Tag: Yield Curve

Ep. 604 – An Economic Quagmire

The Kapital News
The Kapital News
Ep. 604 - An Economic Quagmire
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From one economic figure to the next, it is never really good enough. At least not for the Federal Reserve and other major central banks to truly begin normalizing their respective balance sheets, let alone even discuss the topic. They are concerned how tapering and/or any subsequent increase to interest rates will impact global equity, bond, and currency markets. And rightly so. The Fed attempted to taper and increase interest rates only a few short years ago and it ended with equity markets dropping nearly 20 percent in the fourth quarter of 2018. The economy and equity markets could not digest a Fed’s balance sheet below $4 trillion or the Federal Funds Rate just north of 2 percent. Fast-forward to a balance sheet near $8 trillion and the FFR at the zero bound, and you can surely see their predicament. Equity and bond prices have been able to increase over this pandemic period for one reason and one reason only and that is due to the major liquidity injections by central banks and federal government programs. Remove these items and prices are nowhere near these levels. Policymakers are trapped, they know it, and they are getting more and more nervous by the day.

Initial jobless claims came in at 385,000 for the week ending 29 May. This is the lowest figure since 14 March of 2020 when the number was 256,000. The number from last week was revised slightly lower by 1,000 to now stand at 405,000. In aggregate, some 15.4 million Americans continue to claim some form of unemployment insurance. This gives a de facto unemployment rate of 11.1 percent. The official unemployment rate is currently 6.1 percent. The May jobs report will be released tomorrow morning by the Bureau of Labor Statistics, BLS, and it will be watched closely by global markets. Analysts are looking for nearly 1 million jobs having been added to the roles for the month of May. A recent report released by ADP has stated that 978,000 private sector jobs were added in the month of May. Recall that last month, expectations were for nearly 1 million job gains for April, however, the official statistic came in at 266,000. Will May be a repeat of April or more in alignment with market forecasts?

The Federal Reserve’s balance sheet has hit another all-time and now currently stands at $7.935 trillion. This is a week-over-week increase of some $32 billion. It is somewhat laughable how the Fed stated only yesterday that they will begin to taper their holdings of corporate bonds, which amount to $14 billion. And even this is supposed to be a process that could take until the end of the year. Meanwhile, they added $32 billion to their balance sheet in one week alone! The Fed also remains committed to their QE policy of purchasing at least $120 billion per month in US Treasuries and mortgage-backed securities. M1 and M2 money stock has also been updated and both currently stand at all-time highs, as of April. Coming in at $18.935 trillion and $20.109 trillion, respectively, really puts things into perspective, especially when considering that M1 was at $4 trillion prior to the pandemic and M2 was at $15.5 trillion. So what exactly did we get for all of this funny money? Because we can assure you that this is no free lunch. Jay Powell, Chair of the Fed is expected to speak tomorrow. Most likely this will be some form of damage control for the jobs report whether the number is good looking or ugly. These markets need continued hand-holding in order to grind higher. Talk about a command and control economy. Land of the free, eh? Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #FoodPrices #Gold #Silver #Protests #Riots #Liberty #USA #Leadership #Revolutions #EndTheFed #bananarepublic #FireCongress #Jobs #Bailouts #Debt

Ep. 601 – Debt Distorts Reality

The Kapital News
The Kapital News
Ep. 601 - Debt Distorts Reality
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With politicians and central bankers attempting to solve or alleviate the impact from the pandemic, they are in actuality making the problem worse. This is because one cannot expect to solve a global debt crisis by adding record amounts of debt onto the system. Furthermore, the massive printing press operation that is being conducted globally does not translate into productivity. Rather, it translates into inflation, which is an increase in the money supply. Sure, printing presses can print currency, but they cannot print productivity, jobs, or innovation. Yet, what will result from all of this, and it is already being felt across the world, are higher prices. Whether it is in energy, commodities, food, housing, transportation, medical expenses, or more, prices are moving up and will likely stay there for some time. The Kapital News believes that we will be entering a period of structural inflation – meaning that the effects of inflation, higher prices, will be sustained due to central bank and federal government policies, supply-chain disruptions, and geopolitical events.

