On Politics
Under the Influence
“This feels very sustainable.”
– Federal Reserve Chairman Jerome Powell, October 8, 2019
Understandable confusion… [PT]
21st Century Hooverville
There are places in Los Angeles where, although the sun always shines, they haven’t seen a ray of light in over 100-years. There’s a half square mile of urban decay centered on the Union Rescue Mission at 545 South San Pedro Street, where depravity, chaos, addiction, insanity and archaic diseases multiply and ricochet about like metastatic cancer.
One of LA’s modern-day Hoovervilles in San Pedro Street… In 2015 it was reported that Union Rescue Mission CEO Reverend Andy Bales had caught three different bacterial infections from merely walking around in the area. One of the infections rendered him unable to ever walk again (doctors eventually had to amputate his foot, which had fallen prey to flesh-eating bacteria). In short, this is not exactly the most hygienic and healthy environment. [PT]
Photo credit: Mike Blake / REUTERS
Chaos in Overnight Funding Markets
Most of our readers are probably aware that there were recently quite large spikes in repo rates. The events were inter alia chronicled at Zerohedge here and here. The issue is fairly complex, as there are many different drivers at play, but we will try to provide a brief explanation.
There have been two spikes in the overnight general collateral rate – one at the end of 2018, which was a first warning shot, and the one of last week, which was the biggest such spike on record, exceeding even that seen in the 2008 crisis.
Groping in the Dark
This week central planners pursued their primary mission with steadfast conviction. They planned. They prodded. They prearranged tomorrow to save us from ourselves. Some also grubbed a little graft for their trouble. Other central planners took to debasing the dollar to price fix the federal funds rate within a narrow band of tolerance. What in the world do they think they are doing?
Central planning committee in the analysis and forecasting phase… [PT]
An Odd Combination of Serenity and Panic
The United States, with untroubled ease, continued its approach toward catastrophe this week. The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement. Yet, on the surface, all still remained in the superlative.
S&P 500 Index, weekly: serenely perched near all time highs, in permanently high plateau nirvana. [PT]
A Case of Highway Robbery
What if the savings in your bank account lost 55 percent of its value over the last 12 months? Would you be somewhat peeved? Would you transfer some of your savings to another currency?
USD-ARS, weekly. For several years the Argentine Peso has followed a certain pattern: it declines mildly, but steadily, with little volatility for long time periods, and then spikes in crash waves whenever a crisis situation comes to a head. In early 2011, it took roughly four pesos to buy one US dollar – which was already an enormous loss of value relative to the 1:1 exchange rate that prevailed under Argentina’s currency board prior to the government default and banking system collapse of 2001. When Mr. Macri was elected president, it was widely held that his market reforms would finally repair Argentina’s economy, which had been ruined by almost two decades of economic mismanagement and inflation under the previous Peronist administration. Alas, Macri made a mistake no Argentine government that gains the trust of foreign investors seems able to resist: he embarked on a big borrowing spree, much of it denominated in USD, until it became clear that the government would no longer be able to defend the peso or service its debt. Then he exacerbated his mistake by borrowing even more money from the IMF – which should be filed under “a movie we have seen before”. And just as had happened in that earlier escapade, his government is now likely to default on its IMF loan as well. Not surprisingly, the peso has collapsed – and in well-worn fashion Macri is now trying to save the village by destroying it and has introduced capital controls. [PT]
Freedom Rock
Hong Kong ranks among the freest societies in the world. Not only economically, but socially it is a very liberal place. It was marinated in British ways until 1997, much longer than Singapore and other colonies. Then China took it over as a special administered region, which according to the agreement with the UK meant that it was only nominally to be under Chinese control for the next 50 years. It was possibly the only colony in which a vast majority of citizens did not want the British to go.
Hong Kong skyline at night [PT]
Photo credit: Timon Studler
Brainwashed by Academe
Not a day goes by that doesn’t supply a new specimen of inane disclarity. Muddy ideas are dredged up from tainted minds like lumps of odorous pond muck. We do our part to clean up the mess, whether we want to or not.
No longer in demand: famous Enlightenment philosopher John Locke (1632–1704), who is widely considered the “Father of Liberalism” (classical liberalism, that is). [PT]
The Pointlessness of Negative Yields
If there are any virtues of debt instruments with negative yields we have yet to realize them. Certainly, we understand that as bond yields fall, bond prices rise, and bond investors are rewarded with capital appreciation. But when capital is appreciating as a consequence of negative yields, we suspect there is something fundamentally wrong with the capital itself.
