end

“Global Market Rout” – Bond Selloff Snowballs Into Stock Liquidations On “Stimulus Pullback” Fears

While there is not much to add to our previous market wrap from earlier this morning, now that traders in the US are arriving at their desks, the selloff appears to be accelerating and as Bloomberg notes, “a selloff in fixed income is starting to snowball into a global market rout“driven by what Reuters dubbed“growing concerns that global central banks’ commitment to the post-crisis orthodoxy of super-low interest rates and asset purchase programs may be waning.”

It appears Kuroda broke markets once again, the reason being the central bank insistence to steepen yield curves to avoid suffocating banks and pension funds, while keeping the broader easing theme on hold even as it means trillions in longer-dated bonds now find themselves in limbo as frontrunning central bank purchases is no longer possible. So what do traders do? Why they sell of course.

As Bloomberg also adds, “shares in Europe and Asia dropped the most since the aftermath of the U.K. Brexit vote in June, and U.S. stock-index futures fell as concern spread that central banks are preparing to wean markets off unprecedented stimulus. Treasuries extended their slide into a fourth day as the U.S. prepared to sell three- and 10-year notes, and the yield on benchmark German bunds reached the highest since Britain’s decision to exit the European Union was confirmed. Oil sank toward $45 a barrel as nickel tumbled the most in four weeks. The yen advanced and the won slid. Samsung Electronics Co. tumbled after airlines and regulators warned against the use of its Note 7 smartphones.”

Come to think of it, it really is starting to look like a bloodbath, especially considering the dominant color in the following market summary table.

Last week Zero Hedge first warned that the incipient selloff in long-dated bonds, which the market had ignored for months, would spill over into all global markets and products, and sure enough that is precisely what is taking today, continuing Friday’s sell off. Starting with a tumble in longer-dated government bonds, “financial markets have been jolted out of a period of calm by an uptick in concern over the outlook for central bank policies. Lael Brainard, a member of the Federal Reserve’s board of governors, speaks Monday in Chicago, days after Fed Bank of Boston President Eric Rosengren said the economy could overheat.” (HARVEY: WHAT A DOORKNOB: ECONOMY OVER HEATING???)

 Not helping risk sentiment, the ECB last week played down the prospect of further stimulus and Bank of England Governor Mark Carney said the chances of a U.K. recession had fallen. With the the Bank of Japan set to unveil the results of a comprehensive policy review at its its Sept. 20-21 meeting, traders are on tenterhooks especially after a Friday Reuters report that the BOJ is now actively considering steepening the JGB yield curve.

“It was only a matter of time for this selloff,” said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf, Germany. “We had seen post Brexit a really notable rebound in markets even if fundamentals hadn’t improved accordingly. I expect some more downside going forward. There’s also the risk of the Fed meeting coming up.”

As a result, the MSCI All-Country World Index of shares fell for a third day, dropping 0.8 percent in early Europe trading. All major western-European stock markets dropped as the Stoxx Europe 600 Index lost 1.7 percent. The VStoxx Index tracking euro-area equity volatility headed for its biggest jump since January, signaling a return of instability after an extended period of stable prices. Miners posted the worst performance of the 19 industry groups on the Stoxx 600 today as commodity prices retreated. Energy companies slid as oil extended declines after U.S. producers increased drilling.  Linde AG tumbled 8.4 percent after saying it terminated talks for a combination with Praxair Inc. EON SE slid 15 percent after spinning off its Uniper SE unit. RWE AG fell 3.1 percent after confirming plans for an initial public offering of Innogy SE shares in the fourth quarter. SVG Capital Plc jumped 15 percent after HarbourVest Global Private Equity Ltd. offered to buy it for about 1 billion pounds ($1.3 billion) in cash.

Emerging Markets allowed no safe haven today, and the MSCI Emerging Markets Index slid 2.3%, the most since the June 24 Brexit vote. The gauge has tumbled 4.2% in two days, poised for a one-month low. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 4 percent, the most in seven months, and South Korea’s Kospi lost 2.3 percent. Samsung plunged 7 percent after U.S. regulators joined the company in cautioning users to power down their Note 7s and refrain from charging them. Aviation authorities and airlines have called on passengers to stop using the gadgets during flights. The company announced a recall of millions of big-screen smartphones on Sept. 2 after about three dozen of them were found to have batteries that caught fire or exploded.

S&P 500 Index futures slipped 0.7%, and were aggressively propped up by the key support level of 2,100.

Crude oil was down 1.7%, flirting with $45, after Friday’s Baker Hughes report that U.S. active rigs rose once again, while bets on falling prices also increased. OPEC’s monthly market report due at 6:45am ET. 

But the asset class currently in the driver’s seat remain bonds, where the selloff at the long end continues. Germany’s 10-year yield climbed four basis points, or 0.04 percentage point, to 0.05 percent, and touched the highest level since June 24. Spanish bonds with a similar maturity dropped a fourth day, pushing the yield to the most in seven weeks. Yields on 10Y Treasuries rose two basis points to 1.69 percent, before sales of a combined $44 billion of three- and 10-year notes. The three-year noes being sold later on Monday yielded 0.95 percent, an increase of 10 basis points compared with the previous auction on Aug. 9. Brainard, seen as a leading opponent of rate increases for much of the past year, is the last scheduled Fed speaker before the self-imposed blackout period running up to the Sept. 20-21 policy meeting. Any hawkish shift in her rhetoric may stoke volatility in financial markets, which on Friday put the probability of a hike in borrowing costs this month at 30 percent. Ten-year yields in Australia surged nine basis points to 2.05 percent, after gaining 10 basis points on Friday, and that for New Zealand debt with a similar due date jumped 11 basis points to 2.47 percent. Japanese government bonds with maturities of less than a decade advanced and longer-dated securities declined. The moves follow a Reuters report on Friday that said the Bank of Japan was studying options to steepen the nation’s yield curve. The cost of insuring corporate debt against default jumped the most since late June. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies climbed four basis points to 72 basis points. A measure of swaps on junk-rated corporate issuers rose 16 basis points to 332 basis points. Both gauges are at the highest in about two months.

Market Snapshot

• S&P 500 futures down 0.6% to 2104
• Stoxx 600 down 1.8% to 339
• FTSE 100 down 1.6% to 6670
• DAX down 2% to 10366
• German 10Yr yield up 4bps to 0.05%
• Italian 10Yr yield up 4bps to 1.29%
• Spanish 10Yr yield up 2bps to 1.1%
• S&P GSCI Index down 0.8% to 351.9
• MSCI Asia Pacific down 2.1% to 137
• Nikkei 225 down 1.7% to 16673
• Hang Seng down 3.4% to 23291
• Shanghai Composite down 1.8% to 3022
• S&P/ASX 200 down 2.2% to 5220
• U.S. 10-yr yield up 2bps to 1.69%
• Dollar Index down 0.08% to 95.26
• WTI Crude futures down 1.7% to $45.12
• Brent Futures down 1.4% to $47.34
• Gold spot up less than 0.1% to $1,329
• Silver spot down 0.2% to $19.02

Global Headline News

• Global Stocks Sink With Bonds, Commodities as Fed Angst Builds: Fed’s Brainard is among officials due to speak on Monday
• Linde, Praxair Agree to Terminate Discussions on Merger: Deal would’ve created world’s biggest industrial gas supplier
• HP Inc. Buying Samsung’s Printer Business for $1.05b: HP seeking to become a bigger player in copiers and printers
• North Korea Seen Ready to Conduct New Nuclear Test at ‘Any Time’: ‘High’ probability next detonation could come this year
• Clinton, Suffering From Pneumonia, Cancels Trip to California: Incident fuels speculation about Clinton’s health
• Perrigo Targeted by Activist Starboard With New 4.6% Stake: Activist critical of missteps since drugmaker rebuffed Mylan
• Starbucks New Tea Line Chases China’s $9.5b Tea Market: Launches tea products in Asia-Pacific after U.S. growth

Looking at regional markets, we start in Asia where stocks traded negative across the board following Friday’s US sell-off, where all 3 major indices slumped over 2% following hawkish Fed rhetoric and weakness in commodities. ASX 200 (-2.2%) printed fresh 2-month lows, weighed on by commodity weakness in which WTI crude futures declined over 3%, while a firmer JPY dampened hopes of a rebound in Nikkei 225 (-1.7%). KOSPI (-2.3%) fell below 2,000 amid continued geopolitical concerns and losses in Samsung Electronics. Shanghai Comp (-1.9%) and Hang Seng (-XX%) conformed to the widespread negative tone in the region, with the latter suffering from an increase in Hong Kong money market rates after the 3-month HI BOR gained the most since February amid speculation that the PBoC could be intervening in the CNH to prevent CNY depreciation ahead of the first Special Drawing Rights (SDR) operation at the start of next month. 10yr JGBs fluctuated with early support seen as the downbeat tone across equity markets increased demand for safety, however, prices then reversed aggressively in late trade following the BoJ’s buying operations which was for a relatively reserved amount.

Top Asian News

• Traders Most Bearish on Yuan in Four Months as Loan Rates Surge: Bonds extend drop as 10-year yield rises to 7-week high
• China Proposes Tighter Bond Market Leverage Rules After Defaults: An investor’s repo holdings can’t exceed 70% of bond holdings
• Bond Rout in Japan Will Pass, Says Analyst Who Picked Rally: Falling liquidity exposes market to spike in yields, Sano says
• Ex-SAC Trader Said to Shut Hedge Fund Backed by Alibaba Founders: Pinyin is led by Bazarian, who worked at SAC for 10 years
• Samsung Drops After Warnings to Stop Using Note 7 Phones: Global aviation authorities warn against use while on planes

Friday’s selloff in the US remains at the forefront of traders’ minds today, with the downside filtering through to Europe, with all major European indices in the red (Euro Stoxx: -2.3%). In terms of a sector breakdown, all sectors reside in negative territory, with financials and materials among the worst performers. E.on (-12.5%) remain the worst performer, given that today sees the first day of trade for Uniper, combined with reports of higher liabilities for nuclear waste storage. Also of note, Linde (-8%) are among the worst performers after their merger with Praxair fell through. Fixed income markets have also continued their decline, with Bund yields soaring further into positive territory, with the US weighed on by a significant quantity of supply, in the form of USD 24b1n 3yr notes and USD 20b1n 10yr note auctions.

