‘Lower For Longer’ Is Losing

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Asset markets on Friday reversed course after fully digesting a payroll report that has been universally assailed. The thinking is, apparently, that the Fed will have no choice but to stay on the sidelines now. That view is certainly bolstered by the FOMC’s inaction already in September, so worsening economic fortunes in the US apparently removes any flexibility anytime soon.

U.S. stocks staged the biggest intraday turnaround from a loss of more than 1.5 percent in four years, as a weakening dollar fueled a rally in commodity producers. Treasuries surged on speculation the Federal Reserve will keep rates lower for longer after a disappointing jobs report.
The Standard & Poor’s 500 Index’s rebound from a 1.6 percent slide to a gain of 1.4 percent was its biggest since October 2011.

It was obviously infectious, as the wave of exuberance swept up globally:

In the end, European stocks rebounded as bad news for the U.S. economy fueled speculation that the Federal Reserve will delay raising interest rates.

The Stoxx Europe 600 Index added 0.5 percent to 347.86 at the close of trading in London. The equity gauge earlier rose as much as 1.7 percent before payroll data sent shares sliding 0.9 percent. Stocks also reversed gains yesterday after a report showed U.S. manufacturing deteriorated in September. The oscillations highlight nervousness about global growth prospects amid mixed signals from the U.S. and China

But you can already see the internal inconsistency in the price movements: “bad news” is taken as good because central banks will be forced to take more steps to fix those “bad” economic elements despite the fact that all prior efforts are increasingly realized to have had no discernable impact in those areas whatsoever. And that inconsistency was registered in various markets less prone, the past few years, to these kinds of increasingly desperate rationalizations.

Energy and raw-materials producers surged as commodities from oil to gold rallied. The yield on 10-year Treasuries sank below 2 percent for the first time since August, while a dollar gauge weakened to a two-week low.

Gold doesn’t belong in the same expression as what commodities were doing Friday. Gold was as the UST market. The US dollar gauge may do whatever, but the “dollar” itself was not enthused about anything taking place on Friday one way or another. In fact, eurodollar trading et al, including a solid safety bid in gold and UST, were rather decisive in interpreting the situation more comprehensively. In other words, while mainstream commentary still applies some central bank magic as “stimulus”, and some risk assets like stocks are desperate to still play along, the true realization about payrolls is that the current trend in both economy and finance has little to do with central banks apart from their policies being thoroughly discredited.

Bond prices climbed on Friday after a weak U.S. employment report increased worry about slowing global growth, while global equities were able to rebound from an initial selloff to close with strong gains…
Bond prices jumped, with benchmark U.S. Treasury yields falling to their lowest level in slightly over 5 months. The 10-year U.S. Treasury note was last up 17/32 in price to yield 1.9824 percent.

Again, the inconsistency across asset markets is jarring especially since the US was supposed to “decouple” from economic woes limited to EM’s or China; now the US is as concerning as all those, with an increasingly fearful uniformity in those trends. In terms of what has been forming in 2015 in the US and global economy, bonds and the “dollar” have been “right” so far while stocks and last year’s certainty about recovery and full booming growth are nowhere to be found (even the Establishment Survey, for all its subjective over-optimism, is much, much less glittering). In that respect, nothing has changed so stocks and some risk assets look to be finding an excuse to bounce and hoping beyond hope that there is something “to it.”

Counting on more monetary “stimulus” to be effective and useful, however, is a little further beyond inconsistent. Monetary policy is not the marginal catalyst; the “dollar” is and there isn’t anything available that might durably and sustainably alter its course. Banks appear quite determined to exit the eurodollar, making that the base case over all else.

In fact, this “on hold” rate dance has been repeated throughout this year producing much the same short run, ephemeral euphoria. From June:

US stocks and bonds reversed earlier losses and finished Wednesday’s session with gains in response to renewed pledges from the Federal Reserve Board to keep interest rates at historically low levels for the foreseeable future.

Two months later, with the FOMC still “on hold”, stocks crashed. Back in late March, after the March FOMC meeting that altered perceptions of the Fed’s timeline, stocks also jumped:

Remember all those worries about earnings and the economy that caused a big slump on Wall Street last week?
Yup, investors have forgotten all that. The market is back in rally mode. The Dow rose more than 260 points Monday, or 1.5%. The S&P 500 and Nasdaq both rose more than 1% as well.
Here are three reasons why it was something that Susanna Hoffs would call “just another manic Monday.”
1. The Fed is going to take things slow. Federal Reserve chair Janet Yellen got traders in a festive mood late Friday.
In a speech released just 15 minutes before the market closed, Yellen made it painstakingly clear that she does not think the United States economy is anywhere close to its full potential.

