AuthorTopic: Da Fed: Central Banking According to RE  (Read 30862 times)

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RE

https://www.cnbc.com/2019/07/07/deutsche-bank-will-exit-its-global-equities-business-and-scale-back-investment-bank.html

Deutsche Bank will exit global equities business and slash 18,000 jobs in sweeping overhaul
Published an hour agoUpdated Moments Ago
Spencer Kimball @spencekimball   
   
Key Points

    Deutsche Bank announced Sunday that it will pull out of its global equities sales and trading business as part of a sweeping restructuring plan to improve its profitability.
    Deutsche will also slash 18,000 jobs for a global headcount of around 74,000 employees by 2022. The bank aims to reduce costs by 6 billion euros to 17 billion euros in coming years.
    All told, Deutsche expects its restructuring plan to cost 7.4 billion euros by the end of 2022.
    The German bank also expects to report a net loss of 2.8 billion euros in the second quarter of 2019. It will release its second quarter results on July 25, 2019.


Deutsche Bank headquarters
Photo by Hannelore Foerster

Deutsche Bank announced Sunday that it will pull out of its global equities sales and trading business as part of a sweeping restructuring plan to improve its profitability.

Deutsche will also slash 18,000 jobs for a global headcount of around 74,000 employees by 2022. The bank aims to reduce costs by 6 billion euros to 17 billion euros in coming years.

The German bank announced plans to scale back investment banking, just two days after investment banking chief Garth Ritchie stepped down by “mutual agreement.”

All told, Deutsche expects its restructuring plan to cost 7.4 billion euros by the end of 2022.

The German bank also expects to report a net loss of 2.8 billion euros in the second quarter of 2019. It will release its second quarter results on July 25, 2019.

Deutsche Bank’s supervisory board met on Sunday to hash out the restructuring plan. The bank’s CEO, Christian Sewing, had broadcast “tough cutbacks” during a shareholders’ meeting in May.

The German lender once sought to compete with America’s big banks on Wall Street, but has been pummeled by scandals, investigations and massive fines stemming from the financial crisis and other issues in recent years.
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Last week, a Washington-based think tank warned of "potentially devastating economic consequences" for the US and global economies if Congress didn't pass a debt limit extension in the weeks to come.


https://sputniknews.com/us/201907141076242600-treasury-secretary-confirms-us-government-risks-default-in-as-little-as-two-months/
I know exactly what you mean. Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world.
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💵 The World Is Dedollarizing
« Reply #242 on: July 28, 2019, 12:54:48 AM »
https://www.globalresearch.ca/world-dedollarizing/5684049

The World Is Dedollarizing
By Peter Koenig
Global Research, July 19, 2019
Region: USA
Theme: Global Economy

What if tomorrow nobody but the United States would use the US-dollar? Every country, or society would use their own currency for internal and international trade, their own economy-based, non-fiat currency. It could be traditional currencies or new government controlled crypto-currencies, but a country’s own sovereign money. No longer the US-dollar. No longer the dollar’s foster child, the Euro. No longer international monetary transactions controlled by US banks and – by the US-dollar controlled international transfer system, SWIFT, the system that allows and facilitates US financial and economic sanctions of all kinds – confiscation of foreign funds, stopping trades between countries, blackmailing ‘unwilling’ nations into submission. What would happen? – Well, the short answer is that we would certainly be a step close to world peace, away from US (financial) hegemony, towards nation states’ sovereignty, towards a world geopolitical structure of more equality.

We are not there yet. But graffities are all over the walls signaling that we are moving quite rapidly in that direction. And Trump knows it and his handlers know it – which is why the onslaught of financial crime – sanctions – trade wars – foreign assets and reserves confiscations, or outright theft – all in the name of “Make America Great Again”, is accelerating exponentially and with impunity. What is surprising is that the Anglo-Saxon hegemons do not seem to understand that all the threats, sanctions, trade barriers, are provoking the contrary to what should contribute to American Greatness. Economic sanctions, in whatever form, are effective only as long as the world uses the US dollar for trading and as reserve currency.

Once the world gets sick and tired of the grotesque dictate of Washington and the sanction schemes for those who do no longer want to go along with the oppressive rules of the US, they will be eager to jump on another boat, or boats – abandoning the dollar and valuing their own currencies. Meaning trading with each other in their own currencies – and that outside of the US banking system which so far even controls trading in local currencies, as long as funds have to be transferred from one nation to another via SWIFT.

