| Working Towards Safer Skies in Africa |
In a bid to improve the aviation sector in Africa, the International Air Transport Association (IATA) and the African development Bank (AfDB) signed an MoU aimed at setting an agenda for effective collaboration.
Highlighting that Africa’s aviation sector recorded 37% of air accidents in the past, the President of African Development Bank, Akinwumi Adesina stressed the importance of the partnership in improving Africa’s aviation sector. The partnership will focus on developing both social and economic fronts in Africa, through building an efficient and safe aviation sector.
Providing about $72.5 billion in economic activity as well as 6.8 million jobs, Africa’s aviation sector is expected to grow at almost 6% per year. The partnership therefore, shows the dedication of key stakeholders in the region to make these forecasts happen. Stating that aviation opens doors for investors, Adesina (Speaking in Abuja, Nigeria) encouraged practical demonstrations of commitment towards the enhancement of Africa’s key economic and social sectors.
link to article here @
There’s so much written about Bitcoin, from so many angles, it’s hard to know what it really is.
What is it good for? What is it worth? Where is it going?
It’s obvious there are huge moneymaking opportunities in Bitcoin. The cryptocurrency’s unprecedented development has already minted a few billionaires and many millionaires in its short life.
You can be sure, however, those winners didn’t get to where they are without knowing Bitcoin basics.
If you want a shot at Bitcoin riches, you have to know the truth about this cryptocurrency, so you can make this moment in history a profitable one.
Here’s the truth about Bitcoin and how to play it…
Everything You Didn’t Know About Bitcoin Basics
For starters, Bitcoin is a cryptocurrency based on blockchain technology. Here’s what that really means.
The crypto prefix in cryptocurrency comes from cryptography, the practice and study of techniques for secure communication in the presence of third parties. Blockchain is a decentralized ledger in which a continuously growing list of records (blocks) are linked, secured, and distributed across networks of computers.
Now, about that currency thing.
Currency is a system of money. Gold and silver can be used as currency. Paper and coin currencies used to be backed by gold and silver. Eventually, “fiat” currencies replaced every other kind of currency, including all asset-backed currencies. Fiat currency is money that a government declares to be “legal tender.” It’s acceptable as payment of debt.
While everyone was sleeping, a former Wall Street insider executed night trades – banking 217% total gains in less than a week. Now, he’s sharing his strategy for the first time ever…
Every currency in the world is fiat currency – they’re made up. The dollar, pound, franc, euro, yen, yuan – they are all currencies simply because respective governments decreed them to be.
Bitcoin is no different. It was decreed a currency by its originator, Satoshi Nakamoto, believed to be a pseudonym for Australian tech pioneer Craig Wright. It’s just another made-up fiat currency.
The blockchain technology that Bitcoin is based on is an open source networked ledger used to record the creation of bitcoins and record transactions based in bitcoins. The blockchain imparts no intrinsic value on the “currency” other than maintaining those records.
Mined for the Taking
You can’t create bitcoins out of thin air – at least, not exactly. They have to be mined.
Bitcoin mining is a process where computers are used to verify a block of transactions along the Bitcoin blockchain, which are then put through a process that applies a mathematical formula to them. That then turns the block into a random sequence of letters and numbers known as a “hash.” The hash is stored along with the block, at the end of the blockchain, at the point in time it is authenticated.
Everyone who participates on the blockchain has access to all records of all transactions, including the most newly made. Anyone can mine blocks (by identifying them by their hash and confirming them) and earn a reward of 25 bitcoins.
Satoshi Nakamoto mined the first ever block of Bitcoin, known as a genesis block, to earn 50 bitcoins.
This raises a question. How was Nakamoto, creator of the Bitcoin blockchain, able to mine a genesis block of 50 bitcoins even though there were no Bitcoin transactions before he created the first one?
That’s Bitcoin. It’s “a riddle, wrapped in a mystery, inside an enigma,” as Winston Churchill might say.
So is the price of Bitcoin.
Because Bitcoin has no intrinsic value, and its utility as a currency is limited to those who choose to use it and accept it, the value ascribed to it is simply what the next person buying a Bitcoin is willing to pay for it in dollars, or in euro, or yen, or another cryptocurrency like Ethereum. Just to make it more complicated, that other cryptocurrency would itself have to be valued against an established currency to determine its price in order to buy Bitcoin at whatever its price is..
This year, Bitcoin’s been getting a lot of attention, mostly because its price (in U.S. dollars) has skyrocketed.
In fact, a single Bitcoin rocketed from a value of $1,000 at the beginning of the year to almost $20,000.
All that “appreciation” is drawing a lot of headlines and investor interest.
The Future of Trading Bitcoin
If you’re interested, you can buy and sell bitcoins by first signing up to a Bitcoin wallet service at popular exchanges like Coinbase, Blockchain.info, and Xapo.
You sign up to those as you would to any website: You enter your name and email address and set a password to get started. After that, it’s time to connect your bank account, debit card, or credit card.
There are now futures contracts based on Bitcoin. CBOE Global Markets has a futures contract based on one bitcoin, and the CME Group, the world’s largest futures exchange, has a Bitcoin futures contract based on the value of five bitcoins.
You can trade the futures right now at TD Ameritrade or Interactive Brokers Group. E-Trade is considering offering them to account holders.
But the margin requirements are big. Interactive makes traders post 50% margin when traders buy Bitcoin futures, and 240% margin if they want to short them.
ETFs are probably on the way to traders’ screens too.
The Winklevoss twins were denied registration of the Winklevoss Bitcoin Trust (symbol COIN), a Bitcoin ETF they hoped to get approved by the SEC. But with the futures having passed muster with the CFTC, the twins are appealing the SEC’s denial.
Meanwhile, ETF sponsors and mutual fund companies like Van Eck, Rex ETFs, and Direxion Investments are in the process of registering their own ETF Bitcoin products.
So, what are they really worth?
While Bitcoin futures prices matter, and Bitcoin ETF prices will matter, they are priced off the so-called cash market for Bitcoin. That’s the price Bitcoin is going for when cash is being paid, as opposed to Bitcoin interests being bought and sold in derivatives markets.
Lately, the cash price of Bitcoin has been going up for two principal reasons…
- Higher prices are driving more investors and speculators into the market for Bitcoin
- Very few miners of Bitcoin are selling them, keeping market supply low and creating a huge supply and demand inequality paradigm
With few sellers of Bitcoin, the price can keep going up if the demand continues to grow. How far up is anybody’s guess. In theory, Bitcoin could go to $1 million or higher.
Then again, the price could crash in a New York second, whether that’s from here or from $1 million.
Bitcoin’s Inevitable Fate (and How to Trade It)
The one reason Bitcoin won’t be a real “store of value” with a continually rising price is the fact that it’s a fiat currency.
As long as Bitcoin and other cryptocurrencies don’t get too big, and aren’t increasingly used as a means of exchange, they’ll be allowed to be the sideshow they are. And by that, I mean a sideshow to government-issued fiat currencies.
Really think about this… Why would the most powerful entities on Earth, the governments and central banks who own the fiat money creation game, along with the interest on it game and the taxation of it game, ever let anyone create competing fiat currencies?
