation taxes, title search and title insurance, closing charges and fees, and mortgage-related costs can be as high as $50,000 when a homeowner sells a $500,000 house and then buys another $500,000 property. This is why I generally prefer to hold on to properties and leverage them. Selling and buying homes are very expensive and only Realtors, title companies, mortgage bankers, and tax jurisdictions profit from home sales.

Bottom line; government market management from stem to stern and the exorbitant transactions costs are the primary reasons for the continual drop in home sales. Let’s face it; people just do not have that money to spend. 

This is why I have been saying that Realtors should have cause for worry; people are tired of paying all that money and many Realtors are not that talented. I know first hand about the industry as I was a Realtor for several years and an investor since 2001, and have been observing the growing movement to circumvent the real estate agent. While the NAR publicly says it is not worried about Zillow or Redfin, privately it must be very alarmed.

Last week, Redfin announced a pilot program in Boston that allows home buyers to ditch the buyer’s agent and make a direct offer to sellers of Redfin-listed properties. Now the company wants to open up these direct home sales to buyers around the country. Next up will be Virginia, with more states to come this year.

…But a slowing market is helping landlords and long-term investors

The U.S. housing slowdown is turning out to be a gift to apartment landlords. After all, those people who aren’t buying still need somewhere to live.

Data from Zillow released Thursday shows that home-price appreciation continued to slow in April from a year earlier, driven in part by softening West Coast metros like San Jose and Seattle. The company also reported the first nationwide monthly price dip in more than seven years — albeit just 0.1%. At the same time, rent growth accelerated, climbing by 2.6% on an annual basis, after a lull in 2018.

Slowdown in U.S. Housing Market Is Helping Landlords Raise Rents – Bloomberg, May 16th

Rents continue to rise. As fewer people can afford to buy a home, more have been forced to rent

Americans pulled back from home purchases last year after mortgage rates spiked, exposing the underlying affordability problem in the property market. Many people piled into rentals, where landlords were offering concessions after a period of overbuilding higher-end units. That increased demand helped drive up what people were willing to pay for an apartment.

Rents and home values tend to move together over the long-term, said Skylar Olsen, Zillow’s director of economic research. “But, in this case, what we’re seeing is a little different.”

More broadly, the challenge for the U.S. housing market is scarcity. As millennials — one of the largest U.S. generations — reach prime homebuying age, they’re finding that the supply of entry-level houses hasn’t nearly kept pace with their numbers. That could force them to rent for longer as they save up to buy the homes that are available, Olsen said.

As an investor and landlord, I see brisk demand for my rental properties. My last listing (which I placed on Zillow) in suburban Maryland generated about 80 inquiries over a seven-day period. I had it rented in less than 10 days and Zillow’s leads eventually produce a better tenant candidate than what any Realtor can provide. Plus, Zillow is free, so I pay no commission and get a better tenant. I have observed that my rents rise slightly higher than the general rate of inflation. This seems to confirm what Zillow is concluding.