Money Flow Trading Method along with Risk Management

Thanks go to my friend who just posted this;

 

1. Fader123
2. Joined Feb 2016 | Status: Member | 504 Posts | Online Now

The thing is instutional traders are looking at fundamentals so it makes sense for us not to ignore it.

If we are aware of the main things we should be on the right side

Regarding fundamentals there are different types

Geopolitical
Ie: A head of state speech will definitely attract the attention of traders. It can move the market for months. Look at Trumps speech when he was inaugurated and the effect it had on the UJ.

Indicators
Indicators that central banks are looking to determine ratest will move price especially if it is away from the estimate. NFP and wage inflation will be under serious examination by traders next week. This is because Yellen made reference to up and comming figures being important in her speech on Friday

Speech from a central banker
There is no question it can move price. Especially when they change their bias. Look at Wheelers speech a couple of weeks ago on the Kiwi. The Kiiwi is off signicantly

News stories; relevant stories will have an effect for about a day or so or it can even be just that session. When the story breaks it will have the most effect. Sometimes traders will jump on to the back of it during the next session. For instance Trump said a about 3 weeks ago that he wanted a lower dollar. This had an immediate effect for a couple of days.

Looking at next week
Draghi is going to give us an indication of what his intentions are. They might be nothing. But if he makes any reference to QE relaxation this will have an immediate effect on the Euro. The market is not sure at the moment. But there have been some very strong figures in Europe recently. Take great care with any Euro positions.

Risk overrides all other factors in trading

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Rigged System: Fake Risk, Fake Return


04Saturday Mar 2017
Posted by Mish | March 4, 2017 12:36:14 | Economics


Is the system rigged? If so, is this the end of volatility?
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Axel Merk explores those questions in this guest post.


Fake Risk, Fake Return?
With seemingly everyone from the blogosphere to the Tweeter-in-chief chiming in on fake news, have investors considered their risk/return profile may also be fake? When it comes to investing, who or what can we trust, is the market rigged, and why does it matter?


For eight years in a row now, an investment in the S&P 500 has yielded positive returns [2015 assumes dividends reinvested]. In recent years, expressions like investors buy the dips and low volatility have become associated with this rally.


In the old days, investors used to construct portfolios that, at least in theory, provided a risk/return profile that they were comfortable with. For better or worse, I allege those old days are over. To be prepared for whats ahead, lets debunk some myths.


The system is rigged
For those that say the system is rigged, I concur. In my assessment, central banks are largely responsible for a compression of risk premia. All else equal, quantitative easing and its variants around the globe have made assets from equities to bonds appear less risky than they are. This is at the very core of central banks efforts to entice investors to take risks, as risk taking is key to making an economy grow. In practice, central banks have foremost pushed up financial assets, but have largely disappointed in generating real investments. As a result, those holding financial assets have disproportionally benefited.


Hidden risks: liquidity
When I look at market risks, I feel like investors are in la la land, ignoring the moonlight. Pardon the pun, I believe investors completely underappreciate hidden risks in the markets, notably the risk of liquidity evaporating. In todays ETF driven world, to make ETFs track underlying indices, there are so-called market makers providing liquidity. Exchanges are providing incentives to these market makers; ever look at those exchange fees on your trade ticket? The exchange pays market makers from these fees for each share they buy or sell (ranging from fractions of a cent to multiple cents); such a rebate gives market makers a better price than you can possibly get, so they can cost effectively hedge their own risk, thus incentivizing them to provide liquidity. Each ETF has a so-called lead market maker that, by arrangement, gets a better deal than the other market makers. Through that, all the other market makers know they can always offload their risk to the lead market maker. Everyone is happy, including the investor.

Except when the lead market maker has a glitch. Suddenly, just about everyone withdraws liquidity because something appears wrong. In addition, Dodd Frank discourages traditional market makers to provide liquidity. Flash crashes can then occur when investors place market orders in the wrong belief that the system will take care of them. As a result, in our opinion, the current design of the system makes the periodic flash crash a near certainty.


Risk is Merely Masked
In the past, I have compared central bank efforts to suppress risk akin to putting a lid on a pressure cooker. It should come as no surprise that taking the lid off might cause a spike a volatility, e.g., a taper tantrum. In the meantime, while the European Central Bank (ECB) and Bank of Japan (BoJ) are still printing money, the Fed is trying to raise rates.


Investors Desperate for Insurance?
We talk to a lot of investors who go along for the ride as the market is rising, but are rather concerned the party could come to an end. Instead of rebalancing their portfolios or taking chips off the table, however, they are looking for ways to have their cake and eat it too by buying insurance. One way to buy insurance on equities is to buy put options on equities. Another is to buy volatility, i.e. take a speculative position that volatility in the market is going to rise.

Through ETFs, such strategies are available to retail investors. It turns out that buying insurance can be very expensive (at times more than 10% a month in case of buying volatility), making this not a prudent long-term investment. As with anything else in this analysis, we are observing what we see in the market, we not making an investment recommendation.


Selling Volatility: a Risky Proposition?
It wouldnt be Wall Street, if there werent investors on the other side of the trade of those trying to buy insurance: selling volatility has become a very fashionable trade. The idea is that so long as volatility stays low, one collects the equivalent of an insurance premium; when volatility surges, one loses money, those writing insurance might believe that those surges and associated losses are always temporary (buy the dips, remember!); over the medium term, so the logic goes, such a strategy promises to be profitable. To be clear: we do not recommend investors pursue this strategy even as such strategies have become increasingly popular. Amongst others, a single mutual fund pursuing a strategy building on that concept had amassed over four billion in assets.

After all, what could possibly go wrong? What has gone wrong is that a few weeks ago, the fund experienced substantial loses in the absence of a surge in volatility. What appears to have happened is that a too-good-to-be-true strategy became victim of its own success. In our analysis, the fund encountered a particular constellation where their derivatives position was inherently difficult to manage, with difficulties exacerbated because of their size. Differently said, they were cornered. More than a few investors appear to have concluded that they didnt sign up for the risks that materialized and have withdrawn their investments.


Market Melt-Up?
Above, we discuss a mutual fund being cornered. While the fund management brushed off that they would impact the market as a whole, our internal analysis suggests otherwise. As the fund is liquidating its position, the net effect on the market that we have observed is upward pressure on equities and downward pressure on volatility (this is due to how market makers hedge their books as they mitigate their own risk of helping the fund to unwind its position). While one can observe the stress in the market in characteristics of specific options, the casual observer might think everything is normal. The management of the fund indicated its troubles are over, but as of this writing, our assessment suggests they continue to be cornered as they liquidate positions to cater to redemptions. It isnt just one mutual fund that tried to harvest carry from low volatility, we have seen the growth of an entire cottage industry. Theres a host of other strategies, including some of the so-called risk-parity strategies, that could similarly create market distortions if and when unwound. We believe it is plausible that much of the upward pressure in equity markets on the backdrop of low volatility may well be due to the unwinding of some of these strategies.


Fed Being Fooled?
If much of the feel-good-rally in the markets is due to internal market technicalities, is it possible that the Fed is being fooled? We have long argued that the Fed will raise rates if the market allows it to, meaning that they would love to have higher rates, but are most concerned about causing asset prices to deflate.

Thats because we believe much of the recovery since the financial crisis has been based on asset price inflation. Moreover, we believe the Fed wants to avoid putting the economy into recession at just about any cost as they dont want to revert to 0% interest rates and quantitative easing. They are emboldened by an economy that appears to be humming along, a market that appears robust and thinking that if they induce inflation, well, thats a problem they know how to fight.


If, however, asset prices floating higher is actually an expression of stress due to exotic strategies being unwound, the Fed might well be emboldened to hike rates more aggressively.


Market Crash?
The logical next question is whether investors are being fooled. If higher asset prices are more due to a short-squeeze than fundamentals, and if on top of that, the Fed is more aggressive, are we setting ourselves up for trouble? The stock market crash of 1987 comes to mind.


Does that mean investors should liquidate their positions? Does it mean investors should buy insurance? Regarding the latter, weve already pointed out that insurance might be very expensive. If you know the market is going to crash tomorrow, by all means, seek protection. That said, we have been cautious on the markets for some time and we have to be aware of the risk that our concern is misplaced.


Underperforming in bull markets
In my experience, investors swallow losing money in bear markets, but are furious if they dont keep up with the averages during bull markets. When the smartest strategy is to buy the index, bright minds are leaving the industry. What you get is an obsession with indexing.


Beating the average is impossible
Not a week goes by that we arent told the merits of index-based investing. The average active manager is failing to beat the index. Well, duh, thats by definition: the average cannot beat the average once fees are included. But does that mean investors should stop thinking?


Buying the Dips Can be Irresponsible
When markets are in a panic, the pundits tell us to buy the dips. As proof, they show the recovery we had from the market bottom in the financial crisis; or any other dip we have had since. With due respect, that too is the wrong way to look at the issue. Investors ought to invest according to how much risk they can stomach. If they had properly rebalanced, they would have taken chips off the table ahead of the financial crisis and then had the resources to deploy cash at the bottom. Yes, in that case, absolutely, buy when prices are cheap.


But thats not how many portfolios look. Many investors go along for the ride during the good times, and are over-exposed to risk assets. They chase returns because they dont have enough money to retire. Then, when the market plunges, they lose a great deal of their net worth. Are you telling me that the appropriate way to react in that situation is to double down and put a now disproportionally larger portion of your net worth at risk?

If you cannot stomach the risk of an investment, stay away from it. When you lose money, you can afford to take less risk, not more risk. Any pundit suggesting otherwise is, in my opinion, irresponsible.

Merk Investments, Manager of the Merk Funds


Crowded Exits
The above is from Axel Merks March 2 article Fake Risk, Fake Return?
Here is a handfull of pertinent Tweets from John Hussman.





Mike Mish Shedlock


Don’t confuse indexing with lifestyle investing
If you are a pure index investor w.r.t. equities, you hold the S&P 500 Index and little else; unless you embrace a global view and invest pro-rata in global equities. Very few investors pursue that; instead, we have become what I call lifestyle investors: if you like green tech, you buy a green tech ETF. If you like biotech, you buy a biotech ETF. If you like,..., you get the picture. Sure, you aren’t picking stocks anymore, but you are picking winners and losers. Such a strategy may have worked quite beautifully in recent years because, well, because just about everything has gone up. As a result, if you work with a broker, he or she will have tailored your portfolio to what you feel good about. That’s fantastic, except if feeling good is all you are looking for, just take your kids to the ball game.


Fees matter
The one thing the indexing community has gotten right is that fees do matter. Again, this is math. If you pay less in fees, all else equal, your returns are higher if your fees are lower. As such, if you buy a popular market index through an ETF fees are very low. It’s not surprising that competitive market pressures have pushed prices lower. But it doesn’t mean investors should shy away from a more expensive product, if the segment it is in hasn’t been commoditized, i.e. when it provides value.


Robo-advisors do some good - and bad
In my assessment, the good news about robo advisors is that they have a rigid process to rebalance portfolios. I do not have a problem with anyone “buying the dips” if it is part of an otherwise comprehensive investment program. As I indicated earlier, I only have a problem with it if buying the dips is done for the wrong reasons, i.e. when it violates the risk tolerance of investors and when it is done in already lopsided portfolios.

What robo advisors can’t do is to fully assess the risk tolerance of investors when accounts are opened. I say that because I don’t think anyone or any machine can do that. Sure, we all fill in our risk tolerance when we open a brokerage account, but for most of us, these are abstract questions. We associate risk with upside risk, not downside risk. And let a portfolio really dive 25% or more, are you still comfortable with the risk tolerance parameters provided? This is a human weakness, but it doesn’t mean one can ignore it. I tell investors: if you get sleepless nights because of your investments, you are over-exposed. An investor should look at the most volatile periods and try to assess: would I really be comfortable holding x% of my portfolio in this security/fund if it went down as much as it did in 2008, or some other bad period? Such mind games are ever more difficult the further one is from the most recent crisis; with 2008 being far in the rear-view mirror, I allege there are millions of investors that have not properly assessed their own risk tolerance.



The bad of the early generation of robo advisors is that, in my view, they are too limited. They follow the most classic way of investing in stocks and bonds; that’s wonderful for normal times. But I question whether, after eight years of stock prices rising, we are in normal times. That said, because such model portfolios have done great, their sales argument is compelling.


In my humble opinion, investors may want to take advantage of the good while trying to mitigate the bad. That is, investors may want to have a rigorous investment process that includes rebalancing; they also should look at fees, although they should look at them in the context of what they are buying. If a robo advisor helps in terms of the “good” they may provide, great. However, so long as such investment strategies focus only on the basics, I would caution anyone not to deploy all their assets into such a strategy.


What shall investors do?
During extended bull markets, and the current market qualifies as such, I believe investors lose sight of what investing is all about. Call me old school, but I do not think investing is about chasing indices. Similarly, investing is not about lifestyle investing.

At any time, imagine what were to happen if markets were to crumble. How would you be able to pursue your investment goals?

If you have savings, you don’t need to chase investments; you can pursue your investment goals by looking for value; it’s okay not to participate in each and every market rally. If, however, you don’t have savings, you feel like you have to chase returns to catch up; in doing so, you are quite likely never to achieve your goals as you’ll invest at the top, then realize you are too exposed when prices tumble. In the opinion of yours truly, the irony is that even with modest savings, the more cautious approach should pay off more in the long run.


What do I do?
As a registered investment adviser myself, I am not allowed to give specific investment advice in a general analysis such as this one. But I can tell you that for myself: I seek to get my returns with as little equity risk as possible. My current view (which is subject to change at any moment) is that even as I believe equity prices are at risk of a severe correction, buying insurance is too costly given that I know as little about when the next bear market will come as anyone (I do have a hard time believing we’ll never have a bear market or financial crisis again). As such, I try to get my returns elsewhere. To the extent that I like specific equities, I hedge out equity risk (this is not an encouragement to use derivatives, as those come with their own set of risks that may not be suitable for many investors). Then, I look to generate return streams that are not correlated with equities. Those that have followed our work for some time know that I try to achieve at least some of that by investing in currencies and precious metals. Those are but two ways of trying to achieve uncorrelated returns.


We spend a lot of time on both macro and systematic work. While the heavy hand of policy intervention might be shifting from monetary to fiscal policy, I believe it is nonetheless important to gauge their impact on portfolios. With what I believe are distorted asset prices due to policy makers, we also spend a lot of time using other gauges, such as shifting risk sentiment in the markets.


The short of it is that there are many ways I believe one can weather the storm that may lie ahead in the markets. However, what may have been one of the more profitable approaches in recent years, namely to invest and forget, might be hazardous to your wealth in what’s ahead.


Please make sure you subscribe to our free Merk Insights, if you haven’t already done so, and follow me at twitter.com/AxelMerk. If you believe this analysis might be of value to your friends, please share it with them.

Axel Merk
Merk Investments, Manager of the Merk Funds

1 The S&P 500 return with dividends reinvested has been positive in each year since 2009. If dividends had not been reinvested, the return for 2015 would have been slightly negative. While one can generally not invest directly in an index, there are index funds tracking the S&P 500. Returns for investors are lower than those of the index because of fees charged by the index fund, as well as taxes that may be payable. Source for analysis: Bloomberg, Merk Investments LLC.
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This report was prepared by Merk Investments LLC, and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Merk Investments LLC makes no representation regarding the advisability of investing in the products herein. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advice and is not intended as an endorsement of any specific investment. The information contained herein is general in nature and is provided solely for educational and informational purposes. The information provided does not constitute legal, financial or tax advice. You should obtain advice specific to your circumstances from your own legal, financial and tax advisors. Past performance is no guarantee of future results.
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Axel Merk
Merk Investments, Manager of the Merk Funds

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Will banks' excess reserves fuel a new monetary crisis?