If Bitcoin soars and crashes, governments will be happy. They’ll start to regulate it, for the good of the people who might get burned again, and they won’t look like they’re overreaching by reducing it to a sideshow for speculators to bet on like a football game.
But if Bitcoin becomes so popular it spawns other successful cryptocurrencies that collectively threaten governments’ and central banks’ hegemony, they will all be dealt with through the prison of regulation.
So how do you play Bitcoin?
You buy it and ride it to the moon if it goes there. And you short it when it starts falling, because it will crash at some point.
But don’t buy futures, and definitely don’t short them yet, unless you’re a real trader with lots of capital.
When ETFs come on board, buy into them and use stops. Short them and use stops. You can also play both the rise and fall of Bitcoin by trading options and straddles in particular.
There are more than a few ways you can make this profitable in both the short and long term. But the moral of the story is that you will need to be smart about it… What goes up (and was never concrete to begin with) must come down.
These Trade Recommendations Are CRUSHING the Market
The major indexes are driven by a few overpriced stocks. The rest of them – I’m talking thousands of stocks – are garbage.
But targeting the market’s worst stocks is a great way to get rich. So long as shares are plummeting, you could be making a killing again and again.
And I’m the one person able to identify which stocks have about a 100% chance of dropping to the ground.
Since April 21, my Zenith Trading Circle recommendations have outperformed every investment on the market with average gains of 44% per day (including partial closeouts).
In fact, one of my latest plays closed out with a 955% return.
In an increasing number of regions in the U.S., solar (and wind) power can produce electricity at the same cost – or lower – than more traditional fuels, like coal or natural gas.
We call it reaching “grid parity” here in the business.
The catch, however, is what happens when government subsidies are removed from the calculation.
That’s why what happened at the end of September in the UK may be a sign of things to come across the pond here in the U.S.
See, the British just brought a new solar power project online without relying on subsidies. Only the market will dictate what this power plant gets paid.
The British Just Opened the First Subsidy-Free Solar Power Plant
On September 26, the UK’s newest solar farm, the Clayhill, opened near Flitwick in Bedfordshire. It is the very first in the country to operate with no government subsidy, with its developers Anesco instead relying only on the market value of its power generation.
Following the Conservative Party’s election victory in 2015, quick and significant subsidy cuts hit the solar industry. Yet the opening of Anesco’s plant may indicate things are changing in the UK.
With the Trump Administration’s declarations creating a debate over ending any remaining U.S. renewable power subsidies, what is unfolding in the British countryside may be a model for what is going to happen in the American market.
In some of the areas of the U.S. where solar has achieved grid parity, subsidies have already been removed from the equation.
But the question of public-sector assistance to solar power has remained an integral element of the conversation.
And there’s another aspect to consider when looking at the actual cost of generating power.
Due to the intermittent nature of the power flow from either solar or wind, an increasing reliance on renewables will still require redundant backup power sources.
Because when the sun isn’t shining or the wind isn’t blowing, no power is generated – but the demand is still there.
That means some of the traditional electricity generation that may be “replaced” by solar will still have to be attached to the grid as insurance against solar power shortfalls or peak period demand.
And this makes the issue of how much solar power generation costs without subsidies that much more important…
The Main Cost-Saving Didn’t Come from Solar Technology…
Now, there are several factors that have allowed subsidy-free solar generation to be feasible in the UK.
At the top of the list is the still-falling cost of solar panels. Anesco has magnified that cost advantage by engineering further cost savings through the supply chain.
By using more efficient components and minimizing construction costs through measures including not burying cables underground, the firm managed to reduce costs by a third.
According to Anesco technical director Lily Coles, a combination of these apparently innocuous moves made a significant difference. “If you look at another solar farm there’s nothing fundamentally different, it’s just the use of different components and different technologies,” she told BusinessGreen last month. “We looked at design, we looked at technical specifications, we looked at the very latest technology, and all the different costs of all the various components.”
But the real breakthrough that has enabled subsidy-free solar is found elsewhere, in the falling cost of battery storage.
That suddenly removes the need for solar developers to sell their power as it is generated, regardless of the price they’ll get.
Rather than selling into the grid during the middle of the day when demand is low, developers can store generated power in batteries and wait until the evening peak before releasing their power to the grid, taking advantage of peak prices.
The 31,000-panel, 10 Megawatt (MW) solar farm contains a 6 MW battery.
In addition to meeting storage needs for the provision of power during peak demand times, this setup can also earn the company revenue for providing other services to the UK national grid, such as frequency response support to help stabilize the broader power system.
The Clayhill solar farm will provide power for 2,500 homes, and is acting as a template for at least five more sites Anesco is planning to develop in the next 18 months. However, a number of barriers remain to the model’s rapid acceleration across the industry.
Clayhill is an Exception – for Now…
First, location remains crucial.
In the UK, grid connection costs remain high, and in some regions where solar plants are already relatively common, grid connection is almost impossible to obtain.
Anesco saved on its Clayhill connection because it shares a connection with the existing Renewables Obligation-accredited site just next door, a situation that is not likely to exist elsewhere.
Then there is the ongoing uncertainty over the structure of the UK energy market. Some rather wide-ranging studies are underway to allow applications of decentralized generation as the national power grid is expected to provide a greater incentive to storage projects. But these plans are still in the early stages of development and may not deliver on all the industry’s requirements.
The UK renewable industry is also awaiting news on participation in future Contracts for Difference (CfD) auctions. CfD allows a more streamlined access to the market for the lowest cost developments.
Another initiative called the “Clean Growth Strategy” may also allow some market advantages for new solar development.
Still, while the Anesco model may be intriguing, the British Solar Trade Association (STA) has suggested it may be an exception, at least in the short term.
The group says government subsidies would still be required to support the majority of solar projects in future if officials want to use such technology in meeting the UK’s carbon reduction targets.
Critics of the UK’s energy system also argue, as I mentioned earlier, that the costs quoted for renewables projects are misleading as they do not consider the costs of the required redundant power sources.
Therefore, the Clayhill Solar Farm may not be an immediate breakthrough.
But the way in which it has married reduced development costs with an existing solar farm based on earlier technology remains an encouraging sign for those intent on weaning solar from government largess.
It won’t be long until we see similar developments here in the U.S…
As you know by now, there’s only one thing that moves markets – liquidity. And liquidity generates profits on a monthly schedule…if you know where to look.
Here’s how it works:
- Central banks (in particular, the Fed) control liquidity.
- Liquidity controls the markets.
- Watch where central banks are sending the money, and you’ll be able to accurately predict the direction of the markets – up or down — every month.
It’s the “surest” money there is. And I’ve developed a simple indicator that shows you exactly how to get it.
You’re looking at a screencap of my proprietary indicator, LAMPP (Liquidity And Monetary Policy Profits). In a nutshell, this chart shows you where the Fed is sending its money over shorter and longer-term periods, and then generates a green “buy,” yellow “caution” or red “sell” signal based on that information.
I’ve made it even simpler for you with this traffic light graphic.