Top European News

• Deutsche Bank CEO Says Asset Management Is ‘Essential Part’; Cryan tells staff not to become distracted by ‘speculation’
• Basel Capital Revamp Endorsed Without Assurance Sought by Europe: Basel aims to finish capital framework revision this yr
• HarbourVest Offers to Buy SVG Capital for About $1.3b: SVG shareholders will receive 650p in cash for each share they hold
• Carney to Assess Post-Brexit Strength as BOE Rate Seen Unchanged: BOE will announce policy decision on Thursday
• EON Loosens Grip on Old Power Plants as Uniper Starts Trading: Uniper starts trading at EU10.015/share in Frankfurt
• AB Foods Drops as Primark’s Summer Slowdown Prompts Selloff: Primark’s same-store sales declined about 2% in 4Q
• Schaeuble Goes Global to Crack Financial Transaction Tax Dilemma: Austria’s Schelling says decision needed in October
• Volkswagen Eyes Bond Sale as Carmaker Seeks to Move Past Scandal: Has ‘pretty good handle’ on scandal’s financial risk

In FX, the Bloomberg Dollar Spot Index fluctuated near a one-week high before Brainard’s speech, with regional Fed chiefs for Atlanta and Minneapolis also lined up to speak on Monday. The yen appreciated 0.6 percent versus the greenback. There’s “growing caution over a rate hike as the day of the Fed’s decision draws closer,” said Masashi Murata, a currency strategist at Brown Brothers Harriman & Co. in Tokyo. “Markets had been too confident that a hike wouldn’t happen. But global economies are not in a critical phase, so there’s a limit to selling on risk aversion. Money will eventually seek yields and underpin high-yielding currencies.” The won slumped 1.4 percent, the worst performance among major currencies, after Yonhap News reported that U.S. and South Korean intelligence authorities see a high chance that North Korea will conduct an additional nuclear weapons test after holding one on Friday. The MSCI Emerging Markets Currency Index slid 0.4 percent, leaving it down 1.3 percent over two days.

In commodities, the Bloomberg Commodity Index fell 0.6 percent, after sliding 1.3 percent on Friday. Crude oil sank 1.6 percent to $45.14 a barrel in New York after American producers increased drilling, adding to a glut. U.S. rigs targeting crude rose to the highest since February, according to data from Baker Hughes Inc. Nickel slid 3.4 percent in London, dropping for the first time in eight days, while tin tumbled by the most since May. Gold rose 0.1 percent, after retreating 1.6 percent over the last three sessions. Iron ore fell in China to the lowest since June amid speculation the nation’s policy makers will tighten property curbs and so cool demand for steel. Steps should be taken to restrain bubble-like expansion in the housing market, Ma Jun, chief economist of the PBOC’s research bureau, said in an interview with China Business News. Wheat in Chicago fell 0.7 percent to about $4 a bushel, approaching a decade-low of $3.8675 reached on Aug. 31. Money managers have their biggest-ever bet on price declines and a global stockpile estimate by the U.S. Department of Agriculture is forecast to still be at a record high after the figure is updated on Monday.

On today’s calendar, with the FOMC blackout period taking effect from Tuesday the Fedspeak is frontloaded to today. Lockhart will speak at 1.05pm BST, Kashkari at 6pm BST and perhaps most significantly the uber dovish Brainard is scheduled to speak at 1.15pm Chicago time.

* * *

Bulletin Headline Summary from RanSquawk and Bloomberg

• Friday’s selloff in the US remains at the forefront of traders’ minds today, with the downside filtering through to Europe
• Commodity currencies vs the JPY have been the primary target for risk sellers, and this has eventually weighed on USD/JPY which is now eyeing another test below 102.00
• Looking ahead, highlights include comments from Fed’s Lockhart and Brainard
• Treasuries slightly lower in overnight in overnight trading with global equities drop amid concern that central banks are preparing to wean markets off unprecedented stimulus.
  Week’s auctions begin with two events at 1pm ET with $24b 3Y notes, WI 0.945%; sold at 0.85% in August and $20b 10Y notes (re-opening), WI 1.675%; last sold at 1.503% in August, 72.2% awarded to indirect bidders was among highest on record;
• Fed’s Brainard will begin speaking at 1:15pm ET in Chicago
• The plunge in euro-area government bonds that has driven German yields to their highest level since the U.K.’s Brexit vote is unlikely to escalate into a full-blown rout, according to Charles Diebel, head of rates at Aviva Investors
• The U.S. government should consider fiscal and regulatory reforms to boost economic growth because the scope for low interest rates alone to do so is limited, said Federal Reserve Bank of Minneapolis President Neel Kashkari
• ABN Amro Group will cut as many as 1,375 jobs through 2020 as the Dutch lender begins to implement a 200 million euro ($225 million) cost-cutting plan announced last month
• Money managers increased wagers on falling oil prices by the most in three months as a meeting between Russia and Saudi Arabia ended without specific measures to support prices
• Oil extended declines following the biggest drop in more than a month after U.S. producers increased drilling as the market contends with an overhang of crude and fuel inventories
• The central bank governors overseeing the Basel Committee on Banking Supervision backed the “broad direction” of the regulator’s bank capital-rule revamp, while stopping short of providing assurances sought by Europe on the overhaul’s impact
• China should take steps to restrain bubble-like expansion in housing markets and tame excessive financial inflows into property, according to Ma Jun, chief economist of the People’s Bank of China’s research bureau
• China has proposed measures to tighten leverage rules in the onshore bond market, highlighting concern that investors’ borrowings are overextended after a series of defaults
• Democratic presidential nominee Hillary Clinton canceled a two-day trip to California after her campaign disclosed Sunday that she’s suffering from pneumonia. The cancellation followed Clinton’s abrupt departure from a Sept. 11 commemoration

US Event Calendar

• 8:05am: Fed’s Lockhart speaks in Atlanta
• 1:00pm: Fed’s Kashkari speaks in St. Paul, Minn.
• 1pm: U.S. to sell $24b 3Y notes; $20b 10Y notes in re- opening
• 1:15pm: Fed’s Brainard speaks in Chicago
• 6:30pm: Reserve Bank of Australia’s Kent gives Bloomberg Address in Sydney

DB’s Jim Reid concludes the overnight wrap

After a tight Treasury range for well over a month and with the S&P 500 not having a more than +\- 1% move since July 8th (the longest run since April-July 2014), the peace was suddenly shattered on Friday. Starting with US rates, 2y and 10y yields closed up +1.2bps and +7.6bps respectively. The move for the latter in particular means that the 10y has now busted out of the 1.50%-1.60% range in style, closing at 1.676% and the highest yield since the Brexit referendum. It also makes for an impressive two-day move (+13.6bps) which is second only to the July 11th-12th move (+15.2bps) for the largest this year. It was a similar story in European bond markets where yields were up anywhere from 7-9bps. In fact Friday even saw 10y Bunds rise +7.3bps or a more eye watering +115% to close at +0.009% and in positive territory for the first time since July 15th (which they only managed to hold for 24 hours). This morning in Asia we’ve seen similar maturity yields in Australia, New Zealand and South Korea rise 5-9bps, although interestingly 10y JGB yields initially opened higher but have since retreated and are currently 1bp lower. 30y yields are however nearly 4bps higher and so the curve has steepened which fits in with recent headlines that the BoJ wants to maintain a comparatively steep yield curve.

It won’t come as much surprise to hear that it was a good day on Friday for the Greenback then with the USD index closing +0.33%. On the other side of the coin it was a rough day for emerging market currencies though with the likes of the Colombian Peso (-2.60%), South African Rand (-1.93%), Brazilian Real (-1.85%) and Russian Ruble (-1.25%) falling sharply. In equity land the S&P 500 (-2.45%) had its worst day since the post-Brexit reaction on June 24th and as a result the worst week since early February. High yielding dividend stocks were hit hardest on Friday with the likes of real estate, utilities and telecoms sectors all down well over 3%. Financials and specifically Banks did perform better given the steepening across yield curves. This was most evident in Europe where the Stoxx 600 tumbled -1.09% but the Stoxx 600 Banks index closed +0.30%. On a related note it was also interesting to see that the S&P 500 vs. US 10y Treasury yield 20-day correlation is now approaching the most negative (-0.520) in five years having traded with a positive correlation for most of 2016.

The risk off moves weren’t just confined to equity markets as credit spreads also blew wider. CDX IG finished over +4bps wider by the end of play while in Europe the iTraxx Main and Crossover indices were +3bps and +14bps wider. Meanwhile the VIX rose 40% and to the highest since June. Finally Oil (WTI -3.65%) had its worst day since July 13th while Gold (-0.78%), Silver (-2.91%) and the wider base metals market also had days to forget.

A big contributor to Friday’s collapse was the Fedspeak and in particular hawkish comments from Boston Fed’s Rosengren midway through the day. We’ll touch on his comments shortly but with that in mind and with the FOMC blackout period kicking in tomorrow it’s worth keeping a close eye on Fed Governor Brainard’s comments this evening at 6.15pm BST/1.15pm EST. As a reminder this scheduled event was only added very recently and there’s some suggestion that it could be used as an opportunity for the Fed to raise market expectations and give the FOMC some more wiggle room at the September meeting, given Brainard’s position as one of the most dovish committee members. We’ll also hear from Lockhart and Kashkari today, so it has the makings of another busy day.
Looking at the rest of markets this morning in Asia, it’s been a rough opening for risk where equity bourses are tracking Wall Street’s losses on Friday. There have been heavy falls for the Nikkei (-1.51%), Hang Seng (-2.38%), Shanghai Comp (-1.56%), Kospi (-1.77%) and ASX (-2.17%) while credit indices in Asia and Australia are 3-4bps wider. US equity index futures are also currently in the red. It’s worth noting that headlines this morning are also dominated by another story, that being the latest in the US presidential race where Democratic nominee Hilary Clinton has been diagnosed with pneumonia, hours after leaving a memorial event on Sunday. The health of both Clinton and Trump has been a talking point in the race and while this may end up being a largely irrelevant story in the grand scheme of things, and also in markets, it will be interesting to see if this causes any sharp swings in upcoming polls given that it is a subject which has divided opinions. One to watch.

Back to the Fed comments on Friday. The most notable was the chatter from Rosengren (voter) who is typically seen being a more dovish member of the Fed camp. Specifically he said that a ‘reasonable case’ can be made for a rate hike, helped by ‘modest increases in wages and salaries’ that ‘seem to me consistent with tightening in labour markets beginning to appear more strongly in the wage data’. Rosengren also added that ‘a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery’. DB’s Peter Hooper believes that Rosengren is pretty clearly in the September hike camp and his remarks, by themselves, should have moved the odds on September above 50/50.