Don't look now but inflation and a new gold rush might be in our future

Editor's note: The charts in this edition of our newslette, offered in conjunction with the St. Louis Federal Reserve (FRED), are live, interactive and updated automatically. To monitor changes, we invite your return visits.


by Michael J. Kosares
Introduction: Professional investors are selling stocks and buying gold. Small investors are buying stocks and neglecting gold. While the bulk of attention has gone to the stock market thus far this year, gold is up 7.2% and the Dow Jones Industrial Average is up 6.2%. What is going on? In this month's issue we explore what the professional investors might know that small investors are missing?
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"Banks in the United States have the potential to increase liquidity suddenly and significantly – from $12 trillion to $36 trillion in currency and easily accessed deposits—and could thereby cause sudden inflation. This is possible because the nation’s fractional banking system allows banks to convert excess reserves held at the Federal Reserve into bank loans at about a 10-to-1 ratio. Banks might engage in such conversion if they believe other banks are about to do so, in a manner similar to a bank run that generates a self-fulfilling prophecy. . . What potentially matters about high excess reserves is that they provide a means by which decisions made by banks – not those made by the monetary authority, the Federal Reserve System – could increase inflation-inducing liquidity dramatically and quickly." – Christopher Phelan, economist, Minneapolis Federal Reserve


It has been an enduring mystery to many why the enormous amount of money created by the Federal Reserve in the wake of the 2008 crisis to bail out the imperiled financial system never translated to a general price inflation. After all, as Milton Friedman lectured us, "inflation is always and everywhere a monetary phenomenon." So why didn't the enormous amount of money created by the Fed during its quantitative easing program – some $3.5 trillion pumped into American commercial banks to purchase mortgage-backed securities and Treasury paper – launch double-digit price inflation, or worse?


The answer, as it turns out, lies in a little discussed and understood line item on the Fed's balance sheet labelled "Reserve balances with Federal Reserve Banks," or "excess reserves" as it is called in the banking trade. Up until recently, the excess reserve mechanism operated quietly in the background with little in the way of public notice. A quick calculation tells us though that nearly 70% of the $3.5 trillion three-phase QE program made its way back to the Fed in the form of excess reserves. This recycling program amounted to little more than a thinly-disguised sterilization of Wall Street's bailout in order to delay the inflationary dangers it might have generated.


Now, as you are about to see, we could be in the early stages of a new and little understood monetary crisis. The massive amount of capital parked at the Federal Reserve as excess reserves is being steadily withdrawn by the commercial banks and loaned to businesses and consumers with notable effect. About $700 billion of the $2.7 trillion pool of money on deposit at the Fed has already been redeployed by the commercial banks. In turn, the money supply has begun to rise, and most notably this past January (2017) the producer price index registered a surprising nearly double-digit 8% annual increase. As it turns out, the inflation created by the Fed's quantitative easing program seems only to have been put in temporary abeyance. The full effect is yet to be determined.
(Note: In the final two sections of this analysis, we provide some insight as to the most likely outcomes for both the economy and the gold and silver markets if the present monetary trends continue. Hint: Some of the parallels between the present and the 1970s are striking and unmistakable.)


The process for dollar monetization, as Mr. Phelan suggests, has been fundamentally altered and this new web page offers a venue for monitoring those changes. Few are aware of the nuances with respect to the causes in this new monetary order, and most, even financial veterans, at the moment see only the effects. Below we connect the lines between cause and effect, and in so doing update the rationale for gold and silver ownership to include the possibility of a new inflationary, or perhaps stagflationary, era.



Excess Reserves of Depository Institutions
Prior to the 2008-2009 economic meltdown and subsequent Federal Reserve led Wall Street bailout, commercial bank excess reserves stood at a meager $1.5 billion. Post-bailout, that figure rocketed to $2.7 trillion. Excess reserves now stand at roughly $2 trillion – a $700 billion decline from the top in a period of a little over two years. The huge overhang of excess reserves, as explained above, is a residual of the Federal Reserve's quantitative easing programs, which represents both danger and opportunity for the U.S. economy – opportunity in that their redeployment could lead to full recovery, and danger in that they could ignite instead a runaway inflation or stagflation.


Excess Reserves, One-Year Treasury Constant Maturity Rate,
Interest Rate on Excess Reserves
"The everyday tools of monetary policy are about to shift. The old standard tools of monetary policy taught in every intro econ class – open market operations, altering discount rates, and adjusting reserve requirements – all depend on banks that don't want to hold lots of excess reserves. When banks are holding a few trillion dollars in excess reserves, other policy tools are needed, and the Fed has already announced that monetary policy in the future will be conducted using the rate of interest that it chooses to pay on bank reserves as its primary tool for monetary policy, and secondarily by using its new reverse repo facility." – Timothy Taylor, Conversable Economics


As you can see in the chart above, the rules of the game changed in advance of the Fed's December, 2015 interest rate increase. The free market forces, unleashed by global selling of U.S. Treasuries, immediately began pushing rates higher. Most importantly, note in the chart that after 2015 the interest rates on one-year U.S. Treasuries – a proxy for interest rates in general – consistently traded above the static rate the Federal Reserve paid on excess reserves. The commercial banks now had strong incentive to begin converting excess reserves into new lending – an incentive that remains in play now.
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Excess reserves and bank credit
Capital in the modern fiat money system is borrowed into existence. For monetary policy to induce growth, consumers and businesses must be willing to borrow and banks must be willing to lend. Then and only then can growth and economic recovery begin. This chart demonstrates that banks have been successful in placing loans and that consumers and businesses are in fact willing to borrow.


There are three features in this chart worth special emphasis:
- First, the commercial banks steadily reduced excess reserves from October, 2015 when the Fed first suggested that it was about to raise interest rates.

- Second, bank credit* accelerated from early 2014 just before excess reserves began to flow from the Fed's balance sheet and back to the commercial banks. It gained momentum after the Fed actually raised its target for interest rates by .25% in December, 2015 and again in December, 2016 – the second and third time in a decade it moved to push rates higher.

- Third, there is a clear divergence between excess reserves and bank credit demonstrating the direct connection between the two. As excess reserves were drawn down, bank credit went up.
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* Bank credit consists of the aggregate in loans extended system-wide by U.S. commercial banks to businesses, individuals and the federal government.
Excess reserves and money supply (M2)
The redeployment of $700 billion in excess reserves has precipitated some interesting knock-on economic effects in other areas of the economy including a burgeoning money supply. Note the divergence in the chart above beginning in 2014. As excessive reserves are drawn down, money supply goes up – a clear indication of the correlation between excess reserves, bank credit, the money supply. . . .and ultimately, inflation. Famed monetary economist Milton Friedman stated that there was an average 23-month lag between the creation of money and when it showed up as monetary growth in M2. It is interesting to note that the commercial banks' first drawdowns in excess reserves occurred in early 2014 and, right on schedule, by late 2016 M2 had registered a 7.6% annualized gain.


Excess reserves and the producer price index
Of course, the ultimate end result of monetary policy is the effect on employment and prices. As you can see in this chart, producer (or wholesale) prices noticeably have begun to move higher. Note the divergence between excess reserves and producer prices beginning in December, 2015 – a clear indication of the correlation between the two charted data sets. Inflation's return has not received a great deal of attention in media financial reports. Once it again becomes a regular topic in the business news, consumer spending habits and investment patterns are likely to change.


Gold and the Producer Price Index
As pointed out in the previous newsletter on this subject (linked here), the price inflation that normally would have occurred as the result of the massive money printing scheme following the 2008-2009 financial crisis was sterilized and parked on deposit at the Federal Reserve in the form of excess reserves. As such, monetary inflation was quarantined for a time but not permanently sidelined. Now, as this series of charts demonstrates, that process has gone into reverse with quick and predictable results. Inflation has suddenly become an issue once again. The above chart shows the tight correlation since 2000 between gold and producer prices.


Looking to the future
"We had initially asked to pay interest [in 2006] on reserves for technical reasons. But in 2008, we needed the authority to solve an increasingly serious problem: the risk that our emergency lending, which had the side effect of increasing bank reserves, would lead short-term interest rates to fall below our federal funds target and thereby cause us to lose control of monetary policy. When banks have lots of reserves, they have less need to borrow from each other, which pushes down the interest rate on that borrowing — the federal funds rate." Ben Bernanke, The Courage to Act


Though it is too early to know with any certainty whether or not the tide has turned on the disinflationary economy, these changes in the monetary landscape are worth noting and monitoring. The telling part of the quote above is Ben Bernanke's concern about losing control of monetary policy. Since the crisis period he references, new threats to the Fed's preeminence have made their way into the monetary mix – the global liquidation of U.S. Treasuries which has had a direct effect on interest rates, and the commercial banks' drawdown of excess reserves which has had a direct effect on bank credit and the money supply.
As long as the Fed continues its policy of raising rates slowly and incrementally, the demand for U.S. Treasuries from overseas investors, including foreign central banks and governments, will remain subdued and, in fact, encourage liquidations. (China, for example, has liquidated roughly $1 trillion of its reserves over the past year.) Those liquidations, in turn, will continue to push rates higher in a kind of self-reinforcing feed-back loop. As for the future flow of excess reserves out of the central bank, the top commercial banks – all publicly owned – have as their primary mission the pursuit of profit in the best interest of their stockholders. As long as they are able to receive a consistently higher interest rate on their lending by drawing down their excess reserves, it is their responsibility to do so.


The only way for the Fed to interfere in both processes would be to get ahead of the interest rate curve by consistently pushing the fed funds rate above the rate established in the free market. To do so at this juncture, however, would send the wrong signal to the financial markets and would kill any semblance of recovery already set in motion. In addition, it would thwart the Fed's own attempt to counter disinflationary/deflationary trends at work in the U.S. economy.
In short, the baton has clearly passed, at least for the time being, to the commercial banks and global sellers of U.S. debt. The former will be a key determinant in money creation and the latter a key determinant in setting interest rates. When seen in this context, Mr. Bernanke's concerns about the Fed losing control of monetary policy appear to have been warranted.


At the moment investors are focused on the political aspects of the "reflation trade" as it is dubbed by the mainstream media, i.e. the fiscal and tax policies proposed by the Trump administration. These policies though come with a long fuse. It will take many months for the Trump administration to push its agenda through Congress (if at all). After that, it will take many more months for any resulting legislation to be implemented (particularly in the case of fiscal spending), and more time still before it actually takes effect in the economy.


In the meantime, as the sequence of charts above demonstrates, the excess reserves situation and related activity of the Federal Reserve System present a more immediate and direct avenue to reflation of the economy. In fact, the effects of that effort are already being felt.
Gold's role in all of this – "No one questions its value."
http://www.usagold.com/publications/lydiabritmus.png
In a recent World Gold Council interview, Alan Greenspan made the following comments on gold's portfolio role under an inflationary/stagflationary economic scenario:
"Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection. I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counter-party signature. Gold, however, has always been far more valuable per ounce than silver.


No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC."


Gold is not like other assets that depend upon another individual or an institution’s performance for value. It stands alone, and as Greenspan states without mincing words: “No one questions its value.” It is for those reasons that gold protects wealth no matter the economic malady visited upon the economy – inflation, hyperinflation, disinflation, stagflation, runaway stagflation and deflation. It is the ultimate armchair investment – the one asset you can rely upon no matter what happens politically or economically.


That said, Greenspan believes stagflation and runaway inflation to be the two primary portfolio menaces that need to be hedged for the future. Here is what he said in that same World Gold Council interview:
"As productivity growth slows down, the whole economic system slows down. That has provoked despair and a consequent rise in economic populism from Brexit to Trump. Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!


At the same time, the risk of inflation is beginning to rise. In the United States, the unemployment rate is below 5%, which has put upward pressure on wages and unit costs generally. Demand is picking up, as manifested by the recent marked, broad increase in the money supply, which is stoking inflationary pressures. To date, wage increases have largely been absorbed by employers, but, if costs are moving up, prices ultimately have to follow suit. If you impose inflation on stagnation, you get stagflation."


Investors last tangled with these twin dangers in the 1970s. Here is one last chart, and an important one, that shows gold's performance superimposed over the producer price index during that period. As you can see, while producer prices increased 2.5 times, gold rose by nearly 21 times. This chart tells, at a glance, the value of diversifying with gold and goes to the heart of the point Dr. Greenspan is making. (The Dow Jones Industrial Average over the same period gained only about 16%.) I might add as a final caution that runaway inflations rarely come in like a lamb, but more like a lion – suddenly and with a full-throated roar. In that respect, the near double-digit 8% annual gain in wholesale prices this past January might have been a clear warning shot across the bow.
(Pictured above: Lydia gold stater, King Croesus, 561-541 BC, electrum (blend of silver and gold), ‘heavy’ stater specimens bring upwards of $30,000 in top grades. This specimen is from the British Museum collection and reproduced with permission.)
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––


Michael J. Kosares is the founder of USAGOLD and the author of "The ABCs of Gold Investing - How To Protect and Build Your Wealth With Gold." He has over forty years experience in the physical gold business. He is also the editor of News & Views, the firm's newsletter which is offered free of charge and specializes in issues and opinions of importance to owners of gold coins and bullion. If you would like to register for an e-mail alert when the next issue is published, please visit this link.

Disclaimer - Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

http://www.usagold.com/Chinasyndrome.html

PLEASE CLICK ON LINK

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SPECIAL REPORT
Will the Shanghai Fix 'fix' the gold market?
China takes a seat at the gold pricing table
by Michael J. Kosares

John Maynard Keynes once remarked that "A debtor nation does not love its creditor, and it is fruitless to expect feelings of good will." In the case of the financial arrangement between China and the West including the United States, I might add that the opposite is also true, particularly when that creditor thinks its debtor might be in over its head. Each, though, has learned to live with the other in this complicated and intricate web of debt and money, interlocking national balance sheets and intertwined commercial interests we call the international markets. To not do so is to act against one's own national interest.

http://www.usagold.com/publications/goldstandard5NV.pngI expect this synergy to carry over when later this year China inaugurates its own version of a gold fix in Shanghai and three Chinese state banks join the London Bullion Market Association's new London fix later this month. I am not among the group that foresees a hot gold war between the Shanghai and London fixes, between China and the West. More I believe we will see a balancing of interests a cold war of sorts between the physical metal-based Shanghai business and the paper-based London business. China would not be seeking admission to the international gold club in London if it did not intend to adhere to some common ground rules if in fact a quid pro quo of some sort had not been agreed.

That is not to say though that the new gold market mechanisms will fall short of being transformative. To the contrary, I would counsel to expect major changes in 2015. At the top of the list I would put the likelihood of Shanghai forcing London to honor its pricing by delivering real metal into the China market. The three state banks China has stationed in the new London eleven-member fix regime will act as a conduit for those deliveries a mission for the time being likely to keep the flow through the London-Zurich-Hong Kong-Shanghai pipeline moving at a steady pace. In the process, China might force a level of honest settlement too often avoided in the previous gold fix regime. More on that further on . . .


The price of gold in China
The question on everyone's mind is whether or not we should expect to see China bid the gold price higher within this new mechanism?
At the moment and for good reason, China remains a buyer of gold and that is state policy. Strip away the economic jargon and the United States, in blunt terms, owes the Peoples' Republic of China $1.3 trillion, the single largest amount of money one nation state owes another on earth. The rest of the world owes China about $2.7 trillion. China, in a certain sense, has become the world's sovereign banker with no one even a close second. Japan is next nearest in line with $1.26 trillion in foreign exchange reserves. In no uncertain terms, China has put itself on the front line of the now raging global currency war and, if it is not careful, could become its principal victim.

China, over these last several years, has come to its own way of dealing with this issue through what can only be described as an enterprising and aggressive gold acquisition program. Some estimate its gold hoard to have risen from 1054 metric tonnes (the official number) to 5000 tonnes (the generally accepted figure among experts) with one estimate, released last week, at an incredible 30,000 tonnes (a number I find difficult to justify). Koos Jansen, one of the top experts on China's gold mobilizations, puts the overall import figure from 2007 through 2014 at 8800 tonnes. That number, based on actual movement of physical metal through the Shanghai Gold Exchange, might be closest to the truth. No one, though, is quite certain how those imports are divided among China's central bank, its state bank counterparts and the Chinese people themselves. Whatever the real number, China arguably has conducted the most ambitious gold mobilization since the United States built its prodigious 20,000 tonnes Treasury hoard following World War II.


http://www.usagold.com/gold-price.html


________________________________________________________________________________________________________
A hilltop assessment of current supply-demand fundamentals tells us that China may have already reached the point of diminishing returns with respect to tapping existing sources for the metal. Over the past two years, the exchange-traded funds were drained of everything except what still belongs to strong-handed investors. Global gold mine production has flat-lined at roughly 2800 metric tonnes and may be poised for a decline. On the demand side, central banks as a group are net buyers of the metal. National repatriation efforts may be a hidden source of demand not often discussed among analysts. China already competes with India, the rest of Asia, the Middle East and western investors for the existing supply. If it is indeed successful in establishing settlement in exclusively physical metal on the Shanghai Exchange, the narrowing supply-demand dynamics are likely to act as a catalyst for higher prices perhaps the primary catalyst for higher prices, something that has not been the case for decades.


