FOMC Statement for July 29, 2015 - Lords of the Small Council

The Fed did nothing, but continued to smooth the way for some rate hikes.

The hikes have little to do with the economy or The Recovery™.   Or what George Mason Prof Tony Sanders aptly calls The Bartender Recovery of part time service jobs and very low real median wage growth that is losing ground to housing prices and inflation.

The Fed would like to get off the zero bound so that they have room to cut the next time the financial markets crash because of regulatory capture and gross policy errors that have allowed the financial sector to mutate and distort its role in the real economy.

So barring a market meltdown I would expect a 25 basis point increase in September. I don't think that there is unanimity behind this decision on the FOMC. I suspect Yellen is more dovish than other members, probably led by monetary technician Stanley Fisher, having a more hawkish lean not so much from an economic standpoint as from the practical standpoint of banking system technocrats.

Release Date: July 29, 2015

For immediate release

Information received since the Federal Open Market Committee met in June indicates that economic activity has been expanding moderately in recent months. Growth in household spending has been moderate and the housing sector has shown additional improvement; however, business fixed investment and net exports stayed soft.

The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey‑based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate.

The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

 

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

 

The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

Gold Daily and Silver Weekly Charts - Option Expiry - Leverage 117:1 at The Bucket Shop

 

"Half of the harm that is done in this world is due to people who want to feel important. They don't mean to do harm. But the harm does not interest them.  Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves."

T.S. Eliot

As you may recall we had the August option expiration for the precious metals at The Bucket Shop today.

 

The call options at the 1100 level and above expired worthlessly according to the preliminary report from today.  I have circled those in red below.  As you can see from the prior day open interest, a goodly chunk fell by the wayside.

 

The second chart shows the distribution of volume for both calls and puts for August gold.

 

As you may have noticed in the warehouse report from yesterday, a rather large chunk of bullion in the JP Morgan warehouse was moved from registered (deliverable) to eligible (in storage not for delivery).   This took what I call the 'claims per ounce' up to the rather high level of 117:1.

 

This may be just a tease since there is quite a bit of gold laying about, but not deliverable at these prices, so I won't be getting too excited just yet.  I might have been more impressed if open interest had soared, or if some gold had actually exited the warehouse, rather than JPM just playing the old switcheroo with about 105,000 ounces of bullion that is still there.

 

But the gold crowd is hard up for good news, so let's make a big deal about it for a day or two.

 

I am keying off gold here, since silver seems to be along for the ride.  It may well lead the way at some point as I have noted, but not yet.

 

After the usual price charts I show the current levels of gold and silver bullion in the warehouses.

 

We may expect a little punch to the holders of new contracts compliment of the expiration, but most of that work in skinning the option players and knocking down the open interest seems to have been done.  As a side note, rather than playing at options on the paper prices at the Comex, you might find buying lottery tickets to be about the same odds and more satisfying.  At least it will get you out of the house or office.

Also I wanted to add a comment with regard to all these fellows who are saying that interest rates rising can be good for gold.  They tend to like to look back at the 1970's, which I remember all too well.   Let me remind you that correlation is not causation.  The reason rates were rising back then was that inflation had clearly reared its ugly head, and the Fed was grappling with monetary mischief and a gas price shock (with rationing) that had been delivered by the newly formed OPEC.

In this current case although there is inflation and it is being grossly understated, the rate increases have little to do with it, and everything to do with a Fed that is gazing deeply into the navel of their own policy errors, and trying to get a little maneuvering room off that zero bound before they crush the economy again with another financial crisis.

I do think gold will get some serious legs sometime in the not too distant future, but it will be driven by events outside of the US, which may or may not even involve the dollar.  This long gold pool manipulation of the price has done serious damage to supply without affecting non-US demand.  This is a formula for the mother of all short squeezes at some point when the pooling operation falls apart.  What triggers that may or may not involve a real inflation in the dollar.

 

All these markets are mere constructions now.   It is not just the government and the Fed by a long shot, although some romantics think that this is the case, and that if only we could eliminate the government, the god of the markets would make all of us good boys and girls, honest and self-effacing.  Because people, especially well-educated businesspeople, are naturally superior, rational angels who are needed to tell everyone else how to live, and to be compensated exceptionally well for their troubles.

 

As if.

 

There is no doubt that the corrupting influence of easy money has seeped into most if not all aspects of the developed Western countries, and that this is the end result of a long process with its roots in the 1970's at least.  

 

Reform is needed badly to cure the infection in the body politic.   But most of the prescriptions we have been seeing are coming out of the heart of darkness that is at the root of this, and would make the situation only worse.  And that is the unbridled greed of powerfully driven sociopaths and narcissists, and their troops of suppliers and camp followers. 

 

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

 

Have a pleasant evening.

 

 

 

 

 

 

 

 

 

 

SP 500 and NDX Futures Daily Charts - Bounce

 

US equities had a nice bounce today, especially the SP 500, as compared to the tech heavy NDX.

 

The next two moves will tell us quite a bit more about this.   And especially the NDX which had led the way higher in the last rally which recently crested with the IPO of Paypal.

 

You have to be agile if you wish to play the wash-rinse game.  I do not recommend it.  The system is set up to wear you down with transactional friction from spreads and fees.

 

Have a pleasant evening.