Those odds did spike up to 38% from 28% following Rosengren’s comments, but some slightly more balanced Fedspeak which followed later in the session saw the September probability actually dip back down to 30% by the end of the day. Indeed it was Governor Tarullo who followed and maintained his usual dovish and cautious stance. He said that while he wouldn’t rule out a hike this year, he remains in the ‘show me’ camp, or in other words wants to see more evidence of firmer inflation. He said that ‘regardless of what measure you use, from my point of view, what is optimal right now is to look to see actual evidence that the inflation rate would continue to go up and would be sustained at around the target’, adding that ‘we’ve had so many false up and downs in the past’. The final comments came from the relatively centrist Dallas Fed’s Kaplan who said that the ‘Fed can to be patient and deliberate in its actions’ but that ‘I still believe that over the last several months the case has strengthened’.

Away from the Fedspeak, the small amount of economic data released on a Friday was largely a sideshow to what was going on in markets. Across the pond wholesale inventories were confirmed as being unchanged in July and so unrevised from the initial flash reading, while wholesale trade sales fell -0.4% mom. The Atlanta Fed revised down their latest Q3 GDP forecast to 3.3% from 3.5% while the NY Fed’s Q3 estimate was held at 2.8%. Prior to this in Germany a much weaker than expected exports reading in July (-2.6% mom vs. +0.4% expected) helped to lower the trade surplus and continued the recent run of weak data in the country. Over in France industrial production was softer than expected in July (-0.6% mom vs. +0.3% expected) while here in the UK the July trade deficit narrowed a little less than expected.

Turning over to the week ahead now. It’s a super quiet start to the week today outside of the Fed speak detailed below with no real significant data due to be released. Tomorrow kicks off in China where the August data dump is due including retail sales, fixed asset investment and industrial production. During the European session tomorrow we’ll get the final August CPI revisions in Germany along with the September ZEW survey. There’s important data due to be released in the UK tomorrow too with the August CPI/RPI/PPI readings due. In the US tomorrow we’ll get the August NFIB small business optimism reading, along with last month’s monthly budget statement. We start in Japan on Wednesday where the final revision to industrial production in July will be made. We then move onto France where the final August CPI revisions are made before the UK comes under the spotlight again with the latest employment report. Euro area industrial production in July will also be released. It’s quiet once again in the US on Wednesday with the only data due being the import price index for August. It’s a busier day all round on Thursday. In Europe we’ll again get more important data out of the UK, this time in the form of the August retail sales data. Euro area trade data and the final August CPI number will also be released before all eyes turn to the BoE meeting at midday. During the afternoon session in the US we’ll get August retail sales, Philly Fed business outlook in September, PPI in August, initial jobless claims, empire manufacturing in September, industrial and manufacturing production in August and business inventories in July. So hold your breath for that one. Closing the week on Friday there’s little to highlight in Asia or Europe. In the US however we’ll get the August CPI report along with a first look at the University of Michigan consumer sentiment survey for September.

Away from the data, as noted earlier with the FOMC blackout period taking effect from Tuesday the Fedspeak is frontloaded to today. Lockhart will speak at 1.05pm BST, Kashkari at 6pm BST and perhaps most significantly the uber dovish Brainard is scheduled to speak at 6.15pm BST. Away from that the ECB’s Lautenschlager speaks tomorrow and the EU’s Juncker speaks on Wednesday.

3a)NORTH KOREA:

none today

Even thought the Hague ruled that China does not have the right to the South China Sea islands, they are still antagonizing Washington.  Today the Chinese and Washington are holding the largest ever joint drill in the South Chinese seas.

(courtesy zero hedge)

Deutsche bank’s David Bianco joins Goldman Sachs’s Kostin in warning that Friday’s sell-off is just the beginning and to expect an 8 to 10% decline in the S & P

Reggie shows us the huge problem facing Deutsche, the mis-match in assets/liabilities

(courtesy Reggie Middleton)

Deustche Bank and the Anatomy Of A European Bank Run: Look at the Situation BEFORE The Run Occurs

by Reggie Middleton

Following up on Deutsche Bank as Ground Zero?, I’d like to focus on the deteriorating credit metrics at Germany’s largest bank. To be absolutely honest, an educated consumer is the at odds with the bank’s other stakeholders in this situation. Educated consumers, particularly those seeking safe, secure bank accounts and lending facilities should be moving out of Deutsche bank right now. DB is far from safe and secure, particularly in relation to other destinations. Remember, bank bail-ins are EU law now. European regulatory authorities can force these failing institutions to cancel or severely dilute shareholder equity or to cancel, write-down or convert unsecured liabilities to equity. Such regulatory action is referred to as a “bail-in.” Bank depositors (checking, savings, demand accounts) are investors as well, in the form of unsecured creditors.

Most depositors still don’t realize this (despite Icelandic bank depositors getting smashed). Depositors are the largest, one of the cheapest, and currently the most stable form of bank financing.

Most depositors, when they realize they actually are investors, should head to safer pastures. This will leave a gaping whole in Deustche Bank where 312 euros once stood. Let’s recent how I described The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs:

… Below is a chart excerpted from our most recent work showing the asset/liability funding mismatch of a bank detailed within the report. The actual name of the bank is not at issue here. What is at issue is what situation this bank has found itself in and why it is in said situation after both Lehman and Bear Stearns collapsed from the EXACT SAME PROBLEM!

 

… The problem then is the same as the European problem now, leveraging up to buy assets that have dropped precipitously in value and then lying about it until you cannot lie anymore. You see, the lies work on everybody but your counterparties – who actually want to see cash!

… The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors.  In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!

The research and knowledge subscription module “European Bank Contagion Assessment, Forensic Analysis & Valuation” contains a full report of a very large European Deustche Bank counterparty that faces a full 27% downside from current levels. It appears as if no one suspects a clue. It also contains much, much more (including at least 3 to 5 suspect banks). We can break this apart a la, if requested.

5. RUSSIAN AND MIDDLE EASTERN AFFAIRS

none today

6. GLOBAL ISSUES

none today

Oil drops into the 44 dollar handle.  Russian and Saudi Arabia are having a fierce battle trying to serve oil to China. Is it possible that the huge importing of oil into China is meant to derail the Russian/Saudi oil deal i.e. the freezing of production?

(courtesy Upadhyay/OilPrice.com)

Crude Slides To $44 Handle – Is China Deliberately Trying To De-Rail The Russia/Saudi Oil Deal?

end

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings MONDAY morning 7:00 am

Euro/USA   1.1220 DOWN .0009 (STILL  REACTING TO BREXIT/REACTING TO BRITISH CUT IN INTEREST RATE TO .25%

USA/JAPAN YEN 101.87  DOWN .631(Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER/KURODA:  HELICOPTER MONEY  ON THE TABLE BUT DISAPPOINTS WITH STIMULUS

GBP/USA 1.3261 DOWN .0001 

USA/CAN 1.3109 UP .0076

Early THIS MONDAY morning in Europe, the Euro FELL by 9 basis points, trading now well above the important 1.08 level FALLING to 1.1267; Europe is still reacting to Gr Britain BREXIT,deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, and NOW THE USA’S NON tightening by FAILING TO RAISE THEIR INTEREST RATE / Last night the Shanghai composite CLOSED DOWN 58.88 POINTS OR 1.85%    / Hang Sang CLOSED DOWN 809.10 POINTS OR 3.36%     /AUSTRALIA IS LOWER BY 2.24% / EUROPEAN BOURSES ALL IN THE RED 

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade ( NIKKEI blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this MONDAY morning CLOSED DOWN 292.84 POINTS OR 1.73%  

Trading from Europe and Asia:
1. Europe stocks ALL IN THE RED

2/ CHINESE BOURSES / : Hang Sang CLOSED DOWN 809.10 POINTS OR 3.36%  ,Shanghai CLOSED DOWN 56.88  POINTS OR 1.85%    / Australia BOURSE IN THE RED: /Nikkei (Japan)CLOSED IN THE RED   INDIA’S SENSEX IN THE RED 

Gold very early morning trading: $1326.00

silver:$18.79

Early MONDAY morning USA 10 year bond yield: 1.687% !!! UP 2  in basis points from FRIDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield  2.398, UP 1 IN BASIS POINTS  from YESTERDAY night.*VERY PROBLEMATIC THAT YIELDS ARE RISING IN A HUGE KILLER MOVE ON THE DOW SOUTHBOUND 

USA dollar index early MONDAY morning: 95.36 UP 7 CENTS from FRIDAY’s close.

This ends early morning numbers MONDAY MORNING

END

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And now your closing MONDAY NUMBERS

killer move higher on all sovereign bonds globally today

Portuguese 10 year bond yield: 3.193%  UP 3 in basis point yield from FRIDAY  (does not buy the rally)

JAPANESE BOND YIELD: 0.002% UP 2 in   basis point yield from FRIDAY

SPANISH 10 YR BOND YIELD:1.083% par IN basis point yield from FRIDAY (this is totally nuts!!/

ITALIAN 10 YR BOND YIELD: 1.277 UP 3 in basis point yield from FRIDAY 

the Italian 10 yr bond yield is trading 15 points HIGHER than Spain.

GERMAN 10 YR BOND YIELD: +0.034% UP 2IN  BASIS POINTS ON THE DAY

END

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IMPORTANT CURRENCY CLOSES FOR MONDAY

Closing currency crosses for MONDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/3:30 PM

Euro/USA 1.1249 UP .0019 (Euro UP  19 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 101.69 DOWN .812(Yen UP 81 basis points/

Great Britain/USA 1 .3344 UP 0.0083 ( Pound UP 83 basis points/BREXIT DECISION AFFIRMATIVE/THE BREXIT HAS NOT HURT ENGLAND AT ALL!~

USA/Canada 1.3037 UP 0.0005 (Canadian dollar DOWN 5 basis points AS OIL ROSE (WTI AT $46.26). Canada keeps rate at 0.5% and does not cut!