Will the physical gold market dog finally wag the paper market tail?
There is one more important aspect to the analysis worth highlighting. If the gold market has reached some sort of watershed wherein the amount of available gold begins to dwindle and possibly dry up entirely, then China's strategic economic interest would best be served by higher global bullion prices the so-called second leg to its long-term gold market strategy.

A yuan-based price coupled with physical settlement and increased domestic demand could end up becoming the hammer that breaks paper trading's grip on the international gold price. China's policy makers, under such circumstances, need do nothing more than sit back and watch as physical demand from China drives prices higher through the new market mechanisms. It would become an ultimate irony should statist, communist China become the driving force that restored free market economics in the gold market. In the end, the ability to monitor, defend and advance the value of its gold reserves might be the real driving force behind China's application for admission to the international price-setting club.


So it is that I see China's latest forays in the international gold market as an attempt to fuse with and influence the current market structure rather than circumvent or supersede it. China, in my view, seeks synthesis not antithesis, and though some might be disappointed in the strategy, I see it as bracing for gold's future and even more bullish for gold in the long run than a policy of confrontation. By taking its seat at the gold pricing table, China inadvertently will act as a proxy for gold coin and bullion owners all over the world.

Given the flow of economic power from West to East, it seems fitting that gold should ride the crest of that wave. After all, the East's interest in gold is based in its ancient culture and that abiding attachment is unlikely to disappear anytime soon. Time is on China's side and on the side of the gold accumulator who owns his or her metal outright and can afford to sit back and watch the show. On the Chinese calendar, 2018 will be the year of the Earth Dog. By then, the physical market dog might finally wag the paper gold market's tail, instead of the other way around. In the end, the old aphorism still holds true: He (or she) who owns the gold makes the rules.
______________________________________________________________________________________________
Michael J. Kosares is the founder of USAGOLD and the author of "The ABCs of Gold Investing - How To Protect and Build Your Wealth With Gold." He has over forty years experience in the physical gold business. He is also the editor of News & Views, the firm's newsletter which is offered free of charge and specializes in issues and opinion of importance to owners of gold coins and bullion. If you would like to register for an e-mail alert when the next issue is published, please visit this link.
Disclaimer - Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the the accuracy, timeliness or completeness of the information

http://www.stockhouse.com/news/newsw...-for-rise-gold


Frank Giustra positioned for the rise of Gold

image: http://www.stockhouse.com/CMSPages/G...223f4&width=76
http://www.stockhouse.com/CMSPages/G...223f4&width=76 Gaalen Engen, . February 7, 2017



The 2017 Vancouver Resource Investment Conference (VRIC) carried a tone of optimism that wasnt present a few years ago, and the smiles that lined the faces of both exhibitors and attendees indicated that mining had returned from the depths of the abyss it had slipped into back in 2011.

In fact, famed author and professional investor, Doug Casey, was emphatic that the stratospheric prices we witnessed before the collapse of the last super cycle were bound to return by 2019.

He wasnt the only one with enthusiastic verve.

Mining investment icon, Frank Giustra, spoke to a full house during his forum on Sunday, leaving his audience with some choice words of wisdom.

He mentioned something that has been plaguing the mining sector for the last decade: Mining executives are steadily getting greyer and as they work their way into retirement, there is a decided void as Generation Xers dont seem to be taking up the cause.

Icons like Pierre Lassonde and Rick Rule agree with Giustra and feel that bringing in the next generation of talent is critical for the survival of the industry.

It is for that reason that Giustra and others like him have taken the younger set under their wing, providing guidance and opportunity to Young Turks such as Tommy Humphreys and Brian Paes-Braga.

Giustras efforts seem to be working as Humphreys and his site CEO.CA have become internationally recognized symbols of analytic integrity within the sector.

Then theres Paes-Braga who founded Lithium X (LIX.V), one of the most exciting lithium miners to come on the scene in recent history. Its flagship Sal de los Angeles project is situated in the prolific Lithium Triangle in Salta Province, Argentina.

The project is comprised of 8,156 hectares covering the nucleus of Salar de Diablillos with an NI 43-101 mineral resource estimate of 1.037 million tonnes of lithium carbonate equivalent of indicated and another 1.007 million tonnes inferred.

Impressive, even without counting the companys other holdings.

But back to Frank.

Giustra stated that worsening political and economic uncertainty on the global stage was going to feed an incredibly bullish gold market, one that could quite possibly surpass the $1900 an ounce mark.

He went on to say that if youre looking at gold from an investment point of view, youve got to get in now.

Giustra wasnt talking through his hat, he currently has serious money in three gold explorers operating in Japan, Latin America and the Klondike.

When grilled about his investment strategy, Giustra admonished investors to stay away from the stans, Bolivia, Egypt, Venezuela and Turkey, but Argentina, which had historically been a place to avoid, was now a good opportunity.

Next to Argentina, sits Chile. This is where Giustra has laid his initial South American gold bet with Fiore Exploration (F.V).

The well-funded junior miner operates with an objective of acquiring undervalued exploration and development-stage mineral assets across the Americas.

And there is no better time for Fiore to carry out its mandate.

Because exploration budgets are half of what they were in 2012, Fiores veteran management is not only able to acquire world-class assets on the cheap, but they are also able to capitalize on those assets with drastically reduced exploration costs, and industry-leading exploration staff and contractors who are readily available for the first time in years.
image: http://www.stockhouse.com/getattachment/304fb925-afee-4dcd-8b0a-8114bcac7025/Gaalen1-(2).jpg
http://www.stockhouse.com/getattachm...aalen1-(2).jpg
Figure 1Closeology exploring for high-grade gold next to Yamanas El Pen mine | Photo courtesy of Pinnacle Digest

Giustra launched Fiore last year along with Paes-Braga, and with incredible business acumen and negotiating skill, the duo secured one of the most sought after land packages in the country directly adjacent to Yamanas wildly prolific El Peon mine, which produced 227,000 ounces of gold and 7.7 million ounces of silver in 2015.

But wait, thats not it.

Fiore also recently picked up the Cerro Tostado project, located just south of the Mina Fortuna and Main El Peon complexes.

Cerro is a tasty acquisition not only because of its location. Previous work carried out on the property by SQM produced a phenomenal intercept of 247.6 g/t silver over 10.0 metres after drilling just 17 holes.

I wanted to know more.

Luckily, I had the opportunity to speak with expert geologist, Tim Warman, CEO and Director of Fiore, at the Roundup mining conference which followed on the heels of VRIC 2017.

In fact, I got it all on video and here is the result:





Gaalen Engen
http://twitter.com/gaalenengen

FULL DISCLOSURE: The author was compensated for this article and the interview through TSXMedia which has Fiore Exploration as a client.





Tags: INDUSTRIAL METALS & MINERALS

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Hi
I mainly said it because there were traders who sold Eurcad (following a rally) which then rallied again without looking at the news or fundamentals.
Whether they pay any attention to it is up to them.

Sometimes there are occasions where one can trade technically

End of month flows - affects the pound a few days before the end of the month

Buy the rumour sell the news -eg: the dollar selling off after Yellens speech. Traders liquidating their long positions.

Trading sentiment into an event.

Looking at next week I don't think that Draghi will do anything.
In February he said that there was still slack in the economies in respect of employment. And these figures have not changed.
CPI has improved but most of it was due to oil prices
He also wants to see a sustained period of inflation
And obviously there are the elections going on
Traders attention will be turning to Draghi next week so it could offer up some interesting opportunities.

Great Post By Connors on EUR/USD Thread that I just read. I now share it here.

 

1. Post 1,094,537
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4. Mar 4, 5:01pm (3 hr ago)

1. https://cdn-assets.forexfactory.net/...ar438605_3.gif Connors
2. Joined Dec 2015 | Status: Member | 937 Posts

Quoting NotAtrader
{quote} Hi Conors! Always nice to read other's opinions. Thanks Would you mind to explain the following- If the EUR falls down on Monday, what could be the reason if not the one that I implied? Thanks.

Many things can cause that Not.
EUR is under a bearish pressure from a technical point of view.
Since US election, every attempt to move higher has been slapped down.
Look for instance, it was technically a major event reaching 1.1000s before Trump's unexpected victory, on the day of the election the price shoot up to 1.1298 and has been slapped down. So we now know there is a supply area @1.1300
The price dropped to multi year lows and then managed to reach only 1.0820. What happened after that is even more bearish. It has taken the long term trend line @1.0520 and has traded several hours below it. The demand was not there, the pa has not acted as if there were a large demand anyway. Last two weeks 1.0626 acted as a major resistance and it couldnt even test the fib res level @1.0662, couldnt even come close to it. The only thing that has changed on the weekly time frame is that, it very much looks like a reversal pattern last two weeks bars. But it needs a confirmation which will happen @1.0662. Any hourly or better 4H close above 1.0662 is a sign that it has bottomed just below the 1.0500 area which I find very sneaky after taking 1.0520. Cause breaking that long term trend line is not a joke, it can easily slip to 1.03xxs after that. Didnt happen.
So technical front is very bearish still but caution is essential at these levels. Any news that will favour EUR can cause a strong move which will target breaking that 1.0820, actually bulls have to do it if they are serious.
Also you need to bear in mind, large institutions treat 200-300 pip range as noise Not. It is us who make so much fuss about a move against our position by 50-100 pips since we are using a high leverage. For a major central bank EUR trading @1.06 or @1.08 is totally irrelevant. Their trading positions are based on supply demand areas, and they dont care about the SHORT TERM fib ratios we very much care about.

http://wolfstreet.com/2017/03/04/pe-...ession-coming/


This is Worse than Before the Last Three Crashes


by Wolf Richter • Mar 4, 2017 •




This chart shows “multiple compression” is coming.
How long can this surge in stocks go on? That’s what everyone wants to know. Projections range from “forever” – these projections have become increasingly common – to “it’s already finished.” That’s a fairly wide range.

Everyone has their own reasons for their boundless optimism or their doom-and-gloom outlooks. But there are some factors – boundless optimists should push them aside assiduously – that, from a historical point of view, would trigger tsunami sirens. Because in the end, it’s not different this time. And the cycle of “multiple expansion” and “multiple compression” is one of those factors.

For example, a stock trades at a price that gives it a P/E ratio of 20 (stock price is 20 times earnings per share). When earnings per share remain flat over time, but the stock price rises, then the P/E ratio (the multiple) expands. When this spreads across the market, even when aggregate earnings remain flat, it means “rally.”

And earnings have been flat since 2011! The other day, I posted a chart that showed that earnings of the S&P 500 companies in Q4 2016 were back where they’d been in Q4 2011. So five years of earnings stagnation. Yet, during those five years, the S&P 500 index soared 87% [read… S&P 500 Earnings Stuck at 2011 Levels, Stocks up 87% Since].


The thing that changed during those five years was the P/E ratio. This combination of flat earnings and soaring stock prices, and thus soaring P/E ratios, is, historically speaking, not a good thing when it drags on for too long. This chart shows the S&P 500 P/E ratios on every January 1 of the year. This aggregate P/E ratio has nearly doubled from 14.9 on January 1, 2012, to 26.7 on March 3, 2017:
http://wolfstreet.com/wp-content/upl...-2012-2017.png
Flat earnings, no problem. But wait… The problem for stocks is the inevitable multiple compression. Multiple expansion and compression go in cycles. Like boom and bust. Invariably!



Multiple compression with flat earnings means “sell-off.” And when this combines with an earnings decline, the sell-off turns into much worse. It happens with regularity.


This chart by John Alexander at Macro Charting tracks the percentage increase and decrease of the P/E ratios – so multiple expansion and compression – going back to 1979. I marked the four record periods of multiple expansions (in months). The first three – which ended in 1987, 2000, and 2009 – turned into periods of multiple compression associated with blistering crashes (click to enlarge):
http://wolfstreet.com/wp-content/upl...-1979_2017.png
The current period of non-stop P/E ratio expansion has lasted for 57 months, by far the longest in the data series. Can this go on forever? The chart says no.


Does the chart tell us when the pendulum will swing in the other direction? Nope. In fact, the chart tells us that the pendulum should have already swung in the other direction after, say, 40 months, and that it started to do so, and then bounced off.


There are a million reasons why multiple compression hasn’t started yet, including the scorched-earth monetary policies by central banks around the world and the hope for miracles during the Trump administration.

Does the chart tell us how far stocks will fall, or how sharply they will fall, or for how long they will fall once the pendulum swings in the other direction? Nope. But it does suggest, from a historical perspective, that it could get very ugly. And if you tilt your head just right, the chart suggests that it should already have gotten very ugly. But it hasn’t….


This market (“Dow 30,000”) practically guarantees that the Fed will hike rates. Read… What’s Different This Time? Stocks






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COMMENTS FROM BENJAMINIS: It has to be very clear now the state of affairs in the FINANCIAL and POLITICAL World.

You are now better informed if you have taken the time to read and follow THE YELLOW BRICK ROAD.

http://averybgoodman.com/myblog/2017...all-connected/

February was an extraordinary month…
President Trump was busy issuing executive orders and reversing those issued by his predecessor. Gold prices have been steadily climbing. The secret Obama executive order, which must have opened the US gold reserve to the banksters, does not appear to have been reversed quite yet. When it does happen, it should spark some mild price fireworks, as the manipulators dump remaining short positions. In the meantime, in all likelihood, the manipulators are loading up on as many physical gold bars as they can, at the lowest possible prices. It is, I believe, an indirect courtesy of the US government, thanks to the actions of the previous President.


It would appear that America’s treasure continues to be drained away at a fantastic rate, although as we will discuss later, there is a hesitancy to commit to future orders that is growing fast in London. In spite of the delay in reversing Obama’s executive order, gold’s price and timing continue to follow the pattern I described in an article in November. Probably, that’s because although it isn’t closed yet, the US Gold Reserve could be closed at any moment.


The price attacks will continue but are temporary and opportunistic. They will be geared more toward the collection of a few quick bucks and/or the collection of some discounted physical gold bars than trying to make a long-term impact on gold prices. Most likely, that’s because the recent updraft in gold prices is driven by physical demand. Physical buyers are thrifty people who stop buying when prices go up too fast. Their resistance doesn’t last forever, but they do need to get used to significant price hikes.


We know that physical buyers were ready to pay much more for gold just a few years ago. Based on the gold market of 2012, the point at which physical supply and demand balances in the longer term, was somewhere within the $1,500 – $1,600 range. Since nominal earnings are universally higher now than they were 4 years ago, it shouldn’t take too long for people to get used to the higher prices. The willingness to pay a much higher price has already been demonstrated. Downward biased manipulation can only be partially effective without government subsidies and support.


The recent price attacks can safely be viewed for the transient events that they are. It appears that the banksters are simply attacking highly leveraged get-rich-quick schemers for the short-term benefit of doing so. Such speculators are fools, who face bankruptcy from small price movements, and must run at the slightest negative price pressure. If they think gold will go down, they quickly take the opposite side from their usual bullish view, and try to get rich quick that way. The problem for them is that they are being tricked. The manipulators want to buy physical gold bars at rock bottom prices and transient price attacks in paper-based futures markets helps them do it.


The manipulators are being careful not to push gold prices below the hard physical buying orders. Manipulators piled on last Thursday, for example, with staggeringly large waves of short selling designed to torpedo prices. Gold and silver tend to follow the similar patterns of manipulative activity, and the exact numbers have actually been already documented in the silver market. Approximately 151 million troy ounces of paper silver were “sold” in a space of 45 minutes from 11:25 am to 12:10 pm, almost four times the amount of silver produced by the top mining company in an entire year! The net effect was a steep price decline and a great deal of cash to fill the pockets of manipulatorsWe can presume that the same thing happened with gold. Then, on Friday, the very next day, prices went right back up.

In spite of the effort being put in, Thursday’s manipulation event has no legs. By April, the folks who did it will have slowly bought back all the short positions they took on to do it. In contrast with the way they torpedoed prices, they will buy back the shorts in a slow and orderly manner that affects prices as little as possible. They will then likely stand for delivery of gold they purchased at rock-bottom prices from a shell-shocked market filled with hapless non-connected hedge fund managers. The hedge fund managers and their clearing brokers will scramble around searching for physical gold to meet delivery obligations.

