DEC
1 18 SIT EC y POL
ND denounce Global-neoliberal debacle y propone State-Social
+ Capit-compet in Econ
ZERO HEDGE ECONOMICS
Neoliberal globalization is over. Financiers know it, they
documented with graphics
When it
first emerged last April, JPM argued that an inversion at the front end of the
US curve was a bad omen for risky markets. 8 months later, the shift forward in
Fed policy rate reversal expectations "is worsening this bad omen."
When it comes to timing the next recession - or the next Fed
policy mistake - there are few signals that pundits rely more on than the shape
of the yield curve, which, as we have covered extensively in the past year, has
bear flattened dramatically since 2015 as the Fed has hiked rates, with the
2s10s now just a tiny 20bps away from inverting at which point the
countdownto both a recession and a bear market begins.
See Chart:
However, at a time of unprecedented central bank meddling
and manipulation in all rates (and equity) markets, many believe that the
longer-dated curve is no longer indicative of anything but noise, especially
since the long-end is directly being bought by central banks (or sold by
Chinese reserve managers depending on how much Trump's trade war escalates)
thus distorting any "signal" value it may have. In its place, a more
accurate "signal" has emerged in the short-end of the curve, as
manifested by the Overnight Index Swap, or OIS, futures market.
It was here that back in April
JPMorgan observed something very notable: the forward curve for the 1-month US OIS
rate, a proxy for the Fed policy rate, had inverted after the two-year forward
point for the first time this cycle. This implied some
expectation was priced in of a reduction in the Fed policy rate after Q1 2020;
that or the market starting to actually price in - and not just contemplating -
the next Fed policy error, i.e., hiking right into the next recession.
Fast forward to today, when 8 months later, Panigirtzoglou
writes in his latest Flows and Liquidity commentary that since then, not only has
this inversion worsened, but it has shifted forward, and since the middle of
November, the forward curve is inverted between the 1-year and the 2-year
forward points.
See Chart:
This shift forward in Fed policy reversal expectations is in
line with historical experience. As JPM wrote back in April, the 3y-2y forward rate spread had
historically led the 2y-1y one, and this has now occurred since mid-November.
What does this mean in practical terms? Simple: the latest curve inversion implies that
markets are now pricing in a peak in the Fed policy rate in end-2019 rather
than during 2020 previously. JPMorgan shows this in Figure 2, which depicts the forward
curve of the 1-month dollar OIS curve currently vs. its snapshot at the
beginning of October before the equity market correction.
See Figure 2
Forward Curve for 1-Month US OIT rate
Conclusion
JPM's's conclusion, incidentally, is the same as what it
said back in April, namely that "while we recognize it is difficult to distinguish between the two
hypotheses, there still appears to be more flow support for the Fed policy
mistake hypothesis"
In other words, between the market's ongoing preoccupation
with the US-China trade war, and traders suddenly
pricing in either a policy mistake as the Fed continues to hike into an
economic slowdown and eventually recession, or the end of the hiking
cycle, it would explain the violent market selloff of the past two months, and
the associated spike in volatility, as
forward-looking investors and traders simply look to
cash in their chips as suddenly
the market is signalling that the trading environment observed just before the
tech and credit bubbles burst, is once again imminent.
…
Read full art and see more Charts at
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"They left us hanging."
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“There is nothing like
price to change sentiment..."
All it took was two 10% stock market
corrections in a single year and some heavy “browbeating” from
President Trump to reverse Jerome Powell’s hawkish stance on hiking interest
rates.
On Wednesday, Powell took to the microphone to give the
markets what they have been longing for – the “Powell Put.” During his speech, Powell took to a
different tone than seen previously and specifically when he stated that
current rates are “just below” the range of estimates for
a “neutral rate.” This is a sharply different tone than seen
previously when he suggested that a “neutral rate” was still a
long way off.
Importantly, while the market surged higher after the
comments on the suggestion the Fed was close to “being done” hiking rates, it
also suggests the outlook for inflation and economic growth has fallen. With the Fed Funds rate running at near 2%, if the Fed now
believes such is close to a “neutral rate,” it would
suggest that expectations of economic growth will slow in the quarters ahead
from nearly 6.0% in Q2 of 2018 to roughly 2.5% in 2019.
See Chart:
FED Funs vs. Economic Growth
Such will also correspond with a drop in inflationary
pressures, as we
noted previously, which is already occurring with the drop in energy
prices.
“More importantly, falling oil
prices are going to put the Fed in a very tough position in the next couple of
months as the expected surge in inflationary pressures, in order to justify
higher rates, once again fails to appear. The chart below shows breakeven 5-year and
10-year inflation rates versus oil prices.”
See Chart:
Breakeven Inflation Rates vs. Oil
But here was the key comment that suggests the recent
blasting by President Trump hit home:
“Powell says moving too fast
would risk shortening U.S. expansion, moving too slow could risk higher inflation and destabilizing financial
imbalances.”
