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Taper *Without* Tantrum

Whomever actually coined the term “taper”, using it in the context of Federal Reserve QE for the first time, it wasn’t actually Ben Bernanke. On…

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This article was originally published by Alhambra Investment Market Research

Whomever actually coined the term “taper”, using it in the context of Federal Reserve QE for the first time, it wasn’t actually Ben Bernanke. On May 22, 2013, the central bank’s Chairman sat in front of Congressman Kevin Brady and used the phrase “step down in our pace of purchases.” No good, at least from the perspective of a media-driven need for a snappy one-word summary.

Taper. Then the tantrum.

Except, no, it wasn’t sulking rage over the prospects for fewer bond purchases so much as positive excitement paced by the slightly better potential for a real recovery. For the first time since maybe 2010, in May 2013, the bond market got onto the same page as to what Bernanke was telling Brady:

CHAIRMAN BERNANKE. If we see continued improvement and we have confidence that that is going to be sustained, then we could in the next few meetings, take a step down in our pace of purchases.

The key part behind both the Fed’s tapering as well as bond yields surging upward was actually the same thing, another thing, rather than the former driving the latter. In other words, “…confidence that that is going to be sustained.” The second “that” being economic progress – legit economic progress. 



As we came to find out, however, such progress came to be defined (or had already been redefined) in very different ways. The reason the “tantrum” came to an arresting halt wasn’t anything Bernanke did to talk it down or counteract the rise of rates; on the contrary, the FOMC would go ahead and vote to step down the pace of purchases (both QE3 and QE4) later in December 2013.

Confounding everything we were told, and have still been told, rates reversed even as Bernanke then Yellen scaled back their purchases. This change to “monetary” policy was entirely predicated on a very narrow definition of this relevant confidence. There’s was derived almost exclusively by the US unemployment rate and Establishment Survey.

And such was Bernanke’s undoing.

The bond market, on the contrary, took these US unemployment stats as together one minor indication among many including many more pertinent across the global whole. It might have represented a real pathway for sustained progress had it – at any time – been met by a solid set of corroborations not just here but across the rest of the world.

But therein lay the problem; the rest of the world wasn’t coming around to the better future – money meaning dollar nor economy – posited by certain domestic labor numbers, it was more and more going the opposite way. The balance began to tip back in this other direction, the deflationary one, only beginning with US Treasury yields all the while Fed officials grew more confident in their own prognosis.

Economists still today believe that national economies are just that; essentially closed systems between which there may be only some trivial connections. Thus, the US unemployment rate would seem a definitive measure of the US condition if this national economy ever really exists.

It doesn’t, nor has it in a very, very long time. Worse still, this worldview more a matter of mathematical convenience (econometrics) than any attempt at a realistic science.

As I wrote in inflation review last week:

Twenty-fourteen’s seemingly solid promise of domestic inflation didn’t disappear, it never really had a chance; undercut the entire time it was rising toward and arriving at its domestic zenith. Hardly “unexpected” at all, though the media made its own narrative out of Fed models, there had actually been far more (useful) to warn otherwise.

There just might be a lesson in here somewhere.

This lesson remained unheeded regardless of its overwhelming authority (see: Yellen, 2015). When Jay Powell stepped into the big chair in February 2018, he merely continued the same mistake of focusing exclusively on the US labor market numbers. No larger context, devoid of the necessary global factors to more realistically inform his (or anyone’s) rational view.

Though 2014’s reversal still within decent memory, and 2018’s same thing yet closer to anyone’s rational mind, here we are all over again with all the same useful idiots poised to make essentially the same stupid mistake.

It may seem overly harsh, but, yes, this really is downright stupid given how everything, and I mean everything, is right here in the open available for everyone to see it; as well as how it repeats one after another after another (after another and now another).


Jay Powell’s Fed – even after committing a set of seriously unforced errors just a few years ago – is more and more committing itself to do this all over again. Assigning inappropriately huge interpretative value to recent US labor market data, the FOMC is, right now, preparing the public for eventual taper.

But this is where the similarities to 2013 end; no tantrum anywhere in sight. This isn’t because the market doesn’t believe Powell’s group will do what they’re now more openly hinting. Oh no, it’s because the market doesn’t believe in what Powell believes.