Overall, the process will help keep prices moving steadily upward over time.

If the manipulators play their game right, even as hard physical buyers raise their bids, the artificial price of gold will be kept just a little bit above the physical bids. The risk they face is only from miscalculation. For example, some unanticipated event could happen that creates a sudden and unexpected willingness, by physical buyers, to raise their bids. Thus, there is always an element of uncertainty.


Recent dramatic events at COMEX futures exchange, however, increase my level of confidence in my current forecast. As I reported last month, we saw a 729% increase in the demand for delivery of physical gold at COMEX during off-month of January 2017, year over year. This month (February) was a major delivery month, and there was another 230% increase in the delivery of physical gold bars. The huge increase in gross demand for actual physical gold bars is impressive. However, it is not the amount that was purchased but, rather, who was doing the buying that is the most important factor.


The biggest banks in the western world continued to be the biggest physical gold bar buyers during February. In many cases, their own customers are being called upon to deliver the bars to them. In total, about 18.66 metric tons worth of physical gold bars were delivered on COMEX in February. That compares to 7.99 tons delivered in February 2016. The net increase totals out to be 233% year over year, which is enormous.


HSBC, in particular, was the biggest single buyer this month. HSBC bought just over 10.62 tons worth of physical gold bars. Neither it nor its customers delivered much gold to speak of. As was the case when it made massive purchases in 2015 and 2016, these gold bars are now an asset of the bank.


J.P. Morgan was also one of the huge buyers this month. It didn’t buy quite as many gold bars as it did, last month, but it purchased about 2.4 additional tons.

In contrast, J.P. Morgan’s customers were called upon to deliver about 10.95 tons, perhaps part of which went into the bank’s own asset base. As the customers scrounged around to find gold to deliver to the banks, they probably propelled gold prices upward in February.

As was the case last month, Scotia Bank was also a big net buyer. It bought about 1 ton of physical gold. Last month, it purchased 3.82 tons.

Oddly, CME, Inc. was also a significant buyer. It has consistently been a significant gold bar purchaser throughout 2016. Like Goldman Sachs, HSBC, J.P. Morgan, Scotia and others, it has been stocking up. The exchange operator didn’t buy many gold bars as a “too-big-to-fail” megabank, but its purchases were enormous, and way out of line from a historical perspective. Remember, the futures exchange operator is not a bank, a hedge fund or an independent investor. It has no obvious reason to buy physical gold bars — except one which we will discuss in a moment.


CME, Inc. bought about 1/3rd of a metric ton in 2016. This past month, it purchased another 62 kilograms. In comparison, it bought only 5 gold bars in all of 2015. The exchange is contractually liable on any default in delivery by clearing members. There hasn’t been any default yet. However, the fact that the company is now buying so many gold bars implies that it is preparing for that to happen. It seems to be planning on weathering a major supply disruption.


If some of the COMEX clearing members end up defaulting on delivery, the exchange is on the hook to supply either gold or the cash value of that gold at the time of default. It is perfectly legal for the exchange to pay customers cash, instead of the gold they contracted for, BUT if the company does that, COMEX will be discredited as a forum for price discovery. It usefulness for market manipulation purposes will end forever. All of which brings us to the celebrated London-based metals market whistle-blower Andrew McGuire…


Mr. McGuire has a history of accuracy in his description of what is going on behind the scenes at the London precious metals market. In a recent public interview, he stated that a huge crisis is in the offing. London gold dealers don’t have enough gold to meet demand. Most of the “gold” controlled by LBMA banks is actually not theirs. It is all “stored” under “non-allocated” storage contracts,. These contracts give banks the right to use the gold in any way they want, including selling or leasing it.


Apparently, they’ve been selling and leasing the gold they don’t own for many years. All of it is spoken for, and there isn’t any left. With no stockpiles of their own, and facing the prospect of being cut off from the US Gold Reserve, they seem ready to default on metal delivery obligations. McGuire says that the banks are on the verge of declaring a cash settlement of all gold obligations. Because of the clever lawyers who wrote the contracts, however, this will not equal a legal default.


All the non-allocated storage contracts have a clause that allows for the “substitution” of cash in settlement of gold obligations. If McGuire is right about an oncoming crisis in London, and a cash based “reset” is about to happen, what CME, Inc. is doing makes perfect sense. Most smaller COMEX dealers refuse to tie up cash on vaulted gold, and simply wait until the last minute to buy gold to make deliveries. But, after the defacto default in London, physical gold will be unavailable at any price. These firms will be unable fulfill COMEX delivery obligations.


An educated guess would be that CME, Inc.’s motive, in buying so much physical gold, is to prevent collateral damage to the COMEX exchange’s reputation.

Meanwhile, the big banks’ motivation may also revolve around an expected London default. Most of the same players operate in both NYC and London, but COMEX is the more critical market for price manipulators because it is there that world prices are set. The same people who now manipulate gold prices downward, will probably turn to upside biased manipulation once the government’s subsidy ends. To profit from price manipulation, they must be able to control prices.


Continuing the credibility of the COMEX futures market, in spite of a massive London default, will enhance its dominance in price discovery. COMEX has always been the key to controlling the price of gold, in spite of the fact that the London gold market is five times larger. The London price and the world price of gold is primarily set by banks and hedge funds fighting with one another at the futures exchange. If the futures exchange allows a large scale default, it will end up as discredited as the LBMA in London.


Here is the bottom line. When the appropriate time comes, LBMA obligations can be cashed out, and the organization can be closed down. But, if COMEX is discredited, the primary profit making vehicle will be lost forever. In contrast, by preserving COMEX in spite of the collapse of the London market, attention can be quickly shifted toward upwardly biased manipulation activities, and profit can be preserved. Meanwhile, in the shorter run, there is the prospect of selling gold bars to the hedge funds and smaller COMEX clearing members around the time of the London default. Thus, buying gold bars now, for later sale, is going to be an extraordinarily profitable gambit.


In the face of the oncoming massive upward “reset” in the price of gold, I am reminded of a recent article in Forbes magazine. The author urged President Trump to bring back the gold standard in order “to make America great again.” According to the article, there are only three choices open to President Trump.


First, muddle along under the current “dollar standard,” a position supported by resigned foreigners and some nostalgic Americans—among them Bryan Riley and William Wilson at the Heritage Foundation, and James Pethokoukis at the American Enterprise Institute.

Second, turn the International Monetary Fund into a world central bank issuing paper (e.g., special drawing rights) reserves—as proposed in 1943 by Keynes, since the 1960s by Robert A. Mundell, and in 2009 by Zhou Xiaochuan, governor of the People’s Bank of China. Drawbacks: This kind of standard is highly political and the allocation of special drawing rights essentially arbitrary, since the IMF produces no goods.


Third, adopt a modernized international gold standard, as proposed in the 1960s by Rueff and in 1984 by his protégé Lewis E. Lehrman …and then-Rep. Jack Kemp.

Of course, to bring back the gold standard, the price of gold versus the US dollar must be reset much higher. If Mr. McGuire is right, however, the implosion of the London gold market will do just that. It will also bring the role of gold as money back into the world’s consciousness. A massive one-off price reset will happen, dramatically devaluing cash currencies including the US dollar. Going back to the gold standard might end up being enough to offset the enormous debts built up under decades of incompetent economic management.


Comments from Benjaminis: This COULD be a MAJOR Event. We will watch carefully.

http://pages.oanda.com/index.php/ema...BRPT0ifQ%3D%3D

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Week Ahead Jobs and Fedspeak to Guide Dollar
March 3, 2017 Share Print 0


Fed Awaits NFP Report to Decide on March Hike
Comments from members of the U.S. Federal Reserve have put a rate hike in March back on the table. Lack of details on the Trump administration pro-growth policies had reduced the probability of the central bank raising interest rates but the words from Chair Yellen and other influential members now have the market pricing in an 80 percent probability of a rate increase on March 15.

Chair Yellen has mentioned before that there are risks in waiting too long before raising rates and on Friday she said: “We currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect”. The biggest data release between then and now if the Jobs report on Friday.

The U.S. non farm payrolls (NFP) will be published on Friday, March 10 at 8:30 am EST (1:30 pm GMT). The forecast calls for a gain of 180,000 jobs and a 0.3 percent with in hourly wages. Job gains above 150,000 have been consistent since November of 2015, but wage growth has been disappointing and at this point will probably be more heavily scrutinized that the headline number. The Trump administration pro-growth policies appear to be delayed, but as Treasury Secretary Mnuchin reassured markets they are coming, giving the Fed another reason to move forward with their tightening plans.


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The EUR/USD lost 0.112 percent in the last five days. The single pair is trading at 1.0562 after comments from Fed members have shifted the market perception on the U.S. Federal Reserve’s next move. At the end of February the market had priced in less than 30 percent of a rate hike during the March 15 monetary policy meeting. FOMC Members such as Richmond Fed President Jeffrey Lacker pointed out that the market was underestimating the pace of Fed rate hikes. Fed Chair Janet Yellen also supported that line of thinking when she said it was unwise to wait too long before raising interest rates.

The market has now adjusted to the Fed hints as the CME FedWatch tool is showing a 81.9 percent probability of a rate hike in the next FOMC. Analysts are divided even as Chair Yellen has said that a rate hike would be appropriate in March.

Economic indicators were mixed in the U.S. with core durable goods underperforming at –0.2 percent. The second release of GDP data for the fourth quarter also disappointed with a 1.9 percent reading below the forecasted 2.1 percent. Consumer confidence, Manufacturing and non-manufacturing PMIs have exceeded expectations. Given Chair Yellen’s statement next week’s employment data will weigh heavily on the FOMC’s statement due on March 15.


https://www.oanda.com/labsds/graph/U...02-27_5d_m.png

The USD/CAD gained 2.416 percent in the last week. The currency is trading at 1.34 following the decision by the Bank of Canada (BoC) to keep the benchmark interest rate unchanged at 0.50 percent on Wednesday. Investors had expected the BoC would stand pat even as inflation metrics went up in January. The uncertainty surrounding the next move from the U.S. Federal Reserve and the global political scene.

Canadian growth surprised on March 2, as the fourth quarter GDP came in at 2.6 percent on a forecast of 2.0 percent and the U.S growth in the same period at 1.9 percent. The positive indicator did not stop the USD on gaining versus the CAD. The words from Fed members pointing to a March rate hike had more weight in the end and the loonie traded above 1.34 before settling slight under that level ahead of the weekend.


https://www.oanda.com/labsds/graph/U...02-27_5d_m.png

The USD/MXN lost 1.721 percent in the last five days. The currency pair is trading at 19.52 as the peso surged after the comments from newly appointed U.S. Commerce Secretary Wilbur Ross on a positive outcome for the Mexican currency if the country reaches a sensible agreement on a NAFTA renegotiation. The peso rallied after the news and a strong hint of a softening stance from the Trump administration on trade with its southern neighbour. Ross cited the fear of the negative effects of NAFTA as the main reason for the peso depreciation, but said that “if Mexicans make a very sensible trade agreement the peso will recover quite a lot”.

The Mexican currency was one of the biggest winners in February thanks to a proactive central bank program, a commitment by the Banxico governor to remain beyond his original resignation date (before joining the BIS) but a big factor has been the more diplomatic statements from the Trump cabinet.
Downside risks remains for the MXN, but for now some of the worst impacts of the anti-trade and immigration policies of the first days of the Trump administration have subsided.


Market events to watch this week:
Monday, March 6
10:30 pm AUD Cash Rate
10:30 pmAUD RBA Rate Statement
Tuesday, March 7
8:30am CAD Trade Balance
Tentative CNY Trade Balance
Wednesday, March 8
7:30am GBP Annual Budget Release
8:15am USD ADP Non-Farm Employment Change
10:30am USD Crude Oil Inventories
8:30pm CNY CPI y/y
Thursday, March 9
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims
Friday, March 10
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am USD Non-Farm Employment Change
*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

 

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Alfonso Esparza
Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.

http://www.zerohedge.com/news/2017-0...ops+to+zero%29

https://schiffgold.com/commentaries/...ps-rise-power/

Voters Should Blame the Fed for Trump’s Rise to Power
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FEBRUARY 22, 2017 BY SCHIFFGOLD

Peter Schiff recently appeared on CNBC’s “Future’s Now” letting millions of American voters know that if they’re frustrated with Trump, they should blame the Federal Reserve. “If the economy was in good shape, not only would he have not been elected, he wouldn’t have been the Republican nominee.”

Peter explained why Fed Chairwoman Janet Yellen is reluctant to raise interest rates because of the fallout from removing cheap borrowing from investors and consumers. “What was inappropriate was slashing rates in the first place. It was inappropriate to leave them as low as they were as long as they were. [Yellen’s] afraid of the consequences when she tries to remove this unprecedented accommodation.”

The show’s host presented a common question to Peter about justifying his bearish stance on an economy that’s realizing stock market gains. It’s a common misunderstanding from mainstream media that CPI numbers, record-setting stocks, and inflation are indicators of a “healthy” economy. In reality, these are symptoms of a struggling economy that’s being kept on life support through money printing and quantitative easing.

“The economy is very weak. That’s one of the reasons that the stock market has been strong. It’s the weak economy that has been the primary reason the Fed has been able to keep rates so low for so long.”


Peter’s comment may be too obvious for many to comprehend. If the economy continues to make gains, why hasn’t the Fed raised rates more often and with larger hikes? The Fed’s slow movement on interest rates will be a hard habit to break when interest rates continue accelerating, as indicated by the latest CPI numbers.


The Fed’s misguided monetary policy has essentially created two US economies: a fake one and a real one. While stock investors are still riding high on billions of dollars injected into the system through money printing and QE, average people are struggling to pay their students loans and car payments. The Fed has “propped up” the economy “at artificially high levels, but it undermines the real economy,” Peter states.

Financial markets gain from inflation and QE at the expense of lower and middle-class Americans. The artificial economy we’ve seen over the last 10 years has caused lasting effects, frustrating hard working Americans and motivating them to vote for a populist candidate promising to change a broken system.

http://www.zerohedge.com/news/2017-0...ops+to+zero%29

The Chart That Democrats Don't Want You To See
http://www.zerohedge.com/sites/defau.../picture-5.jpg
by Tyler Durden
Mar 5, 2017 6:15 PM

What did they expect to happen when they repeat what has not worked in the past?
Huffington Post tracks 205 polls across 25 pollsters and the last few months have seen Democratic Party favorability collapse to its lowest since at least 2012...

http://www.zerohedge.com/sites/defau...5_dems_1_0.jpg

The last month alone - with the Berkeley riots, demands for resignations, demands for 'rising-up', continued charges or sexism, anti-semitism, and racism, Russian-connection leaks and faux outrage, and women wearing white in protest - has seen Democratic Party unfavorability soar.
http://www.zerohedge.com/sites/defau...0305_dems1.jpg
There are many reasons for this demise- not least of which was the further alienation of the progressive wing of the party this week with the appointment of Obama/Clinton establishment-man Perez as DNC chief, but we leave it to Gaius Publius (via Down With Tyranny blog) recently asked (and answered) - Are The Democrats Trying To Fail?
What's next for Democrats deserves an essay by itself. But needless to say, an increase in #DemExit is one of the anticipated options, even by several of the delegates Konst interview on the floor at the DNC meeting.
A worst-case scenario is painted below. First, consider this from NBC News on whether the public views insiders of either party favorably, (my emphasis): "One sentiment that unites the fractured nation is fury at the establishment in Washington. Fully 86 percent of those surveyed said they believe that a small group in D.C. has "reaped the rewards of government while the people have borne the cost. That includes 88 percent of Republicans and 85 percent of Democrats."
Then consider how that broad unpopularity of insiders may intersect with this DNC election. Of that, Nathan Robinson, editor at Current Affairs, writes, "By failing to appoint Keith Ellison to chair the DNC, Democrats have written their suicide note."
Here's just a taste of the longer piece:
They Must Be Trying to Fail

At this point, one has to conclude that the national Democratic Party has a death wish. ...

[i]t was incredibly important that the Democratic Party take some steps to indicate that it cared about progressives. Since the election, it hadn’t been doing a very good job of this. (Nancy Pelosi’s insistence that nothing needed to change, and her rebuke to a young leftist, demonstrated the prevailing attitude.) Appointing Keith Ellison to chair the DNC was the perfect opportunity. After all, chairing the DNC is a pretty minor role. It would mostly have been a gesture of friendship and unity, showing that even after the catastrophic mistake of ignoring leftist warnings not to run Clinton, the party was capable of valuing its leftmost members.