President Trump has been adamant that Powell’s
aggressiveness was jeopardizing the economic recovery.
More interesting was when Powell reiterated they see “no major asset
class, however, where valuations appear far in excess of standard
benchmarks”
See Exhibit 4
I am not sure which benchmarks the Fed looks at exactly.
The real
risk to the market is not valuations at historically high levels by virtually
every measure, but rather the risk of a credit related event due to the impact
of higher rates on an abundance of lower-rated corporate debt.
See Chart:
Non-Financial Corporate Debt to GDP
Ratio
Nonetheless, in the short-term, the “bulls” got
their Christmas wish as noted by Bloomberg
economists
“Tim Mahedy and Yelena Shulyatyeva:
‘Powell’s comment that rates are just below neutral is a step back
from his comments earlier in the fall implying the FOMC still has a ways to go.
This could be the first sign that the pace of rate hikes is set to slow next
year.’
However, not all economists got the same dovish message as
noted by Greg
Robb via Marketwatch.
“I really don’t think he was dovish, not really. He didn’t say
inflation was weaker or the economy was weaker than we thought. It is a
bit of a market overreaction.” -Paul Ashworth, chief U.S. economist at
Capital Economics.
“The Fed has said they wanted to go above neutral. If they wanted to be
neutral, they could have walked that back. He gave no hint of a pause in
December.” – Avery Shenfeld, chief economist at CIBC
All
the “bulls” need now is for President Trump to “cave in” on
his demands on China, a problem he created in the first place, at this weekends
G-20 summit. I would
expect a deal that is well short of any original objective as China agrees to
issues which are economically unimportant to them. However, such will “look like a win” for the Trump administration
and should clear the way for “Santa to visit Broad and Wall.”
After that, it’s anyone’s guess, but
the real issues plaguing the economy and the markets have not been resolved.
HERE your weekend reading list.
ECONOMY & FED
- US Economy Is Strong – 3 Signs It Won’t Last by Lydia Depillis via CNN Business
- Why US-China Ceasefire Is Coming Soon by Anatole Kaletsky via Project Syndicate
- Levered Companies Layer Loans Over Loans by Sally Bakewell & Kelsey Butler via Bloomberg
- Is The US Economy TOO Strong? by Joe Calhoun via MyPersonalCFO
- The Fed’s Cheat Sheet by Eric Cinnamond
- Why Economists Insist Powell Wasn’t That Dovish by Greg Robb via MarketWatch
- Fed Warns Of “Large Plunge” In Markets If Risks Materialize by Jeff Cox via CNBC
- The Scariest Economic Chart Is Coming From China by Pedro de Costa via Forbes
- Fed’s Speech Sends Stocks Soaring, But Should It? by Mike Shedlock via Mishtalk
- Jerome Powell Sends Markets Soaring by Binyamin Appelbaum via NYT
- GM & Trump Go To Blows by Bruce Yandle via Washington Examiner
- GE’s $15 Billion Money Pit by Katherine Chiglinsky via Bloomberg
- The Smashing Effects Of A Trade War by Seth Levine via The Integrating Investor
- 10-Years Later – Did Bailouts Work by Kevin Williamson via National Review
- The Fed Finally Blinks by Kevin Muir via The Macro Tourist
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MARKETS
- Was Yesterday The “All Clear” Or “More Noise by Bryce Coward via Zerohedge
- Don’t Blame The Strong Dollar by Mark Hulbert via MarketWatch
- Bull Market Is More Fragile Than It Looks by Stephen Gandel via Fortune
- History Says FANG Feast Is Finished by Dana Lyons via The Lyons Share
- Blue Chip Companies Are Piling On Debt by William Cohan via NYT
- October Sucked, What Now? by Cliff Asness via AQR Capital Management
- Did Powell Just Push Investors Into A “Bear Trap” by Barbara Kollmeyer via MarketWatch
- The Uphill Struggle For Equities by Louis-Vincent Gave via Evergreen Gavekal
- Hope, Fear & Reality by Jamie Powell via FT Alphaville
- What You Need To Know To Sell Before It’s Too Late by Jared Dillian via MarketWatch
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MOST READ ON RIA
- Rising Rates Are Killing The Housing Market by Lance Roberts
- Lessons From Thanksgiving Dinner by John Coumarianos
- Why We Sold AAPL Stock by Vitaliy Katsenelson
- GM Cuts Jobs As Auto Bubble Begins To Burst by Jesse Colombo
- 15-Surprises For 2019 by Doug Kass
- The Difference Between A Bull & Bear Market by Lance Roberts
- UTX Faces Reality – Will Other Companies Follow Suit by Michael Lebowitz
- The Fallacy Of The Positive Impact From Falling Oil Prices by Lance Roberts
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WATCH 2 Interviews : See the SOURCE below
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RESEARCH /
INTERESTING READS
- Goldman Sachs 2019 Economic Outlook via Goldman Sachs
- What Will The Next Financial Crisis Look Like by Daniel LaCalle via The Epoch Times
- GM: A Case Study To End Share Buybacks by Patrick Hill via The Progressive Ensign