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This afternoon, the Euro was UP by 19 basis points to trade at 1.1249

The Yen ROSE to 101.69 for a GAIN of 83 basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED/BANK OF JAPAN NOW WORRIED AS AS THEY ARE RUNNING OUT OF BONDS TO BUY AS BOND YIELDS RISE 

The POUND was ROSE 83 basis points, trading at 1.3344/

The Canadian dollar FELL by 5 basis points to 1.3037, DESPITE WTI OIL AT:  $46.26

 

The USA/Yuan closed at 6.6800

the 10 yr Japanese bond yield closed at -.002%  UP 2 IN BASIS POINTS / yield/ AND THIS IS BECOMING BOTHERSOME TO THE BANK OF JAPAN

Your closing 10 yr USA bond yield: DOWN 2 IN basis points from FRIDAY at 1.6650% //trading well below the resistance level of 2.27-2.32%) very problematic

USA 30 yr bond yield: 2.39  DOWN 1/5 in basis points on the day /*very problematic as all bonds globally rose in yield (lowered in price)

BANKS NEED THE LONGER BOND HIGHER IN YIELD: INSTEAD THE SPREAD LESSENS.

Your closing USA dollar index, 95.05 DOWN 25 CENTS  ON THE DAY/4 PM 

Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for MONDAY

London:  CLOSED DOWN 72.05 POINTS OR 1.12%
German Dax :CLOSED DOWN 141.67 OR  1.34%
Paris Cac  CLOSED DOWN 51.60 OR 1.15%
Spain IBEX CLOSED DOWN 158.90 OR 1.76%
Italian MIB: CLOSED DOWN 316.70 POINTS OR 1.84%

The Dow was UP 239.62 points or 1.32% 

NASDAQ  UP 85.98 points or 1.68%
WTI Oil price; 46.26 at 4:30 pm;

Brent Oil: 48.30

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  64.55 (ROUBLE UP  29/100 ROUBLES PER DOLLAR FROM FRIDAY) 

TODAY THE GERMAN YIELD FALLS TO +0.034%  FOR THE 10 YR BOND

END

This ends the stock indices, oil price, currency crosses and interest rate closes for today

Closing Price for Oil, 5 pm/and 10 year USA interest rate:

WTI CRUDE OIL PRICE 5 PM:$46.06

BRENT: $48.13

USA 10 YR BOND YIELD: 1.665%

USA DOLLAR INDEX: 95.14 DOWN 15 cents

The British pound at 5 pm: Great Britain Pound/USA: 1.3319 UP .0072 or 72 basis pts.

German 10 yr bond yield at 5 pm: +0.038%

END

And now your more important USA stories which will influence the price of gold/silver

Trading early today:

This is why markets tanked across the globe:

(courtesy zerohedge)

Stocks Soar Most In 2 Months After Brainard Warns “Not Compelling” To Raise Rates

“You get nothing… it’s all here in black and white… shit’s so bad out there that you get no interest rate hike!!”

Maybe she has a point…

But buy stocks because earnings expectations for 2016 just hit cycle lows…

Post-Rosengren…

And Post-Brainard…

Equities soared today – the biggest jump in over 2 months (since the Brexit rebound)…

Notably, S&P tradex extremely technically – tumbing yesterday through the 50-day moving average, testing the 100DMA (2120) this morning and bouncing up to the 50DMA (2163)…

The S&P’s bounce was a 61.8% fibonacci retracement…

Investors rushed into the safety of Biotech stocks…

No sectors managed to get green over the past two days… (on the day healthcare outperformed but the entire complex moved linearly)…

After 2 days of serious (Saudi?) selling, Treasuries flatlined today (with the short-end outperforming -2bps, versus the long-end 0bps)…

Notably the Japanese yield curve continues to steepen dramatically…

The USD Index slid lower all day but did not unwind all of the gains from Friday…

Commodities all ended green today with crude rescued for no good reason at all… but we note only copper is green for the last 2 days…

Charts: Bloomberg

Bonus Chart: The Most Important Chart of the day…

Bonus Bonus Chart: Just a reminder, before we see today’s data, that Friday saw the biggest Emerging Market fund outflow in history…

 

end

Our quant guys are now stating that we should expect increase volatility and thus risk: Bank of America expects a huge 52 billion in near term selling pressure:

(courtesy zero hedge)

“Friday ‘Shock’ Larger Than Brexit For Quants”: BofA Expects $52 Billion In Near-Term Selling Pressure

It all started with a note by JPM’s Marko Kolanovic last Wednesday, in which he warned that the period of market calm is ending, and volatility was about to surge, which in a reflexive fashion would lead to accelerated selling by quant, systematic and risk-parity funds as a result of near-record leverage.  According to Kolanovic while a driver of the recent market stability the “relatively stable macro data and a seasonal decline in trading activity” he explained that “a significant driver of the volatility collapse was derivatives hedging effects, also known as pinning”, as well as the near all-time high leverage for Volatility Targeting and Risk Parity strategies. However, “this is all about to change as a number of important catalysts materialize this month (ECB, BOJ, Fed meetings), seasonals push market volatility higher, and leverage in systematic strategies and option positioning provide fuel for volatility.”

For those who missed his must-read note, which predicted the Friday plunge with uncanny precision, this is what he said:

As market volatility plummeted, investors added to option protection and moved (struck) it closer to current price level. The market would need to move only 1-2% lower for option hedging to push volatility higher (as opposed to suppressing it, which was the case past 2 months). Given the low levels of volatility, leverage in systematic strategies such as Volatility Targeting and Risk Parity is now near all-time highs. The same is true for CTA funds who run near-record levels of equity exposure. Our estimate of equity exposure for these strategies is shown in Figure 1.

Record leverage in these strategies and option hedging could push the market lower and volatility higher, if there is an initial catalyst to increase volatility. In fact, we may not even need a specific catalyst, apart from the seasonal increase in market volatility which is typical for September and October. Figure 2 above shows that equity volatility tends to increase by ~20-30% in September and October  (September also tends to be the worst performing month, with an average -1% return). This seasonality is also present after removing prominent outliers (e.g. 2001, 2008, 2011, and 2015). When it comes to deleveraging of systematic strategies, even this seasonal increase in realized volatility would produce outflows of ~$100bn, which could push the market lower.

* * *

So, following Friday’s broad-based deleveraging across all quant, and certainly risk-party funds, the topic of forced selling has dominated sellside research, with BofA releasing a report overnight according to which “multi-asset vol controlled portfolios that use a systematic approach similar to our modelsmay be subject to $12bn in global equity selling pressure in the coming days ahead. Likewise, we estimate about $40bn in global equity selling pressure via CTAs in the near term. Between the two, we could see ~$52bn in near-term selling pressure, half of which may be through US markets.Global equity selling pressure via CTAs could also increase as European and Asian markets had closed before a large portion of the move lower in US equities on Friday.”

Even more interesting is BofA’s comparison of what happened today with the post-Brexit selloff: according to BofA Friday was worse, as the notional volume traded in S&P500 E-mini futures alone was $516bn. “While the current selling pressure we estimate from quant funds is only ~10% of the volume traded, the key question is if this is just the beginning of more volatility that ultimately puts more selling pressure on the market. In comparison with past shocks, during Brexit our models estimated ~$50bn of selling but only from CTAs and over a ten-day period in August-2015, ~$115bn from CTAs and ~70bn from multiasset risk-parity like funds. Importantly, in a fragile market with low conviction, the risk is that negative price action alone drives further selling.”

So far this is precisely what is going on.

Here is the full note by BofA’s Chintan Kotecha and team, which if correct, means even more pain for stocks in the coming days.

Record lull in volatility finally breaks as shock risk runs high

Through Thursday Sep 8th, the S&P500 recorded its longest stretch (42 trading days) in history (since 1928) of trading within a range of 1.77%. Friday, this lull was broken as the S&P fell 2.45%, its largest daily move since Brexit. However, unlike the Brexit selloff, Treasuries also fell, causing a greater jump in multi-asset portfolio volatility. As we have highlighted, markets remain vulnerable to a shock as the recent low vol has pushed up leverage and long positioning across a range of investment strategies.

Low vol + rising equity = elevated leverage & positioning

In our weekly report two weeks ago, we noted the degree to which low volatility and rising equities could potentially be increasing leverage and long positioning from certain quantitative based funds. Specifically, our models showed leverage levels across multiasset &  other portfolios that target fixed volatility may have been at their max limits. As well, our bottom-up CTA model suggested that positioning in global equities via trend following managed futures funds could be at its highest levels since 2015. For both classes of funds, the theoretical risk of deleveraging can be highest when vol spikes up from low levels and when assets had been trending higher, much like environment prior to Friday. In addition, BofAML US quant strategy has recently noted that a number of long-only and hedge fund positioning metrics are back to 2015 or higher levels.

Declining equity/bond diversification leading to higher vol

Three-month correlation between the S&P500 and 10-Year US Treasury bond prices set its YTD low on the Monday post-Brexit at -0.66. As a result, risk parity-style portfolios likely fared well through Brexit as sharp moves lower in global equities were diversified by the strong performance in bonds. In the almost three months since then, the correlation of daily moves between the two increased to -0.08 and over the last month alone, the correlation has turned positive to 0.27. Increasing correlation implies less diversification for risk parity-style portfolios and could be a precursor to higher vol.

Friday’s shock alone likely larger than Brexit for quant funds.

As a result of Friday’s decline, we estimate multi-asset vol controlled portfolios that use a systematic approach similar to our models may be subject to $12bn in global equity selling pressure in the coming days ahead. Likewise, we estimate about $40bn in global equity selling pressure via CTAs in the near term. Between the two, we could see ~$52bn in near-term selling pressure, half of which may be  through US markets. Global equity selling pressure via CTAs could also increase as European and Asian markets had closed before a large portion of the move lower in US equities on Friday.

While not dominant driver of flows; still key to watch

For perspective, on Friday, the notional volume traded in S&P500 E-mini futures alone was $516bn. While the current selling pressure we estimate from quant funds is only ~10% of the volume traded, the key question is if this is just the beginning of more volatility that ultimately puts more selling pressure on the market. In comparison with past shocks, during Brexit our models estimated ~$50bn of selling but only from CTAs and over a ten-day period in August-2015, ~$115bn from CTAs and ~70bn from multiasset risk-parity like funds. Importantly, in a fragile market with low conviction, the risk is that negative price action alone drives further selling.

END

We now have another major problem in the USA bond market: the 10 yr repo failed again.  This means we are having a scarcity problem!

