from ITM Trading:
by Wolf Richter, Wolf Street:
There are always cycles. The current cycle started at the bottom of the Great Recession and will last “until central banks put on the brakes,” said Ray Dalio, founder of Bridgewater Associates, in an interview with Bloomberg. “We’re in a perfect situation, inflation is not a problem, growth is good, but we have to keep in mind the part of the cycle we’re in.”
We’re “in the late stage of the cycle, a period that might last two years,” he said without specifying how far we’re already into that late stage. We do know that the Fed is gingerly taking the foot off the gas though it hasn’t yet slammed on the brakes.
“When the operating rate gets high enough, when central banks think they should put on the brakes,” he said, “that’s part of the cycle.”
“From 2008 until the central banks put on the brake we have one kind of environment. So now we are closer to its capacity constraints… and we’re still going to have a lot of stimulation… in particular short-term stimulation,” and there is “a lot of cash on the sidelines” by investors, banks, consumers, and companies. “And they can feel that they’re being left out. It feels stupid to own cash in this kind of environment.”
He thinks this environment “is going to be great for earnings and great for stimulation of growth.” But “we have to look beyond that: What is monetary policy going to be in that?”
This short-term stimulus is producing a “spurt,” and this “will be a 12-to-18-month spurt,” and while that spurt is taking place, and while people feel stupid about holding cash, the central banks “will have to tighten monetary policy.”
“There is a lot more interest-rate sensitivity in the economy,” he said. “Assets themselves are more sensitive. Like a 1% rise in bond yields will produce the largest bear market in bonds that we have seen since the 1980 to 1981 period.”
Given that stimulus-driven spurt and the capacity constraints this spurt is running into, the Fed “will tighten at a rate that is probably faster than they’re signaling” because “they’re going to be concerned.”
“You also have a supply and demand situation with bonds,” he said. “With larger deficits, the government has to sell more bonds.” And this is happening just as the Fed and other central banks are letting the securities on their balance sheets roll off, he said.
The Fed’s QE Unwind is already happening, even the Bank of Japan has quietly started to reduce its bond holdings, despite verbiage about continued ultra-easy monetary policy, and the ECB has tapered its purchases to €30 billion a month and will likely end these purchases later this year. This is taking a lot of demand for securities off the table.
At the same time, the deficit in the US has been climbing and will likely surge under the new tax cuts, and debt issuance to pay for it is expected to soar.
In November, the US Treasury said that it would increase auctions of Treasury securities that have coupons, so longer-date securities. This excludes short-term “bills,” which mature in 52 weeks or less, and are sold at a discount from face value in lieu of a coupon. An increase in “coupon auctions” would be the first since November 2009.
On January 31, the Treasury Department will announce some details on how it will finance the expected surge in deficit spending over the next three months. According to Bloomberg, “Dealers forecast an onslaught of debt supply that will lead issuance to at least double this year to more than $1 trillion, the most since 2010.” For example, JPMorgan Chase strategists lifted their projection for net new Treasury issuance this year by about $100 billion, to $1.42 trillion – compared to net issuance in 2017 of about $550 billion.
With supply of this new debt surging, and with demand from central banks disappearing and even reversing (QE Unwind), more investors will have to be lured from the woodwork to buy this debt, which may require a more appealing yield. There will always be demand for US Treasuries – but the yield may have to be higher, and therefore prices lower.
Hence the massive bear market in bonds, according to Dalio.
But Dalio said that the next economic downturn is “not going to look like 2008,” which was “a classic debt crisis.” The next economic downturn is going to be different, after nine years of scorched-earth monetary policies.
Read More @ WolfStreet.com
If you get your fake news from the corporatist filtered media, the sky is falling now that the Trump tax cuts are law. Pounded into the skulls of the dense hard heads of diminished grey matter is that the benefits of putting more cash into the pockets of everyday workers is peanuts. The collectivists who operate under communist economic doctrines fear that their normal class warfare rhetoric is hitting a wall of worry from their pro redistribution base. This factor requires telling an even bigger lie. Unleashing the animal spirits of confidence in growing the economy is now a reality, and the defenders of slicing a shrinking pie cannot bear the contrast of a vibrant and expanding economy.
As companies repatriate funds held in oversea accounts, they take advantage of paying the reduced onetime tax payment. Apple is a prime example of this aspect in the new law as reported in Real Clear Politics. They will pay a tax rate of “15% instead of 35% for a total of $37-38 billion in taxes. Even at a 15% rate on their $250 billion, and they’re doing this happily.”
Now the reason all these foreign profits built up over the years is a direct result of double taxation when brought back into the U.S. The elimination of this most negative of globalist taxation devices to drive domestic companies to leave our shores are over. The net result is that the liberation from this intentional tax schemes to de-industrialize American manufacturing translates into encouraging an immense incentive for a dramatic re-establishment of reinventing our economy.
