Are the markets a tell on the midterms?

Are we seeing real-world exercises being conducted as a result of President Trump’s ongoing battle with the Deep State?

All of a sudden last week large institutional investors woke up and decided that the bull market was coming to an end and the Federal Reserve, which has been begging for the last decade to get the inflation rate close to 2 percent, discovered that runaway inflation was a real concern and said it would raise rates “aggressively” to combat it.

Now admittedly no market only rises with no corrections or pullbacks and it may be a little early to attribute the latest equity choppiness to anything more than profit taking and it being October, but the timing is curious.

The markets also have international concerns in Italy and China, which could be the contagion to hurt US growth and need to be watched carefully, but not to the degree we are seeing right now.

Trump did pick Fed chief Jerome Powell and he has reigned in the number of voices in the Fed speaking on the economy. Under ex-chief Janet Yellen it seemed even the maintenance staff at the Fed were allow to opine on monetary policy for TV audiences.

The President on Wednesday questioned the Fed’s rhetoric on inflation to reporters saying he thought it was crazy for Powell & Co. to be so aggressive in its stance on raising rates.

You see the Fed doesn’t really have to raise rates to curtail growth right now. The threat alone is enough to squeeze lenders into jacking up loan rates or to call in more questionable loans, which all dampen continuing growth. And as markets fall margin calls can steepen the decline as investors sell what they have to cover other bets.

So let’s keep an eye on this as the midterms near. I’m sure The President will have much to say should this sell off continue.

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Markets searching for a shred of news

The news lull of August is in full swing. I have been looking for two hours for a shred of meaningful news to opine about.

A quick look at the financial headlines tells you everything you need to know about global markets. Currency devaluations in Turkey and China are making markets jittery for lack of any real news.

Now don’t get me wrong, China cutting the value of the yuan as a response to President Trump’s tariff threats has meaning to the backwater currency trading markets, but to make global markets move on the scale they have this morning is a bit of overkill and a result of lack of news on other fronts.

The same with the Turkish lira devaluation taking down the emerging markets. This is less than a blip on the screen any other time of the year. Today it’s leading the WSJ.com website.

So now we have big moves in currencies and sovereign bonds — two markets that most investors know very little about — driving overall stock markets.

Well perhaps later today we can get back to real market-driving news like Tesla’s Elon Musk on Twitter showing the check he received from Amazon’s Jeff Bezos to take the electric automaker private.

If this continues tomorrow, I think I’ll give you an update on my honey bees and the honey I harvested. It’s a helluva more interesting than currencies and sovereign bonds.

A US economic snapshot in the middle of 2018 — not all is well

Let’s take a quick look at the US economy and where it may be headed in the near term.

While unemployment is said to be very low, the rate is still artificially low due to the uncounted Americans no longer in the workforce because of chronic joblessness.

Producer and consumer pricing are rising — not because of tariffs as the left will cite — due to the excessive capital washing out of the stock and bond market. The stock price run up over the last three years was engineered by the Federal Reserve’s quantitative easing capital finding safe haven in stocks and bonds.

Now that capital is exiting the security markets and finding better treatment with private equity firms that are buying out manufacturing and consumer brand companies, which drives up prices in order for the new owner — the PE firm — to make money from the investment through putting the brands deeper into debt to make special payments to them.

So this capital is not from the average American, but the repercussions are being felt by these average Americans through higher prices. Look at the biggest PE firms raising record amounts for new funds.

Taking a quick look at the US bond market to see where the real problems are. The difference in return rates between lending Uncle Sam money over 2 years versus 30 years.

The 2-year return is 2.61%, the 30-year interest rate is 2.96%. The delta between these two 0.35 percentage points return over 28 years. This is what is called a flat yield curve, since the interest curve is very shallow.

In the environment of the bond market capital is not treated well at all with artificially low returns, so this is pushing additional big money out of the public capital markets and into the private funding markets.

What is the down side of this move? Look at the number of bankruptcies in the retailing sector over the last year. These stores: Toys R US and a dozen or so women’s apparel stores are all closed or limping along because these companies were so leveraged up on debt that they could not pay off their huge debt levels imposed on them by their private equity owners.