But no. Instead of granting the tiniest possible concession, the party has decided to affirm precisely what Nancy Pelosi has indicated: democratic socialists and social democrats don’t belong in the party. It’s not for them. What the party does depends on what billionaire donors want it to do.

This is politically suicidal.
As if that wasn't enough, Robinson adds, "Now, progressives in the party are further alienated. Good luck getting them to vote for Democrats. ... The progressives needed to receive some kind of gesture. And they have received one: an enormous middle finger." Indeed.
Your Bottom Line
Consider these facts:
1. It clearly mattered very much, to Obama, to high Party insiders, and to the support ecosystem around them, that no one representing the Sanders camp be allowed real power in the Party. (Sanders himself is in charge of "outreach" and reports in that capacity to Chuck Schumer.) Even when the role is highly visible but "minor." The DNC Chair does have a modicum of control, unlike those who hold "messaging" roles, but even that much control won't be allowed.

2. Yet all you hear from Democrats, correctly in my view, is "Defeating Trump is Job One." The nation, indeed the world, is at a crossroads — on the climate front, a crossroads of world-historical proportions.

3. Yet there's an obvious disconnect between the Party's rhetoric and its actions. Is control of the Party more important than bringing in the groundswell of popular support needed to defeat the Republicans in all branches of government?

4. And people do notice that disconnect, more now than before. Some might even call it, not a disconnect, but a contradiction. Or hypocrisy. Some, those who couldn't pull the lever for Clinton, may even call it that at election time.

5. If so — if the insider-controlled Democratic Party puts its own need for party dominance over the needs of the nation — the nation and indeed the world will suffer greatly. Will insider Democrats suffer to the same degree as the rest of us? If they think they're getting what they want, no.
So a question for those who gaze into the future. None of this dire predicting is certain, but it's certainly possible. Will there be a price, for the Party and the world, attached to adherence to power at any price? If there is, establishment Democrats sure are flirting with it.

http://www.zerohedge.com/news/2017-0...ops+to+zero%29

North Korea Fires Four Ballistic Missiles; Three Land Inside Japan's Exclusive Economic Zone
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by Tyler Durden
Mar 5, 2017 7:05 PM

Yesterday, when we discussed the NYT's report that the Obama administration had been waging a cyberwar against North Korea's missiles for at least three years, leading to frequent "unexplained" crashes just on or following launch, we concluded with a cautionary question "whether Kim Jong-Un, already facing a potential mutiny at home (to which he has so far responded by demonstratively executing official with anti-aircraft guns) will take this confirmation of what many would call an act of war by the US, and retaliate."


It now appears that Kim is doing precisely that when North Korea on Monday fired "several" banned ballistic missiles that flew about 1,000 kilometers (620 miles) into waters off its east coast, South Korea's military said, an apparent reaction to huge military drills by Washington and Seoul that Pyongyang insists are an invasion rehearsal. Japan has since noted that of the four missiles, three landed in its exclusive economic zone, with cabinet chief Suga warning that the launch is a "grave threat" to Japan's security, adding that Japan cann not tolerate North Korea's provocative actions. Meanwhile, Japan's prime minister has lodged a "strong protest" to North Korea.


It was not immediately clear what type of missile was fired or the exact number; Pyongyang has staged a series of missile test-launches of various ranges in recent months. The ramped-up tests come as leader Kim Jong Un pushes for a nuclear and missile program that can deter what he calls U.S. and South Korean hostility toward the North.


Seoul and Washington call their military drills on the Korean Peninsula, which remains in a technical state of war because the 1950-53 Korean War ended with an armistice and not a peace treaty, defensive and routine.

As AP adds, the South's Joint Chief of Staff said in a statement that Monday's launches were made from the Tongchang-ri area in North Pyongan province. The area is the home of the North's Seohae Satellite Station where it has conducted prohibited long-range rocket launches in recent years.

The North hates the military drills, which run until late April and which analysts say force its impoverished military to respond with expensive deployments and drills of their own. An unidentified spokesman for the North's General Staff of the Korean People's Army said last week that Pyongyang's reaction to the southern drills would be the toughest ever but didn't elaborate. North Korea test-launched a new intermediate-range missile in February and conducted two nuclear tests last year. There has also been widespread worry that the North will conduct an ICBM test that, when perfected, could in theory reach U.S. shores. Washington would consider such a capability a major threat.

The United States has 28,500 troops stationed in South Korea as a deterrent against a potential aggression from the North.

http://www.dailymail.co.uk/news/arti...#ixzz4aNfYB7db



Obama DENIES Trump's sensational 'Nixon/Watergate' phone tap accusation: The ex-president 'DID NOT order Donald's phones tapped at Trump Tower'. But was federal surveillance authorized by a judge?

1. Trump has accused Obama of wire tapping his phones at Trump Tower on Twitter
2. The president tweeted that Obama had been spying on him in October
3. He claims the phones in Trump Tower were 'tapped' before his election victory
4. But Obama's spokesman, Kevin Lewis, said those claims were 'simply false'
5. Lewis released a statement Saturday saying 'neither President Obama nor any White House official ever ordered surveillance on any U.S. citizen'
6. Ben Rhodes, the former policy advisor for Obama, also blasted Trump's claims
7. He responded to Trump in a tweet that said 'no president can order a wiretap'
8. Former Mexican President Vicente Fox also slammed Trump saying he was a 'so-called president' for calling Obama a 'bad and sick guy'
9. A former senior intelligence official said 'it's highly unlikely there was a wiretap'
10. According to official, wiretap can't be directed at US facility, without probable cause the phone lines were being used by agents of a foreign power

By Dailymail.com Reporter
Published: 12:25 GMT, 4 March 2017 | Updated: 00:19 GMT, 5 March 2017


The Obama administration has strongly denied President Donald Trump's claims that Barack Obama wire-tapped his phones at Trump Tower before the election.
Obama's spokesman Kevin Lewis released a statement Saturday afternoon refuting Trump's wire-tapping claims.

'A cardinal rule of the Obama administration was that no White House official ever interfered with any independent investigation led by the Department of Justice,' Lewis wrote.

'As part of that practice, neither President Obama nor any White House official ever ordered surveillance on any U.S. citizen. Any suggestion otherwise is simply false.'

However, the statement did not deny that another federal agency may have sought authorization to listen in on Trump Towers and received it.

Lewis' statement comes shortly after Trump fired off a flurry of tweets early Saturday morning claiming that the former president had been spying on him in October, a month before his election victory.

'Terrible! Just found out that Obama had my 'wires tapped' in Trump Tower just before the victory. Nothing found. This is McCarthyism!' the president wrote on Twitter.


Scroll down for video
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The Obama administration has denied President Donald Trump's claims that Barack Obama wire-tapped his phones at Trump Tower before the election. Trump was spotted waving to his supporters as his motorcade crossed the Bingham Island Bridge in Palm Beach on Saturday


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Obama's (pictured during Trump's inauguration) spokesman Kevin Lewis released a statement Saturday afternoon refuting Trump's wire-tapping claims
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Trump accused Obama of tapping his phones at Trump Tower in a flurry of tweets Saturday morning
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Lewis said 'neither President Obama nor any White House official ever ordered surveillance on any U.S. citizen'

McCarthyism, which the president used in his first tweet, is the practice of making accusations of subversion or treason without proper regard for evidence.

Trump started tweeting shortly after 3.30am ET and posed the question: 'Is it legal for a sitting President to be 'wire tapping' a race for president prior to an election?'

In another tweet Trump said it was a 'new low' for the former president, compared it to 'Nixon/Watergate' and called Obama a 'bad (or sick) guy'.


Ben Rhodes, the former policy advisor for Obama, blasted Trump's accusations on Twitter: 'No President can order a wiretap. Those restrictions were put in place to protect citizens from people like you.'


Rhodes shot back at another Trump tweet saying: 'Dear Pundits who lauded his speech. Is it still 'presidential' to call your dignified predecessor 'Bad (or sick) guy!'


Former Mexican President Vicente Fox also slammed Trump following his Twitter tirade.


'A 'so-called' President is calling a real President and true leader: bad and sick guy. What a shame, America you need to do something now!' Fox tweeted.
'@realDonaldTrump is more aware of what happens in reality TV than his own country. He's a very bad apprentice of politics!' he added in reference to Trump's Celebrity Apprentice show.

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Trump fired off his tweets shortly after 3.30am ET Saturday morning
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Ben Rhodes, the former policy advisor for Obama, also blasted Trump's accusations on Twitter: 'No President can order a wiretap. Those restrictions were put in place to protect citizens from people like you'
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Former Mexican President Vicente Fox also slammed Trump following his Twitter tirade
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Fox said Trump was a 'so-called president' for calling Obama a 'bad and sick guy'

Trump also linked Obama to Attorney General Jeff Sessions's meetings last year with Russia's US ambassador, Sergey Kislyak.

'The first meeting Jeff Sessions had with the Russian Amb was set up by the Obama Administration under education program for 100 Ambs,' he tweeted
.
Trump's team has sought to push back over its connections to Russian officials by pointing out instances of Democrats meeting with Kislyak.

But a former senior intelligence official told The Washington Post that 'it's highly unlikely there was a wiretap'.

 

1. http://i.dailymail.co.uk/i/pix/2017/...8589961441.jpgLook familiar? Photo captures Hillary's face as she reads...http://i.dailymail.co.uk/i/pix/2017/...8576883478.jpgNow Trump demands an 'investigation' of Pelosi for 'lying'...

'It seems unthinkable. If that were the case by some chance, that means that a federal judge would have found that there was either probable cause that he had committed a crime or was an agent of a foreign power,' the official said.

According to the official, a wiretap cannot be directed at a US facility, without finding probable cause that the phone lines or internet addresses were being used by agents of a foreign power.

'You can't just go around and tap buildings,' the official told the Post.

Another former senior US official, who worked under the Obama administration, told CNN there was no such investigation of Trump, nor were his phones tapped.


'This did not happen. It is false. Wrong,' the former official said.

The official echoed that of others saying Obama could not have ordered this and adding that it would have been taken to a judge by investigators, but investigators never did that.

The president, who is currently vacationing at his private Mar-a-Lago estate, did not provide any additional evidence to back up his claims.

http://i.dailymail.co.uk/i/pix/2017/...8630753047.jpg

Another official echoed that of others saying Obama could not have ordered a wire-tap, adding that it would have been taken to a judge by investigators, but investigators never did that
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Trump's claims seem to have stemmed from a Thursday evening radio show hosted by Mark Levin that claimed Obama executed a 'silent coup' of Trump via 'police state' tactics

Trump's claims seem to have stemmed from a Thursday evening radio show hosted by Mark Levin that claimed Obama executed a 'silent coup' of Trump via 'police state' tactics, according to far-right Breitbart News.

Through a timeline, Levin suggested the former president should be the target of congressional investigation.

During the summer last year, the Obama administration filed a request with the Foreign Intelligence Surveillance Court (FISA) to monitor communications involving Trump and several advisers but the request was denied, according to Heat Street former editor, Louise Mensch.

Just a day before the 2016 election, Mensch reported that 'sources with links to the counter-intelligence community' confirmed that a Foreign Intelligence Surveillance Court (FISA) had granted a FISA court warrant in October to monitor activities in Trump tower.

On Wednesday, a New York Times report said White House officials took efforts in the closing days of the Obama administration to analyze and spread information about Russian election interference, driven by a concern that the material might get buried by Trump.
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Citi's Matt King: "We Think You Should Sell"
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by Tyler Durden
Mar 5, 2017 7:27 PM

With spreads at post-crisis tights, equities making new highs, and new issues oversubscribed, markets are clearly exuberant. But could it be rational this time? We’re not convinced.
- Citi's Matt King
In a surprisingly bearish report, Citi's Matt King has issued a new, long-awaited note in which he asks rhetorically "what’s a manager supposed to do when by early March your asset class has already exceeded your expectation for full-year returns? Take profit and take the rest of the year off, of course! And if it carries on rallying, go outright short!" And yet, he adds, "somehow nobody seems to want to." The reason for that, according to King is that as we showed demonstrated last week using JPM and BofA data, "the rally owes more to inflows and short covering than to institutional investor exuberance. And part is that the economic data do seem genuinely to be improving."



Nonetheless, King's assessment of the current environment is downbeat and to the point: "sell we think you should, not only in € credit (as we advised a couple of weeks ago) but also more broadly."

He then lays out seven reasons "not to trust your inner Trump", which are as follows:

1. The Fed may stop the inflow party

The Citi strategist begins by noting that "perhaps the best reason to remain long is that institutional investors seem not to be." He adds that the vast majority of the FI investors we have seen in recent weeks still believe in secular stagnation, and further notes that "to judge from our survey, overall positions have been creeping longer, but this is due overwhelmingly to positions among $ investors: those in € and £ credit have actually been falling (Figure 1)."

King joins the strategist bandwagon pointing out to the source of recent inflows and states that "the principal driver of investors’ buying seems to have been a response to mutual fund inflows. Not only equity funds but also bond (including both credit and EM) mutual funds have had their biggest 4-week run of inflows since 2013 (Figure 2). Numbers in Europe have been slightly weaker than the US-dominated global totals, but the pattern is similar."
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There is a problem with that: "But while this too might normally be a reason for bullishness, we doubt that the current pace is sustainable."
Quite apart from the historical inability to maintain this flow rate for long, there is the small problem of the Fed. While at this point a hike on March 15 has been so well telegraphed that it ought not to cause a 2013-style tantrum, we do think much of investors’ willingness to pile into risky assets stems from the lack of return on cash. Each and every additional bp in risk-free yield is likely to make investors think twice about the risk they are running in order to generate return elsewhere.

It is also worth noting that over the past two weeks, BofA has caveated that while retail inflows are seemingly relentless, institutions and hedge funds have recently turned sellers into the rally, and are aggressively offloading to retail, traditionally a market-top indicator.

2. A rise in real yields should weigh on risk assets
King's second reason why he thinks the rally has been so strong is that real yields have remained surprisingly low. Even as nominal yields have risen since the US election, almost all of the action has been in inflation (and growth) expectations (Figure 3). Traditionally this is positive for risk assets; in contrast, when real yields rise, it weighs on risk assets – albeit sometimes with a lag (Figure 4).
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Citi suspects that what has made this move possible is the market’s willingness to focus on all the potential growth positives and yet shrug off the increasing signs of hawkishness from the Fed. "Such a position seems increasingly untenable on two counts. First, rates markets have now finally adjusted to the new mood music from the Fed, and seem increasingly likely to be confronted with an actual hike; second, the rally in credit was starting to look out of whack even with today’s real yield levels, never mind following any proper adjustment to follow."

3. Central bank support is set to diminish
While it is no secret that King has long been a closet adherent to Austrian Monetary Theory, in his latest piece King reminds regular readers that one of his favourite model for markets’ behaviour in recent years is their correlation with central bank liquidity. While the scale of their purchases over the past half-year or so has been close to record highs, it is already diminishing, and set to diminish further (Figure 5).
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He brings attention to BoJ purchases, which in recent months have almost halved since their shift to yield targeting; furthermore ECB purchases will be reduced by one quarter from this month on. In EM, FX reserves have held up well since February last year, and in recent months have been propped up as EM portfolio inflows have gone a long way towards offsetting a worrying trend towards net FDI outflows.
But this too we suspect was aided by the Fed being on hold, and is liable to face renewed pressure as it returns to rate hikes. Besides, the extent of the rally once again seems excessive even for today’s level of CB purchases, never mind relative to its likely future trajectory (Figure 6).
In short, absent a material shift in central bank posture, the traditional driver of risk asset upside will be gone for the foreseeable future.

4. It’s the stimulus, stupid
And then there is China.
As a recent NY Fed report pointed out, "China Accounts For Half Of All Global Debt Created Since 2005." This echoes what we have been writing about for years, starting back in 2013 showing "How In Five Short Years, China Humiliated The World's Central Banks", when we showed that in just the brief period since the financial crisis "Chinese bank assets (and by implication liabilities) have grown by an astounding $15 trillion, bringing the total to over $24 trillion. In other words, China has expanded its financial balance sheet by 50% more than the assets of all global central banks combined."