(courtesy zero hedge)

Another Problem Emerges For The Bond Market: 10 Year Repo “Failing” Again

As if the US Treasury market did not have enough things to worry about after Friday’s sharp selloff and steepening of the yield curve, ahead of today’s 10Y auction there is another problem facing the bond markets: a fresh episode of substantial collateral scarcity, manifesting itself in another round of “near fails” repo rates for benchmark US paper.

As Stone McCarthy reports this morning, the 10-year note is trading at -270 basis points this morning, after trading at -270 basis points at the end of last week. Though issues often trade special, there is a limit to how low they can trade. Or rather, there should be. The dynamic fails charge is the rate paid by the party who fails to meet delivery for a repo transaction. The fails charge is either 0%, or 3% minus the lower end of the target fed funds rate (whichever is higher). With the low end of the target fed funds rate at 25 basis points right now, the fail rate is currently 275 basis points, which should serve as a floor for how low repo rates can go. Currently, it is serving as a floor for the 10-year note repo.

As SMRA adds, with the 10-year note repo trading at -270 basis points this morning, we can expect a decent amount of volatility today. In March, the 10-year note did trade below the fails rate for nearly a week. Should it fall further from its current rate, even slightly, it will become less costly for a counterparty to fail to deliver 10-year notes than to try and obtain it through the repo market. This means fails, and fails on the 10-year note in particular, will likely see a noticeable jump, much like the one in March.

Ironically, it also means that as the Fed contemplates tightening the bond market with another rate hike, the most likely outcome would be to exacerbate the scarcity in the market even more, particularly if we get the traditional uber-flattening response to another Fed hike, driven by a puke in risk assets and a rush into “safer”, long-dated bonds.

How the Fed will extricate itself from this latest predicament where it is damned if it hikes, and damned if it doesn’t, remains to be seen. The good news is that the spike in 10Y negative repo rates, and thus collateral shortage, traditionaly only takes place ahead of the respective 10Y auction. If and when shortages extend well beyond the settlement date, that is when it will be time for Yellen to panic.

end

The first clown to speak is Lockart and he sees no bubbles of any assets. I guess he is ignoring the bond market bubble which is terrifying the globe today!!

(courtesy zero hedge)

Fed’s Lockhart Non-Committal On Rate Hike In September; Sees No Bubbles In Any Asset Markets

First out of the gate among the Fed speakers today (before they go dark) is Dennis Lockhart (non-voter) commenting positively on the economy and jobs, shrugging off the recently terrible ISM data stating “I believe the economy is sustaining sufficient momentum to substantially achieve the committee’s monetary policy objectives in an acceptable medium-term time horizon,” but questioned inflation still running below mandate.

• *LOCKHART: `PUZZLING’ TIGHTER LABOR MKT NOT YET LED TO INFLATION
• *LOCKHART: DOESN’T CONSIDER ANY ASSET MKT IN BUBBLE TERRITORY
• *FED’S LOCKHART SAYS WE’RE MONITORING COMMERCIAL REAL ESTATE
• *FED’S LOCKHART: COMMERCIAL REAL ESTATE VALUES EXTREMELY ROBUST
• *LOCKHART SAYS PROSPECTS FOR NEGATIVE RATES IN U.S. VERY REMOTE

Lockhart is one of three Fed speakers Monday before the committee heads into the quiet period leading up to the meeting. Minneapolis Fed President Neel Kashkari, who is not a voter this year, will speak at 1 p.m. ET in St. Paul, Minnesota and Fed Governor Lael Brainard, who is a voter, will speak at 1:15 p.m. ET in Chicago. As MNI details,

“Notwithstanding a few recent weak monthly reports — from the Institute for Supply Management, for example — I am satisfied at this point that conditions warrant that serious discussion,” Lockhart said in a speech prepared for the National Association for Business Economics.

“I believe the economy is sustaining sufficient momentum to substantially achieve the committee’s monetary policy objectives in an acceptable medium-term time horizon,” continued Lockhart, who doesn’t vote on the committee until 2018, but is largely seen as a centrist on the committee.

Lockhart’s views in this speech are largely in line with interviews he gave late last month on the sidelines of the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.

He described the economy Monday as “expanding at a moderate pace fueled mostly by growth of consumer activity.” Business investment spending “remains subdued,” he added, though “jobs growth remains on a positive trend.”

Lockhart, like many of his FOMC colleagues expects a slowdown as the economy approaches full employment, but just when that slowdown is expected is up for debate.For nbow rate hike odds in September remain below pre-Brexit levels…

As a summary, we see Fischer, George, Mester, and Rosengren as ‘likely’ to push for a rate hike; Yellen, Dudley, and Bullard on the fence; Tarullo and Brainard are unlikely to push for a rate hike and Powell’s view is unknown. But Lockahrta went on to note…

“The 12-month trend in payroll jobs growth has slowed a bit from its peak in the beginning of 2015,” he said, “and I think it’s reasonable to expect some further slowing in jobs growth as the economy approaches full employment.”

He said the August number of 151,000 job gains was “comfortably above the various estimates of ‘break even,’ the number needed to hold the unemployment rates constant.”

Meanwhile, “underlying inflation continues to run about 0.5 percentage points below target,” he said, though “Wage pressures are accelerating and broadening out as we approach full employment.”

Given this progress on the Fed’s dually mandated goals, Lockhart said he will head into the next few FOMC meetings asking “what is the right policy setting given an outlook of getting to full employment and price stability relatively soon — in the next couple of years?”

And, he continued, “If 1.6% inflation and 4.9% unemployment were all you knew about the economy, would you consider a policy setting one tick above the zero lower bound still appropriate?”

He concludes by saying “I think circumstances call for a lively discussion next week.”

*  *  *

Looks like the perfect time for a rate hike…

end

And now the second clown, Brainard who stays dovish

(courtesy zero hedge)

Brainard Says Case To Tighten “Less Compelling”, Burying Sept Rate Hike Odds: Live Feed

The full text of Lael Brainard’s speech is out and, contrary to Friday’s expectations, she appears quite dovish:

• *BRAINARD URGES CONTINUED `PRUDENCE’ IN REMOVING ACCOMMODATION
• BRAINARD: CASE TO TIGHTEN POL PREEMPTIVELY ‘LESS COMPELLING’
• *BRAINARD SAYS WEAK DEMAND FROM ABROAD TO WEIGH ON U.S. OUTLOOK
• *BRAINARD SAYS JAPAN IS GREATLY CHALLENGED, EUROPEAN GROWTH SLOW
• *FED’S BRAINARD: MORE CONCERNED ABOUT UNDERSHOOTING INFLATION
• *BRAINARD: POLICY SHOULD TILT TOWARD GUARDING AGAINST DOWNSIDE
• *BRAINARD SAYS CASE TO TIGHTEN PREEMPTIVELY IS `LESS COMPELLING’
• *BRAINARD: STABILIZATION OF OIL, USD, SHOULD LIFT INFLATION
• *BRAINARD: ECONOMY HAS SEEN WELCOME PROGRESS ON SOME FRONTS
• *BRAINARD SAYS HAS SEEN SIGNS OF PROGRESS ON FED INFLATION GOAL
• *BRAINARD SAYS LOW NEUTRAL INTEREST RATES LIKELY TO PERSIST

Full text here.

Key Excerpts from a speech which among other things, blames China again for the Fed’s inability to hike rates:

The apparent flatness of the Phillips curve together with evidence that inflation expectations may have softened on the downside and the persistent undershooting of inflation relative to our target should be important considerations in our policy deliberations. In particular, to the extent that the effect on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling.

…

From a risk-management perspective, therefore, the asymmetry in the conventional policy toolkit would lead me to expect policy to be tilted somewhat in favor of guarding against downside risks relative to preemptively raising rates to guard against upside risks.

…

This asymmetry in risk management in today’s new normal counsels prudence in the removal of policy accommodation. I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation. I look forward to assessing the evolution of the data in the months ahead for signs of further progress toward our goals, bearing in mind these considerations.

…

Most importantly, China is undergoing a challenging transition from a growth model based on investment, exports, and debt-fueled state-owned enterprises to one driven by consumption, services, and dynamic private businesses. Because of the adjustment costs along this transition path and demographic trends, Chinese growth will likely continue to slow. Given that China has experienced very high growth in corporate debt, this downshift could pose risks. Importantly, Chinese authorities have made some progress on clarifying their policy stance, and capital outflows have slowed in recent months. Nonetheless, considerable uncertainty remains, and further volatility cannot be ruled out. The importance of Chinese growth and stability to many emerging market economies and to global markets more broadly implies that these risks have global implications.

The kneejerk reaction was ‘buy everything’ but that quickly faded…

As September rate hike odds tumbled from arund 20% to 11%…

*  *  *

As we detailed earlier, this is today’s main event: in a few moments, Fed board governor Lael Brainard will speak with Michael Moskow, vice chair on the global economy at The Chicago Council on Global Affairs. Many have speculated that in this final speech ahead of the Fed’s blackout period going into the Sept 22 FOMC meeting, may reveal (as explained below) a more hawkish bias to the Fed, which is why the traditionally dovish Brainard was chosen to speak. Or it may not, and lead to a surge in the S&P.

The event is prefaced by the Chicago Council as follows:

In the last decade, US interest rates were increased once – and still hover near zero. Recent statements by senior Federal Reserve officials suggest that the case for raising rates has strengthened, yet economic indicators still paint a complex picture. In advance of the next rate-setting meeting this September, what is the economic outlook for the United States, and what are the monetary policy implications?

In other words, another speech largely full of fluff, but the real question is whether Brainard will also hint at the Fed’s “rate hike” intentions next week, or alternatively, unleash a “Violent Rally In Risk“, as we previewed earlier when she rejects speculation about imminent tightening, something RBC’s Charlie McElligott believes is far more likely as the market’s drop has already effectively pushed the Fed into a “none and done” mode, even if by doing so it may have reflexively put the rate hike case once again back on.

The answer will be revealed at 1:15pm Eastern at the following live webcast.

Earlier:

Among the factors roiling the market last Friday, was the surprising addition of Fed governor Lael Brainard to the list of speaker in Chicago today, making hers the last scheduled appearance before U.S. central bankers go into their traditional pre-meeting quiet period ahead of a Sept. 20-21 FOMC meeting. The theory that quickly spread across the market is that Brainard, one of the Fed’s most dovish members not to mention a four-time donor of Hillary Clinton, would send a signal that tightening is coming, a flip-flop that would be sure to move markets, leading to a corresponding frontrunning of said flipflop. Others, however, saw the timing of her speech as consistent with her record because she spoke close to both the March and June meetings, urging a patient stance both times. 