Jobs, jobs and even more jobs will be the result. Imagine the explosion in expectations based upon real expansion in economic activity. For the demented democrats such a prospect is doggie doo in the Pelosi parlance and version of her Apocalypse Now panic chambers. Sounds like the “Chucky” Schumer government shutdown is based upon the tactics of Colonel Kurtz:
“It’s impossible for words to describe what is necessary to those who do not know what horror means. Horror… Horror has a face… and you must make a friend of horror. Horror and moral terror are your friends. If they are not, then they are enemies to be feared.”
Economic imperialism is practiced by the donors of the establishment. The Democrats are the true fascists of the unholy alliance between Big Business and Despotic Government. The saps that demonstrate for expanding this vile partnership of governance are economic illiterates.
The Trump tax cuts will elevate entrepreneurship with immediate expensing the cost of certain assets as faster write-offs really appeal to businesses. As any experienced businessperson knows, when the return on capital invested increases without prolonged tax depreciation for the expense, business growth will multiply.
Investing back into a business is a proven method to grow any enterprise that sells products or services that customers demand. Those justifiers of the dependence society only grow one occupation; government addiction. Since Trump is increasing the income of the middle class and exempting lower wage earners from any federal tax, the patrons of welfare economy must become mercenaries in the service of the Sheriff of Nottingham. Hanging Trump from the Major Oak in Sherwood Forest displays the same fear that King John had from Robin Hood.
England became a nation of shopkeepers because individuals were able to participate within an expanding economy that benefited much of the country. America was able to create the largest middle class in history by putting in place the conditions for upward mobility. People could better themselves and rise about their previous station in the economy. Sadly, that promise of improvement includes fewer segments of the population for a very long time.
The swamp thieves wear a crown of despotism, designed to keep serfs in economic servitude. President Trump is upending the corrupt system and offers a path for economic prosperity for the ordinary people. The barons of the aristocracy have the money, resources and contacts to work the system which was designed to benefit them. The poor will always exist as the LBJ Great Society clearly demonstrates.
Only the expansion of a viable middle class can increase wealth for the country. Trump rejected globalism by withdrawing from the TPP and NAFTA will be renegotiated or the U.S. will withdraw from the lopsided agreement. Adopting a Merchantry economy is consistent with the Trump initiatives. The recent tax cuts are a first step in the rejuvenation of an optimistic outlook through the financial retention of more of your money through lower taxes.
Wages are rising, bonuses paid and hiring is increasing. This is the mark of an improving economy. What you are witnessing from the envy opposition of the trump tax cuts is that they are dedicated to re-impose a marginal if not a dwindling business activities environment.
In order to build a domestic alternative to the mega corporations, small businesses need to become far more profitable. The next change needed is the revamping and overhaul of Dodd-Frank that will restore a loan based community banking model to finance the capital needs of a booming small business segment.
The approach for raising the bondservant out of poverty is not robbing from the rich and giving to the poor but for expanding the velocity of commerce among and between the residents of this country. Robin Hood may be a folklore myth but his message was never that of a bleeding heart. He fought for the natural rights of all Englishmen.
Read More @ BATR.org
by Wolf Richter, Wolf Street:
The transportation recession of 2015 and 2016 has receded into memory, and the trucking industry is hopping and railroads are getting their share, rates are surging, and so are costs, and the money is flowing. The Cass Freight Index, which tracks US shipment volumes by all modes of transportation, rose 7.2% year-over-year in December, to the highest level for any December since 2007.
The Cass Freight Index is not seasonally adjusted, with peaks in early summer for back-to-school season and in September during shipping season ahead of the holiday sales season. December marks the end of shipping season, and shipments normally plunge from November. But in December 2017, instead of plunging, shipments barely edged down from November. In the chart, the difference between 2017 (red line with black markers) and 2016 (black line with red markers) shows the severity of the transportation recession and the powerful recovery since:
The green line in the chart above represents 2014, which had been a banner year for US transportation until it began to unravel at the end of 2014 and descended into the full-blown transportation recession covering much of 2015 and 2016.
The index is based on “more than $20 billion” in annual freight transactions, according to Cass Information Systems. It does not cover bulk commodities, such as oil and coal but is focused on consumer packaged goods, food, automotive, chemical, OEM, and heavy equipment, shipped via truck, rail, barge, and air.
The chart below of year-over-year percentage changes in the Cass Freight Index for shipments shows the severity of the transportation recession in 2015 and 2016 — which I covered, including in May 2016, with Freight Rail Traffic Plunges: Haunting Pictures of Transportation Recession. The chart also shows just how powerful the recovery has been:
The e-commerce boom gets part of the credit, with e-commerce sales surging 15.5% in the third quarter of 2017, according to the Commerce Department, and 18% over the holiday period, according to Adobe. Cass: “Data continues to suggest that the consumer is finally starting to spend a little, albeit not with brick and mortar retailers.”
Read More @ WolfStreet.com