An open letter to Chair Yellen on the inflation mystery

Let me take this post to write an open letter to Fed chief Janet Yellen to explain what is going on in the US economy. It appears she needs it

At her press conference on Wednesday Yellen said of the inflation rate being suppressed. “I will not say that the committee clearly understands what the causes are of that.”

Dear Chair Yellen,

I am confounded by your committee’s lack of basic understanding of the velocity of money and it’s effect’s on the inflation rate.

Over the last 10 years wages for the great unwashed middle class are flat. Some studies suggest that when inflation is figured in wages are at the same level as 1995.

A large minority of the American workforce over the last eight years have lost decent paying jobs that supported them having a house and a car and medical insurance, and now they are forced to take multiple part-time jobs with no benefits.

Many of this group have been put on disability, due to “injury at work” before their expanded jobless benefits ran out.

These two asterisks above allow for the Bureau of Labor Statistics to state that the unemployment rate is at the unrealistic level we have today.

Another aspect under your purview is the lack of interest paid on the meager savings for middle America. Banks have been forcing their depositors to get pennies for each $100 they put in a savings account. While at the same time the banks are putting their cash on the Fed’s balance sheet and collecting a handsome (comparatively) rate of return.

Unlike the people you and your committee members interact with, most of Americans cited above are not in the stock market. So now I can see why you feel it’s “a mystery” why inflation is subdued.

Another point of contention. It’s a convenient narrative for you and your committee members to allow the press to say that Amazon is decimating the US retail sector. But let’s face it, many Americans who used to shop at the malls can no longer aspire to own a new set of clothes each season.

First of all, they no longer have a job that requires anything more than a pair of stretch pants and a shirt or a pair of jeans and a team jersey. So why would they need to buy expensive clothes. They are not doing any fine dining or entertaining on their depressed wages.

These Americans have hard decisions each and every week on how to spend their meager wages or monthly check.

They shop the rim of grocery stores. The outside of the store where cheap protein lives. Milk, cheese, eggs and whatever meat is on sale. This is how they survive, not thrive.

Ms. Yellen, nothing I have laid out in this letter suggests that money has any velocity. So if a dollar earned does not translate into many dollars spent as it moves through the system, because many members in that system are either fearful of the future or struggling with the present, then you have stagflation, not inflation.

It’s no mystery to me why there is a lack of inflation, all the policies over the last decade have been put forth to curb economic growth and keep a tight reign on inflation. Just ask anyone you see shopping the rim of the grocery store, if you even go there, yourself.

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Deutsche Bank’s survival needs a ‘miracle’: Report

A Wall Street research firm issued a report Tuesday questioning the leadership and the short-term future of Deutsche Bank.

In the report Autonomous Research stated that the troubled German bank may be “beyond repair” barring a “miracle” boom at its fabled bond-trading business.

 Autonomous co-founder Stuart Graham wrote that the past decade of scandals have left Deutsche with a horrible reputation on the street and after paying billions in penalties the bank’s underinvestment in technology has left it a “clear laggard” to rivals like JPMorgan.

“When we consider the basics of what makes a bank a winner — trust (or brand), balance-sheet muscle, technology and its people — Deutsche looks to be in very bad shape,” Graham wrote. “In such situations it is inevitable that some investors start to question whether the bank has the right leadership.”

Deutsche’s stock price has suffered under CEO John Cryan’s leadership. Shares have cratered 46 percent since he took over in July of 2015 as his team racked up nearly $10 billion in losses from the bank’s past sins.

The current market cap for the bank stands at $35 billion and falling, making Graham’s analysis quite poignant.

As I have written in an award-winning story of the plight facing the bank’s C-suite as some executives tried to whistle blow about the troubles back in 2009.

Bitcoin thrives on dollar weakness

As bitcoin has recovered some of its JPM chief Jamie Dimon/China crackdown attack of last week, it awaits the next onslaught.

Trading roughly a $1,000 off its almost $5,000 high earlier this month the cryptocurrency has better resolve than other currencies including the US dollar.

The dollar has lost roughly 10% of its value against other currency this year. Trading near a high of 94 on the WSJ dollar index, today it stands at 85.3. The chart is one long slope down with no peaks since January.

Funny how this metric never comes up in Federal Reserve meeting or discussions. Cheapen the dollar to spur growth is not a sound basis to build a recovery. But Wednesday when the Fed announces its rate decision, we will not hear anything about the dollar’s worth vs. world currencies.

So how much of the roughly $3,000 price gain in 2017 can be attributed to dollar weakness? I would say it can take credit for almost half the gains as more sophisticated investors sought a hedge against a depreciating dollar. Especially the Chinese, which have their yuan pegged to the dollar.

Look for bitcoin to rise further after the Fed holds rates on Wednesday. This will give you more of an indication of who is using bitcoin as a hedge.

Obama wooing Wall $treet

Look who is wooing Wall Street — former President Obama.

Less than a year of leaving the White House Obama has lined up three high-profile speaking gigs to some of the most powerful financial firms.

Last week Obama spoke to the Carlyle Group, one of the world’s biggest private equity firms with assets under management over $160 billion.

The DC-based financial firm has had many former politicians on board as advisors, including former President George H. W. Bush, who was senior advisor to the Carlyle Asia Advisory Board from April 1998 to October 2003 and former President Bush’s Secretary of State James Baker III.

Obama is also scheduled next week to give the  keynote speech at investment bank Cantor Fitzgerald’s health-care conference

Cantor Chief Executive Officer Howard Lutnick told Bloomberg the former president will make remarks and take questions. The three-day conference for current and prospective clients begins Sept. 25. Obama will be paid about $400,000, according to a person familiar with the arrangement.

And it’s not just speaking fees that has the former president cozying up to bankers. A former Goldman Sachs banker is the financial advisor to the Obama Foundation —  Robbie Robinson.

So much for his “fat cat” reference that Obama made about bankers in the midst of the Great Recession in 2009.

Who will catch the falling knife that is bitcoin price?

September has been the cruelest month for bitcoin.

On the first of the month the price was $4,950. This morning’s low price was $3,036. Nearly a 40% decline over the first half of the month.

While many stories point to the Chinese crackdown on the cryptocurrencies through the exchanges and others give a nod to JPMorgan chief Jamie Dimon’s comments at the beginning of this week, I believe it has more to do with the newest investors in the crypto space.

The “investors” who came in at $3,000 and up — after finally learning how to buy a crypto — all they wanted to know after that was how to sell it. No buy and hold. Make a quick return and get out.

With that said, I could see bitcoin settling around this level as the shake out of newbies is completed. Remember no chart goes straight up from left to right.

If you recall earlier this summer, bitcoin had roughly a 34% drop in mid June, but by the middle of July put in a floor in at $1,995 and marched on to just below $5,000 from there.

You need a shake out in the markets — whether its stocks or cryptos — to set a floor to build on. The trouble is 40% down in two weeks is teetering on a panic and re-enforcing Dimon’s comments of it ending poorly.

However, the huge sell off on a percentage basis should not be directly compared to stocks since bitcoin does not have a Plunge Protection Team to come in and catch the falling knife when the market is experiencing panic selling.