At the start of every month in Sure Money, you’ll receive three signals: one short-term, one intermediate, and one long-term. These signals come from my LAMPP system, and they’ll tell you when long, short, or hedging strategies will be appropriate.
Don’t worry – I’ll have specific recommendations for you, too. More on that below.
But first, let me take just a couple of minutes and explain what LAMPP is, and how and why it works.
How The Fed Controls The Markets – And How We Measure It
There’s only one way for the Fed’s monetary policy to be transmitted to the US economy. The official term is “open market operations.” That’s a fancy way of saying that the Fed buys bonds from securities dealers when it wants to stimulate growth.
The Fed hand picks a select group of privileged dealers to trade with. They are officially called Primary Dealers. Today there are 23 of them. They include most of the world’s largest banks. The Primary Dealers have accounts at the Fed, just like you and I have deposit accounts at our bank. When the Fed buys bonds from the dealers it pays for those bonds by crediting the dealer’s account in the amount of the purchase. This cash is instantly the dealer’s to do with as it sees fit. The dealers know what the Fed wants, but it’s the dealer’s money.
The Fed prints the money. The dealers decide what to do with it–how to deploy it.
The dealers are also known as market makers. Their business involves buying and selling all kinds of securities, not just bonds. They buy at one price with the goal of marking up the price a bit and selling at a profit. That’s what they have done all day every day for hundreds of years. Most of the time, they are very successful at that business.
They are, in essence, the owners of the markets, just like the big casino companies own Las Vegas. We are the players at the tables, the customers of the dealers.
You and I are small customers. Hedge funds and institutions are big customers. They are the whales. The dealers use all kinds of psychological tools to manipulate both the small customers like you and me, and the big whales. The goal is the same. It’s to mark up their securities inventories and sell them to us and their other customers at a profit.
When the Fed constantly injects money into this system by buying bonds from the dealers, two things happen. The dealers get cash, which they then use to purchase more securities (and derivatives). Or they can leverage the cash to borrow even more money and buy even more securities or derivatives. These include stocks, bonds, commodities, futures, and options.
Stocks may be their favorite kinds of inventory to buy and mark up, because that’s where there’s the greatest public participation is. It has the greatest potential for manipulating both the individual and institutional customers.
There are even TV networks devoted to helping the dealers market and move their inventories to the customers. These TV networks are like long running dealer infomercials. Dealer spokesmen appear with the network hosts to hawk their wares. The spokesmen recommend stocks for the investing public, their customers, to buy. The dealer’s trading desks sell the stocks to them from their own inventories adding their markup. The greater the public participation, the more the dealers can mark up their holdings.
The Fed stands behind these operations as both the dealers’ bank and their biggest customer. The Fed has been a given as a behemoth customer with an endless source of cash. It purchased a known quantity of securities month in and month out, going so far as to tell the dealers exactly how much it wanted to buy over what period. It even promised to buy the securities at the market, whatever it happened to be. Talk about a no-brainer.
Under QE, the Fed bought $4 trillion in securities from the dealers. The Fed credited the dealers with that amount cash into the dealers’ accounts. The dealers then used that cash to buy more securities, including most importantly for our purposes, stocks.
At the same time, the Primary Dealers are tasked with purchasing US Treasury debt securities from the US government. The Federal Government must constantly borrow hundreds of billions of dollars from the markets to fund the government’s regular outlays. The dealers are required to participate in the auctions of those securities. The dealers then get to trade that inventory with the public, selling and buying bonds and stocks, mostly with a nice markup.
What’s exciting is that these transactions translate directly into stock market motion.
The LAMPP Indicator Tracks The Fed, And Tells Us When The Markets Are Safe
Based on these facts, I’ve developed an indicator that tells us when it is safe to be in the market and when it isn’t. The ratio of Fed cash funding to the dealers relative to the amount of Treasury debt issue by the US Government tells us what we need to know.
When rising, this ratio has been consistent with rising stock prices. When the ratio is rising, it has indicated that there’s cash left over after the dealers buy enough Treasuries to keep the Treasury market moving in the direction that the Fed wants it to. That leftover cash has funded the dealers’ stock accumulation, markup, and distribution operations.
That ratio has trended higher since the massive bailouts of 2008-09. As long as it has been rising, the dealers have been able to maintain a rising trend of stock prices as the accumulation-markup-distribution process is adequately funded.
The ratio of Fed cash to dealer injections relative to Treasury debt can also be used to trade intermediate stock market swings. An indicator that measures the spread between two short term moving averages of this ratio is useful for this purpose.
The LAMPP indicator is somewhat like the MACD indicator for stock prices. As long as the 3 week moving average of the ratio of Fed cash to Treasury debt is equal to or greater than 100% of the 13 week moving average, the trend of stock prices has been bullish. When the ratio drops below 100%, those have been good times to be out of the market. Or for those willing to play the short side, they have been good times to be short the market. As this bull market ages, we should expect more of those opportunities.
The Signal Is About to Change – And Here’s Why
Because the Fed is transparent in communicating policy in advance, we know that change is coming. Within a few months the Fed will stop buying securities and begin redeeming some of its holdings. Particularly important is that the Fed will allow some of the Treasury debt securities it holds to mature without purchasing new debt to replace it. That means the Treasury will literally need to pay back the Fed on those maturing holdings. Of course the Treasury doesn’t have the cash to make those repayments, so it will need to sell additional debt to the public to pay back the Fed and maintain outlays at their current levels.
Remember, the dealers are required to participate in those auctions. The Fed won’t be buying any securities from the dealers any more. The dealers will no longer have that constant source of ready cash. The dealers will have no choice but to lower their bids for the new Treasury debt, which would have the concomitant effect of causing yields to rise. The dealers will also no longer have extra cash available to play the stock accumulation-markup-distribution game that is their primary source of profits. From that point on, the dealers will be playing the short side of the market, looking to profit by marking stocks down rather than up. Thus begins the next bear market.
So the Fed has been providing an amount of cash each month that enables the dealers to buy their usual allotment of Treasury debt securities with something left over. As long as the Fed does that, the dealers have the wherewithal to engage in acquiring, marking up, and distributing stocks at a profit to themselves.
Lately the Fed has only been buying a trickle of what it used to buy between 2009 and 2014. Now it only buys enough paper from the dealers to replace a few mortgage backed securities that the Fed held but were paid off each month. It’s not a problem yet, but it will be when the Fed decides to stop doing that. And the problem will grow worse, much worse, when the Fed stops rolling over trillions of dollars’ worth of Treasury debt that it owns.
During the financial crisis, the Treasury issued enormous, unprecedented amounts of new debt to fund the bailout. You may remember that program as the TARP. At the same time, the Fed, inexplicably, cut the dealers off from funding. The Fed actually stopped buying securities from the dealers! The ratio of the Fed’s funding of the dealers relative to Treasury debt fell sharply. Dealers became unable to maintain orderly markets in stocks. Their ability to act as market makers became severely constrained. Stock prices collapsed as a result.