And in the immediate aftermath of that March 18 FOMC (non)decision:

WALL STREET: The Standard & Poor’s 500 index rose 25.22 points, or 1.2 percent, to 2,099.50, after the release of a statement from the Federal Reserve that gave a cautious outlook on the U.S. economy. The Dow Jones industrial average gained 227.11 points, or 1.3 percent, to 18,076.19. The Nasdaq composite rose 45.39 points, or 0.9 percent, to 4,982.83.
THE FED EFFECT: The statement from U.S. Federal Reserve Chair Janet Yellen took investors by surprise, and interest rates are now expected to head higher but at a slower pace than previously thought. The Fed has held its benchmark interest rate close to zero since 2008.

Even as far back as February, when stocks were last flirting with new records:

Stocks closed February with big gains thanks to early-month rallies tied to a rebound in oil prices. Markets were then able to hold on to these gains given low volatility over the final two weeks of the month.
For the full month, the S&P 500 added 5.5%, ending 15 points from its record, and its best month since October 2011. The Dow Jones Industrial Average climbed 5.6%, 112 points from its high. And the Nasdaq locked in its best monthly rise since January 2012, up 7%…
After Federal Reserve Chair Janet Yellen addressed Congress earlier in the week, Dudley reiterated the central bank’s commitment to patience while speaking at a monetary policy forum in New York on Friday.
“I believe that the risks of lifting the federal funds rate off of the zero lower bound a bit early are higher than the risks of lifting off a bit late,” he said. “This argues for a more inertial approach to policy.”

We don’t really know what causes markets to move one way or another in such short time periods (except for obvious, general liquidations), but the fact that this narrative is attached with each of these short-lived rallies is just as significant in terms of rationalizations. “Lower for longer” has been the upfront policy position all year, which has contributed nothing about the economy and stocks seeing those records. Instead, the global system has been rocked by an independent wholesale “dollar” tightening that threatens yet more unknown but increasingly relatable downside and little as far as plausible upside. The asymmetry of that risk is why eurodollars, gold and UST’s are bid no matter what the Fed does or does not do. Again, Janet Yellen doesn’t factor though you can appreciate why there is still some lingering, misplaced hope that she might.

ABOOK Oct 2015 Eurodollar UST 10sABOOK Oct 2015 Eurodollar June 2018ABOOK Oct 2015 LIBORABOOK Oct 2015 Gold

Jobs Report Moves Fed One Step Closer to QE IV

Submitted by Michael Pento – Pento Portfolio Strategies

The September Non-Farm Payroll Report came in with a net increase of just 142k jobs. The unemployment rate held steady at 5.1% and the labor force participation rate dropped to the October 1977 low of 62.4%. Average hourly earnings fell 0.04% and the workweek slipped to 34.5 hours. There were significant downward revisions of 22k and 37k jobs for the July and August reports respectively.

Just as important as today’s NFP report, but mostly overlooked, was the Challenger’s Job-Cut Report released on Thursday. It showed the September layoff count jumped from 41,186 in August to 58,877. The total number of layoffs year-to-date is 493,431, which is already higher than all of last year and is on a trajectory to be the greatest number of layoffs since 2009.  

The tenuous state of our economy has led to an unskilled and unproductive labor force. According to the Bureau of Labor Statistics (BLS) an employed person constitutes anyone who worked for pay during the survey week. Therefore, if you provided one Uber ride around the block the BLS considers you employed with the same economic relevance as a full-time brain surgeon. In fact, our part-time low-paying job market is the reason productivity growth has averaged a meager 0.45% annually during the past four years. Continue reading


Submitted by James Howard Kunstler  –  www.kunstler.com

Senior administration officials say the new offensive holds promise and may change the dynamics on the ground.
The New York Times

Whew…. That’s reassuring. Finally, a Middle East policy you can believe in.

It’s apparently based on a joint Kurdish-Arab army that our side (the USA) is pretending to assemble around the ISIS stronghold of Raqqa, near the Turkish border. We’re informed also that American military officials have screened the leaders of the Arab groups to ensure that they meet standards set by Congress when it approved $500 million last year for the Defense Department to train and equip moderate Syrian rebels. Thank God we have a functioning HR department over there.