This, too, is a worry for the Citi strategist, who writes that "continuing with the idea that market strength owes more to a wave of technical support than to fundamentals, we remain convinced that the recent explosion of credit in China – visible in the monthly total social financing numbers – is of greater global significance than is widely recognized."

King posits that while it is hard to prove empirically, at an anecdotal level almost every place you visit from San Francisco to Sydney seems to be awash with stories of Chinese investment propping up prices. While most of this is in real estate, King thinks the effects of credit creation spill over from one asset class to another, and increasingly from one region to another also.

The punchline: "fully 80% of the world’s private sector credit creation at present is occurring in China. The evolution of this global total bears at least a passing resemblance to global asset prices (Figure 7)."
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Which leads us to the $64 trillion question: is this pace of credit expansion sustainable? Citi's answer: "we rather doubt it."

Chinese numbers tend to reach a seasonal high in January as new lending quotas are granted but then to fall off sharply thereafter. And the positive impulse from the recent acceleration in credit creation in China will in any case be hard to sustain just because the absolute rate of growth is already so high. If anything, the recent tendency towards renewed FX outflows – even in the face of tightening capital controls – speaks to a reduction in demand for investment in China itself (Figure 8), itself encouraged by a series of measures designed to introduce brakes on lending, in the property sector in particular. To our minds the wave of recent strong data in China, and associated run-up in many commodity prices which has itself fuelled optimism about a global reflation trade, owes less to a durable upswing in growth – and more to an unsustainable temporary resurgence in credit – than has been reported.

At this point it is worth reminding readers of a recent note from UBS which likewise looked at the global credit impulse and found that it had "suddenly collapse to negative", primarily as a result of an annualized slowdown in Chinese credit creation.
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There is some hope that US or DM credit stimulus would be able to take over even if Chinese stimulus wanes – and indeed, exactly such a hope would seem to be one of the drivers of both the rally and the improvement in much DM survey data. The hope here is that abnormally high savings rates in various developing nations would propel a spending surge. However, King then quickly shoots down the suggestion saying that such an alternative source of credit creation "seems unlikely." His skepticism is borne from a simple problem of scale: "Corporate balance sheets are already highly levered. Besides, the sheer scale of Chinese borrowing – $3tn/year relative to a mere $800bn in US and Europe combined – makes it difficult to see how these could substitute."

5. Just how strong are growth prospects really?
To provide a counterpoint to his bearish points, King then asks "what of the counterargument to all this, namely that markets are merely responding to a marked pick-up in global growth prospects, sending secular stagnationists like ourselves scurrying for cover and raising the prospect of a longawaited return to ‘normal’ growth?" He admits that there has been a pickup in both growth and inflation data, and indeed in corporate earnings. And we do buy the argument that, while corporate capex has been weak relative to profits and to GDP, in outright terms it is not perhaps as moribund as pessimists (ourselves included) sometimes make it sound.

Alas, for the Citi strategist, this may be as good as it gets when it comes to global growth, which as DB warned several weeks ago has already started to revert lower, and furthermore as we have been pounding the table for weeks, the improvement has been mostly focused in "soft", survey-based data:
We are much more skeptical of the likelihood of a continued and self-reinforcing cycle of growth from here. Economic surprises have a natural tendency towards mean reversion and in the US are already starting to come down. A number of commentators are starting to point to the fact that the improvement in economic numbers is heavily skewed towards survey data as opposed to actual production and consumption numbers. US jobless claims at 40-year lows in any case suggests that further hiring may begin to contribute more to inflation than to real GDP

Meanwhile, on the corporate side, while leverage has been declining, recent reports fail to show any evidence of significant revenue growth – one of the vital missing ingredients that could conceivably lead to an acceleration of capex (Figure 11). Perhaps revenues were crimped by $ strength, but overall this suggests that the EPS growth everyone is getting excited about owes more to further cost cutting and perhaps currency moves (helping explain why the pick-up is greater in Europe than in the US) than it does to anything that will sustainably buoy the economy.
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As King notes, the market internals already point to this:
Sadly, there are even signs that the equity market itself recognizes this likelihood. While the S&P has continued to rally at a headline level, our equity strategists have pointed out that it is again being driven by defensive sectors, not cyclicals – something historically more consistent with a rally in Treasury yields and a global reach-for-yield than with a growth-led reflation

And then there is the political front: Citi writes that its take on the Trump speech to Congress – with its repeated reference to infrastructure spend but general lack of detail – is that prospects for widespread fiscal reform remain so contentious, even among Republicans, that the likelihood that they drive a significant near-term boost to growth is actually dimming. "Once again, this suggests that markets may be getting ahead of themselves."

6. The beast that refuses to die – European political risk
And then there is Europe, and especially France where over the past few days, the market promptly assumed that any Le Pen risk overhang has been eliminated. Not so fast, according to King:
To judge from the recent rally in OATs, you could be forgiven for thinking that Macron had been elected already, and that euro break-up risk was once again off the table. Without wanting to get too involved in the labyrinthine twists and turns of what is already turning out to be a decidedly antagonistic campaign, we doubt very much that this risk is gone for good.

Citi then highlights four factors which keep it convinced European periphery risk and French domestic-law bonds are still a ‘sell’ here – and that renewed periphery widening may yet upset markets more broadly.

1. First, we still think there is the potential for significant nervousness among real money investors in the run-up to, and immediately after, the likely first-round Le Pen victory. Notwithstanding demand from domestic institutions for bonds that others wish to sell, experience suggests that there is nevertheless a point where domestics become full.
2. Second, we still meet too many investors convinced that the ECB will somehow come to the rescue, or even that the market would shrug off a Le Pen victory in the same way as it did Brexit. We could not disagree more strongly.
3. Third, even a Macron or Fillon victory seems unlikely to us to consign European political risk to the dustbin of history in the way some have been arguing. Populists everywhere still feel as though they are in the ascendant – just look at the disarray among Democrats in the US, or the heated response to Sir John Major’s and Tony Blair’s stands on Brexit in the UK.
4. Fourth and most persuasively, almost regardless of what you think the actual probabilities of euro break-up are, we still see too little by way of premia across markets to compensate investors for the potential risks. Central banks appear to have succeeded in squashing the volatility and fear out of markets without removing the underlying risk factors themselves. The more markets rally, the greater is the potential vulnerability.

7. Finally, Valuations
Last but by no means least, King brings up the most sensitive topic for the market: massively stretched valuations. His rhetorical question is simple: "Do you really want to be buying credit at post-crisis tights, or the S&P at a cyclically-adjusted P/E which has been exceeded only in 1998-2000 and 1929?"

He then notes that the "only metrics on which € credit does not look expensive in our regular Valuations Report are those that are survey-based" and cautions that to the extent that investors want such upside, "we think they would be better served targeting assets that rallied less hard in the first place – albeit in small doses. And yet there, too, our outright inclination is more towards reduction and waiting for a better entry point than towards adding at current levels."

King's Conclusion
Having taken a several month sabbatical, the bearish Matt King is officially back: "To sum up, markets seem increasingly to be pricing all of the upside and none of the downside. When there was a risk premium in spreads, and when a wave of central bank and private credit creation seemed likely to carry everything tighter regardless of underlying fundamentals, we were happy to run with that. But we think that risk premium has long gone, and that markets’ strength owes more to those technicals than is widely recognized."


And a farewell anecdote from the bank's leading strategist:
When in the days of the Roman Republic generals were awarded the highest honour the Senate could bestow – the right to lead a “triumph”, or parade of the spoils of war, into the city – it is said that a slave was required to stand at their side and whisper constantly into their ear that they too were merely mortal. With the Ides of March approaching – and, rather neatly, coinciding both with an FOMC meeting and with the Dutch elections – we think the timing would be good for investors too to remember to what they owe their improvement in fortunes. We don’t think it’s the arrival of a new emperor.

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S&P Futures, Global Stocks, Euro Dragged Lower By Deutsche, Geopolitics, French Election Worries
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by Tyler Durden
Mar 6, 2017 6:42 AM

European shares and S&P futures are modestly lower this morning, dragged down by fresh geopolitical concerns out of North Korea which last night fired 4 ballistic missiles, by renewed political jitters ouf of France where Alain Juppe announced he would not run in the presidential election, from Deutsche Bank whose aggressive equity offering has weighed on local stocks, and from China's announcement over the weekend in which it modestly cut its economic outlook. Risks were magnified following concerns of political stability in the US after President Trump's accusation that his predecessor Barack Obama wiretapped him overshadowed a flurry of M&A activity in Europe.


As a result, caution has rippled through equity markets while metals slumped on Chinese growth prospects and the French presidential race continued to roil the euro.

The Stoxx Europe 600 index was down 0.4% dragged by miners and banks as Deutsche Bank announced it was reversing course with an overhaul to raise capital. Deutsche Bank shares slumped 6% after Germany's biggest lender said it needs to issue more shares to raise 8 billion euros of capital. "The question is whether this will be the last capital hike or whether the bank will need more yet again in a few years," said Stefan de Schutter, a trader at Frankfurt-based Alpha, referring to Deutsche. "Until now, none of the restructuring measures have borne fruit."

Deutshce pressured European banking stocks and weighed on broader indices, offsetting a rise in shares of asset management firms after Aberdeen and Standard Life set the terms of their 11 billion pound tie-up. Both stocks rose more than 6 percent.

The FTSEuroFirst index of 300 leading shares and Germany's DAX fell as much as 0.7 percent, both hit by the slide in Deutsche Bank. The European banking index was down 1 percent.

MSCI's benchmark global stock index was flat on the day. U.S. stock futures pointed to a fall of around 0.5 percent at the open on Wall Street which would take some of the shine off last week's rally to fresh record highs, particularly the Dow's leap above 21,000 points. Japan's Nikkei lost 0.5 percent, but that was the outlier in Asia. MSCI's broadest dollar-denominated index of Asia-Pacific shares outside Japan rose 0.4 percent, recovering from Friday's 1 percent fall, its biggest this year.

The euro erased earlier gains and German bonds rose after former prime minister Alain Juppe said he won’t step in to replace Francois Fillon on the Republican ticket in France’s frenetic presidential election. As a result, European markets unwound Friday’s Juppe-motivated risk-on, with Bund futures rallying, core curves bull flattening and peripherals dropping with French bonds. Local press reported over the weekend Juppe would decline to replace Fillon, prompting early risk-off moves; bund futures rose to session highs as Juppe confirmed he won’t run just after 10:30am CET. France-German 10y spread wider by around 5bps; credit spreads widen and European stocks slid. Elsewhere, the German 10Y yield declined -3bps at 0.33%; March bund futures were +40 ticks at 164.38; Italy +3bps at 2.12%, France +2bps at 0.96%, Spain +3bps at 1.70% in a parallel risk on/risk off move.
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The bigger picture is that markets appear to be rolling over recent all time highs, as investors anticipate in a near-certain March U.S. rate rate next week.

Chinese Premier Li Keqiang warned of larger challenges ahead during his work report to the annual National People’s Congress gathering in Beijing. In Europe, the agenda is being set by politics, according to Pictet Asset Management. “The ‘pothole’ is a political one with far right parties gaining ground in opinion polls ahead of both a Dutch and French ballots in spring,” Luca Paolini, chief strategist at Geneva-based Pictet, said in a research note. “We are scaling back exposure to European stocks, albeit retaining our overweight stance.”

Risk appetite also took a hit on rising geopolitical tensions in East Asia. North Korea fired four ballistic missiles early in the day, while a spat between China and South Korea over missile defense deepened. Trump's accusation that his presidential predecessor Barack Obama wiretapped him during the late stages of the 2016 election campaign also cast a shadow over U.S. stocks. Some investors view Trump's confrontational style as distracting the president from his economic agenda.


And then there is the Fed: investors opened the trading week almost certain that the Federal Reserve will raise U.S. interest rates next week. Fed Chair Janet Yellen on Friday all but confirmed market expectations, barring any sharp deterioration in economic conditions. U.S. money market futures are pricing in about a 90% chance the Fed will raise interest rates by 0.25 percentage point at its meeting on March 14-15, with another rate hike fully priced in by September. But much of the market's move towards this level of certainty was made early last week, meaning it was already largely in the price of the dollar and U.S. bond yields.

Attention will now shift to the U.S. employment report for February on Friday, while investors are also awaiting more detail on Trump's fiscal plans.

"The rally (on Wall Street) has been mainly driven by promises made by President Trump to lower taxes, increase spending on infrastructure and the military," Rabobank analysts wrote in a note on Monday. "The importance of such pledges has increased as the Fed intends to raise rates further. What could possibly go wrong?"

Both the dollar and Treasury yields slipped on Monday, as investors took some profit from last week's moves and squared positions ahead of the expected rate hike. The Bloomberg Dollar Spot Index added 0.1 percent, after slipping 0.7 percent on Friday to halt a five-day rally. The euro edged up to $1.0640 having dipped below $1.05 last week, and the dollar fell a third of one percent against the yen to 113.60 yen. China's yuan was little moved, fetching 6.8920 yuan per dollar in offshore trade after China cut its growth target for this year to 6.5 percent, compared to its 2016 goal of 6.5-7 percent. Growth in 2016 was 6.7 percent.

In rates, the yield on the benchmark 10-year Treasury note declined one basis points to 2.47 percent. German bonds were Europe’s best performers, as 10-year yields dropped three basis points to 0.33 percent. French benchmarks declined, pushing the yield of debt due in a decade up two basis points to 0.96 percent.

Oil prices fell on concern over Russia's compliance with a global deal to cut oil output and China's lower growth target. International benchmark Brent futures fell 0.8 percent to $55.45 per barrel. Figures released last week showed Russia's February oil output was unchanged from January, casting doubt on Russia's moves to rein in output as part of a pact with oil producers last year

Key events in the coming week include the ECB's meeting on Thursday in which Mario Draghi is expected to keep things unchanged even though headline inflation reached its 2% target in February. He’s expected to keep QE going until the end of the year with underlying price pressures muted. Other economic highlights of the week are industrial output for Germany, France and the U.K., and German factory orders. The biggest economic event in the US will be the February jobs data on tap for Friday. Employers probably added around 190,000 workers to payrolls, in line with the average over the past six months and a sign of steady job growth, economists forecast. A big negative surprise may derail the Fed's plans for a rate hike.


Bulletin Headline Summary from RanSquawk

1. European equities begin the week on shaky ground, trading lower this morning by around 0.5% in major indices as sentiment is weighed on by concerns regarding Deustche Bank
2. Limited outright movement in the USD this side of the weekend, with mixed flow suggesting focus on its major counter-parts
3. Looking ahead, highlights include US Factory Orders, Durable Goods and Fed's Kashkari (not set so speak about monetary policy)

Top Overnight News from RanSquawk

1. Standard Life Agrees to Buy Aberdeen in $4.7 Billion Stock Deal
2. Peugeot Maker Agrees to Buy GM’s Opel in $2.3 Billion Deal
3. Juppe Says He Won’t Be a Stand-In Candidate in French Race
4. Deutsche Bank Reunites Traders With Bankers in Cost-Cut Mission
5. CSX Said Near Deal to Name Harrison CEO as Soon as Next Week
6. Japan Goes to Highest Alert Level After North Korea Missiles
7. Wells Fargo Executives May Face Criminal Charges, Reuters Says
8. Russian Hackers Said to Seek Hush Money From Liberal U.S. Groups
9. Trump’s Travel Ban Threatens to Deter Foreign Tourists From U.S.
10. U.S. Oil Industry Becomes Refiner to the World as Exports Boom
11. Bird Flu Found in Tennessee, Near Top U.S. Chicken States (1)
12. ‘X-Men’ Sequel ‘Logan’ Tops Box Office With Biggest 2017 Debut
13. Banks Set to Win Derivatives Relief in New EU Trading Rules
14. Exelixis Granted FDA Orphan Drug Status for Cabozantinib

Market Snapshot

1. S&P 500 futures down 0.2% to 2,375
2. STOXX Europe 600 down 0.5% to 373.29
3. MXAP up 0.5% to 144.51
4. MXAPJ up 0.5% to 463.97
5. Nikkei down 0.5% to 19,379.14
6. Topix down 0.2% to 1,554.90
7. Hang Seng Index up 0.2% to 23,596.28
8. Shanghai Composite up 0.5% to 3,233.87
9. Sensex up 0.8% to 29,062.68
10. Australia S&P/ASX 200 up 0.3% to 5,746.51
11. Kospi up 0.1% to 2,081.36
12. German 10Y yield fell 3.7 bps to 0.319%
13. Euro down 0.3% to 1.0595 per US$
14. Brent Futures down 0.5% to $55.60/bbl
15. Italian 10Y yield fell 3.9 bps to 2.1%
16. Spanish 10Y yield rose 1.5 bps to 1.693%
17. Brent Futures down 0.5% to $55.60/bbl
18. Gold spot down 0.2% to $1,231.81
19. U.S. Dollar Index little changed at 101.58

Asia stock markets saw a mixed session after having shrugged off the early cautious tone triggered by events over the weekend in which China lowered its GDP growth target and North Korea launched 4 missiles into the East Sea. This pressured ASX 200 (+0.1%), and Nikkei 225 (-0.5%) in early trade, although Australian stocks recovered led by commodity names amid prospects of further Chinese capacity reductions in the steel and coal sectors. Shanghai Comp (-0.5%) and Hang Seng (+0.2%) saw mixed performance with choppy price action amid the weaker Chinese growth target, as hopes for future stimulus measures increased while there were also several positive profit alerts by several firms ahead of the upcoming blue chip earnings. 10yr JGBs were flat despite the weakness in Japanese stocks with demand dampened amid the absence of BoJ in the market, while the curve flattened amid outperformance in the super-long end.