- 21-Quotes From Henry Hazlitt by Gary Galles via FEE
- Ray Dalio’s Principles For Dummies by Matthew Walther via American Affairs
- Why MSFT Is A Better Bet Than AAPL by Paul La Monica via CNN Money
- Overparenting In America Created Generation Of Snowflakes by Shawn Langlois via Marketwatch
- Paul Volcker’s Wisdom For America by John Cassidy via The New Yorker
- Why GM Killed Cars & Jobs by Nathan Bomey via USA Today
- US Corporations Are Winning Their War On Capitalism by Jonathan Tepper via Bloomberg
- When Next Recession Hits, Will Benefits Be Enough? by Gary Burtless via Real Clear Markets
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“There is nothing like price to change
sentiment.“
– Helene Meisler
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US
DOMESTIC POLITICS
Seudo democ duopolico in US is obsolete; it’s full of frauds
& corruption. Urge cambio
In "the most important meeting
of U.S. and Chinese leaders in years" Trump and Xi are due to sit down for
dinner at the end of a two-day gathering of G-20 world leaders in Buenos Aires.
Here's all you need to know.
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“It is a fact that when your national debt gets to the level ours is, that it constitutes an economic threat to the
society. And that kind of threat ultimately has a national security consequence for
it..."
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US-WW ISSUES (Geo Econ, Geo Pol
& global Wars)
Global depression is on…China, RU, Iran search for State socialis+K-,
D rest in limbo
Hay misiles
y nukes en todo lado, especialmte en ISR.. hay que
inventar la guerra ¿?
POMPEO,
BOLTON SAY IRAN TEST-LAUNCHED BALLISTIC MISSILE CAPABLE OF STRIKING EUROPE,
VIOLATED UN BAN [ US+ ISR are
champions violat UN rules ]
"This provocative behavior
cannot be tolerated..."
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How many huge destroyers we have? ‘We’ means US-ISR
“Among our plans in the near future is to send two or three vessels
with special helicopters to
Venezuela in South America on a mission that could last five months,” —Iran’s
deputy navy commander
[ If
we bomb Iran ‘by mistake’ .. someone is going to bomb ISR, by ‘mistake too’..
and just to keep “war balance” in the Reg:
best deterrence of war ]
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Lo que los
Dinos no hacen lo puede hacer una lagartija: hacer circular la basura USD
SACKS
OF CASH, MARTIAL LAW, AND ALL SMILES: IMF'S "CONSTRUCTIVE" PHONE CALL
WITH UKRAINE'S PRESIDENT
$3.9 billion... It was particularly
underlined that the introduction
of martial law does not influence interaction with the IMF. [
Solo eso?.. No lo
creo. Quizá colocaron mal el puntito en el medio .. y fueron 39 Billones. Lo
que aseguro la sonrisa de ambos y el cordial apretón de manos .. el borra deuda..
Digo quizá ]
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Nice picture. Meaning: Haga
el amor y no la Guerra Lo dicen los búhos y doña Coco.
Si esos simples animales lo entienden así.. Por qué no
los animales inhumanos del WHITE HOUSE? Porque son inhumanos. Hay que ser imbécil par
creer que la guerra solucionará todos nuestros problemas. Por eso –Imb- son inhumanos
….
RELATED:
"...with hope extremely high of a positive conclusion to
G-20, investors appear to have
forgotten APEC's diplomatic disaster... a timely reminder that there is a bigger picture, with America
determined to limit Chinese expansion."
[[ FACT: Lo que el mundo quiere hoy es limitar el
expansionismo militar USA ]]
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Scientists are about to blame
a mini ice age on global warming climate change
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SPUTNIK
and RT SHOWS
GEO-POL n GEO-ECO
..Focus on neoliberal expansion via wars & danger of WW3
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RT SHOWS
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NOTICIAS IN SPANISH
Lat Am search f alternatives to neo-fascist regimes &
terrorist imperial chaos
REBELION
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Nicar Deportan a Ana Quirós. Feministas
amenazadas
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ALAI NET
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RT EN
ESPAÑOL
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Madre Carol
del Olmo: "La maternid: lo mejor y lo
peor del mundo a la vez"
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Keiser Report 'Chalecos amarillos' y el efecto
Cantillon
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GLOBAL RESEARCH
Geopolitics & Econ-Pol crisis that leads to more
business-wars from US-NATO allies
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PRESS TV
Resume of Global News described by Iranian observers..
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Programs Brexit
means … Zero?
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