The Fed reversed course in early 2009 and began purchasing massive amounts of the newly issued Treasury debt and Federal Agency debt from dealers. The ratio of the Fed’s funding to dealers relative to all the new Treasury supply began to rise. The dealers began to resume their normal functions as market makers, buying and marking up stocks in early 2009. The trend of the ratio of Fed cash to dealers relative to Treasury debt has continued to rise with only brief exceptions for the past 8 years.
For long term investors, as long as the trend is rising, it’s safe to remain in the stock market. But once that trend ends, it will no longer be safe to do so.
The good news is, the LAMPP indicator will give the signal in plenty of time for you to take action to protect your capital, and it will also allow you to play along with the dealers on the short side to continue to profit and build wealth. You’ll get that indicator every month in Sure Money.
How We’ll Use The LAMPP Signal to Profit
Yogi Berra famously said, “In theory there’s no difference between theory and practice. In practice there is.” I have always loved that quote because I’m a practical guy. I want to know what works. If I know what works, it helps to know why it works, but the most important thing is that it works. The LAMPP works in practice, and we know why. That is where the theory comes in. The “in practice” is the most important thing. The practice part lies in how to use LAMPP tactically in our trading and investing.
If the LAMPP is yellow, like it is now, it’s time to prepare for a change of major trend. More conservative long term investors should be psychologically prepared to sell their holdings when the long term LAMPP turns red. And it’s a good time to be scoping out, and even establishing pilot positions on the short side, in industries that are already in decline, or are technically overextended, such as consumer discretionary (XLK), or Broker Dealers (IAI) (which is thinly traded and should never be bought or sold in size). Another group that should come under pressure when the Fed starts shrinking its balance sheet would be financials (XLF).
For more active traders, when the signal goes from green to yellow, it is time to tighten stops. Also we’ll have a selection of more stocks to short, and potential puts to buy if red light triggers. When the red light triggers, we sell stocks, possibly buy gold or gold stocks, and buy puts or leap puts.
Ultimately, all financial roads lead to Wall Street. The big investment banks and trading firms known as Primary Dealers all play in one worldwide money pool. When the ECB prints money, it’s not just available to Europe, it is also instantly available to Wall Street.
Growing European bank deposits have always strongly correlated with US Treasury note prices. However, that correlation has broken since mid 2016. Instead, European bank deposits have correlated strongly with US stock prices. That suggests that capital flows from Europe have been a key support to the US stock market rally.
European deposits have grown as the ECB has pumped trillions of Euros into their banking system. Deposit growth has not kept pace with the growth of the ECB’s balance sheet. This also suggests that money has been leaving the Continent and heading to Wall Street.
At the end of October the ECB announced that it would cut QE to €30 billion a month in January 2018. That’s a 50% cut. That’s money that will no longer be available to feed the US financial asset bubble.
This comes at the same time as the Fed is gradually ratcheting up its cuts to the size of its balance sheet to $20 billion per month in January, increasing to $50 billion in October. The Treasury will need to issue more supply to redeem the Fed’s holdings that it is cutting from its balance sheet.
Finally, the ECB cut will also coincide with the revenue reductions that will result from the Trump tax cuts. This will expand the deficit, and require the issuance of even more new Treasury supply.
With the ECB cutting its cash injections into the worldwide money pool by $30 billion per month on top of these other negative factors, this is a recipe for falling prices for both US bonds and stocks as 2018 progresses.
European Banks’ Love Affair with U.S. Stocks Is About to End
Total deposits surged in October and November. The annual growth rate is now 3.6%, most of which is due to the March TLTRO (Targeted Long Term Refinancing Operations). These operations pay the banks a reward for making loans. The TLTRO resulted in an increase of a whopping €293 billion (1.7%) in March.
The banks are no fools. There’s very little loan demand in Europe, so the banks engage in round robin lending operations to each other to qualify for the TLTRO bonus.
Even as the TLTROs are repaid, some of the deposits created when the ECB buys bonds outright stick around. Since the ECB started QE and NIRP at the end of 2014, it has managed to goose deposits in Europe’s banks by a total of 5.8%. Without the 2 TLTRO facilities, the growth rate would be close to zero. QE alone has had very negligible effect on the level of bank deposits. And the TLTROs are smoke and mirrors.
The total increase in deposits since the inception of NIRP/QE is now €967 billion. That is shocking considering that the ECB has pumped €2.5 trillion into the banks over that time. Most of it has disappeared. Depositors have used some of it to buy assets in the US and elsewhere. Much of the rest has gone toward paying down debt, thereby getting rid of the cost of holding deposits or European sovereign paper with negative yields.
Surging deposits in Europe have in the past been a bullish sign for US markets. The correlation is strongest with Treasuries as Europeans with cash tend to buy US Treasuries. But some of the deposits created when the ECB prints money are also used to buy stocks.
This year, the surge in deposits from the TLTRO had no significant impact on the US Treasury market. Instead, Europeans are apparently buying US stocks.
Since the inception of QE and NIRP in late 2014 there has been a strong correlation between the growth of European bank deposits and US stock prices. But this month the ECB will cut its asset purchases to $30 billion per month from $60 billion. This should cause deposit growth to radically slow because NIRP remains as a punitive measure for holding deposits. This should sharply cut the flow of European money into US equities.
So nothing has changed to cause me to alter my expectation of a bad year for US stocks in 2018. My technical work now says that the market is very close to a top. Markets don’t turn from bull to bear overnight. There’s no reason to expect a crash to be imminent. But over the course of this year, the risks will grow.
In September I began to recommend gradually and systematically building a large cash cushion through a series of regular small scale sales of stock with the goal of reaching 60-70% cash (more or less, depending on your personal circumstances), by the end of January. For those who only recently started selling, or have not started yet, I’d recommend reaching that level by the end of the first quarter.
The LAMPP Warns Traders to Be Cautious
The long term LAMPP remained green, but just barely, as the Federal Government slows debt issuance under the debt ceiling.
A big factor as I write was the expiration of $40 billion in Treasury Cash Management Bills. That put cash back into the accounts of the erstwhile holders of the paper, including banks and dealers. I would guess that this is at least part of the reason for the rally in stocks in the first 2 days of January. But this effect should be very short term.
The monthly settlement of Fed MBS purchases will decline over the next year. When the debt ceiling is finally lifted and the Treasury returns to the market at full speed, the LAMPP will turn red within weeks. The reduction of issuance will keep the indicator on green for the time being.
In January Fed draining operations will increase from $10 billion to $20 billion per month. This will drain cash from the banking system. That will rise quarterly to $50 billion per month in October.
$97 billion in Treasuries on the Fed’s balance sheet will mature in the first quarter. The Fed will tell the Treasury to repay $36 billion of that. That money will disappear from the banking system. It will reduce the amount of cash that feeds demand for securities.
If the Treasury resumes issuing new debt at the rate the TBAC has forecast in Q1, then the long term LAMPP should flash a red signal in roughly 4-5 weeks from the time the debt ceiling is lifted. However, as long as new Treasury issuance is restricted, the removal of supply from the marketplace will be a bullish factor for stocks.