The US labor data might be steady and even convincing about the current state of the US labor market and maybe the domestic part of the economy, but remember what Bernanke said back then; “and we have confidence that it is going to be sustained.” The FOMC’s confidence is rising while at the same time the bond market’s is plummeting.

So long as this remains the situation, there will be no “tantrum” even if there is taper.



Today is a perfect reminder of this underlying truth, the set of facts that deny the common interpretation of May 2013 and the misunderstood events of that summer. Taper noises grow only louder while bond yields go only lower – the bond market here and elsewhere getting more confident that the US labor data will not be sustained even if or as the FOMC’s policy resolve can be.

I wonder where it could possibly get that idea?



Economics

UK Gas Crisis Stuns Poultry Slaughterhouses, May Trigger Higher Chicken Prices

UK Gas Crisis Stuns Poultry Slaughterhouses, May Trigger Higher Chicken Prices

Soaring natural gas prices across the UK have disrupted companies…

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UK Gas Crisis Stuns Poultry Slaughterhouses, May Trigger Higher Chicken Prices

Soaring natural gas prices across the UK have disrupted companies from operating. The latest is slaughterhouses that use carbon dioxide, a byproduct of fertilizer derived from natural gas. 

Richard Griffiths, chief executive officer of the British Poultry Council, told Bloomberg surging natural gas prices is a massive blow for poultry companies, which frequently use a byproduct of fertilizer production -- carbon dioxide -- to incapacitate birds at slaughterhouses.

CO2 supplies are incredibly tight, Griffiths said, adding that any further shortages could create massive headwinds for the industry and hinder chicken production. Already, weekly chicken output has dropped 5-10%, and Christmas turkey production could drop by a fifth. 

The unintended consequences of natural gas shortages are the effects on the food industry and how it may result in rising meat prices if slaughterhouse output continues to decline. 

On Thursday, we outlined how CF Industries Holdings' fertilizer plants, one in Billingham and another in Ince, suspended operations "due to high natural gas prices." 

"I would expect it to be having impacts very quickly," Griffiths said by phone. "At the moment, we've got all the Brexit effects, including labor shortages, all the Covid add-ons. And now, we're seeing these supply-chain problems emerge at a time when we really don't need it." 

Energy inflation could be a company's worse nightmare in the UK -- prices for the fuel have already doubled this year, while power costs are on a record-breaking run thanks to the lack of renewable energy output

More companies could be impacted by soaring natural gas prices and elevated electricity prices. This problem isn't likely to fade anytime soon as gas inventories remain low ahead of the winter season. 

All of this is feeding into inflation across the continent. European Central Bank President Christine Lagarde recently said energy markets are a significant driver in higher inflation. To solve this, Germany has to certify Russia's Nord Stream 2 to begin receiving shipments - but as we recently noted, that could take months and may suggest European inventories won't be resupplied in time for winter. 

    Tyler Durden Sat, 09/18/2021 - 07:35
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    Economics

    US stocks close in a sea of red as tax hike fears grow

    US stocks closed the week in a sea of red on Friday September 17 after technology shares led the broad losses across segments and tax hike fears dragged…

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    US stocks closed the week in a sea of red on Friday, September 17, after technology shares led the broad losses across segments and tax hike fears dragged the benchmark indices down.

    The S&P 500 fell 0.91% to 4,432.99. The Dow Jones fell 0.48% to 34,584.88. The NASDAQ Composite Index declined 0.91% to 15,043.97, and the small-cap Russell 2000 was up 0.18% to 2,236.87.

    Markets have been volatile this week amid mixed global cues. Loses in the Asian markets over worries of slow economic recovery and recent geopolitical developments weighed on investors’ minds. The tech-savvy Nasdaq declined the most.

    In addition, the recent retail sales and unemployment data offered mixed signals about the US economy. While retails sales were up in August, jobless benefits claims rose noticeably last week.

    Meanwhile, lawmakers were considering a proposal to hike corporate tax. The news could be worrisome for some investors as a tax hike may eat into the companies’ profits. Democrats are seeking to increase the corporate tax from the current 21% to 26.5%.