Many countries have also realized that the dollar is increasingly serving to manipulate the value of their economy. The US-dollar, a fiat currency, by its sheer money mass, may bend national economies up or down, depending in which direction the country is favored by the hegemon. Let’s put the absurdity of this phenomenon in perspective.

Today, the dollar is based not even on hot air and is worth less than the paper it is printed on. The US GDP is US$ 21.1 trillion in 2019 (World Bank estimate), with current debt of 22.0 trillion, or about 105% of GDP. The world GDP is projected for 2019 at US$ 88.1 trillion (World Bank). According to Forbes, about US$ 210 trillion are “unfunded liabilities” (net present value of future projected but unfunded obligations (75 years), mainly social security, Medicaid and accumulated interest on debt), a figure about 10 times the US GDP, or two and a half times the world’s economic output.

This figure keeps growing, as interest on debt is compounded, forming part of what would be called in business terms ‘debt service’ (interest and debt amortization), but is never ‘paid back’. In addition, there are about one to two quadrillion dollars (nobody knows the exact amount) of so-called derivatives floating around the globe. Aderivative is a financial instrument which creates its value from the speculative difference of underlying assets, most commonly derived from such inter-banking and stock exchange oddities, like ‘futures’, ‘options’, ‘forwards’ and ‘swaps’.

This monstrous debt is partly owned in the form of treasury bonds as foreign exchange reserves by countries around the world. The bulk of it is owed by the US to itself – with no plans to ever “pay it back” – but rather create more money, more debt, with which to pay for the non-stop wars, weapon manufacturing and lie-propaganda to keep the populace quiet and in lockstep.

This amounts to a humongous worldwide dollar-based pyramid system. Imagine, this debt comes crashing down, for example because one or several big (Wall Street) banks are on the brink of bankruptcy, so, they claim their outstanding derivatives, paper gold (another banking absurdity) and other debt from smaller banks. It would generate a chain reaction that might bring down the whole dollar-dependent world economy. It would create an exponential “Lehman Brothers 2008” on global scale.

The world is increasingly aware of this real threat, an economy built on a house of cards – and countries want to get out of the trap, out of the fangs of the US-dollar. It’s not easy with all the dollar-denominated reserves and assets invested abroad, all over the globe. A solution may be gradually divesting them (US-dollar liquidity and investments) and moving into non-dollar dependent currencies, like the Chinese Yuan and the Russian Ruble, or a basket of eastern currencies that are delinked from the dollar and its international payment scheme, the SWIFT system. Beware of the Euro, it’s the foster child of the US-dollar!

There are increasingly blockchain technology alternatives available. China, Russia, Iran and Venezuela are already experimenting with government-controlled cryptocurrencies to build new payment and transfer systems outside the US-dollar domain to circumvent sanctions. India may or may not join this club – whenever the Modi Government decides which way to bend – east or west. The logic would suggest that India orients herself to the east, as India is a significant part of the huge Eurasian economic market and landmass.
Venezuela – A Risk to Dollar Hegemony – Key Purpose Behind “Regime Change”

India is already an active member of the Shanghai Cooperation Organization (SCO) – an association of countries that are developing peaceful strategies for trade, monetary security and defense, comprising China, Russia, India, Pakistan, most Central Asian countries and with Iran waiting in the wings to become a full-fledged member. As such, SCO accounts for about half of the world population and a third of the world’s economic output. The east has no need for the west to survive. No wonder that western media hardly mention the SCO which means that the western average public at large has no clue what the SCO stands for, and who are its members.

Government-controlled and regulated blockchain technology may become key to counter US coercive financial power and to resist sanctions. Any country is welcome to join this new alliance of countries and new but fast-growing approach to alternative trading – and to finding back to national political and financial sovereignty.

In the same vein of dedollarization are Indian “barter banks”. They are, for example, trading Indian tea for Iranian oil. Such arrangements for goods to be exchanged against Iranian petrol are carried out through Indian “barter banks”, where currencies, i.e. Iranian rials and Indian rupees, are handled by the same bank. Exchange of goods is based on a list of highest monetary volume Indian trade items, against Iranian hydrocarbon products, for example, Iran’s large import of Indian tea. No monetary transaction takes place outside of India, therefore, US sanctions may be circumvented, since no US bank or US Treasury interference can stop the bilateral trade activities.