The short term LAMPP edged back into yellow territory in mid December. Long side trades in the Wall Street Examiner Pro Trader model trading portfolio have done very well in recent weeks. Short side trading picks have been few.
In the meantime, I would not be buying long term positions. Short term trading from the long side should be watched closely for support breaks. Only when the Long Term LAMPP turns red, would I concentrate on trading from the short side. Prior to that, I would pick and choose shorts cautiously.
This Week’s Portion #15
Bo | בוא | “Enter!/Come” ግባ | G’bba [Gibba]
*For a PDF version of All the Torah Portions Schedule, click here to download!
2. Prophets Reading
3. New Testament Reading
Luke 22:7-30; 1 Cor 11:20-34
Portion Outline – TORAH
- Exodus 10:1 The Eighth Plague: | Locusts
- Exodus 10:21 The Ninth Plague: | Darkness
- Exodus 11:1 | Warning of the Final Plague
- Exodus 12:1 | The First Passover Instituted
- Exodus 12:29 The Tenth Plague: | Death of the Firstborn
- Exodus 12:33 The Exodus: | From Rameses to Succoth
- Exodus 12:43 | Directions for the Passover
- Exodus 13:3 | The Festival of Unleavened Bread
- Exodus 13:11 | The Consecration of the Firstborn
Portion Outline – PROPHETS
- Jer 46:13 | Babylonia Will Strike Egypt
- Jer 46:27 | God Will Save Israel
Portion Study Book Download & Summary
The fifteenth reading from the Torah is named Bo (בוא), which means “Come.” The title comes from the first words of the first verse of the reading, which say, “Then the LORD said to Moses, ‘[Come] to Pharaoh, for I have hardened his heart” (Exodus 10:1). The portion begins by concluding the narrative of the ten plagues, the tenth of which is the slaying of the firstborn. To avoid the plague, the Israelites are given the instructions for the Passover sacrifice and the laws of the Feast of Unleavened Bread. Pharaoh finally consents to let Israel go, and they leave Egypt.
No Uncircumcised Person
Thought for the Week:
The rituals of the Passover seder and the Feast of Unleavened Bread are designed to inspire curiosity. The children at the table, observing the unusual rites and foods, are supposed to be inspired to ask, “Why is this night different from all other nights?” The purpose of Passover is to transmit faith to the next generation.
But if a stranger sojourns with you, and celebrates the Passover to the LORD, let all his males be circumcised, and then let him come near to celebrate it; and he shall be like a native of the land. But no uncircumcised person may eat of it. (Exodus 12:48)
The Torah clearly states that no uncircumcised person may eat of the Passover. What is more, it says that if a stranger (i.e., a Gentile) wants to celebrate the Passover, he has to be circumcised first. So how can a Gentile keep a Passover seder?
When we speak of Passover, we generally mean the entire Feast of Unleavened Bread. In the Torah, the term Passover (pesach, פםח) applies only to the sacrifice of the Passover lamb and its consumption. Exodus 12:48 prohibits an uncircumcised person from making a Passover sacrifice and eating a Passover lamb. The New American Standard version makes it sound like an uncircumcised person is prohibited from celebrating Passover in general, but the Hebrew makes it clear that such a person is only prohibited from sacrificing the lamb. This law applies to both Jews and Gentiles:
The same law shall apply to the native as to the stranger who sojourns among you. (Exodus 12:49)
An uncircumcised Jew and an uncircumcised Gentile are both forbidden from sacrificing or eating a Passover lamb. The Torah does not forbid them from keeping the Feast of Unleavened Bread, though. The law leaves them free to participate in the seder meal and keep the seven days of Unleavened Bread.
In the days of the apostles, the Gentile believers were free to remain uncircumcised, but if they wanted to make a Passover sacrifice, they would have been required to first undergo circumcision and conversion. For most Gentile believers, this was a non-issue. They lived far from Jerusalem. Neither they nor the Jewish community around them had access to the Temple or sacrifices. Therefore, they kept the Passover, the seder and the seven days of Unleavened Bread like the rest of Diaspora Judaism—without a lamb. The only thing prohibited for them was the sacrificial lamb itself. 1
This opinion may be derived from rabbinic sources as well. According to the Talmud in b.Pesachim 96a, an uncircumcised non-Jew is allowed to keep the seder and the Feast of Unleavened Bread. Only regarding the actual lamb sacrifice is he banned.
In today’s world, the entire question is moot. Without a Temple, there can be no such thing as a real Passover lamb sacrifice. (That is why lamb is no longer supposed to be served at the Passover seder meal.)
This means that uncircumcised believers, whether they are Jewish or Gentile, are welcome at the seder table. They should partake of the matzah, the bitter herbs, the four cups and the seven days of the Feast of Unleavened Bread with a glad heart. We can all share in and rejoice in our common Passover Lamb, Yeshua.
Middot U’Mitzvot (Character and Deeds)
Leaving the Old Culture Behind
The Apostle Paul says, “Clean out the old leaven so that you may be a new lump, just as you are in fact unleavened. For Christ our Passover also has been sacrificed. Therefore let us celebrate the feast, not with old leaven, nor with the leaven of malice and wickedness, but with the unleavened bread of sincerity and truth” (1 Corinthians 5:7–8). The old starter-dough leaven represents our old way of life. It is sin, godlessness, bad company, bad habits and all the things that taint our lives. Like an old culture of leavened starter dough, those things continue to leaven our lives from day to day, conforming us to our past. Paul urges us to make a clean break with the old culture and to start over as a new batch, like unleavened bread.
When the children of Israel left Egypt, they were leaving behind their old culture. While in Egypt they had absorbed much of the wickedness and idolatry of Egyptian society. The unleavened bread symbolized a new beginning. They were starting over.
In a spiritual sense, we leave Egypt when Messiah saves us. That’s what it means to be born again. It is a matter of starting over. When we become believers, we are supposed to die to our old way of life and begin life again as new creatures. We have to leave our old ways behind us.
Addiction counselors warn recovering addicts about falling back into old patterns. The recovering addict is at greatest risk when he spends time with old friends or revisits familiar hang-outs. To successfully overcome his addiction, it is important to break with the past, carve out new patterns of behavior and develop new, healthy habits. It is the same for all of us.
The leaven in our lives comes in a variety of disguises. It may be certain entertainments, amusements, vices, habits or social circles. Paul suggests that it may lie in the wicked and malicious attitudes of our hearts. Passover is an opportune time to break with our past and start over as new creatures in Messiah. Passover is an annual reminder that we must leave the old culture behind. Every Passover is a chance to start over. At Passover we remember that we have left our spiritual Egypt. We are free from the past, and we need to set aside those things in our lives that continue to enslave us. After all, starting over is what it means to be born again.
When we spoke Dec. 19, I warned you to be careful about getting into Bitcoin as we head into 2018.
No, I’m not pessimistic about cryptocurrencies in general or Bitcoin in particular. In fact, just the opposite is true – I firmly believe these e-currencies are the wave of the future and still face huge upside.
My concern is for individual investors like you. At the time, Bitcoin had literally just hit the futures markets for the first time ever. And Wall Street traders, hedge funds, and other high rollers were sharpening their knives – setting Bitcoin up for massive volatility.