In fact, much of this is already well underway and many smaller nations are suffering from high rates of inflation. This will lead, if it has not already, to political fallout, protests, riots, conflicts, and revolutions. These events will likely first take root in weaker economies, but will make their way to more developed and diversified economies as well. Inflationary policies can greatly distort reality whereby people think that rising asset prices means that there is a strong underlying economy causing such price movements. However, nothing could be further from the truth. It is not a growing economy that is leading to such price increases, but rather a growing money supply. Another way of looking at it, is to say that it is a weakening currency or a devaluing of the US dollar that is causing prices to rise. Meaning it takes more dollars to purchase the same amount of goods because those dollars have been devalued. This does not occur in a strong economy, but rather a weak one.

If one wants to look at some of the distortionary effects of these policies, then look no further than US retail sales. The trend line has been completely decimated. It can be understood when looking at this data series that there would be a downward deviation to retail sales during the GFC and during the pandemic. However, there is a notable difference when comparing these two time periods. In the former, during the GFC, retail sales peaked in late 2007 and did not recover to that peek until early 2011. This makes intuitive sense that it would take awhile to regain the previous trend. Yet, when we review the pandemic, we see a massive drop-off in retail sales, which makes sense given the lockdowns and restrictions. However, we see a huge V-shaped recovery back to where retail sales were prior to the pandemic in only a few short months, and beyond this, we now see retail sales well above the previous trend. In fact, even if we were to remove the GFC and pandemic deviations, we would likely still not be at the high levels we are currently witnessing. Peak sales prior to the pandemic were around $525 billion in early 2020. In March, the most recent data point, now stands at $620 billion. What this data series suggests is that a couple to a few years’ worth of spending has been pulled forward to today! This is all thanks to Uncle Sam spending money that we do not have and the Federal Reserve printing up the money out of thin air like some 3rd world banana republic. In essence, future growth and prosperity has been stolen from the future in order to make today look better than what it actually is. This is the moral of the story on how debt distorts reality. This is completely unsustainable and when the bottom falls out, it will cause tremendous amounts of damage across the spectrum and around the globe.

Initial jobless claims for the week ending 22 May came in at 406,000. This is the lowest figure since the pandemic began and is a continuation of trend with falling claims figures. The prior week saw no change, thus remaining at 466,000. The Pandemic Unemployment Assistance program saw 93,000 filing, thus taking the total to just shy of 500,000. In aggregate, some 15.8 million Americans continue to claim some form of unemployment insurance. This gives us a de facto unemployment rate of 11.4 percent. The official unemployment rate stands at 6.1 percent. The May jobs report will be released on the first Friday in June. The Federal Reserve’s balance sheet came down by $19 billion and now stands at $7.903 trillion. The Fed remains committed to their QE policy whereby they are purchasing at least $120 billion per month in US Treasuries and mortgage-backed securities. Their balance sheet is likely to make new all-time highs on a near weekly basis. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #Jobs #Gold #Silver #FoodPrices #Housing #Debt #Bailouts #Protests #Liberty #USA #Revolution #EndTheFed #bananarepublic #FireCongress #Spending #Commodities

Ep. 600 – A Financial Storm A Brewin’?

The Kapital News
The Kapital News
Ep. 600 - A Financial Storm A Brewin'?
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Global markets have been distorted for a long time, but never before have we witnessed such obvious market manipulation alongside the implementation of distortionary policies. What this ultimately translates into is a system that is over-indebted, over-leveraged, and extremely fragile. It can take the slightest of pin-pricks to burst one bubble after the next. The causes of the bursting of the bubbles are near limitless. They can arise from within the financial and economic systems or they can take the form of an exogenous shock to the system. In any event, one bursting bubble will trigger the bursting of others. The economic, financial, political, and societal fallout will be enormous. In such an event, the blame game and finger pointing will ensue almost immediately.