At this point, it might be appropriate to mention Facebook’s attempt to introduce a globe-spanning cryptocurrency, the Lira. Little is known on how exactly it will (or may) function, except that it would cater to billions of facebook members around the world. According to Facebook, there are 2.38 billion active members. Imagine, if only two thirds – about 1.6 billion – opened a Libra account with Facebook, the floodgate of libras around the world would be open. Libra is or would be a privately-owned cryptocurrency – and – coming from Facebook – could be destined to replace the dollar by the same people who are now abusing the world with the US-dollar. It may be projected as the antidote to government-controlled cryptocurrencies, thus, circumventing the impact of dedollarization. Beware of the Libra!

Despite US and EU sanctions, German investments in Russia are breaking a 10-year record in 2019, by German business pouring more than €1.7 billion into the Russian economy in the first three months of 2019. According to the Russian-German Chamber of Commerce, the volume of German companies’ investments in Russia is up by 33% – by € 400 million – since last year, when total investments reached € 3.2 billion, the largest since 2008. Despite sanctions which amounted to about € 1 billion combined for 140 German companies surveyed and registered with the Chamber of Commerce, and despite western anti-Russia pressure, Russia-German trade has increased by 8.4 percent and reached nearly € 62 billion in 2018.

In addition, notwithstanding US protests and threats with sanctions, Moscow and Berlin continue their Nord Stream 2 natural gas pipeline project which is expected to be finished before the end of 2019. Not only is the proximity of Russian gas a natural and logical supply source for Germany and Europe, it will also bring Europe independence form the bullying sales methods of the United States. And payments will not be made in US dollars. In the long-run, the benefits of German-Russian business and economic relations will far outweigh the illegal US sanctions. Once this awareness has sunk in, there is nothing to stop Russian-German business associations to flourish, and to attract other EU-Russian business relations – all outside of the dollar-dominated banking and transfer system.

President Trump’s trade war with China will eventually also have a dedollarization effect, as China will seek – and already has acquired – other trading partners, mostly Asian, Asian-Pacific and European – with whom China will deal in other than dollar-denominated contracts and outside the SWIFT transfer system, for example using the Chinese International Payment System (CIPS) which, by the way, is open for international trade by any country across the globe.

This will not only circumvent punishing tariffs on China’s exports (and make US customers of Chinese goods furious, as their Chinese merchandise is no longer available at affordable prices, or no longer available at all), but this strategy will also enhance the Chinese Yuan on international markets and boost the Yuan even further as a reliable reserve currency – ever outranking the US-dollar. In fact, in the last 20 years, dollar-denominated assets in international reserve coffers have declined from more than 90% to below 60% and will rapidly decline further as Washington’s coercive financial policies prevail. Dollar reserves are rapidly replaced by reserves in Yuan and gold, and that even in such staunch supporters of the west as is Australia.

Washington also has launched a counter-productive financial war against Turkey, because Turkey is associating and creating friendly relations with Russia, Iran and China – and, foremost, because Turkey, a NATO stronghold, is purchasing the Russian S-400 cutting-edge air defense system – a new military alliance which the US cannot accept. As a result, the US is sabotaging the Turkish currency, the Lira which has lost 40% since January 2018.

Turkey will certainly do whatever it can to get out from under the boot of the US-dollar stranglehold and currency sanctions – and further ally itself with the East. This amounts to a double loss for the US. Turkey will most likely abandon all trading in US dollars and align her currency with, for example, the Chinese Yuan and the Russian ruble, and, to the detriment of the Atlantic alliance, Turkey may very likely exit NATO. Abandoning NATO will be a major disaster for the US, as Turkey is both strategically, as well as in terms of NATO military power one of the strongest – if not the strongest – nation of the 29 NATO members, outside of the US.

If Turkey exits NATO, the entire European NATO alliance will be shaken and questioned. Other countries, long wary of NATO and of storing NATO’s nuclear weapons on their soils, especially Italy and Germany, may also consider exiting NATO. In both Germany and Italy, a majority of the people is against NATO and especially against the Pentagon waging wars form their NATO bases in their territories in Germany in Italy.