My call couldn’t have been timelier.
Practically as I hit “send” on that report, Bitcoin fell $1,070 in a day. Not only that, but it weakened over the next few days, falling from a high of roughly $20,000 to $12,500. That’s a 37.5% peak-to-trough loss.
As I write this on Wednesday, Dec. 27, Bitcoin has swung back up to around $16,000.
For you Bitcoin veterans out there, that kind of swing is pretty normal. You folks can handle it. But for new investors, that type of volatility is hard to swallow.
So, what I want to tell you today may sound a bit counterintuitive. But here we go…
Please don’t cash out of Bitcoin completely.
If you do that, you’ll miss out on the hard forks.
If you set yourself up correctly, these Bitcoin spin-offs could mean gains for you of several hundred percent.
Here’s how to do that…
Why Bitcoin Was the Investment of 2017
So far this year, the price of Bitcoin has hit peak gains of some 1,900%.
Some of that can be chalked up to the crypto craze we’ve been seeing, no doubt. I don’t know about you, but nearly every conversation I’ve had at Christmas parties this year has revolved around Bitcoin.
But what all those folks are buying – what they’re hanging they’re hopes on – is good, old high technology. And as we all know, the road to wealth is paved by tech.
See, the technology underlying Bitcoin and other cryptocurrencies – known as blockchain – adds new dimensions to data that layers in both time logging and other ledger characteristics that create layers of security by design.
And that’s what has Silicon Valley, Wall Street, and just about everyone else so excited about getting into a field that almost no one had heard of when I first started telling folks about it way back in early 2013.
Blockchain is a highly secure, cryptographic system that functions as a global distributed ledger. This system not only undergirds Bitcoin and other currencies, but it bypasses banks and governments, operates transparently, and is virtually hack-proof.
That means, almost immediately, many of us will be settling contracts with blockchain. By doing so, we’ll avoid bank fees, possible litigation, and all lot of other issues that economists like to refer as “friction.” Plus, you can go online and watch these transactions occurring in near real time.
Plus – and here’s where it gets good – blockchain technology is the source of those hared forks… if you own some Bitcoin.
Here’s what I mean…
But These Hard Forks Could Be Your Biggest Source of Profits in 2018
Hard forks happen when developers feel the Bitcoin blockchain needs new features. You see, Bitcoin is kind of like gold – it’s good to buy and store in a vault. It’s not very useful. But many of these “fork coins” have special utilities that many people would find very useful.
These developers can also set up a Bitcoin fork when they feel the cost of mining has gotten so expensive that only a few elite code warriors can participate.
With each fork, Bitcoin is subdivided into two currencies – the original and the new coin. To facilitate these forks, the Bitcoin community then spins off the fork coin to current Bitcoin owners… for free. If you own one Bitcoin, you get one fork coin – if you own 0.33 Bitcoin, you get 0.33 of the fork coin, etc.
There already have been two major hard forks this year. The first occurred back on Aug. 1 when Bitcoin Cash emerged. That event marked the new currency at roughly $291; Cash quickly jumped to more than $400 before selling off again.
But as the price of Bitcoin has risen recently, so has Bitcoin Cash’s. When Coinbase added the currency to its lineup earlier this month, the price leaped as high as $3,575.
Another hard fork came on Oct. 24 with the spinoff of Bitcoin Gold.
At the time, the financial media was rife with stories about how this hard fork would damage the value of Bitcoin itself.
Yes, Bitcoin hit a short-term decline, falling to $5,374. But as you’ve seen, the price since then has more than tripled. To me, that means these forks have been good for both Bitcoin and the fork coins.
As for Bitcoin Gold, it promptly lost more than 50% of its value. Then it traded sideways for several days before ramping back up again. Recently trading in the $320 range, Bitcoin Gold is still off its entry price of roughly $485.
But remember, Bitcoin has gone through similar periods of declines – only to ramp up and hand investors massive gains.
And that’s why you shouldn’t be selling all your Bitcoin holdings. You want these hard forks and the profits they bring you in 2018 – and beyond.
Take Some Gains – but Not All of Them
That said. I still believe in treating your Bitcoin and other cryptocurrencies the same way you would stocks or other investments.
Take some profits along the way, ideally winning all your original capital back. Then you pocket those big gains, and keep playing the field using the “house’s” money.
If you stay in Bitcoin now, you’re setting yourself up for what currently looks like eight more hard forks in the near future…
- Super Bitcoin
- Bitcoin Platinum
- Bitcoin Uranium
- Bitcoin Cash Plus
- Bitcoin Silver
- Lightning Bitcoin
- Bitcoin God
- United Bitcoin
It’s impossible to predict the price or performance of any of these upcoming spinoffs. But that’s beside the point.
As a Bitcoin owner, you’ll keep getting these new coins for free.
If in 2018 these spinoffs climb just 10% of Bitcoin’s stratospheric rise this year, you’ll see returns of 190% – multiple times over.
Even if selling all your Bitcoin right now seems very tempting, with so much money on the table, these spin-off coins are a deal just too good to pass up.
Now as far as when to buy and sell Bitcoin – or any of these fork coins or other cryptocurrencies – I plan to help you out there.
This is far too volatile a market for you to strike out on your own. Just look at what’s happened over the past week or two.
I want to make you a lot of money – with cryptos, with Silicon Valley venture investments, and with legal marijuana stocks. The kind of money you can use to fund a retirement, pay off a college education… or buy a boat.
So stick around.
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By •, ,
If you want the upside potential of Bitcoin with minimal downside risk, then silver may well be your answer.
The precious metal has offered not just centuries, but millennia of intrinsic monetary and industrial value.
And despite that inherent worth, silver sometimes goes through frenzied buying manias, not unlike Bitcoin’s 2017 run-up.
In my view, that same kind of “Tulip Mania” lies ahead for silver investors, only bigger. And while that may not happen in 2018, it almost surely will in the next few years.
So let me show you why I think so and, what’s more, how you can position yourself for maximum profit…
Silver’s Demand Explosion Is Quite Unlike Gold
Silver’s particular status as both an industrial and a monetary metal is going to help drive exploding demand.
EXTREMELY RARE: Our Bill Patalon has only seen the “Halley’s Comet of investing” twice in 20 years. It could lead to another round of windfall profits. Read more…
- Unlike gold, about 50% of annual silver production gets consumed by various industries, never to be seen again.
- High tech, consumer tech, and the whole green tech trend are pushing up consumption. Smart TVs, computers, tablets, smartphones, smart energy grids, electric vehicles, and solar panels all need silver.
- About 70% of mined silver is what’s called “byproduct.” That means it’s produced only as a result of mining other metals like gold, lead, zinc, and copper. The remaining 30% comes from mines which primarily produce silver itself.
Thanks to a multi-year commodity bear market, byproduct silver is in low supply. That’s starting to change, though only slowly, as base metals prices have been rising since early 2016.
