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Should be an interesting next two days.
On Brexit Friday last summer, the S&P 500 crashed so fast and hard the plunge protection team was only really able to stop the damage during subsequent trading days. The slower motion build-up of last week's pounding on the US Dollar, the decline in the S&P 500 and the rise in precious metals (until the cartel put a stop to it) all magically reversed today, as the S&P 500 leaped off the exact 200 day moving average threshold that was ripe and ready for traders to leap on as bulls and run the stock market higher.
Welcome to your manufactured reality.
I'm hoping the Clinton rally, becomes the Donald Dump.
The pound enjoying the element of uncertainty on brexit. A small history lesson:
The oldest currency still in existence is the pound sterling (£). It dates back to Anglo Saxon England (and probably originated with King Offa of Mercia).
The actual denominations of the original pound came from the European court of Charlemagne in the early 9th century AD. He created the Livres and while the names were changed the system wasn't so you get 4 farthings = 1 penny, 12 pence = 1 shilling, 20 shillings = 1 pound. This meant there were 240 pence in a pound and one pound (at the time) was worth a pound (weight) of silver.
The other nations of Britain have had a more chequered past with coinage and currency. Wales was never a unified nation (prior to conquest) and so the principalities varied wildly in their attitudes to money. In the 10th century a Welsh prince called Hywel Dda struck coins but they are very much the exception to the rule, it was far more common that cattle were currency. This is not uncommon in agricultural societies and cows are still legal tender in Swaziland.
Scotland had a number of currencies, a personal favourite being the Unicorn, but eventually a Scottish pound was created in the 12th century. It was meant to have the same value as the English one but it steadily devalued, at the time of unification in 1707, 12 Scottish Pounds were worth one English one.
The accounting practices of Charlemagne were used for more than a thousand years but the pound was eventually decimilised on 15 February 1971, however the term "new pound" hung around until 1981.
Thought you would enjoy this.
"For gold conjures up a mist about a man, more destructive of all his old senses and lulling to his feelings than the fumes of charcoal."
Charles Dickens, Nicholas Nickleby
:), I thought you would enjoy that. Yea, you are right! The whipping boy is a good designation.
I've seen the 10 year gain 18.47% in the last 30 days. This upward pressure is a combination of inflationary pressure and sovereign deleveraging. Am I right on this?
Thx G.! Looks like a bright future ahead for all of us. Lol. Personally, I prefer a Great Depression with deflationary forces in overdrive. I'm debt free and want to make a few cash purchases for cheap. Lol
Strangely, the wild card, inflation, received little mention from Volker. Inflation is increasing and the only tool the fed has to restrain inflation is higher rates. Should inflation start to run is the Fed going to raise rates and kill government spending on anything except debt service?
They can keep rates down indefinately except if inflation returns. Inflation will be the undoing of everything and there won't be anything that the government can do to stop it. At least to me it seems that they are damned if they do, fanned if they don't.
http://www.zerohedge.com/news/2016-10-23/paul-volcker-explains-why-fed-cant-raise-rates
If that's the case, looks like the CB's will be continuing to bulk up their escalating balance sheets to keep growth at all costs going. Just pick your poison : Japan , China, EU or Yellen & Co.
Looks like Gld will be the play of a lifetime when " confidence" in the Fed and dollar finally starts to teeter.
I was reading Fisher today and must admit, he's one of the few that has come to his senses, in regards to long term negative effects of a low interest rate environment on the economy.
This specifically caught my attention, which you touched on a while ago:
Let me move now to the second major development on my list. In addition to its effects on labor force growth, the aging of the population is likely to boost aggregate household saving. This increase is because the ranks of those approaching retirement in the United States (and in other advanced economies) are growing, and that group typically has above-average saving rates.9 One recent study by Federal Reserve economists suggests that population aging--through its effects on saving--could be pushing down the longer-run equilibrium federal funds rate relative to its level in the 1980s by as much as 75 basis points.10
In addition to slower growth and demographic changes, a third factor that may be pushing down interest rates in the United States is weak investment. Analysis with the FRB/US model suggests that, given how low interest rates have been in recent years, investment should have been considerably higher in the past couple of years. According to the model, this shortfall in investment has depressed the long-run equilibrium federal funds rate by about 60 basis points.
It looks like the sprit of Frederic Bastiat was haunting him today, reminding him of opportunity cost.
These are great teachings and insights in your part. Two of my buddies, one a small hedge , the other a credit analyst can't give me the answers I'm looking for. BTW, you'll probably laugh ; I bought Mervyn King's book: The End of Alchemy: Money, Banking, and the Future of the Global Economy. Lol, really considering a move back to London.
Thx again. Keep teaching !