The reason for today’s discussion is due to the ever-changing and shifting narrative that we hear from the mainstream media and policymakers alike. The Kapital News believes this to be a somewhat coordinated effort to distract the people from the bigger picture. Best to keep the people occupied with circuses than the actual truth of what is actually happening around the globe. In this vein, it is quite evident that the narrative around COVID-19, the Chinese, and their Wuhan laboratory are making headlines. Last year, such connections and questions were not allowed to be asked, otherwise you were labeled a conspiracy theorist. Today, it is front page news. So what shifted? What has changed? While The Kapital News does not specifically know the reasoning or the cause behind the sudden change in narrative, we do question why now and may this be used as part of an excuse as to why markets may breakdown? This is a serious question and it needs to be pondered. Because it may provide the perfect cover for policymakers to put the blame on China, thus deflecting any scrutiny of themselves and the asinine and criminal policies that they have been implementing. There will be more to come on this situation. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #Gold #FoodPrices #Housing #Silver #Debt #Spending #Protests #Liberty #Riots #Leadership #Revolution #EndTheFed #bananarepublic #FireCongress #Bubbles

Ep. 599 – Higher Housing Prices + Lower Sales

The Kapital News
The Kapital News
Ep. 599 - Higher Housing Prices + Lower Sales
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The S&P/Case-Shiller US national and 20-city home price indexes, saw year-over-year increases of 13.2 percent each. These types of increases have not been since either 2013 or prior to the GFC in 2005. Now while mortgage rates have also ticked up with housing prices, they are still near all-time lows. However, due to such rapidity in housing price increases, buyers are stepping away from the market. They simply cannot afford to purchase these homes. Furthermore, builders are reluctant to sign offers from buyers because they are concerned with the rapid rise of construction material costs. Should they sign a deal and then costs continue higher, their margins will take a hit and it could be significant. This in turn reduces sales.

Yet despite all of this, we are constantly told that there is no inflation and that the Federal Reserve continues to purchase $40 billion per month in mortgage-backed securities. These monthly purchases are a part of the Fed’s QE program which came about during the GFC. So let us understand this, the purchasing of MBS during and after the GFC was done because it was an “emergency” due to housing prices falling. Now we have prices at all-time highs and they continue with QE and the purchasing of MBS. How does this make sense? They buy when prices are falling and they buy when prices keep going up. Something does not make sense and it is likely that a massive correction in housing and/or construction materials is on the horizon. However, the Fed will do everything in their power to prevent this from happening or at least cushion the blow. And not only is this an economic story, but also a political and social story because home-ownership is a very emotional topic. So if prices should continue higher and more and more people are priced out of the market, while at the same time also having to contend with rising rents, and other cost increases, then something is likely to break and give way. Expect political movements, protests, and the like because of this reality. Stay diversified, stay vigilant, and stay with The Kapital News. #Housing #Inflation #Gold #Economy #Silver #EndTheFed #bananarepublic #Debt #Liberty #USA #Leadership #Commodities #Protests #FoodPrices #Revolution #FireCongress

Ep. 597 – Policymakers Getting Nervous?

The Kapital News
The Kapital News
Ep. 597 - Policymakers Getting Nervous?
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Politicians and central bankers the world over have been boxed-in for some time. The road to responsibility, accountability, and leadership is not one they want to take. Therefore, they continue to implement the same asinine policies that led us to this point. And despite all of these artificial attempts to prop up the system and despite how powerful these institutions may be separately or combined, they are not larger than or more powerful than the markets. This means the day of reckoning awaits us. The question is when does this happen? Policymakers know this, but will never admit to it. However, by reading between the lines and listening carefully to their remarks, it is quite clear that they are getting nervous. They know the global economy is extremely fragile right now, as are whole countries from a political and societal perspective. They know this will not end well and they know they will be the ones who will be blamed.