While Brainard’s speech may end up being a lot of hot air, the market is certainly eagerly expecting her comments and planning how to trade it. As DB’s Jim Reid noted overnight, “it’s worth keeping a close eye on Fed Governor Brainard’s comments this evening at 6.15pm BST/1.15pm EST. As a reminder this scheduled event was only added very recently and there’s some suggestion that it could be used as an opportunity for the Fed to raise market expectations and give the FOMC some more wiggle room at the September meeting, given Brainard’s position as one of the most dovish committee members. ”

However, the best preview of Brainard’s speech comes from Bloomberg’s Richard Breslow who says that “The Speech Is Big, But Don’t Over Dramatize It.” Here is his full note:

The linguistic flourishes being used to describe the upcoming speech by Fed Governor Lael Brainard are melodramatic indeed. You’re expected to believe that the global economy, the Fed’s “remaining” credibility and billions of dollars of hard-earned wealth effect hang in the balance. Truth is, if they don’t do something now, they’re likely to push hard on the notion of December. Which is worth keeping in mind as the market races one way or the other as she delivers her verdict.

Futures price about 30% probability of a move. It’s reasonable to say she’s probably worth at least 25% in either direction. But it also means December will reprice immediately as well.

They’re unlikely to abandon low and slow, just because they sensed an opportunity to move a teeny bit away from crisis pricing. Nor give up on the realization that “extraordinary” shouldn’t always have positive connotations. Just think how the world might be different if they had called it “Titanic monetary policy.”

It won’t happen, but it may be worth listening to the entire presentation, or at least doing what you have to do and going back and reading it. And I certainly wouldn’t extrapolate the message, whatever it is, infinitely into the future.

The rapid repricing last week has done some, but not a lot, of damage to technicals. Gold and the Bloomberg dollar index remain not only in very familiar territory, but the very middle of their recent ranges.

Bonds, globally, remain the most interesting asset. Very important to watch. But sovereign yields haven’t risen simply because of this speech. Bund yields have poked back above zero for the first time since July. The 30-year JGB remains above 50bps and 10-year USTs are breaking through the first lines of support. This is healthy.

Equities tried to send a warning shot, but it’s hard to get too excited. S&P 500 saw these levels in July. For all the bulls, it’s a buying zone, but returning to last week’s range is about the extent of what you should expect. The fact that no one wants to buy until the Fed tells them the put is still in place should tell you something.

West Texas oil is $40-$50 until the cows come home. Forget that production freeze behind the curtain.

Is today big? Yes. Will it change your world? Few things do, unless you don’t follow the signs.

Translation: the market may have sold off enough for the Fed to have already changed its mind about hiking rates in September… if that’s what it had intended to do in the first place.

Something is terribly wrong with Hillary as she supposedly fainted at a 9 11 memorial.Take a look at the video of her.  It is far worse than a fainting spell!

(courtesy zero hedge)

The Race For President Is (Probably) Over

Following today’s farce…

Dilbert Creator Scott Adams just summed up today’s political headlines perfectly: “Hillary Clinton just became unelectable.”

You probably wonder if the “overheated” explanation is true – and a non-issue as reported – or an indication of a larger medical condition. I’m blogging to tell you it doesn’t matter. The result is the same.

*  *  *

The mainstream media might not interpret today’s events as a big deal.

After all, it was only a little episode of overheating. And they will continue covering the play-by-play action until election day.

But unless Trump actually does shoot someone on 5th Avenue, he’s running unopposed.

Read his full narrative her…

And of course, the ‘others’ are standing by…

Follow

Jay Caruso ✔@JayCaruso

He’s ready

12:43 PM – 11 Sep 2016

• 324324 Retweets
• 370370 likes

As it appears the money is starting to get heavy the other way…

Besides, Hillary herself said just last week that…

View image on Twitter

Follow

Hillary Clinton ✔@HillaryClinton

The most important quality in a president and Commander-in-Chief is steadiness—an absolute, rock solid steadiness.

9:49 PM – 8 Sep 2016

• 3,6613,661 Retweets
• 9,2779,277 likes

And she looked anything but “rock-solid steady” today.

end

I am sorry but I do not buy the story that she has pneumonia

(courtesy zero hedge)

Story Changes Again, Now Hillary’s Doctor Claims She Has Pneumonia

Having stated that her coughing fit last week was due to her suffering from seasonal allergies, and that this morning’s fainting episode was due to ‘overheating’, the Clinton campaign now once again changed the constantly changing narrative, releasing a shocking statement by Hillary’s doctor, according to which she was diagnosed pneumonia on Friday, which in turn made her “dehydrated.” 

As CBS writes, Hillary’s campaign did not immediately explain why the Democratic nominee did not reveal the pneumonia diagnosis prior to the Sunday incident, raising questions of transparency.

This is what her spox said earlier: “Secretary Clinton attended the September 11th Commemoration Ceremony for just an hour and thirty minutes this morning to pay her respects and greet some of the families of the fallen,” Clinton campaign spokesperson Nick Merrill said in a statement Sunday morning. “During the ceremony, she felt overheated so departed to go to her daughter’s apartment, and is feeling much better.” We read it twice: no mention of pneumonia.

So when the entire Clinton campaign fell like a ton of bricks on anyone hinting the presidential candidate was unwell after her dramatic coughing fits last week, what word best describes this?  And then why did it take two days since Friday for this Doctor Bardack to reveal Clinton’s medical condition?

Five more questions:

1. Hillary made her infamous “basket of deplorables” comments at a Barbra Streisand fundraiser on Friday night – the same night she was supposedly diagnosed with pneumonia: why go to a fundraiser if sick, especially since pneumonia is contagious.
2. Hillary has had a nasty, documented cough since January – why did it take 9 months to diagnose this?
3. If Hillary has pneumonia, and passed out at an event, – why was she taken to her daughter’s apartment and not a hospital? After all, she was as of today aware of her Friday diagnosis. 
4. After coming out of Chelsea’s apartment, why did Hillary says she “felt great” – as of this morning she was aware she had Pneumonia; why not admit the truth for once to the public?
5. After coming out of Chelsea’s apartment a young girl ran up to Hillary for a quick picture – again, knowing she had been diagnosed with pneumonia why would Hillary expose this young girl to her illness?

This story smells so bad, that even the left-leaning media is upset at the Clinton campaign:

1h

Gabriel Debenedetti ✔@gdebenedetti

Statement from Clinton’s doctor says she has pneumonia, and was dehydrated this morning

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Gabriel Debenedetti ✔@gdebenedetti

This is the first Clinton’s press corps is hearing of her pneumonia. Unclear if we’d have been told if not for this morning’s incident.

5:22 PM – 11 Sep 2016 · Manhattan, NY, United States

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David Frum ✔@davidfrum

Lesson for the next 4 years: whatever the question is, never believe the first answer from the Hillary Clinton White House.

5:54 PM – 11 Sep 2016

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Michael Moore ✔@MMFlint

Well, pneumonia. That’s serious. Campaign kept it hidden Fri/Sat/Sun. No wonder the crazies get traction. Dems are pros at losing elections.

5:46 PM – 11 Sep 2016

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1h

Gabriel Debenedetti ✔@gdebenedetti

Hi everyone! This isn’t about the press just wanting to know. It’s about informing the public about her health.https://twitter.com/gdebenedetti/status/775082031667707904 …

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Gabriel Debenedetti ✔@gdebenedetti

If a potential president is sick, the public has a right to know. That’s just the way this works.

5:35 PM – 11 Sep 2016

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It makes one wonder why something as simple as her not being well has to be lied about, covered up, spun, and then propagandized? A distraction from her ‘deplorable’ comments? Perhaps, but one thing is for sure, all those mainstream media types damning conspiracy-theorists over health concerns are now silenced.

We wonder if now Hillary will blame her (non-GAAP) pneumonia for having to back out of the upcoming debates, and finally, with credibility in anything Hillary says no non-existent, would it be too much to ask for an independent verification of her rapidly changing medical condition especially since nobody knows what is going on, and whom to believe any more.

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Hillary cancels her California trip but will appear at a fundraiser via teleconference. It does not seem that Hillary is transparent about her health

(courtesy zero hedge)

Hillary Cancels California Trip; Will Appear At Fundraiser Via Teleconference

On Friday night, roughly at the same time as the sick Hillary Clinton was attending a Barbra Streisand fundraiser focusong on LGBT issue where she unleashed her condemnation of the “basket of deplorables” aka Trump supporters, she – allegedly – was aware that she had pneumonia, at least according to the latest hastily scripted narrative by the Clinton campaign. Two days later, she infamously fainted during a Sept 11 events in downtown New York, however she assured the media that she was ok, while the sick, and perhaps contagious, presidential candidate took the opportunity for another photo op with a young girl.

View image on Twitter

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zerohedge @zerohedge

“pneumonia is contagious?”

7:05 PM – 11 Sep 2016

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But while Clinton’s previously diagnosed pneumonia was not a reason for Hillary to miss the Friday fundraiser, it appears that the severe deterioration in her health yesterday has been sufficient to force the Democratic presidential candidate to cancel a campaign trip to California. Hillary was due to leave for California on Monday morning for a two-day trip that included fundraisers, a speech on the economy, and an appearance on the Ellen DeGeneres Show.

This will not happen:

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Gabriel Debenedetti ✔@gdebenedetti

JUST IN: Hillary Clinton’s Monday-Tuesday California trip is OFF

10:18 PM – 11 Sep 2016 · Brooklyn, NY, United States

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Clinton’s personal physician, Dr Lisa Bardack, said: “Secretary Clinton has been experiencing a cough related to allergies. On Friday, during follow-up evaluation of her prolonged cough, she was diagnosed with pneumonia. She was put on antibiotics, and advised to rest and modify her schedule.”

Yet even as Clinton’s health has deteriorated so substantially that the WaPo’s Chris Cilizza became the laughing stock of the “objective journalism” world with his epic flop flop profiled previously…

… the Clinton campaign was doing everything in its power to contain the severity of the fallout. Her team said she is suffering with “walking pneumonia” – a less serious type of the lung infection which leaves patients feeling unwell but doesn’t usually require bed rest or hospitalisation. Pneumonia is essentially an infection of the lungs which causes inflammation in the air sacs and fills them with fluid. Symptoms can include a cough, fever, fatigue, chills and shortness of breath.