Top Asian News

1. China AVIC Helicopter Said to Mull Stake Sale in Civil Unit
2. Rich Gen-Y Asian Kids Pool Family Fortunes to Build Venture Fund
3. China’s Li Walks Knife Edge on Growth as ‘Graver’ Risks Loom
4. Papua New Guinea Grasps at Its Own Gas as LNG Exports Surge
5. China Beats Stability Drum as Fed Outlook Risks Yuan Decline
6. Sway of Geopolitics Lurks Under Cover of South Korea’s Markets
7. Most-Traded Indian Sovereign Bonds Drop as ‘Repo Squeeze’ Eases
8. Lone Star Bids for Astro Japan’s Real Estate Worth $736 Million

In European bourses, equities begin the week on shaky ground, trading lower this morning by around 0.5% in major indices as sentiment is weighed on by concerns regarding Deustche Bank. Friday saw the initial reports of an EUR 8bIn capital increase from the Co., and as further details have emerged over the weekend Co. shares now trade lower by 5.8%. Elsewhere, the UK has seen the notable M&A news of the day, with Standard Life and Aberdeen Asset Management agreeing a GBP 11 bIn tie up, to see both Co.'s share price higher this morning by 6% and 5% respectively. Amid the risk off sentiment, Bunds trade higher by 50 ticks with periphery spreads wider against the core due to safe haven flow. Reports that Juppe reiterated that he will not run in the French Presidential election saw FR/GE 10Y spread also widen, with Fillon appearing to many as having little chance at a notable presidential challenge.
Top European News

 

1. Juppe Says He Won’t Be a Stand-In Candidate in French Race
2. Deutsche Bank Reunites Traders With Bankers in Cost-Cut Mission
3. BT Pays $1.5 Billion to Keep Champions League Soccer in U.K.
4. Prime London Office Values May Fall 20% This Year on Brexit
5. OMV Buys Uniper’s Russia Field Stake to Cement Gazprom Ties
6. Hungarian Central Bank Reduces VP Nagy’s Responsibilities

In currencies, limited outright movement in the USD this side of the weekend, with mixed flow suggesting focus on its major counter-parts. EUR has been a beneficiary of latest developments in the French elections, with reports that the Republican are set to meet to address some of the damage suffered in recent weeks. EUR/USD has rallied to 1.0600+ levels, but with the prospect of a March Fed rate hike on the table, USD demand kicked in ahead of 1.0650. This has yet not materialised in USD/JPY, which continues to struggle below the 114.00 mark, but a large expiry at the figure level may be influential near term. Upside EUR pressure has pushed the GBP cross rate into the heavy selling zone from 0.8650-00, but progress here very slow, but GBP weakness looks to have been transferred since into Cable. The spot rate is now testing sub 1.2250 levels again, but we saw good demand ahead of 1.2200 last week.


In commodities, focus has been dominated by the performance of the Chinese economy, and to that end, the modest downgrade to growth forecasts may have prompted some weakness in base metals. Losses across the board are somewhat mixed, with Zinc the under-performer today, falling over 2%. Against this, Nickel has proved a little more resilient, though still down on the day, but finding some support from the Philippines considering a ban on exports of raw materials. Precious metals still moving in tight correlation to the USD/Treasuries, with a modest up-tick seen in the yellow metal, as there has been in Silver. WTI still trading comfortably inside, the USD50-55 range, with last week's focus on non OPEC compliance taking the shine off Oil prices. China's lowering of growth targets also seen to have had a modest impact this side of the weekend.


It looks set to be a quiet start to the week with factory orders and final durable and capital goods revisions in the US this afternoon.

US Event Calendar

1. 10am: Factory Orders, est. 1.0%, prior 1.3%; Factory Orders Ex Trans, prior 2.1%
2. 10am: Durable Goods Orders, est. 1.0%, prior 1.8%; Durables Ex Transportation, est. 0.1%, prior -0.2%
3. 10am: Cap Goods Orders Nondef Ex Air, prior -0.4%; Cap Goods Ship Nondef Ex Air, prior -0.6%

DB's Jim Reid concludes the overnight wrap
A little over a week out from the start of the two-day FOMC meeting and it now feels like a rate hike is a done deal. What a difference a week makes. Indeed Fed Chair Yellen effectively ratified a hike on Friday following her comments in Chicago. The most significant part of her speech was the one in which she said that “at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate”. The Fed Chair also added that “given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016”.


The end result was another slight tick up in the probability of a rate hike next week to 94%, as per Bloomberg’s calculator (which slightly overstates), from 90% a day prior. It was last late on Tuesday when we saw pricing really start to swing to reflect a much higher probability of a tightening after Dudley and Williams set the wheels in motion. Indeed we’ve seen the probabilities steadily rise each day last week from 52% on Tuesday, to 80% on Wednesday and then 90% on Thursday before rising further on Friday. In terms of the actual moves on Friday, 2y Treasury yields peaked as high as 1.341% just as Yellen spoke (about +3bps on the day) which is the highest this year and the highest since June 2009. However bonds actually strengthened a bit into the close and finished unchanged on the day at 1.305% reflecting perhaps the fact that a move is already pretty much priced in or further reconfirmation from Yellen that further tightening is still likely to be “gradual” in pace even if at a quicker pace than 2015/16.

10y Treasury yields peaked at 2.520% as Yellen spoke before also retracing that entire move into the close to finish at 2.478%. It’s worth highlighting that 2y yields ended up rising 16.2bps last week which is the biggest weekly move since February 2015. Interestingly after all the chatter about Bund yields hitting record lows, 2y Bunds also near enough kept up with the moves for Treasuries and finished last week up 14.1bps at -0.814%.


With all that said, this week’s main event data wise is almost certainly the February employment report in the US this Friday. Normally payrolls would be a focal point when the Fed is close to considering an imminent hike but given everything last week one would imagine that it would have to be an extraordinarily weak number to change the Committee’s minds now. The market consensus is for a 190k print and our US economists have pegged a 200k print so we’re not expecting any big negative surprises.


Before we get to the rest of the week ahead, over the weekend the most notable macro news has been in China following the start of the National People’s Congress. The headlines are dominated by the news that the government is now targeting “GDP growth of around 6.5%, or higher if possible in practice”.

While that compares to last year’s growth target of 6.5% to 7.0%, our economists in China think that it is still the same indication from the government that they do not want real GDP growth to fall below 6.5%. The government is also targeting a deficit-to-GDP ratio of 3% (the same as last year), a lower M2 growth target but not one that suggests meaningful tightening, a focus on containing and reducing financial risks, reduction in steel and coal production capacity and further liberalisation of the RMB exchange rate. Our economists also highlighted that another surprising part of the work plan is that discussions on the property market were still brought up in the context of “cut excess urban real estate inventory” which doesn’t seem to suggest much further policy tightening for the property market.

Markets in China have generally started the week on the front foot with the Shanghai Comp (+0.37%) and CSI 300 (+0.46%) both higher. The Hang Seng (+0.30%) is also up as is the ASX (+0.23%). However the Kospi is little changed and the Nikkei (-0.38%) lower following the news that North Korea has fired four missiles into the Sea of Japan including three which fell into Japan’s exclusive economic zone according to the Japanese government. The Yen (+0.20%) has reversed earlier losses following the report. Bond markets are generally little changed this morning.

Moving on. French politics is never far from the focus of markets and over the weekend there has been further confirmation from Fillon that he has no intention of standing down in the presidential election race following a rally in Paris. Much of the chatter on Friday was of Alain Juppe possibly replacing Fillon as the conservative candidate. Juppe is supposed to be making a statement this morning but has previously said that he will refuse to stand unless Fillon chooses to withdraw. In fact the newspaper L’Obs reported late last night that Juppe will announce that he is to decline running for president even if Fillon steps down, just to complicate matters further. We have actually had a couple of polls in last few days including Juppe in the running. The latest was a Kantar Sofres Poll (from March 2nd-4th) which showed that in the first round as things stand Le Pen would come out on top with 26% versus 25% for Macron and 17% for Fillon.

Replacing Fillon with Juppe however showed that Juppe would take 24.5% versus 20% for Macron and 27% for Le Pen. Another poll released on Friday (Odoxa covering 1st-2ndMarch) revealed that Juppe would come out on top in the first round with 26.5% versus 25% for Macron and 24% for Le Pen. Notably then this poll shows Le Pen as not reaching the second round with Juppe replacing Fillon. It’s worth keeping an eye on Juppe this morning to see if that press report is confirmed as being true.


Quickly wrapping up Friday’s session. As we noted at the top the dominant story was that speech by Yellen which effectively ratified a rate hike this month bar a big surprise in this week’s employment report. Vice-Chair Fischer also spoke but it was pretty much a non-event while Lacker (a non-voter) said that the Fed should hike to thwart a sudden and uncontrollable acceleration in inflation. We’ve noted the moves in rates while in equities the S&P 500 managed to recover from some early modest losses to finish just about onside with a +0.05% gain. It means that the index also closed up +0.67% for the week and so capping the sixth week in a row that the index has closed up. Markets in Europe were a bit more mixed. The Stoxx 600 ended -0.10% and the DAX -0.27% but the CAC (+0.63%) was buoyed by that poll (Odoxa) which suggested that support for a potential Juppe presidency diminished Le Pen’s chances, while the Italian FTSE MIB (+1.15%) also had a strong session. Away from that it was interesting to see the Dollar index (-0.65%) suffer its worst day in nearly 2 weeks despite Yellen’s comments, although perhaps more reflective of the strength in the Euro given those French election developments.


Away from the obvious focus on the Fedspeak there was also some economic data to take note of on Friday. Across the pond the US ISM non-manufacturing came in at 57.6 for February which was 1.1pts up on January’s reading and also well ahead of expectations for no change. It was also the best reading since October 2015 while the details revealed that the new orders index rose 2.6pts to 61.2 and the best since August 2015 while the employment component rose to 55.2 and back to last year’s November level. Away from that the Markit services PMI was revised down at the final count by 0.1pts to 53.8 which left the composite at 54.1 for the month of February.

Over in Europe there were no great surprises in the final PMI revisions either. The composite print for the Euro area was confirmed at 56.0 – unchanged versus the flash - after the services reading was revised down 0.1pts to 55.5. Regionally there was some strong numbers in the composites for Italy and Spain, driven by the services sector. The composite for Italy was confirmed at 54.8 and up 2pts from January while the composite for Spain rose 2.3pts to 57.0. Contrast that to the UK where the composite was revealed as falling from 55.4 to 53.8 in February. That is the lowest reading since August and so painting a sudden slightly divergent picture of growth between the Euro area and UK.

Moving now to the week ahead. It looks set to be a quiet start to the week with just the Sentix investor confidence reading for the Euro area due this morning followed by January factory orders and final durable and capital goods revisions in the US this afternoon. Tuesday kicks off in Germany with the January factory orders data, before we then get the Q4 GDP report for the Euro area. Over in the US tomorrow data includes the January trade balance and consumer credit prints. Wednesday starts in Japan where the final Q4 GDP revisions are due before we then get February trade numbers in China. During the European session we will get Germany industrial production and France trade data. In the US the focus will likely be on the February ADP employment change print, while Q4 nonfarm productivity and unit labour costs along with wholesale inventories and trade sales data is also due. Kicking off Thursday is China where the February CPI and PPI prints are due. In Europe we’ll then get business sentiment data in France before all eyes turn to the ECB meeting just after midday followed by Draghi’s press conference. Over in the US the data includes the import price index and initial jobless claims. We end the week on Friday in Europe with trade data in Germany and industrial production data in France and the UK, along with trade data in the latter. Over in the US we’ve then got the February employment report including the all important payrolls print.

Fedspeak this week is light with just Kashkari due to speak today. Away from that BoE Governor Hogg speaks today while Germany’s Schaeuble speaks on Thursday. Other important events to keep an eye on this week include the House of Lords completing its scrutiny of the Brexit bill on Tuesday and UK Budget on Wednesday. An EU summit of country leaders also starts on Thursday.

COMMENTS FROM BENJAMINIS: The above information is easy to read even if it takes about 15 minutes to read however by reading it all we have a current road map of where things stand on all fronts as we start the Forex trading week. The PERCEPTION is set as we await NEW information and then moods change and new facts come out and the markets adjust and the MONEY FLOW shows us where we are actually going. Have a great Forex trading week and in order to be able to trade with confidence be patient and do not trade just to be in the markets. At present time I am SHORT 2 positions of US 30 and SHORT 2 positions of SPX500 and I will just let the markets decide the results. I will not put on any new positions until there is a good reason to do so as at the moment there is just no set direction on any Asset Pair.

http://www.zerohedge.com/news/2017-0...ops+to+zero%29

The Complete Preview Of The March 15 Dutch General Election
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by Tyler Durden
Mar 6, 2017 4:13 AM



March 15 is not only the day when the FOMC is now widely expected to hike rates by another 25 bps, and when the US debt ceiling suspension expires, but just as importantly, is the date of the 2017 Dutch General Election. Here is a full preview of what to expect courtesy of RBC Capital Markets.

By way of background, the Netherlands is the euro areas 5th-largest economy, a founding member of the EU and one of only 3 euro area countries (along with Germany and Luxembourg) to enjoy an AAA rating from the 3 main ratings agencies.

Netherlands general election summary

1. Dutch voters cast their ballots in the countrys general election on Wednesday March 15th
2. According to opinion polls the (centre-right) VVD party of current Prime Minister Mark Rutte is vying with the anti-immigration, anti-EU, Freedom Party of Geert Wilders to emerge as the largest party
3. The election is the first in a series of votes this year that includes elections in France (April/May) and Germany (September), and potentially also Italy if early elections are announced later this year
4. A victory in the popular vote for Wilders could therefore be interpreted as a signal that anti-EU populist parties are coming to the fore in the EU ahead of those elections
5. However, the fractured nature of Dutch politics (its likely that up to 14 separate parties will win seats in parliament) means that the wider impact of Wilders emerging with the largest party may be limited
6. With no party set to command more than 30 seats in the 150-seat parliament, at least four parties will be required to form a government
7. Convention dictates that, were it to win the popular vote, Wilders Freedom Party would have first attempt at forming a government
8. However, most of the other main parties have ruled out co-operating with the Freedom Party and there is no rule that the government must contain the largest party
9. In order to deliver its commitment to withdraw the Netherlands from the EU, the Freedom Party would: 1) need to form a government that would agree to put a referendum bill to parliament; and 2) gain parliamentary approval, neither of which appear likely possibilities

Dutch General Election: Opinion Polls
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Dutch politics a bluffers guide
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Dutch election 2017 the main protagonists
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Dutch election 2017 but its not just about the big two parties
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Negotiation, negotiation, negotiation
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A near-term referendum on EU membership is unlikely
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Even thought Public opinion in favour of the EU has fallen
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Full presentation below (link)


COMMENTS FROM BENJAMINIS: When you carefully read this post and then click on the link above you through the research attached have the opportunity to know what the major players now know. When things change based on what actually happens you can be sure that the retail Forex traders will be the last to understand why things are changing in the currency markets. My two posts this morning contains all the fundamental information that you need to know to be on the same page as those that really move the markets. This to make it as simple as possible to understand is called fundamentals. As long as you take the time and read what is written then you are aware of what you need to know on the fundamental part of our Forex trading TOOLBOX.