Not only is the stock of negative-yielding debt at a new record high of almost $17 trillion, lately there has been a big surge in corporate debt sporting negative yields-to-maturity. [PT]
Incrementum Advisory Board Meeting of 31 July 2019
At the end of July the Advisory Board of the Incrementum Fund held its quarterly meeting (a full transcript is available for download at the end of this post). The board was joined by special guest Simon Mikhailovich, a financial market veteran who inter alia co-founded the Toqueville Bullion Reserve. The title of the transcript and this post was inspired by his remarks.
Special guest Simon Mikhailovich
Not Adding Up
One of the more disagreeable discrepancies of American life in the 21st century is the world according to Washington’s economic bureaus and the world as it actually is. In short, things don’t add up. What’s more, the propaganda is so far off the mark, it is downright insulting.
Coming down from the mountain with the latest data tablet… [PT]
Suspicious Phrases
There are certain phrases – like “trust me” or “I got this” – that should immediately provoke one’s suspicion. When your slippery contractor tells you, “trust me, your kitchen renovation will be done before Christmas,” you should be wary. There is no way it will be done before late spring.
USD-CNH (offshore yuan) exchange rate – the support/resistance level at 7 finally breaks amid escalating trade war rhetoric. [PT]
Most read in the last 20 days:
Repo Quake – A Primer
Chaos in Overnight Funding Markets Most of our readers are probably aware that there were recently quite large spikes in repo rates. The events were inter alia chronicled at Zerohedge here and here. The issue is fairly complex, as there are many different drivers at play, but we will try to provide a brief explanation. There have been two spikes in the overnight general collateral rate – one at the end of 2018, which was a first warning shot, and the one of last week,...
Curious Events in Risk-Free Collateral-Land - Precious Metals Supply and Demand
Liquidity Shortage Last week the price of gold rose $28, and silver $0.53. But the prices of the metals was not the big news last week. The price of repo — a repurchase agreement, to sell and repurchase a treasuries — skyrocketed. Banks were thirsty for liquidity, and only cash can quench it. Last week's “oops” moment in repo land as the overnight general collateral rate briefly soared to 10% (we will soon publish a detailed summary of the sequence of events that...
The Inexorable Final Collapse
Groping in the Dark This week central planners pursued their primary mission with steadfast conviction. They planned. They prodded. They prearranged tomorrow to save us from ourselves. Some also grubbed a little graft for their trouble. Other central planners took to debasing the dollar to price fix the federal funds rate within a narrow band of tolerance. What in the world do they think they are doing? Central planning committee in the analysis and forecasting phase......
Elizabeth Warren’s Plans to MAGA
21st Century Hooverville There are places in Los Angeles where, although the sun always shines, they haven’t seen a ray of light in over 100-years. There’s a half square mile of urban decay centered on the Union Rescue Mission at 545 South San Pedro Street, where depravity, chaos, addiction, insanity and archaic diseases multiply and ricochet about like metastatic cancer. One of LA's modern-day Hoovervilles in San Pedro Street... In 2015 it was reported that Union...
The System Scrapes By - Precious Metals Supply and Demand
An Accident in Waiting The price of gold dropped $20, and silver 43 cents. For reference, $20 was once worth just about an ounce of gold. Dollar was a unit of measure, a weight of gold equal to 1/20.67 ounce of fine gold. A gold certificate from the time when the dollar still represented a fixed weight of gold [PT] Today, it is an irredeemable currency, defined not as a unit of weight but as a unit of central bank liability which is backed by government debt,...
Zugzwang - Precious Metals Supply and Demand
Respectable and Not so Respectable Assets The price of gold went up 8 bucks, and the price of silver went up a penny last week. These were not among the capital assets that could be liquidated for greater quantities of consumer goods last week. Nor were equities. A respectable, mother-in-law-proof speculation: the 10-year US treasury note. [PT] However, the consumer goods stockpile stored in treasury bonds (to extend our half sarcastic, half tongue-in-cheek...
Fed Chair Powell’s Inescapable Contradiction
Under the Influence “This feels very sustainable.” – Federal Reserve Chairman Jerome Powell, October 8, 2019 Understandable confusion... [PT] Conflict and contradiction. These were two of the main themes reverberating around the world of centralized monetary planning this week. On Tuesday, for instance, a novel and contradictory central banker parlance – “reserve management purposes” – was birthed into existence by Fed Chair Jay...
Austrian Theory and Investment
Realtime Charts
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