Anyone can contract pneumonia, although smokers, older people, and sufferers of chronic lung diseases are at increased risk. There are two types – bacterial or viral. Bacterial pneumonia is common and easily treated with antibiotics. Most people with so-called “walking pneumonia” can recover within a few days. Those with weak immune systems or existing conditions can take weeks to recover, and pneumonia can in some cases be fatal.

So as of this moment Hillary is caught between a rock and a hard place: she is clearly not healthy, and is now afraid to make public appearances, yet on the other hand she can’t demonstrate to the world justhow truly unwell she is (one wonders if there is a way to test and verify Bardack’s claim that she even has pneumonia) and has had to tone down the excuse she urgently came up with.

Which begs the question: while Hillary will be delighted to avoid public gatherings and, perhaps, the upcoming debates with Trump, she still needs to show herself at the all important fundraisers: how will she do that? We now know the answer.

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Gabriel Debenedetti ✔@gdebenedetti

Just in: attendees of Clinton’s SF $ event Monday—feat. k.d. lang—just got an email telling them Clinton WILL appear…via teleconference

12:04 AM – 12 Sep 2016

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Trump surges in polling in new swing states. They are now basically neck and neck.  This of course was done before today’s episode

(courtesy zero hedge)

Latest Polls Reveal Trump Surge As New States Added To List Of Battlegrounds

As Hillary was rushed away from the 9/11 memorial services this morning due to apparent “overheating” from the blistering 79 degree weather in New York, the latest polling data suggests that her medical condition isn’t the only thing deteriorating rapidly.  Over the past two weeks, polling data shows that Trump has basically pulled even with Hillary in the key battleground states of Florida and Ohio and has even moved the typical Democratic strongholds of Nevada and New Hampshire into the “toss-up” category.

The latest polling data out of Florida shows a Trump surge over the past week as that race is now effectively tied.

Meanwhile, Trump has also surged in Ohio narrowing Hillary’s average lead there to just 2.5 points which is well within the margin of error for most polls.

Moreover, the latest WSJ/NBC/Marist polls show a Trump surge in many states that were easily won by Obama 4 years ago.  In a head-to-head contest, Trump is down only 1 point in both Nevada and New Hampshire, states that Obama won by 7 points and 6 points, respectively, in 2012.  Meanwhile Hillary is also forcing tight contests in the typical Republican strongholds of Arizona and Georgia as pollsters note that this “unconventional election” could yield a “surprising electoral map.”

The Journal/NBC News/Marist results illustrate how the traditional electoral map is being scrambled in an unconventional year that could see a realignment of both parties’ coalitions.

Mr. Trump is making deep inroads among working-class, white men but alienating many Hispanic voters with his harsh rhetoric about Mexico and illegal immigration. Mrs. Clinton is scoring gains among college-educated white voters, a bloc that Republicans have carried handily in the past.

“As we enter the final lap of this very unconventional election, it would not be surprising if the electoral map, in the end, has new contours,” said Lee M. Miringoff, director of the Marist College Institute for Public Opinion. “Any of these four states could awaken a fault line in what is looking more and more like a shake-up election, with more states being up for grabs.”

Finally, the Trump surge is reflected in the national polls as well as Trump has closed what was an 8-point lead for Clinton just a couple of weeks ago to only 3 points today.

Alas, while interesting, we suspect that Hillary’s latest “medical episode” just rendered this polling data obsolete and we wouldn’t be terribly shocked to see a continuation of the Trump surge over the coming weeks.

END

 

Following is an interesting theory that the “deep state” may be planning with respect to November’s election:

 

(courtesy Stewart Dougherty/Dave Kranzler)

 

 

Guest Post: Did The Deep State Postpone The Election?

September 12, 2016Financial Markets, Housing Marketeconomic collapse, FOMC rate hike, Hillary Clinton health, postpone election

Dave:

I believe the Deep State postponed the election today, using Clinton’s probably staged “health event” as the opening act of a drama that will unfold over the next several days to few weeks. The Deep State is in the process of pulling Clinton out of the game.

The Deep State knows several things. First, they know that the polls they manipulate showing that Clinton is ahead of or head-to-head with Trump are deliberate, doctored lies. They know that the true numbers demonstrate her campaign is disintegrating. This is reinforced by the fact that during her campaign appearances she plays to what are essentially empty halls, compared to Trump who routinely pulls in tens of thousands of standing-room-only supporters. Increasingly, the people realize that the polls are lies, and there is only so much further the Deep State can push them. The Brexit polls were total lies, too, and they impaled the establishment liars.

Second, they know that she is seriously ill, and that she will not be able to run a full-throttle campaign between now and election day; it will be physically impossible for her. Already, she has mysteriously disappeared from the campaign trail for hours at a time, and oftentimes longer. They thought they could prop her up through election day. Now they realize that they cannot.

Third, they know that Assange’s upcoming leaks are going to reveal her virtually indescribable dishonesty, greed, deviousness and criminality. They know that Assange has genuine information, and that it is going to be devastating to Clinton. She and her “Foundation” are complete frauds, and this fact is going to become totally inescapable, even to the most dimwitted and demented.

The “pneumonia” story will be used to excuse her hacking fits. It will also be used to get her out of the debates, during which she would be completely destroyed by Trump, particularly if she were not wearing her “earpiece” and getting talking points delivered to her by Abedin, who would simply be relaying the Deep State messages being conveyed to her, en route to Clinton. If Clinton has to go up against Trump in an honest debate, with no earpiece, she will be pulverized on her political record, avarice, physical and mental lack of fitness, and Foundation criminality. The Deep State will not allow tens of millions to watch that happen.

Clinton’s “health tragedy” (the “tragic event” of her health preventing her from becoming the first woman president, blah, blah, blah) will be gradually paid out to the populace over the next few weeks, and will be designed to induce the maximum amount of sympathy for her. The Deep State will keep her in the game for as long as possible, as they hope against hope that Trump screws up, or that perhaps something happens to him. If Trump’s numbers remain strong or increase, then they will pull her out of the game.

This will cause an election crisis. The election will be postponed.

Obama will pull the equivalent of a “pre-crime” maneuver, by extending Clinton and the Foundation “pre-pardons.” In other words, he will issue a Presidential Pardon for crimes the Clintons have not yet been charged with or convicted of, even though they would almost certainly face such charges and be convicted of them were the election to go against Clinton and were Justice permitted to function. A “pre-pardon” would be a first, but it would be absolutely no different from the unprecedented, dictatorial Executive Orders emanating from the White House over the past many years. The Supreme Court could render its verdict 20 years or so from now, after both of them are dead. The money, by then, would be long gone from view, and supporting Chelsea’s royal lifestyle of the Rich and Famous.

The government needs to shut down the Clinton investigations as soon as it can, because the high tide of Clinton criminality washes into every orifice of Washington, D.C. and Wall Street. The Deep State is never in 1,000 years going to allow Christie to formally investigate such endemic, monumentally profitable State corruption.

The motive for the Deep State to postpone the election until it can re-group its wounded forces is simple: Looting. The Deep State is looting one trillion dollars ($1,000,000,000,000.00) per year from the U.S. economy per year, at an absolute minimum. The true amount is almost certainly equivalent to the GAAP-based national annual deficits, which are running at roughly five trillions dollars ($5,000,000,000,000.00) per year. The $6.5 trillion ($6,500,000,000,000.00) missing from the Army, as admitted by the government, is a drop in the bucket compared to the actual amount that has been stolen from the nation, and the people. It should be no wonder to anyone why the Middle Class has been destroyed; it has been looted into oblivion.

These looting amounts do not include the Insider Trading looting that occurs in the financial markets every single day, facilitated by domestic and international information flows from connected insiders to complicit, profit-sharing traders who operate in total obscurity, privacy and immunity, and who annually book hundreds of billions of dollars in profits at a minimum. Inside Traders can book $25 billion in profits in 30 seconds on advance interest rate change information, and those opportunities happen dozens of times per year, as one simple illustration. There are thousands of similar opportunities in any given year.

The Deep State seeks to keep the Perpetual Fountain of Money gushing epic amounts of lucre into its pockets for as long as possible, because the profits from the Perpetual Fountain of Money are far beyond a mere Fairy Tale, they are a Living Dream Come True. The Deep State is not going to allow anyone or anything to turn off its Perpetual Fountain of Money, particularly not Trump.

The postponement of the election will most likely extend for at least one year, during which new events will cause a extensions of the postponement.

Revelation of the postponement of the November election could be one Black Swan that creates a dollar crisis. This might be why certain members of the Federal Reserve are now pushing for a rate hike in September, even though current U.S. economic circumstances make that idea absurd. It is probable that the Deep State realizes its machinations could create extreme, unpredictable and uncontrollable Forex volatility, and that they are attempting to pre-emptively head this off, or at least, ameliorate it.

The coming days will provide additional puzzle pieces for insertion into the mosaic, but needless to say, as a nation, we are in the most dangerous situation we have experienced during the past 50 years, at least. If people are not making serious preparations right now, they might come to regret it.

Regards, Stewart

About Stewart Dougherty:    I am a Harvard MBA, and Inferential Analytics leverages quantitative and qualitative techniques that I learned both in my education, and during a 30+ year business career. I am semi-retired, but have never worked harder in my life. About six years ago, I wrote several articles that were picked up by 24hgold, MarketOracle, Lew Rockwell, Goldseek and numerous other Internet publishers followed even by some magazines.

 

Janet and Stan: does this like an economy that is “gaining traction”

(courtesy Michael Snyder)

Tent Cities Full Of Homeless People Are Booming In Cities All Over America As Poverty Spikes

ubmitted by Michael Snyder via The Economic Collapse blog,

Just like during the last economic crisis, homeless encampments are popping up all over the nation as poverty grows at a very alarming rate.  According to the Department of Housing and Urban Development, more than half a million people are homeless in America right now, but that figure is increasing by the day.  And it isn’t just adults that we are talking about.  It has been reported that that the number of homeless children in this country has risen by 60 percent since the last recession, andPoverty USA says that a total of 1.6 million children slept either in a homeless shelter or in some other form of emergency housing at some point last year.  Yes, the stock market may have been experiencing a temporary boom for the last couple of years, but for those on the low end of the economic scale things have just continued to deteriorate.