But don’t worry about these PE firms because they took their money upfront and more than likely owed some of the companies bonds, which were paid off in the bankruptcy.

Deutsche’s stress-ful day, Hillary campaign worker busted for child porn

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Deutsche Bank will be in the news again Thursday afternoon as the results of the second part of the Federal Reserve stress tests are released.

Last week the German uber bank did fairly well in demonstrating it had sufficient capital to absorb losses if a deep recession occurred.

This week’s results probe whether the banks’ operations and planning are up to the task of dealing with a deep recession.

Should Deutsche fail the so-called qualitative part of the stress tests, then the Fed can limit how much cash the US operations can ship back to the fatherland. This could put Deutsche in a liquidity bind back home as the German economy is slowing down.

Deutsche’s new CEO Christian Sewing — who I have pointed out previously whitewashed an internal probe at the bank looking into a spate of executive suicides, which coincided with the Libor investigation —  is at best ill-equipped to handle the problems plaguing the bank’s US operations.

We’ll see at 4:30 today.


Alleged pedophile and child porn distributor Joel Davis (left) seen in Hillary Clinton’s New York City 2106 Presidential campaign headquarters.

A humanitarian allegedly helping child victims of sexual violence has been arrested for distributing child pornography, by federal prosecutors in New York.

“Joel Davis started an organization devoted to stopping sexual violence, while allegedly engaged in the duplicitous behavior of sharing explicit images of infants engaged in sexual activity. Davis also allegedly solicited an undercover officer – whom he thought to be a willing participant – to send sexually explicit videos of his nine-year-old daughter, and even to set up a sexual encounter between himself and a two-year-old. The conduct alleged against Joel Davis is as unfathomable as it is sickening, and as this case demonstrates, law enforcement will keep its watchful eye on the darkest corners of the internet to bring predators to justice.”

“During the course of these conversations, DAVIS told the undercover officers that he was sexually interested in children of all ages.  DAVIS sent the undercover officers sexually explicit photographs of infants and toddlers, including photographs in which the infants and toddlers were engaged in sexual activity with adults,”

 

According to the US Attorney’s Office for the Southern District of New York, U.S. Attorney Geoffrey S. Berman

These depraved acts had federal law enforcement and prosecutors “sickened” by the hypocrisy of the organization.

‘Having started an organization that pushed for the end of sexual violence, Davis displayed the highest degree of hypocrisy by his alleged attempts to sexually exploit multiple minors,’ FBI Assistant Director-in-Charge William F. Sweeney Jr. said.

‘As if this wasn’t repulsive enough, Davis allegedly possessed and distributed utterly explicit images of innocent infants and toddlers being sexually abused by adults.’

Images have also surfaced of the 22-year-old Davis working on the 2016 Hillary Clinton presidential campaign.

One more pervert down, millions still to go.

Bernanke’s policies were certainly not a Roadrunner

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Former Fed chief Ben Bernanke was taking jabs at President Donald Trump’s economic stimulus and tax cuts on Thursday in DC to a like-minded leftist crowd.

Bernanke, whose monetary policies helped every institution in the US except the US consumer, says the stimulus will only have a short-term effect and that by 2020 it will peter out.

The former Fed chair sounding quite jealous  since he begged the White House and Congress for this type of economic plan for most of his term as Fed chief to help pull the US out of the Great Recession.

Bernanke using the cartoon character Wiley E Coyote to say the US economy will go off a cliff in 2020. This happens to coincide with Trump’s re-election campaign.

Bernanke — citing the amount of stimulus coming from the White House of  $1.5 trillion in personal and corporate tax cuts and a $300 billion increase in federal spending — saying these policies  “make the Fed’s job more difficult all around” because it’s coming at a time of very low U.S. unemployment.”

While the unemployment rate is 3.8%, the number really does not take into account people working part-time and wish to have a full-time job. It also does not count the people who longer collect benefits.

So to say the US is at full employment is disingenuous at best, since Bernanke knows he is citing flawed data to take a shot at the Trump White House.

I find it ironic Bernanke would use the Wiley E Coyote imagery since no matter what he did as Fed chief both he and President Obama resided over the first modern 8-year term that did not achieve a 3% annual GDP growth. So to suggest that Trump’s economic policies are basically futile and will fall off the cliff is very rich.