But 2017 has been a challenging year for silver production. According to the SRSrocco Report, two-thirds of primary silver miners have seen their production fall this year. And World Metal Statistics reported that silver production has been adversely affected in some key producing nations in the first eight months of 2017: down 1% in Peru, 2% in Mexico, 19% in Australia, and 20% in Chile.
And Steve St. Angelo of the SRSrocco Report believes “global silver production will take a big hit this year due to several factors, including falling ore grades, mine closures, and strikes at various projects.”
These are all very bullish fundamental indicators for the metal itself.
Silver stock conditions will give us the full picture…
I’m Calling It: The Bottom Is In
There are two aspects relating to silver stocks that point to a likely bottom for both silver miners as well as silver itself.
The most straightforward proxy for silver stocks is the Global X Silver Miners ETF (NYSE: SIL).
If we examine its price action, especially since late October, the sector looks very much like it’s in the process of bottoming.
The SIL ETF has been trending downward all year, but in early November it broke below support, around $32.
Also, check out the huge jump in volume late in November and into early December. This looks very much like a capitulation scenario.
One of my favorite sector indicators is the silver-stocks-to-silver ratio. I track this using SIL versus the silver price. This ratio tells us if silver stocks are cheap or expensive relative to silver.
What it’s telling me right now is remarkable.
Despite the strong sell-off in silver stocks, they’ve actually held up well compared to silver itself. And the recent bounce back has been stellar.
If, as I believe is the case, silver stocks have bottomed before silver, the stocks may now lead the metal higher. And that in turn could mean a new rally is about to start for silver.
Past Is All Prologue for Silver’s Coming Run
A look at silver’s last major run-up is revealing.
Between August 2010 and April 2011, silver prices shot up from $18 all the way to $49, generating tremendous gains of 272% in a span of just eight short months.
And between January 1976 and January 1980, the second half of that secular silver bull, silver was up 1,000%, from $4 to $40.
That shows you just how volatile silver can be and what kind of gains it can produce in a short time.
“The ultimate asset bubble is gold,” according to George Soros.
Perhaps Soros should have called silver the ultimate asset bubble.
Although those kinds of gains are surely in silver’s future, in my view, here’s what looks more likely for the grey metal in the near term.
Based on all the drivers I’ve outlined above, I think silver is likely to regain its 2017 high of $20.50 in the first half of 2018.
As for the back end of next year, I’d expect to see silver make it into the $22 to $24 range. At the upper end, that’s around a 50% gain from where we’re sitting this week.
link here to article @
Trump administration deserves credit for the announced release of political prisoners in Ethiopia (the Hill)
BY ALEMAYEHU G. MARIAM, OPINION CONTRIBUTOR — 01/05/18 09:20 AM EST
On Jan. 3, 2018, Ethiopian Prime Minister Hailemariam Desalegn made an equivocal announcement that political prisoners in his country will be released at some future date. He provided no details. Desalegn said, “Some members of political parties under prosecution will be released” and that those convicted will be pardoned based on an assessment “to establish a national consensus and widen the political sphere.” He promised to close the infamous Maekelawi prison and convert it into a museum.
For over a decade, the ruling regime repeatedly declared there are no political prisoners in Ethiopia. The late prime minister Meles Zenawi in 2006 claimed, “There are no political prisoners in Ethiopia.” He later toldthe Financial Times, “Nobody has been imprisoned for criticising the government. No one.” Only those engaged in “overthrowing the duly constituted government by unconstitutional means” and “pushing the country towards chaos” were jailed. In 2012, Desalegn told Al Jazeera (forward clip to 7:53), “There are no political opposition that are languishing in prison.” In 2013, Getachew Reda, Desalegn’s spokesman repeated, “We don’t have any single political prisoner in the country.”
Why is the Ethiopian regime now prepared to release political prisoners it never had?
There may be several contributing factors. Over the past two years, the regime has been unable to contain the ongoing unrest and civil resistance throughout the country. There has been mounting international pressure on the regime to release political prisoners and open up the political space. More recently, there has been deteriorating ethnic strife in the country, with telltale signs of a creeping civil war.
While these factors may have played crucial roles in the extraordinary announcement, I believe critical mass was reached when the Trump administration delivered its message of human rights and aid accountability directly to the Ethiopian regime.
In September 2017, President Donald Trump said he was “sending Ambassador Nikki Haley to Africa to discuss avenues of conflict and resolution and, most importantly, prevention.” Haley visited Ethiopia in October but did not disclose her discussions with Ethiopian leaders in her press conference or official statement. According to Herman Cohen, former assistant secretary of state for African affairs, Haley “bluntly told the Ethiopian authorities that they face growing instability if undemocratic practices continue. She has also encouraged the government to do more for the youth, many of whom do not see a promising future.”
In early December 2017, Acting Assistant Secretary Donald Yamamoto met with senior leaders of the Ethiopian government. In his Press Roundtable, Yamamoto stated the Trump administration will be “very aggressive” and “vigilant” on human rights and good governance issues in Africa. It is in “our U.S. national strategic interest to ensure that we have open governments and countries that are responsive to the people, accountable to the people. And that’s really something that we’ve stressed from Zimbabwe and the recent changes there to the elections coming up in Liberia. So it’s across the board. Not just Ethiopia, but across the continent. And we will remain vigilant.”
In 2009, Yamamoto as U.S. ambassador to Ethiopia, laid out the strategyfor improving human rights and good governance in that country. He argued the Ethiopian regime’s “growing authoritarianism, intolerance of dissent and ideological dominance over the economy since 2005 poses a serious threat to domestic stability and U.S. interests,” and that the United States “must act decisively, laying out explicitly our concerns and urging swift action.” He urged use of diplomatic, development and public recognition resources to “shift the (regime’s) incentives away from the status quo trajectory.”
As the Trump administration’s point man on Africa, Yamamoto apparently is pursuing human rights and aid accountability issues in Africa very aggressively, as shown by these 2017 instances:
- In October, the U.S. Embassy in Ethiopia issued an extraordinary statement declaring “peaceful demonstrations as a legitimate means of expression and political participation,” and “encouraging all Ethiopians to continue to express their views peacefully.”
- In August, the United States notified Egypt that $95.7 million in military and economic aid will be withheld, and $195 million in additional military aid released only after Egypt “makes progress in its human rights record.”
- In December, the United States announced it was “suspending food and fuel aid for most of Somalia’s armed forces over corruption concerns” and because Somalia “failed to meet the standards for accountability for U.S. assistance.”
- On Dec. 21, President Trump issued Executive Order 13818 extending the targeted sanctions provision of the Magnitsky Act to all nations. The order contained the unprecedented declaration that “serious human rights abuse and corruption around the world” threaten the “national security, foreign policy and economy of the United States.”
President Trump and Secretary of State Rex Tillerson deserve full credit for promoting human rights and aid accountability in Ethiopia and Africa in general.
There are many unanswered questions about the announced release of political prisoners in Ethiopia. Is the announcement a public relations stunt? Will there be a blanket amnesty, or only selective release? Is the regime trying to buy time to prolong its rule by making empty promises? Will the regime create bureaucratic snafus and drag its feet in releasing political prisoners? Could the regime use political prisoners as “hostages” to extract concessions from the opposition? Could the announcement be a genuine gesture aimed at reconciliation and pull the country back from the precipice of civil war? Is the announcement too little, too late as the country slowly slips into a creeping civil war?
