NIRP, its likelihood and effect on commodities

Submitted by Alasdair Macleod – FinanceAndEconomics.org

In last week’s article I pointed out that negative interest rates should lead to a general shift in consumer preferences from money towards essential goods.

Central bankers may wish for this outcome on a controlled basis to allow them to hit their price inflation targets, and this could happen quite quickly. If people face a tax on their cash and bank deposits, which is what a negative interest rate amounts to, they will simply reduce these balances, artificially boosting demand.

There can be little doubt that negative interest rate policies (NIRP) are now a distinct possibility after the Fed backed down from raising the Fed Funds Rate at their September meeting, having prepared markets well in advance for the event. In fact, many mainstream analysts still expect the Fed will raise rates in the coming months. However, external factors are rapidly changing everything, with China’s economy succumbing to a credit crunch, and all the countries supplying China with raw materials suddenly facing a fall in demand. The bad debts in commodity financing (including energy) are a growing concern, as the collapsing share price of Glencore attests. International trade is now contracting for the first time since the wake of the Lehman crisis.

The welfare states have spent the last seven years in the economic equivalent of suspended animation, with the reallocation of capital from unproductive, unwanted and over-indebted businesses impaired by zero interest rate policies. Even though ZIRP didn’t work, central banks undeterred will probably opt for NIRP. We now know the Bank of England is examining the possibility of NIRP at the most senior levels, in which case it is almost certainly being considered by all the major central banks. Continue reading

THE BRETTON WOODS ORIGIN OF THE COLD WAR

Submitted by J.C. Collins  –  philosophyofmetrics

Cold WarThe day was dull and mild when I stepped out of my truck last January in downtown Edmonton.  It had just snowed, the wet sloppy kind, and I splashed my way across the street and entered the Tim Hortons coffee shop on Jasper Ave.

The night before I had received a comment on the site which started with PLEASE DO NOT POST.  At the time there was no way for interested readers to contact me direct without submitting a comment.  The message was very concise and stated that there was information I could use regarding the Bretton Woods Agreement.

The series I wrote titled SDR’s and the New Bretton Woods had garnered a lot of attention across a wide spectrum of countries and demographics.  The amount of messages I received claiming to know secret information about what was going on in the financial world involved everything from the so-called Dragon Family, and other ridiculous make-believe groups such as the White Hats.  My reluctance to entertain such fantasy eventually led these people and groups to scurry off and seek attention elsewhere.

Though most of these messages and claims I ignored, and discarded for the silliness that they were, this particular message stood out in its simplicity and straightforward approach.  The writer of the message suggested I meet him at the named location, at the named time, but would understand if I didn’t show up.

Being I’m the person I am, and that it was close to where I lived and worked, I decided I would take the chance and meet this mystery person.  After all, what would I have to lose if it turned out to be a fraud or some weirdo seeking attention?  My ability to sniff out crap is sharp, and at times, to the partial detriment of the site, I have often filtered and deleted comments which I felt treaded into this land of make-believe and honey.

This particular Tim Hortons was on the lower floor and as I entered the shop I could see the street outside at eye level. The wet pant legs of pedestrians rushed past the high windows.  I quickly scanned the room and noticed a plain looking senior resting in the corner with a worn scarf wrapped tightly around his upper torso and neck, while a double-double coffee was cupped in both hands.

The man looked to be of Indian descent. Continue reading

GoldCore Quarterly Review by Dr Constantin Gurdgiev

Submitted by Mark O’Byrne  –  GoldCore

Gold in Q3: USD -4.5%, EUR -2.4%, GBP +1.5%, CHF +2.4%, CAD +4.6%

– Stocks face worst quarter since 2011 over fears for global economy
– Global economy concern as China slows down sharply
– Concern over Federal Reserve stewardship
– Increasing nervousness over U.S. earnings outlook
– Stock markets of the world’s ten largest economies are currently in red
– Gold rose 1.5% in GBP, 2.4% in Swiss franc and 4.6% in Canadian dollar
– Gold down 4.5% in USD while global stocks fall 5% to 13%
– Stocks remain overvalued and still opportunity to re-balance into gold

After the China Tremors of July-August, September rolled in with a roar of a veritable Bear.