Initial jobless claims for the week ending 15 May came in at 444,000. The lowest reading since the pandemic. The prior week was revised higher by 5,000 to now stand at 478,000. In aggregate, there remains nearly 16 million Americans that continue to claim some form of unemployment insurance. This gives us a de facto unemployment rate of 11.5 percent. The official rate is 6.1 percent.

The Federal Reserve’s balance sheet has hit a new all-time high at $7.922 trillion! This is a week-over-week increase of $90 billion. This is a sign that the Fed is worried about the recent price action in the equity markets that has been trending lower, and this is a clear attempt at cushioning the blow in the least and sparking a rally at best. The Fed remains committed to their QE program of purchasing at least $120 billion per month in US Treasuries and mortgage-backed securities. The Fed is also starting to admit that they are paying closer attention to crypto and digital currencies, and announced that they will be publishing a report on this matter in the summer months.

In other news, the 11 day conflict between the Israelis and Palestinians has come to halt, at least for now as both sides have agreed to a cease-fire that went into effect early Friday morning. The deal was brokered by Egypt. At least 232 Palestinians, including 65 children have been killed. On the Israeli side, twelve people were killed, including two children. Let us pray that the ceasefire holds and turns into a more peaceful situation between the two sides. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #Jobs #Gold #Silver #FoodPrices #Protests #USA #Israel #Palestine #Commodities #Riots #Peace #Liberty #EndTheFed #bananarepublic #FireCongress #Leadership #Debt #Revolution

Ep. 595 – Gold + Silver About to Shine?

The Kapital News
The Kapital News
Ep. 595 - Gold + Silver About to Shine?
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The yellow and white metals put on solid gains today and have been slowly taking out one level of technical resistance after the next. Both gold and silver are on the brink of breaking through some larger resistance levels and if they should bust through to the upside, then it is likely that gold may flirt with its all-time high seen last summer, and silver may finally break the $30/oz. level. If silver should gain ground above $30/oz. then it may very well make a move to test its all-time highs, which was close to $50/oz. Regardless, The Kapital News believes that the precious metals market is in the early stages of a long-term bull market. Gold and silver are sniffing out inflation and quite possibly global turmoil as well. These are some of the oldest markets on Earth and they have survived one empire after another. This is far from being the first rodeo for gold and silver. They may also know that global conflict may be well underway or is about to be. These actions have not yet been priced into global equity markets as they remain a stone’s throw away from all-time highs. Should there be global conflict on a large scale, oil prices would likely spike, panic would ensue, and equities would sell-off. Of course there may be some plays in equities, such as energy and defense companies, but the broader market would likely feel the downside pressure.

Another issue to contend with that supports higher gold and silver prices is that of the twin-deficit, which is getting worse by the day. The twin-deficit is comprised of the budget deficit and the trade deficit. The former is now in the multi-trillion dollar range and the latter is nearing the one trillion dollar mark at $850 billion! This historically, has not been good for the US dollar, which is a variable that can weigh down gold and silver should it be moving to the upside. Couple the twin-deficit with the reckless policies of the Federal Reserve and you have a recipe for economic disaster and an opportunity to capitalize on gold, silver, and other commodities. The inflation is already here, as it is an increase in the money supply. This has happened and it continues to be the policy of the Fed and other central banks. The higher prices that result from such inflationary policies are being felt and to an even greater degree globally and will continue to strain societies and governments the world over. This environment is ripe for social unrest and conflict. Let us hope and pray that it does not come to pass, but unfortunately, if history is any indicator, and it is, then get prepared. Stay diversified, stay vigilant, and stay with The Kapital News. #Inflation #Gold #Silver #Economy #Debt #bananarepublic #FireCongress #EndTheFed #Revolution #Liberty #Protests #Leadership #USA

Ep. 593 – Jobless Claims Down, Producer Prices Up

The Kapital News
The Kapital News
Ep. 593 - Jobless Claims Down, Producer Prices Up
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The initial jobless claims figure for the week ending 8 May, came in at 473,000. The lowest figure in over a year and continuing its downward trend as the economy reopens. Data from the prior week was revised upward by 9,000 to now stand at 507,000. The Pandemic Unemployment Assistance program saw 104,000 Americans file for the first time, also during in the week ending 8 May. In aggregate, across all forms of unemployment insurance, some 16.9 million Americans continue to file claims. This is for the week ending 24 April and gives us a de facto unemployment rate of 12.8 percent, which is more than 2x the official rate. The official unemployment rate is now 6.1 percent.