Tonight, countless numbers of homeless people will try to make it through another chilly night in large tent cities that have been established in the heart of major cities such as Seattle, Washington, D.C. and St. Louis.  Homelessness has gotten so bad in California that the L.A. City Council has formally asked Governor Jerry Brown to officially declare a state of emergency.   And in Portland the city has extended their “homeless emergency” for yet another year, and city officials are really struggling with how to deal with the booming tent cities that have sprung up…

There have always been homeless people in Portland, but last summer Michelle Cardinal noticed a change outside her office doors.

Almost overnight, it seemed, tents popped up in the park that runs like a green carpet past the offices of her national advertising business. She saw assaults, drug deals and prostitution. Every morning, she said, she cleaned human feces off the doorstep and picked up used needles.

“It started in June and by July it was full-blown. The park was mobbed,” she said. “We’ve got a problem here and the question is how we’re going to deal with it.”

But of course it isn’t just Portland that is experiencing this.  The following list of major tent cities that have become so well-known and established that they have been given names comes from Wikipedia…

• Camp Hope, Las Cruces, New Mexico^[1]
• Camp Quixote, Olympia, Washington State^[2]
• Camp Take Notice, Ann Arbor, Michigan^[3]
• Dignity Village, Portland, Oregon
• Opportunity Village, Eugene, Oregon
• Maricopa County Sheriff’s Tent City, Phoenix, Arizona
• New Jack City and Little Tijuana, Fresno, California^[2]
• Nickelsville, located in Seattle^[2][4]
• Right 2 Dream Too, Portland, Oregon^[5]
• River Haven,^[6]Ventura County, California^[7][8]
• Safe Ground, Sacramento, California^[2]
• The Jungle, San Jose, California^[2]
• Temporary Homeless Service Area (THSA), Ontario, California^[2]
• Tent City (100+ residents) of Lakewood, New Jersey^[9][10]
• Tent City, Avenue A and 13th Street, Lubbock, Texas^[11]
• Tent City, New Jersey forest^[12]
• Tent City, Bernalillo County, New Mexico^[13]
• Tent City, banks of the American River, Sacramento, California^{[14][15][16][17][18][19][20][21][22]}
• Tent City 3, Seattle
• Tent City, Chicago, Illinois [1]
• Tent City 4, eastern King County outside of Seattle
• The Point, where the Gunnison River and Colorado River meet^[23]
• The Village of Hope and Community of Hope, Fresno, California^[2]
• Transition Park, Camden, New Jersey
• Tent City, Fayette County, Tennessee, [2]
• Camp Unity Eastside, Woodinville, WA[3]
• China Hat Road, Bend, Oregon

Most of the time, those that establish tent cities do not want to be discovered because local authorities have a nasty habit of shutting them down and forcing homeless people out of the area.  For example, check out what just happened in Elkhart, Indiana…

A group of homeless people in Elkhart has been asked to leave the place they call home. For the last time, residents of ‘Tent City’ packed up camp.

City officials gave residents just over a month to vacate the wooded area; Wednesday being the last day to do so.

The property has been on Mayor Tim Neese’s radar since he took office in January, calling it both a safety and health hazard to its residents and nearby pedestrian traffic.

“This has been their home but you can’t live on public property,” said Mayor Tim Neese, Elkhart.

If they can’t live on “public property”, where are they supposed to go?

They certainly can’t live on somebody’s “private property”.

This is the problem – people don’t want to deal with the human feces, the needles, the crime and the other problems that homeless people often bring with them.  So the instinct is often to kick them out and send them away.

Unfortunately, that doesn’t fix the problem.  It just passes it on to someone else.

As this new economic downturn continues to accelerate, our homelessness boom is going to spiral out of control.  Pretty soon, there will be tent cities in virtually every community in America.

In fact, there are people that are living comfortable middle class lifestyles right at this moment that will end up in tents.  We saw this during the last economic crisis, and it will be even worse as this next one unfolds.

Just like last time around, the signs that the middle class is really struggling can be subtle at first, but when you learn to take note of them you will notice that they are all around you.  The following comes from an excellent article in the New York Post…

Do you see grocery stores closing? Do you see other retailers, like clothing stores and department stores, going out of business?

Are there shuttered storefronts along your Main Street shopping district, where you bought a tool from the hardware store or dropped off your dry cleaning or bought fruits and vegetables?

Are you making as much money annually as you did 10 years ago?

Do you see homes in neighborhoods becoming run down as the residents either were foreclosed upon, or the owner lost his or her job so he or she can’t afford to cut the grass or paint the house?

Did that same house where the Joneses once lived now become a rental property, where new people come to live every few months?

Do you know one or two people who are looking for work? Maybe professionals, who you thought were safe in their jobs?

Don’t look down on those that are living in tents, because the truth is that many “middle class Americans” will ultimately end up joining them.

The correct response to those that are hurting is love and compassion.  We all need help at some point in our lives, and I know that I am certainly grateful to those that have given me a helping hand at various points along my journey.

Sadly, hearts are growing cold all over the nation, and the weather is only going to get colder over the months ahead.  Let us pray for health and safety for the hundreds of thousands of Americans that will be sleeping in tents and on the streets this winter.

end

The following will explain why the always dovish Rosengren went hawkish on Friday. He is frightened of the asset bubbles created in real estate and other areas:

(courtesy Wolf Richter/WolfStreet)

Why Fed Dove Rosengren Warned About The Commercial Real Estate Bubble

by Wolf Richter • September 11, 2016

The Fed hawks don’t matter. The doves do!

Doubtlessly, the Fed will flip-flop in its elegant manner about rate increases as it has been for over two years, but this time a reliable dove flipped. That itself is scary to the markets. And the reason he mentioned for flipping sent cold chills down their spine.

He named one of the biggest and riskiest asset bubbles, commercial real estate. It doesn’t plateau. But it either booms, driven by cheap credit, lots of liquidity, and endless hype. Or it crashes. And he worried that banks and coddled investors, including holders of commercial-mortgage backed securities, will get hit by the shrapnel.

When Boston Fed governor Eric Rosengren, a voting member of the Federal Open Markets Committee, where monetary policy is decided, shared some aspects of his worries on Friday morning, markets tanked instantly.

This came just after the ECB’s refusal to please the markets with promises of additional bond purchases. Instead, it stuck to the promises it had made previously. What a disappointment for markets running on nothing but central- bank mouth-wagging and money-printing!

By the time the ECB’s failure to please and Rosengren’s scary comments hit the trading algos Friday morning, Dow futures had plunged over 100 points. At the end of the day, the record long calm of the S&P 500, lasting 53 trading sessions, got busted viciously to the downside. The index plunged 2.45%, the worst day since the Brexit-vote sell-off of June 24.

Bonds got hit too, and yields rose, with the 10-year Treasury yield jumping 6 basis points to 1.67%, the highest since the Brexit vote. The 30-year Treasury yield jumped 7 basis points to 2.39%. In Europe, bonds also fell, with the German 10-year yield jumping 8 basis points and turning positive for the first time since the Brexit vote.

Oil plunged 4%, more than wiping out the head-fake rally the day before.

No one cares when the Fed hawks squawk about rates being too low, or whatever; they always do that, and that’s why they’re hawks. When it comes to set policy, they’re shoved aside.

But when a solid dove like Rosengren squawks about rates being too low and “waiting too long to tighten,” and when he frets about bubbles that could go haywire and do some real damage, suddenly markets break out in cold sweat.

He was one of the proponents to raise rates one notch last December, to get the first rate increase over with. In November, he’d fretted about a commercial real bubble in Boston. This time, he fretted about a commercial real estate bubble in the US!

In his speech, Rosengren discussed how the US economy has been “fairly resilient” and is near “reaching the Federal Reserve’s dual mandate from Congress (stable prices and maximum sustainable employment),” despite all the global headwinds, some of which he enumerated. And so, he said, “a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.”

Hence, rate increases, even though there were some “conflicting signals” in the economic data – “Clearly, the first two quarters did not live up to the forecasts,” he said. But “waiting too long to tighten” would expose the economy to two risks:

First, the economy overheats – the belated tightening might “require more rapid increases in interest rates later in the cycle,” which will likely “result” in a recession, as it did “frequently” in the past.

And second, asset bubbles – “that some asset markets become too ebullient.” He pointed at commercial real estate prices that “have risen quite rapidly over the past five years, particularly for multifamily properties.” He added:

Because commercial real estate is widely held in the portfolios of leveraged institutions, commercial real estate cycles can amplify the impact of economic downturns as financial institutions need to write down the value of loans and cut back on lending to maintain their capital ratios.

And what a bubble it is. Over the past 12 months, prices have jumped only 6%, according to the Green Street Commercial Property Price Index, compared to the double-digit gains in prior years. “Equilibrium,” the report called it. The index has soared 107% from May 2009, and 26.5% from the peak of the totally crazy prior bubble that ended with such spectacular fireworks:

Not all sectors are still booming: Lodging is down 12% over the past year, health care is down 1%. But strip retail malls are up 4%, office space 5% – which includes some sour grapes, such as Houston’s office market that is sinking into deep trouble – apartments are up 6%, industrial space 7%, and big malls 8%, despite the brick-and-mortar retail woes reverberating through the economy.

And Rosengren continued:

[T]here are also longer-term risks from significantly overshooting the U.S. economy’s growth – given the bluntness of monetary policy tools, and the possibility of growing imbalances in some asset classes (emphasis added).

So not just a bubble in commercial real estate, but bubbles in “some asset classes.” Plural. He didn’t mention the remainder of the asset classes that have gone out of whack and are waiting to deflate, but they’re obvious for all to see and don’t need to be mentioned.

This comes with a delicious irony: it took a reliable Fed dove to see these bubbles and point them out publicly, though the hawks should have seen them and fretted about them years ago.

Scratching beneath the surface, what I get is this: For Rosengren and folks who think like him, the threat of asset bubbles imploding with devastating consequences once again may be moving into the foreground, regardless of how weak the economic data may be. And there are plenty of reasons to believe that they’ve already waited way too long.

For businesses in the US that have believed in the Fed and Wall Street hogwash for six years, reality is now setting in. Read… The Great Debt Unwind Beneath the Surface: US Commercial Bankruptcies Soar

http://wolfstreet.com/2016/09/10/fed-dove-rosengren- frets-about-asset-bubbles-commercial-property-wall-street- freaks-out/

end

Well that is all for today/

I will see you tomorrow night

Harvey