    Investors will now eagerly wait for the Fed’s monthly meeting next week. The central bank officials are expected to discuss the latest economic data as they continue with the stimulus tapering talks.

    All the S&P 500 stock segments stayed in the negative territory. Technology and communications services stocks were the biggest losers, pushing the index down. Stocks of vaccine manufacturers Moderna, Inc. (MRNA) and Pfizer Inc. (PFE) plunged 3.57% and 1.34%, respectively.

    Invesco Ltd. (IVZ) stock rose 5.71% after reports that it is in talks to merge with the asset management unit of State Street Corporation (STT). STT stock declined 2.47% in intraday trading.

    SmileDirectClub, Inc. (SDC) shares surged 12.92% after the stock was discussed on social media.

    AbCellera Biologics Inc. (ABCL) stock rose 2.53%, a day after the US Food and Drug Administration extended the emergency use authorization for its covid drug Bamlanivimab.

    In technology stocks, Apple Inc. (AAPL) fell 1.94%, Microsoft Corporation (MSFT) fell 1.65%, and ASML Holdings N.V. (ASML) declined 3.18%. Adobe Inc. (ADBE) and Cisco Systems, Inc. (CSCO) fell 1.75% and 1.19%, respectively.

    In communication stocks, Alphabet Inc. (GOOG) fell 2.08%, Facebook, Inc. (FB) declined 2.96%, and T-Mobile US, Inc. (TMUS) declined 1.19%. In addition, Sea Limited (SE) dropped 1.23%, and Snap Inc. (SNAP) advanced 3.08%.

    In the material sector, BHP Group (BHP) fell 4.46%, Rio Tinto Group (RIO) fell 3.02%, and Vale S.A. (VALE) fell 2.21%. Ecolab Inc. (ECL) and Freeport-McMoRan Inc. declined 2.01% and 4.10%.

    Also Read: Check these 5 oil and gas stocks with high price-to-earnings ratio

     

    Copyright ©Kalkine Media 2021

    Also Read: ASAN, FORG, & DATS stocks shine on higher demand hopes

    Top Gainers

    Top performers on S&P 500 included Thermo Fisher Scientific Inc (6.49%), Invesco Ltd (5.46%), Centene Corp (4.95%), Diamondback Energy Inc (3.18%). On NASDAQ, top performers were Corvus Pharmaceuticals Inc (135.40%), Helbiz Inc (96.56%), Priority Technology Holdings Inc (47.23%), Innate Pharma SA (40.87%). On Dow Jones, Amgen Inc (0.93%), UnitedHealth Group Inc (0.80%), American Express Co (0.79%), Procter & Gamble Co (0.16%) were the leaders.

    Top Losers

    Top laggards on S&P 500 included Unum Group (-6.04%), International Flavors & Fragrances Inc (-5.53%), Copart Inc (-5.46%), Nucor Corp (-4.49%). On NASDAQ, Protagonist Therapeutics Inc (-62.00%), TCR2 Therapeutics Inc (-36.45%), Eliem Therapeutics Inc (-21.92%), Janux Therapeutics Inc (-20.26%). On Dow Jones, Dow Inc (-2.89%), Caterpillar Inc (-1.89%), Apple Inc (-1.83%), Microsoft Corp (-1.75%) were the laggards.

    Volume Movers

    Top volume movers were Bank of America Corp (43.29M), Nov Inc (41.49M), Apple Inc (40.72M), AT&T Inc (38.62M), Oracle Corp (37.24M), Lucid Group Inc (39.05M), Match Group Inc (36.06M), SoFi Technologies Inc (33.81M), Tellurian Inc (28.37M), Corvus Pharmaceuticals Inc (26.47M).

    Also Read: Top five mid-cap retail stocks with more than 100% YTD gain

    Futures & Commodities

    Gold futures were down 0.22% to US$1,752.85 per ounce. Silver decreased by 1.87% to US$22.367 per ounce, while copper fell 1.15% to US$4.2322.

    Brent oil futures decreased by 0.45% to US$75.33 per barrel and WTI crude was down 0.81% to US$71.97.