Also released today was the Producer Price Index Summary, which showed that producer prices for the final demand index rose by 6.2 percent in April on a year-over-year basis. This is the highest figure since records were kept on a yearly basis going back to November of 2010. Stripping out food, energy, and trade services, the index stands at 4.6 percent, which is also a record-high going back to August of 2014. As we witnessed yesterday in the CPI report, these figures released today were higher than market expectations. The question becomes just how long these price increases will continue. Will they be transitory as the Federal Reserve claims, or will they be longer-lasting and more structural for a few years or more to come? This is a crucial question, as markets, economies, political processes, and societies will all be greatly impacted.

The Federal Reserve’s balance sheet has hit a new all-time high and now stands at $7.83 trillion. This is a week-over-week increase of $20 billion. The Fed remains committed to their QE program of purchasing at least $120 billion per month of US Treasuries and mortgage-backed securities. So far, the Fed has brushed off the recent higher than expected inflation figures, as they continue with their transitory remarks. They also appear to want to wait and see what future data points suggest is underway throughout the economy. Chances are they will be too late to respond to any structural problem and thus their efforts will likely prove futile. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #FoodPrices #Bitcoin #Bitcon #EndTheFed #bananarepublic #FireCongress #Gold #Silver #Commodities #Liberty #USA #Leadership #Jobs #Bailouts #Protests #Riots #Revolution #Peace

Ep. 592 – There’s No Inflation, But There IS!

The Kapital News
The Kapital News
Ep. 592 - There's No Inflation, But There IS!
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The Bureau of Labor Statistics, BLS, released their Consumer Price Index Summary for the month of April. The headline figure came in at 4.2 percent on a year-over-year basis, which was above market consensus. This is the highest reading since September of 2008. Speaking of no inflation, used cars and trucks saw an increase of 10 percent in the month of April! With people moving out of the cities and into the suburbs, they are also bidding up the prices of new and used vehicles. Also, with the impact of the pandemic, many people may also be concerned with utilizing public transportation and are thus opting for their own vehicles. This one-month increase of 10 percent is the highest on record since the series began in 1953. Also, notable was the all items less food and energy category rose by 0.9 percent, which was the largest monthly increase since 1982.

On a year-over-year basis, some of the notable increases were the following: food is up 4.2 percent, energy is up 25.1 percent, gasoline is up 49.6 percent, utilities (gas) is up 12.1 percent, new vehicles are up 2.0 percent, and used vehicles are up 21.0 percent. Speaking of vehicles, Q4 2020 average prices for new and used vehicles came in at $40,107 and $27,689, respectively. Down payments also increased, but still puts the average monthly payment at $581! And here you were thinking that all that free money from Uncle Sam was actually free – well, bless your heart. There is no free lunch and this is one of the worst economic policies that has ever been implemented and on a global scale to boot. Now some may say that this is all transitory. Perhaps the degree to which these prices are rising may be transitory, but the overall inflation and its effects, are anything but temporary. This is a structural shift that is going to wreak havoc around the globe for years to come. Pay attention! Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #FoodPrices #CarPrices #Debt #Spending #Gold #Silver #Commodities #Oil #Liberty #EndTheFed #bananarepublic #FireCongress #Leadership