I do not trust the words of a regime that bold-facedly claimed for over a decade that there are no political prisoners in the country, and shamelessly declared it had won all the seats in parliamentary elections. The Ethiopian regime plays only zero sum games.
Is it possible to trust the words of a regime that “believes only they can know what is best for Ethiopia,” as Ambassador Yamamoto observed in 2009?
Alemayehu (Al) Mariam is a professor of political science at California State University, San Bernardino, a constitutional lawyer and senior editor of the International Journal of Ethiopian Studies.
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Janet Yellen said “Goodbye” to us yesterday.
After studying her moves over the past 4 years, beginning as a harsh critic, I say to her now, “Goodbye Janet, it’s been good to know ya.”
Here’s what Yellen said at her press conference yesterday, and what she has said and done before that caused me to change my opinion. More importantly, here’s why it matters to you and your investments.
You need to understand this, and you need to take action to at least protect yourself, if not profit, from the course that Yellen has set. It is a course that will not be easily changed.
Yellen’s Last Speech Started with Classic Misdirection…
On Wednesday Yellen held her final dog and pony show with the mainstream media hacks. Rather than repeating verbatim her usual rambling, circuitous answers, I’ll just summarize the key points that essentially reiterated the things we already knew, along with a few new wrinkles.
Yellen admitted that the Fed doesn’t quite understand inflation and she said that policy should remain relatively accommodative even if inflation overshoots their 2% target.
This is a misdirection for a couple of reasons. First, the Fed does not measure general inflation. It measures only a narrow, arbitrary, and artificially suppressed index of consumer goods and services prices. It excludes asset prices, and thus ignores, and even promotes and causes, the most dangerous kind of inflation-asset bubble inflation. When asset bubbles ultimately deflate, as the always do, they cause financial crashes because collateral values no longer are sufficient to cover the attached debts. Loans start getting called, particularly securities margin loans, and the downhill snowball begins.
We currently have asset bubbles driven by loose, overly plentiful, and cheap credit in housing, commercial real estate, stocks, bonds, and of course, bitcoin. When one of these starts to deflate, it will start a chain reaction that destabilizes the financial system. I believe that’s where we’re headed, although it’s probably at least a year to 18 months away.
Now here’s the key point.
The Fed believes asset values in general are “elevated” – at the high end of historical levels. But Yellen says that doesn’t mean the stock market or other assets are “over valued.” Higher valuations are supported by lower interest rates.
As far as the Fed is concerned, the major consideration is what impact a sharp decline would have on the economy? And there she believes the risks are not significant.
“On the list of risks, it’s not a major factor.”
-Rex Nutting, MarketWatch
Constable Yellen is telling us, “There’s nothing to see here. Move along now.”
Here’s how I see it. If she is willing to say that asset values are “elevated” you damn well know that the Fed is understating the problem. It ALWAYS understates, or just ignores, the most serious problems, to avoid panicking the markets. I read Yellen’s thoughts here as the Fed itself being panicked, but somehow hoping to manage a soft landing by downplaying just how bad the problem is.
When she says that a sharp decline in asset prices would not pose a significant risk to the economy, you know that that’s BS. The financial system and economy are just as highly leveraged, or even more so, than they were at the top of the housing bubble. Any sharp decline in the price of any leveraged asset class will pose a very serious risk to the stability of the economy.
But as investors, we shouldn’t care about the economy. We are worried about the first order effects, the effect on the value of our investments. In this case, overleveraged, easy-credit driven asset bubbles represent a grave risk of another severe adjustment in asset prices, regardless of the second order effects on the economy. Forget about the economy. Focus on the direct effect of asset bubbles on your assets!
Then she got to the other elephant in the room, Bitcoin. MarketWatch put it this way in their reading of what she said:
“Bitcoin is a “highly speculative asset,” and it has “very small role” in the payment system, Yellen says. It is not a stable store of value and it is not legal tender, she says.”
The Fed isn’t ignoring a potential risk of bitcoin to the financial system. The Fed has learned that threats can come from anywhere.
However, “I still see the financial stability risks from it as limited,” she said.
“So undoubtedly, there are individuals who could lose a lot of money if bitcoin were to fall in price, but I really don’t see that as creating a full-blown financial stability risk,” she said.
-Rex Nutting, Marketwatch
So, in other words, it’s another case of “Move along, there’s nothing to see here.”
Bitcoin and other cryptocurrencies are, in my view, in the most insane mania in my 50 years of following markets closely. They may not have a direct effect on the financial system if (when?) they crash, but their psychological presence in the minds of investors is huge. A crash in the cryptocurrencies could be Cryptonite to the minds of the worldwide leveraged speculating community. Any severe break in Bitcoin could metastasize quickly to the conventional financial markets if bitcoin speculators need to raise cash in other markets, or if investors simply get nervous about a bitcoin break.
But here’s Yellen’s most important thought from that presser. It was glossed over fleetingly and the assembled media shills had no followup questions. It shows just how ignorant, or complicit, the Wall Street reporting community is.
Yellen Is Doing The Right Thing – and It’s Going to Cause A Bear Market
As Nutting paraphrased, “Yellen says the Fed doesn’t anticipate changing its plan to gradually reduce its balance sheet by letting maturing securities roll off.”
Yellen has repeatedly told us that the balance sheet reduction program is on “autopilot.” She told us previously that the Fed would only reverse policy to ease if there’s a “material adverse event,” which I take to mean at least a 20% decline in stock prices. That is what the entire Wall Street chattering class has associated as a bear market for no good reason than somebody once said so, and they all liked the sound of it. And Yellen has told us that the first policy response would be to lower the Fed Funds target rate, not restart QE.
Finally, in the FOMC meeting minutes we were told that they would not even bother to report the “autopilot” reductions of the balance sheet from now on. The schedule is set, and they’re going to gradually increase the draining operations to $50 billion per month next October, come hell or high water!
So, the Fed is prepared to take a good deal of pain before it eases again. The FOMC has made up its collective mind. Fed balance sheet reduction will literally pull cash out of the banking system. At the same time, the US Treasury will need to sell more debt just to redeem the paper the Fed isn’t rolling over. Add to that a growing deficit due to the massive tax cut about to be passed into law, and we have a formula for a couple of years of bear markets across all asset classes.
That’s Yellen’s legacy to us.
Start spreadin’ the news, she’s leaving today! She’s doing the right thing by reducing the size of the Fed’s balance sheet and taking excess money out of the system. But it will cause the asset bubbles that the Fed created with QE to deflate. The Fed has decided that it is quite willing to have you pay that price. It is incumbent on you to recognize that and take the appropriate defensive action.
Keep selling toward your personal goal of having a very substantial cash cushion built up by the end of January. Or if you haven’t started selling yet, my goal would be to get to 60-70% cash by the end of the first quarter. Your target would vary depending on your personal circumstances.
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