 

 

 

Gold Daily and Silver Weekly Charts - Miner Miner

 

There is a chart of the GDX relative to the Price of Gold.  This is why some will say that the miners are 'weak relative to the price of the metal.'  And they are.  They can get even cheaper, and the underlying metal can also get 'cheaper.'  That does not mean that they will.

Sentiment is obviously at a negative extreme, and some of the chortling from the opinion vendors is disheartening to those who take that sort of thing seriously.  But it is what it is, and we must play the cards as they fall.

Let's see how gold can trade through the advance GDP number this week and the Non-Farm Payrolls report next week.

I am becoming more aware of the mining sector at this point IF I decide to play a bounce in the precious metals and IF I do not think that the equity market will actually crash, rather than swing back and forth in the jigging for spec fishes that the HFT insiders are wont to do these days.

I have not owned a mining stock in recent memory except as a trade.  I am now getting more serious about that sort of thing, with the appropriate caution about getting in too early.  I would rather miss the first ten percent of a real rally than come in too early and try to catch 'the bottom.'

 

The 'deliverable' or registered gold at the Comex has fallen to a surprisingly low level of 378,146 ounces.  This would be shocking in a honest market given the leverage involved.  But since we are dealing with The Bucket Shop it just bears watching.

Have a pleasant evening.

 

 

 

 

 

 

 

 

SP 500 and NDX Futures Daily Charts - Rinse-a-Matic

Stocks in the US continued to slide, in sympathy with China and a generally poor outlook for the world of real productivity and wealth.

And in large part this is the rinse cycle of a wash-rinse stock market operation conducted by insiders that took US equity prices up to unsustainable levels in the first place.

It looks like our cynical outlook just after Wall Street squeezed out the Paypal IPO was on the money. 

No credit really, given the screaming non-confirmation out of anything except for a very narrow rally in a few tech name.   If your favorite purveyor of market analysis was not saying 'get out for now' you may wish to find a new one.

So as everyone seems to wish to say, 'what next?'

Now we see what happens in China, and what sort of support that US stocks can find as they approach the lower bounds of the current trend channels, wash and rinse-wise.

We will take a peek at the Advanced GDP number for second quarter and that might mean something IF China can stabilize and Greece does not blow up again, which it very well may.

Have a pleasant evening.

 

 

 

Providence Is the Hidden Hand of God

"Wonderful providence indeed which is so silent, yet so efficacious, so constant, so unerring. This is what baffles the power of Satan. He cannot discern the Hand of God in what goes on; and though he would fain meet it and encounter it, in his mad and blasphemous rebellion against heaven, he cannot find it.

Crafty and penetrating as he is, yet his thousand eyes and his many instruments avail him nothing against the majestic serene silence, the holy imperturbable calm which reigns through the providences of God. Crafty and experienced as he is, he appears like a child or a fool, like one made sport of, whose daily bread is but failure and mockery, before the deep and secret wisdom of the Divine Counsels.

He makes a guess here, or does a bold act there, but all in the dark. He knew not of Gabriel's coming, and the miraculous conception of the Virgin, or what was meant by that Holy Thing which was to be born, being called the Son of God. He tried to kill him, and he made martyrs of the innocent children; he tempted the Lord of all with hunger and with ambitious prospects; he sifted the Apostles, and got none but one who already bore his own name, and had been already given over as a devil.

He brought into the world the very salvation which he feared and hated. He accomplished the Atonement of that world, whose misery he was plotting. Wonderfully silent, yet resistless course of God's providence!  'Verily, Thou art a God that hidest Thyself, O God of Israel, the Saviour;' and if even devils, sagacious as they are, spirits by nature and experienced in evil, cannot detect His hand, while He works, how can we hope to see it except by that way which the devils cannot take, by loving faith?"

John Henry Newman, PS 17

Do not despair in not understanding all and fully, for this is our nature and necessity.  Be serene in having the grace to know the next step, but none further.  For this is a part of our protection against the forces of the evil of this world.

We surely and clearly know what to do, having been told plainly and many times by His messengers and the promptings of our conscience. We are to love the Lord our God, with our whole hearts, our whole minds, our whole soul, and our whole strength, and our neighbors as ourselves.  This is the heart of the law, and the rule of our warfare.

The mystery of Providence is a grace that gives those who accept it a power that is incomprehensible to the calculating mind of evil, that knows only what it can see and measure, according to its own pride and willfulness. 

And it confounds the ever-fading powers of the restless servants of this world and their wickedness in high places.  That is the love of God, which is inexplicable and cannot be seen, except in cherished glimpses and with a limited understanding, by those who are already His through their continuing faithfulness.  He speaks to them in their hearts, if they will but listen.

This is no complacency, no retreat from the world, no quiet acceptance of evil but a call to action.  We are directed not to linger, and to watch for more signs and wonders, gifts and consolations, not an endless menu of comforts so that we may ride comfortably to heaven, but to bear up with what we have been given and to do His work, but with love. 

We are called to a love which is transformative when it is living for others, but a vain preoccupation and a kind of twilight of lingering misery when it is not.  His call occurs, but we must rise and follow.

His yoke, though gentle, both constrains our natures and leads us through periods of dryness and confusion, which are often put most heavily on those called to lead.  And as we may need them, unexpectedly, there are the consolations, His gentle mercies.

We will contemplate the face of God in the next world, but in this, we are called to action and His work.   Nothing is wasted in God's economy.   He knows what He is about.