All in, on a quarterly basis, S&P was down 8.2 percent, DJIA fell more than 8.7 percent and EuroStoxx 50 shed 12.9 percent. Only longer dated (5 years-plus) U.S. bonds and Japanese yen have managed to wrestle out quarterly returns in excess of 1 percent.

GoldCore: 3 month relative performance
3-month Relative Performance [click to expand]
Source:
 Finviz.com

Meanwhile, the CBOE Volatility Index (VIX), a popular measure of the implied volatility of S&P 500 index options, jumped 38.4 percent compared to the start of July.  Risk aversion once again became a major strategy play in 3Q.

The core drivers for the changed risk sentiment are global themes.

China – at the front of the financial news flow – continued to post weakening macroeconomic data. August marked an outright collapse in Composite PMI, down to 48.8 from 50.8 in July, marking the fastest contraction of output since February 2009. September manufacturing PMI came in at a miserably low 47.2, with Composite PMI falling to 48.0 signaling a rapid rate of economic growth deterioration for the second month in a row.

Chinese economy’s woes, however, are far from being contained. Ongoing deleveraging in the markets – cutting margin loans volumes, unwinding carry trades (including across broader Asian markets), and closing off risk-parity positions – all saw Shanghai Composite Index falling from the peak of 5,166 in mid-June to 3,038 at the end of September.  As of September 29, total margin debt in Chinese stock makers stood at CNY921 billion, down more than 50 percent on peak attained in June (chart), but still well ahead of 3Q 2014 levels.

GoldCore: Index of Chinese Margin Debt
Chart: Index of Chinese Margin Debt [Click to expand]
Source: Bloomberg

Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

2015 Is Turning Out to Be a Terrible Year for Investors (Bloomberg)
End Of World’s Biggest Ever Credit Boom Means More “Glencores” Ahead (Howell)
Traders Start Pricing Glencore Bonds Like Junk (FT)
Why Dow’s Three-Quarter Losing Streak Is A Big Deal (MarketWatch)
October 1 2015: China Factory Activity Picks Up To Beat Expectations (BBC)
Futures Soar After Chinese Composite PMI Drops To Lowest On Record (Zero Hedge)
China Cuts Minimum Home Down Payment for First-Time Buyers (Bloomberg)
Oil Suffers A Loss Of 24% For The Quarter (MarketWatch)
Market Moves That Aren’t Supposed to Happen Keep Happening (Tracy Alloway)
Wide Range Of Cars Emit More Pollution In Realistic Driving Conditions (Guardian)
VW Emissions Scandal: 1.2 Million UK Cars Affected (Guardian)
VW Board Considering Steps To Prop Up Credit Rating (Reuters)
Eurozone Inflation Turns Negative, Putting ECB In Corner (Reuters)
Tsipras Finds ‘Open Ears’ In US To Greek Appeal For Debt Relief (Kath.)
Greek Regulator Bans Short-Selling Of Bank Shares (Reuters)
How Greece Could Collapse The Eurozone (Satyajit Das)
Greek Shipowners Prepare to Weigh Anchor on Prospect of Higher Taxes (WSJ)
Iceland’s Next Collapse Is “Unavoidable,” Employers Union Warns (Bloomberg)
Obama Hands $1 Billion In Military Aid To Goverments Using Child Soldiers (CNN)
Millions Of Illegal Immigrants Will Overrun Trump’s ‘Beautiful Wall’ (Farrell)
Farmers Driven From Homes ‘Like Pests’ As Asia Plans 500 Dams (Bloomberg)

Read much more here: Debt Rattle October 1 2015 – TheAutomaticEarth.com