Gld, thanks for this explanation. This really clarified a few issues that I had regarding growth rates , inflation and the effect on currencies esp the dollar and the current hammering the pound has taken as of late.
Good article Gld. Thx. So is this the instance of a :The worse an economy turns down the higher the currency rises. USdollar marching ever higher. The flight to quality. ..
The fed official minutes reveal a growing divide among fed officials who disagree over how much lower the unemployment rate can go lower before the economy overheats- this is hilarious...they must really think people are absolute idiots. It's the economy stupid.
Pound will continue to drop
The ECB wants to wind down QE ahead of schedule. I guess the BoJ didn't see that! I'm not sure there is anything left for them to buy, that they can legally buy. They'd have to buy junk bonds or equities which is what BOJ did. Didn't work for Japan. Looks like a silent indictment on the futility of Abeonomics and the BoJ.
Rough sailing ahead...
Great post...
“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' ... Murray N. Rothbard
Please forward to: Merkel & Yellen
It looks like I'm going to start drinking Tab cola again! Lol
Too much money chasing too few goods! Gld, thank you for the explanation and insight. Are we heading back to the 70's? With a runaway wage- price spiral? Thxs.
I enjoy twitching part-time. Just kidding, I see volatility finally coming back. Is The dollar a safe haven against other currencies,commodities and emerging markets with implied volatility coming back in the near term?
There is no such thing as a black swan. Black swans are so 2008. This is a rainbow-swan-monent. When it hits it's going to come in so many colors people will literally go blind from its sheer awesomeness! They won't know what color to focus on. Maybe a golden-color-swan? As it will become the envy of all....
The last two weeks have seen a major derisking of speculative VIX short positioning... (35% collapse in net VIX shorts)
After 10 straight weeks of increasingly bullish speculative positioning ('longer' stock futures and 'shorter' VIX futures), the last 2 weeks have seen short VIX bets plunge (down 35%) at the fastest rate since pre-Brexit and the Aug 2015 crash. At the same time as this surge to hedging, the day since The Fed's utterly farcical fold have seen bond volatility crash to its lowest in two years.
http://www.zerohedge.com/news/2016-09-25/bond-risk-crashes-2-year-lows-vix-shorts-fold
Have a great trip. Indeed, that was an epic scene. Take care.
GldTmr, I wanted to say hello. It's been awhile. I was in England this summer studying medieval history. Took time away from the market. But I am back now and I see I have 100+ posts of yours to read. I hope you enjoyed your summer as we head into a renewed season of volatility after its artificial suppression by the Fed. All the best. Steel
I see that ZROZ are popping today as well. Those 10yr & 30 yr yields keep coming down all time lows I think.
It's quite the pantheon.
Location Location Location ! Lol
Oh sorry it was just a photo of the book that I mentioned in the previous post.
A History of The World in 12 Maps
By, Jerry Brotton
I thought of you the other day when I was at the book store. Now that you have switched over to a nautical theme , I thought you would enjoy this title:
A History of the World in 12 Maps, by Jerry Brotton
That's fine. I think it will be very interesting to see how this all shakes out in the end.
In the short-term, it is entirely possible that we could see more nations leave the EU. I would watch Greece in particular.
But in the long-term, we will see a major push for more European integration. Germany and France will be at the core of this movement, and other European nations will join them.
The British people may not participate any time soon, but the dream of a United States of Europe is far from dead.
And if the advocates of increased European integration have their way, we will be seeing their dream become a reality sooner rather than later.
It's a sad reality... Ab Ordo Chao
Thank you for that explanation.
What's your view on China devaluation last night, I know that when they were doing it in summer of 15 it was negatively influencing the market. Also, why is the JPY the currency of choice when it's risk on. You would think that the BoJ is on its last leg with 16 years more or less of throwing everything in an the kitchen sink into their economy...
Let's hope it remains that way, because the referendum was non binding.
Gross domestic savings has been undercut by social benefit increases. This is a huge deflationary problem and takes away from capital expenditure which takes away from future growth. 3quarters of negative earnings . .. Recession we are in it
Great post
Globalism has always meant illiberal rule by elites under the guise of democracy. It's a truly powerful deception. It's sole purpose is to enslave the individual the antithesis of true liberalism which is self determination. Way to go England!
"Running into debt isn’t so bad. It’s running into creditors that hurts.” – Unknown
Justice would be served if Deutsche bank had their Lehman moment this week during Brexit overriding the sentiment of the cowards who are vacillating over the remain or leave issue in the uk that has swayed opinion. How convenient.
Thanks for the post. It really is. Especially since that is something that never happens in the UK. Next week will be something to watch closely.
Indeed, Yellen out of the way no back to business. Lol. I did. It seems like her words have lost their staying power. Impressed by the rebound at the end of the day. Would love to see a big move in volatility tomorrow. All the best.!