Is it safe to say that the table is now set for World War Three? King Salman of Saudi Arabia is itching to mix it up. Of course, the moment he sends official KSA ground troops in there, he will be eligible to have his oil terminal at Ras Tanura in the Persian Gulf blown up. Imagine what that would do to the S & P index. The Turks, too, are none too happy with their currency imploding and their economy falling apart, and perhaps view a widened war as politically refreshing. And let’s not forget Iran — having concluded the long, torturous negotiations to make America feel better about their nuke program, Iran is eager to put an end to this barbaric (Sunni-flavored) ISIS nonsense. Oh, did I leave out Israel. Probably a good idea since so many people just want to hate on it if the subject even comes up. But suffice it to say they are in the mix, too, with the ability to turn their adversaries into ashtrays, should it come to that. Continue reading

Not Much Change in ‘Dollar’ Liquidity

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

It never fails when you issue a stark liquidity warning that in the day right after almost everything enjoys a nice rebound: stocks were up, including REM slightly, while even copper was bid almost $0.10 higher. There is, in all seriousness, no account for timing which is beyond any attempts here. In describing liquidity what we are taking into account are not raw predictions of trading mannerisms but rather the exits. In other words, we can observe, vaguely, and make determinations about the size of the exits and the potential sentiment for their general use – nothing more.

To those points, nothing much has changed since Tuesday. I would submit three main points in that direction; eurodollars, yen and treasuries.

ABOOK Sept 2015 Liquidation Possibility Eurodollar June 2018ABOOK Sept 2015 Liquidation Possibility JPYABOOK Sept 2015 Liquidation Possibility UST10s

Continue reading

BIS Warns of ‘Major Faultlines’ In Global Debt Bubble

Submitted by Mark O’Byrne  –  GoldCore

– BIS warns “unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills”

– Bank of International Settlements warns that recent turmoil is not caused by isolated incidents

– Debt levels are now so extreme they threaten the financial system

– Ultra low rates have led to mal-investment and bigger boom/bust cycles

– Emerging markets vulnerable to deeper crises

– ECB easy money may juice markets for a while but reckoning is coming

– BIS acknowledge that central banks rig markets

– Gold and silver protect against crises in financial system

GoldCore: Debt in USD

BIS via Business Insider

In a stark warning, the Bank for International Settlements (BIS), the central bank of central banks, has said in its quarterly report that the turmoil that has shaken global stock markets in recent weeks showed how developed and emerging markets were exposed to the unwinding of financial vulnerabilities built up since the 2008 crisis.

The sell-offs rocking equity markets reflect the “release of pressure” accumulated along “major fault lines”, the BIS said, as it warned that investors should not expect central banks to be able to ride to the rescue and solve such deep-rooted problems. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Germany Now Expects Up To 1.5 Million Asylum Seekers In 2015 (Reuters)
Baby’s Body Washes Up On Greek Island Kos (AFP)
Two Children Drown Off Kos In Latest Refugee Tragedy (Kath.)
Caution: More Commodity Price Weakness Ahead (A. Gary Shilling)
Emerging Market Turmoil Flashes Warning Lights For Global Economy (FT)
Junk Bond Market Like A ‘Slow-Moving Train Wreck’ (CNBC)
Saudi Arabia Cuts Oil Prices Amid OPEC Price War (WSJ)
Russia PM Medvedev: Oil Prices Will Stay Low For Quite Long (WSJ)
China’s Middle-Class Dreams in Peril (WSJ)
Senior China Official Proposes Punitive FX Restrictions (Chang)
Volkswagen’s ‘Uniquely Awful’ Governance At Fault In Emissions Scandal (FT)
You Can Print Money, So Long As It’s Not For The People (Guardian)
Forest Fires In Indonesia Choke Much Of South-East Asia (Guardian)
Majority Of EU Nations Seek Opt-Out From Growing GMO Crops (Reuters)
How Monsanto Mobilized Academics to Pen Articles Supporting GMOs (Bloomberg)
Greece’s Euro Area Ties Risk More Strain Amid Refugee Crisis (Bloomberg)
EU And Turkey To Discuss Plan To Stem Flow Of Migrants (Reuters)
Hamburg, Bremen To Seize Commercial Property To House Refugees (BBC)

Read much more here: Debt Rattle October 5 2015 – TheAutomaticEarth.com