The Technical part of our TOOLBOX only allows us an immediate X RAY of where we are at this exact moment. If you make decisions based on where you think it will go then you IMMEDIATELY have formed a BIAS and most likely created a losing situation for yourselves because now your EGO will enter into the picture for you if the move goes against your expectations. In the case of solely technical Forex traders their EGO is represented by their 100% confidence that the charts and their understanding of PIVOT POINTS and or Supply and Demand and or Support and Resistance will lead the way.

That will NOT HAPPEN.

So we see how Fundamentals are important and how technicals are important that they can program you for failure and most likely will in most cases. Some excellent Forex traders have found a comfort zone and can make money however long term they will always end up in most cases being on the losing side. Take a few minutes to read the posts on the EUR/USD thread on Forex Factory and it will be so clear that NOT ONE FOREX TRADER knows with certainty what will happen next.

GUESS WHAT ? Neither do I because before I can know, I need to see if we have RISK ON or RISK OFF and at the moment until the North American Equity Markets open and start trading at 9:30 AM Eastern Standard Time WE cannot know with certainty. Then even when we SEE the MONEY FLOW start in North America and Europe which remains open until 11:30 AM Eastern Standard Time everything CAN CHANGE at 10:00 AM Eastern Standard Time when there is NEW IMPORTANT FINANCIAL DATA to be released.

So we see that the Fundamentals and the Technicals are covered in our TOOLBOX and now we have added MONEY FLOW to our Toolbox so now we move on to the most important one that allows you to keep trading Forex for as long as you decide to and not have the FOREX MARKETS decide that for you and it is called RISK MANAGEMENT or sometimes called Money Management however bottom line without it being in your TOOLBOX you might as well take your trading capital whether it be $500 US Dollars or $5000 US Dollars or BEST OF ALL - $50,000 US Dollars , use the money to take care of yourself and go into another job or business because Forex Trading will not earn you a consistent income with perhaps a few exceptions until some BLACK SWAN EVENT shows up and THEN COMES THE INFAMOUS MARGIN CALL.

The reason that I teach Forex Traders how to become professional in this business by using a $50,000 US Funds Demo Account is that way there can be NO FEAR of Loss while you learn how to be a complete and successful Forex Trader.

The GREED side of Forex Trading is also dealt with as surely you cannot use your DEMO PROFITS to buy a new home or a new car or whatever you want to do with your money.

It also lets you discover if YOU have the DISCIPLINE to be a Winner in Forex.

Can you control your FEAR ?
Can you control your GREED ?
Can you control your EGO ?

If the answer is NO to anyone of the three questions above then you are in the wrong business whether part time or full time whether you are a Retail Trader or even a Professional Forex Trader eventually you will move on to another business in my opinion.

I welcome Forex Traders here that read the Thread on Money Flow Trading Method along with Risk Management to share their thoughts with me and others that read and post on this thread.

http://www.usagold.com/publications/...March2017.html

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News & Views
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 43rd Year in the Gold Business

March, 2017
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Will banks' excess reserves fuel a new monetary crisis?
Don't look now but inflation and a new gold rush might be in our future

Editor's note: The charts in this edition of our newsletter, offered in conjunction with the St. Louis Federal Reserve (FRED), are live, interactive and updated automatically. To monitor changes, we invite your return visits.
by Michael J. Kosares

Introduction: Professional investors are selling stocks and buying gold. Small investors are buying stocks and neglecting gold. While the bulk of attention has gone to the stock market thus far this year, gold is up 7.2% and the Dow Jones Industrial Average is up 6.2%. What is going on? In this month's issue we explore what the professional investors might know that small investors are missing?
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"Banks in the United States have the potential to increase liquidity suddenly and significantly from $12 trillion to $36 trillion in currency and easily accessed depositsand could thereby cause sudden inflation. This is possible because the nations fractional banking system allows banks to convert excess reserves held at the Federal Reserve into bank loans at about a 10-to-1 ratio. Banks might engage in such conversion if they believe other banks are about to do so, in a manner similar to a bank run that generates a self-fulfilling prophecy. . . What potentially matters about high excess reserves is that they provide a means by which decisions made by banksnot those made by the monetary authority, the Federal Reserve System could increase inflation-inducing liquidity dramatically and quickly." Christopher Phelan, economist, Minneapolis Federal Reserve

It has been an enduring mystery to many why the enormous amount of money created by the Federal Reserve in the wake of the 2008 crisis to bail out the imperiled financial system never translated to a general price inflation. After all, as Milton Friedman lectured us, "inflation is always and everywhere a monetary phenomenon." So why didn't the enormous amount of money created by the Fed during its quantitative easing program some $3.5 trillion pumped into American commercial banks to purchase mortgage-backed securities and Treasury paper launch double-digit price inflation, or worse?

The answer, as it turns out, lies in a little discussed and understood line item on the Fed's balance sheet labelled "Reserve balances with Federal Reserve Banks," or "excess reserves" as it is called in the banking trade. Up until recently, the excess reserve mechanism operated quietly in the background with little in the way of public notice. A quick calculation tells us though that nearly 70% of the $3.5 trillion three-phase QE program made its way back to the Fed in the form of excess reserves. This recycling program amounted to little more than a thinly-disguised sterilization of Wall Street's bailout in order to delay the inflationary dangers it might have generated.

Now, as you are about to see, we could be in the early stages of a new and little understood monetary crisis. The massive amount of capital parked at the Federal Reserve as excess reserves is being steadily withdrawn by the commercial banks and loaned to businesses and consumers with notable effect. About $700 billion of the $2.7 trillion pool of money on deposit at the Fed has already been redeployed by the commercial banks. In turn, the money supply has begun to rise, and most notably this past January (2017) the producer price index registered a surprising nearly double-digit 8% annual increase. As it turns out, the inflation created by the Fed's quantitative easing program seems only to have been put in temporary abeyance. The full effect is yet to be determined.
(Note: In the final two sections of this analysis, we provide some insight as to the most likely outcomes for both the economy and the gold and silver markets if the present monetary trends continue. Hint: Some of the parallels between the present and the 1970s are striking and unmistakable.)

The process for dollar monetization, as Mr. Phelan suggests, has been fundamentally altered and this new web page offers a venue for monitoring those changes. Few are aware of the nuances with respect to the causes in this new monetary order, and most, even financial veterans, at the moment see only the effects. Below we connect the lines between cause and effect, and in so doing update the rationale for gold and silver ownership to include the possibility of a new inflationary, or perhaps stagflationary, era.


Excess Reserves of Depository Institutions
Prior to the 2008-2009 economic meltdown and subsequent Federal Reserve led Wall Street bailout, commercial bank excess reserves stood at a meager $1.5 billion. Post-bailout, that figure rocketed to $2.7 trillion. Excess reserves now stand at roughly $2 trillion a $700 billion decline from the top in a period of a little over two years. The huge overhang of excess reserves, as explained above, is a residual of the Federal Reserve's quantitative easing programs, which represents both danger and opportunity for the U.S. economy opportunity in that their redeployment could lead to full recovery, and danger in that they could ignite instead a runaway inflation or stagflation.


Excess Reserves, One-Year Treasury Constant Maturity Rate,
Interest Rate on Excess Reserves
"The everyday tools of monetary policy are about to shift. The old standard tools of monetary policy taught in every intro econ class open market operations, altering discount rates, and adjusting reserve requirements all depend on banks that don't want to hold lots of excess reserves. When banks are holding a few trillion dollars in excess reserves, other policy tools are needed, and the Fed has already announced that monetary policy in the future will be conducted using the rate of interest that it chooses to pay on bank reserves as its primary tool for monetary policy, and secondarily by using its new reverse repo facility." Timothy Taylor, Conversable Economics


As you can see in the chart above, the rules of the game changed in advance of the Fed's December, 2015 interest rate increase. The free market forces, unleashed by global selling of U.S. Treasuries, immediately began pushing rates higher. Most importantly, note in the chart that after 2015 the interest rates on one-year U.S. Treasuries a proxy for interest rates in general consistently traded above the static rate the Federal Reserve paid on excess reserves. The commercial banks now had strong incentive to begin converting excess reserves into new lending an incentive that remains in play now.
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Excess reserves and bank credit
Capital in the modern fiat money system is borrowed into existence. For monetary policy to induce growth, consumers and businesses must be willing to borrow and banks must be willing to lend. Then and only then can growth and economic recovery begin. This chart demonstrates that banks have been successful in placing loans and that consumers and businesses are in fact willing to borrow.

There are three features in this chart worth special emphasis:
- First, the commercial banks steadily reduced excess reserves from October, 2015 when the Fed first suggested that it was about to raise interest rates.
- Second, bank credit* accelerated from early 2014 just before excess reserves began to flow from the Fed's balance sheet and back to the commercial banks. It gained momentum after the Fed actually raised its target for interest rates by .25% in December, 2015 and again in December, 2016 the second and third time in a decade it moved to push rates higher.
- Third, there is a clear divergence between excess reserves and bank credit demonstrating the direct connection between the two. As excess reserves were drawn down, bank credit went up.
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* Bank credit consists of the aggregate in loans extended system-wide by U.S. commercial banks to businesses, individuals and the federal government.

Excess reserves and money supply (M2)
The redeployment of $700 billion in excess reserves has precipitated some interesting knock-on economic effects in other areas of the economy including a burgeoning money supply. Note the divergence in the chart above beginning in 2014. As excessive reserves are drawn down, money supply goes up a clear indication of the correlation between excess reserves, bank credit, the money supply. . . .and ultimately, inflation. Famed monetary economist Milton Friedman stated that there was an average 23-month lag between the creation of money and when it showed up as monetary growth in M2. It is interesting to note that the commercial banks' first drawdowns in excess reserves occurred in early 2014 and, right on schedule, by late 2016 M2 had registered a 7.6% annualized gain.

Excess reserves and the producer price index
Of course, the ultimate end result of monetary policy is the effect on employment and prices. As you can see in this chart, producer (or wholesale) prices noticeably have begun to move higher. Note the divergence between excess reserves and producer prices beginning in December, 2015 a clear indication of the correlation between the two charted data sets. Inflation's return has not received a great deal of attention in media financial reports. Once it again becomes a regular topic in the business news, consumer spending habits and investment patterns are likely to change.

Gold and the Producer Price Index
As pointed out in the previous newsletter on this subject (linked here), the price inflation that normally would have occurred as the result of the massive money printing scheme following the 2008-2009 financial crisis was sterilized and parked on deposit at the Federal Reserve in the form of excess reserves. As such, monetary inflation was quarantined for a time but not permanently sidelined. Now, as this series of charts demonstrates, that process has gone into reverse with quick and predictable results. Inflation has suddenly become an issue once again. The above chart shows the tight correlation since 2000 between gold and producer prices.

Looking to the future
"We had initially asked to pay interest [in 2006] on reserves for technical reasons. But in 2008, we needed the authority to solve an increasingly serious problem: the risk that our emergency lending, which had the side effect of increasing bank reserves, would lead short-term interest rates to fall below our federal funds target and thereby cause us to lose control of monetary policy. When banks have lots of reserves, they have less need to borrow from each other, which pushes down the interest rate on that borrowing the federal funds rate." Ben Bernanke, The Courage to Act


Though it is too early to know with any certainty whether or not the tide has turned on the disinflationary economy, these changes in the monetary landscape are worth noting and monitoring. The telling part of the quote above is Ben Bernanke's concern about losing control of monetary policy. Since the crisis period he references, new threats to the Fed's preeminence have made their way into the monetary mix the global liquidation of U.S. Treasuries which has had a direct effect on interest rates, and the commercial banks' drawdown of excess reserves which has had a direct effect on bank credit and the money supply.
As long as the Fed continues its policy of raising rates slowly and incrementally, the demand for U.S. Treasuries from overseas investors, including foreign central banks and governments, will remain subdued and, in fact, encourage liquidations. (China, for example, has liquidated roughly $1 trillion of its reserves over the past year.) Those liquidations, in turn, will continue to push rates higher in a kind of self-reinforcing feed-back loop. As for the future flow of excess reserves out of the central bank, the top commercial banks all publicly owned have as their primary mission the pursuit of profit in the best interest of their stockholders. As long as they are able to receive a consistently higher interest rate on their lending by drawing down their excess reserves, it is their responsibility to do so.


The only way for the Fed to interfere in both processes would be to get ahead of the interest rate curve by consistently pushing the fed funds rate above the rate established in the free market. To do so at this juncture, however, would send the wrong signal to the financial markets and would kill any semblance of recovery already set in motion. In addition, it would thwart the Fed's own attempt to counter disinflationary/deflationary trends at work in the U.S. economy.
In short, the baton has clearly passed, at least for the time being, to the commercial banks and global sellers of U.S. debt. The former will be a key determinant in money creation and the latter a key determinant in setting interest rates. When seen in this context, Mr. Bernanke's concerns about the Fed losing control of monetary policy appear to have been warranted.


At the moment investors are focused on the political aspects of the "reflation trade" as it is dubbed by the mainstream media, i.e. the fiscal and tax policies proposed by the Trump administration. These policies though come with a long fuse. It will take many months for the Trump administration to push its agenda through Congress (if at all). After that, it will take many more months for any resulting legislation to be implemented (particularly in the case of fiscal spending), and more time still before it actually takes effect in the economy.


In the meantime, as the sequence of charts above demonstrates, the excess reserves situation and related activity of the Federal Reserve System present a more immediate and direct avenue to reflation of the economy. In fact, the effects of that effort are already being felt.
Gold's role in all of this "No one questions its value."
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In a recent World Gold Council interview, Alan Greenspan made the following comments on gold's portfolio role under an inflationary/stagflationary economic scenario:
"Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. Its not for short-term gain, but for long-term protection. I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counter-party signature. Gold, however, has always been far more valuable per ounce than silver.


No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC."


Gold is not like other assets that depend upon another individual or an institutions performance for value. It stands alone, and as Greenspan states without mincing words: No one questions its value. It is for those reasons that gold protects wealth no matter the economic malady visited upon the economy inflation, hyperinflation, disinflation, stagflation, runaway stagflation and deflation. It is the ultimate armchair investment the one asset you can rely upon no matter what happens politically or economically.

That said, Greenspan believes stagflation and runaway inflation to be the two primary portfolio menaces that need to be hedged for the future. Here is what he said in that same World Gold Council interview:
"As productivity growth slows down, the whole economic system slows down. That has provoked despair and a consequent rise in economic populism from Brexit to Trump. Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!


At the same time, the risk of inflation is beginning to rise. In the United States, the unemployment rate is below 5%, which has put upward pressure on wages and unit costs generally. Demand is picking up, as manifested by the recent marked, broad increase in the money supply, which is stoking inflationary pressures. To date, wage increases have largely been absorbed by employers, but, if costs are moving up, prices ultimately have to follow suit. If you impose inflation on stagnation, you get stagflation."


Investors last tangled with these twin dangers in the 1970s. Here is one last chart, and an important one, that shows gold's performance superimposed over the producer price index during that period. As you can see, while producer prices increased 2.5 times, gold rose by nearly 21 times. This chart tells, at a glance, the value of diversifying with gold and goes to the heart of the point Dr. Greenspan is making. (The Dow Jones Industrial Average over the same period gained only about 16%.) I might add as a final caution that runaway inflations rarely come in like a lamb, but more like a lion suddenly and with a full-throated roar. In that respect, the near double-digit 8% annual gain in wholesale prices this past January might have been a clear warning shot across the bow.
(Pictured above: Lydia gold stater, King Croesus, 561-541 BC, electrum (blend of silver and gold), heavy stater specimens bring upwards of $30,000 in top grades. This specimen is from the British Museum collection and reproduced with permission.)

Michael J. Kosares is the founder of USAGOLD and the author of "The ABCs of Gold Investing - How To Protect and Build Your Wealth With Gold." He has over forty years experience in the physical gold business. He is also the editor of News & Views, the firm's newsletter which is offered free of charge and specializes in issues and opinions of importance to owners of gold coins and bullion. If you would like to register for an e-mail alert when the next issue is published, please visit this link.

Disclaimer - Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.