    Bond Market

    The 30-year Treasury bond yields was up 1.13% to 1.902, while the 10-year bond yields rose 2.43% to 1.363.

    US Dollar Futures Index increased by 0.33% to US$93.227.

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    Economics

    Victor Davis Hanson: The Death Of Science

    Victor Davis Hanson: The Death Of Science

    Authored by Victor Davis Hanson,

    The scientific method used to govern much of popular American…

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    Victor Davis Hanson: The Death Of Science

    Authored by Victor Davis Hanson,

    The scientific method used to govern much of popular American thinking.

    In empirical fashion, scientists advised us to examine evidence and data, and then by induction come to rational hypotheses. The enemies of "science" were politics, superstition, bias and deduction.

    Yet we are now returning to our version of medieval alchemy and astrology in rejecting a millennium of the scientific method.

    Take the superstitions that now surround COVID-19.

    We now know from data that a prior case of COVID-19 offers immunity as robust as vaccination. Why, then, are Joe Biden's proposed vaccination mandates ignoring that scientific fact? Dr. Anthony Fauci, when asked, seemed at a loss for words.

    Is this yet another of the scientific community's Platonic "noble lies," as when Fauci assured the public last year that there was no need for masks?

    He later claimed he had lied so that medical professionals would not run out of needed supplies.

    Fauci also threw out mythical percentages needed for herd immunity, apparently in an attempt to convince the public that it will never be safe until every American is protected from COVID-19 by vaccination only.

    And why was it that hard for the scientific community to postulate a likely origin of COVID-19 Some of the very scientists engaged in gain-of-function research oversaw an investigation with Chinese authorities. They confirmed the predetermined conclusion that the virus likely had little to do with gain-of-function engineering. And they saw little proof it was birthed in a Wuhan virology lab. Yet scientific opinion, emerging evidence and basic logic have suggested the opposite.

    How can the government hector citizens that they have a moral duty -- and soon a legal obligation -- to be vaccinated when it does not mandate vaccinations for unvetted refugees flying in from Afghanistan?

    How can the government medical community remain largely silent when an anticipated 2 million foreign nationals will cross into the United States in the current fiscal year -- almost none of whom are vaccinated or tested for COVID-19?

    Why do the media and government blame particular races for the delta variant outbreak on grounds that they were insufficiently vaccinated?

    Why wouldn't officials simply urge the Latino and Black communities to be vaccinated as quickly as possible?

    Data shows that both groups have lower vaccination rates than white and Asian populations.

    Are woke political agendas discrediting science and losing public health?

    We saw just that in June 2020, when more than 1,200 "health care professionals" signed a petition demanding exemptions from lockdowns and quarantines for Black Lives Matter protesters marching en masse. And they concocted medical excuses such as "vital to the national public health" to insist that violating quarantines was less unhealthy than not pouring into the streets.

    Why did presidential candidate Joe Biden and his running mate, Kamala Harris, warn the American people on the eve of vaccination rollouts that an inoculation under the Trump administration could be unsafe, thereby undermining confidence in vaccines?

    Why was the medical community largely silent about such dangerous sabotaging of new vaccines, but months later became vociferous in warning the public that any doubts about the safety of these Operation Warp Speed vaccinations were scientifically misplaced? Was there a medical breakthrough on Jan. 20, 2020, to alter their consensus?

    From rewarding wokeness in medical school admissions to the peer reviewing of scientific papers, the anti-scientific mania has polluted scientific endeavors.

    "Critical race theory" would preposterously tell us that we need racism to fight racism.

    "Critical legal theory" ludicrously claims that laws have no rational basis but simply reflect power inequities.

    "Modern monetary theory" defies millennia of evidence and basic logic in stating that governments can simply print money without worrying about balancing expenditures with revenues or inflating the currency to ruination.

    Corporations are now asked to substitute a new woke agenda theory -- "Environmental, Social and Corporate Governance (ESG)" -- in lieu of market realities, rules of investment and economic data.

    Science is dying; superstition disguised as morality is returning. And we'll all soon become poorer, angrier and more divided.

    Tyler Durden Fri, 09/17/2021 - 22:20
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