Ep. 591 – The Ever-Changing Narrative

The Kapital News
The Kapital News
Ep. 591 - The Ever-Changing Narrative
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In the 24/7 news cycle, there is always a moving target. So it is not uncommon for there to be a new narrative from week to week or even day to day to hold the attention of their viewers. The Kapital News does not play this game and has called out most, if not all of these narratives as of late for being what they are – phony. The main narrative to focus on with respect to markets is the liquidity injections by central banks into the system. It is the funny money that is conjured up out of thin air that continues to prop up these markets. Simply ask yourself where would bond prices, bond yields, interest rates, and equity prices be if it were not for these actions undertaken by central banks? The answer is quite simple, yields and interest rates would be higher, and bond and equity prices lower. This is a house of mirrors and one which is built upon a foundation of sand. Nonetheless, the markets continue to buy into this narrative and policy and so they march onward and upward to new highs. Yes, there have been some minor pullbacks here and there, but they then go on to make new highs. As long as this is the case, then markets move higher. But once this relationship breaks down, and The Kapital News believes that it is only a matter of time, then these liquidity injections will no longer matter and will be impotent in propping up the markets. This will likely result in a great unraveling, whose force cannot be stopped by any kind of monetary or fiscal intervention. At this juncture, market forces are in complete control and they will rid the system of malinvestments and fraudulent businesses. Look out below.

Other news discussed pertained to updates on the Colonial pipeline situation, the Israeli and Palestinian conflict that has been intensifying, and an update on the tensions between Russia and Ukraine. Much of these geopolitical events are not receiving the news coverage they deserve and furthermore, the equity markets do not seem to be pricing in the types of risks that can rapidly develop if any of these global issues escalate more seriously than where they currently stand. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #Fraud #FoodPrices #Debt #Spending #EndTheFed #bananarepublic #FireCongress #USA #Israel #Palestine #Russia #Ukraine #Protests #Riots #Peace #War #Gold #Silver #Commodities #Liberty #Leadership

Ep. 589 – April Fools Jobs Report

The Kapital News
The Kapital News
Ep. 589 - April Fools Jobs Report
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The market consensus was looking for a gain of one million jobs in the month of April. Instead, the figure came in at +266,000. This was quite the miss. However, it certainly gives at least another month of cover for fiscal and monetary authorities to continue with their narrative that more policy intervention is needed. From the White House, both the President and Treasury Secretary were stating how there is still a long road ahead. They also mentioned how the extension of unemployment benefits has no impact on this dismal jobs number. Instead, they cite the effects of the pandemic and the costs and lack of availability of child care. Interesting to note, however, is that members of the Federal Reserve did mention that the extension to unemployment benefits likely did impact the jobs number for April. As many people are getting paid just as much to stay home as compared to actually working. This belief by some Fed members was stated because, first of all, it is true, and then secondly, those extensions are a fiscal measure, not a monetary one. So the Fed is more than happy to throw a fiscal policy under the bus and shift the blame from themselves onto Congress and the White House, even though they are the ones financing such fiscal policy nonsense.

Clearly, both fiscal and monetary policy authorities want the “gravy-train” to continue as do the markets. And despite this dismal number, markets rallied and made new highs on the DJIA and the S&P500. This is a function of central bank liquidity, which continued to march higher this week and with it equity prices. This is the true narrative to monitor. If markets continue to buy into the rising liquidity injections, then they climb higher, if they cease to buy these actions, then it is game over, as this is the only thing that is propping these markets up. And it is not just the equity markets, but the bond market, and others as well.

The fiscal and monetary policies introduced last year and this year will continue to drag future economic growth downward, while also leading to increased costs across the board in commodities, and items needed to live. Housing and rents continue climbing higher, as do construction and building materials, as do commodities, from base metals, to agricultural products. These price increases will translate into great economic, political, and social strife in the coming months and years and this will be a global phenomena. Some of this fallout is already being witnessed in smaller countries, where they are near collapse or are already there. This trend will continue to make its way up the chain impacting larger economies and countries. This funny money coming from Uncle Sam is anything but a gift from the government, and it is anything but free. The costs of which will be some of the most expensive in human history in terms of price increases, social and political impact, lower living standards, and lost opportunities. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Jobs #Inflation #USA #Liberty #Protests #FoodPrices #EndTheFed #bananarepublic #FireCongress #Bailouts #Debt #Spending #Revolution #Leadership