To stem against this trend, the former German Defense Minister, Ursula von der Leyen, from the conservative German CDU party, is being groomed to become Jean-Claude Juncker’s successor as President of the European Commission. Mr. Juncker served since 2014. Ms. Von der Leyen was voted in tonight, 17 July, with a narrow margin of 9 votes. She is a staunch supporter of NATO. Her role is to keep NATO as an integral part of the EU. In fact, as it stands today, NATO is running the EU. This may change, once people stand up against NATO, against the US vassal, the EU Administration in Brussels, and claim their democratic rights as citizens of their nation states.

Europeans sense that these Pentagon initiated and ongoing wars and conflicts, supported by Washington’s European puppet allies, may escalate into a nuclear war, their countries’ NATO bases will be the first ones to be targeted, sinking Europe for the 3rdtime in 100 year into a world war. However, this one may be all-destructive nuclear – and nobody knows or is able to predict the damage and destruction of such a catastrophe, nor the time of recovery of Mother Earth from an atomic calamity.

So, let’s hope Turkey exits NATO. It would be giant step towards peace and a healthy answer to Washington’s blackmail and sabotage against Turkey’s currency. The US currency sanctions are, in the long run, a blessing. It gives Turkey a good argument to abandon the US dollar and gradually shift towards association with eastern moneys, mainly the Chinese Yuan, thereby putting another nail in the US-dollar’s coffin.

However, the hardest blow for Washington will be when Turkey exits NATO. Such a move will come sooner or later, notwithstanding Ms. Von der Leyen’s battle cries for NATO. The breaking up of NATO will annihilate the western power structure in Europe and throughout the world, where the US still maintains more than 800 military bases. On the other hand, the disbanding of NATO will increase the world’s security, especially in Europe – for all the consequences such an exit will bear. Exiting NATO and economically exiting the US-dollar orbit is a further step towards dedollarization, and a blow to US financial and military hegemony.

Finally, investments of the Chinese Belt and Road Initiative (BRI), also called the New Silk Road, will be mostly made in Yuan and local currencies of the countries involved and incorporated in one or more of the several BRI land and maritime routes that eventually will span the globe. Some US-dollar investments may serve the People’s Bank of China, China’s Central Bank, as a dollar-divesting tool of China’s huge dollar reserves which currently stands at close to two trillion dollars.

The BRI promises to become the next economic revolution, a non-dollar economic development scheme, over the coming decades, maybe century, connecting peoples and countries – cultures, research and teaching without, however, forcing uniformity, but promoting cultural diversity and human equality – and all of it outside the dollar dynasty, breaking the nefarious dollar hegemony.

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This article was originally published on New Eastern Outlook.

Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; RT; Sputnik; PressTV; The 21st Century; TeleSUR; The Saker Blog, the New Eastern Outlook (NEO); and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance. He is a Research Associate of the Centre for Research on Globalization.
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🏦 'Collared' By The Fed And Trump's Trade War
« Reply #243 on: August 05, 2019, 05:46:12 AM »
https://seekingalpha.com/article/4281393-collared-fed-trumps-trade-war

'Collared' By The Fed And Trump's Trade War
Aug. 4, 2019 11:42 AM ET|


The last three days were manic, to say the least, and by the time the dust settled, this was the worst week for US stocks of 2019.

The market is now at risk of being "collared" by a circular dynamic between the Fed and President Trump's trade war.

If the Fed doesn't play ball, things could get materially worse for stocks.

During what was variously described as a disastrous press conference on Wednesday, Jerome Powell said trade tensions nearly "boiled over" in May and June but "returned to a simmer" in July.

The Fed Chair made a number of mistakes over the course of his press conference, and that was one of them.

Not only did it suggest, to markets, that the Fed assessed trade tensions as likely to ease further, thereby reducing uncertainty and mitigating the need to cut rates further, it also signaled, to President Trump, that convincing policymakers to ease aggressively would likely require the instigation of more trade drama.

On Wednesday evening, Trump said this on Twitter:

    What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world. As usual, Powell let us down.

Hold that thought.

Powell also let the market down. The Chair's description of the July rate cut as a "mid-cycle adjustment" and his subsequent contention that "this isn't the start of a long series of rate cuts" were the opposite of what markets wanted to hear. The curve flattened the most since March of 2018 (a reflection of disappointment and a lack of faith in the idea that a single 25bp cut would be sufficient to inoculate the US economy from the trade frictions and global manufacturing slump) and, worse, the dollar moved sharply higher, a development that was starkly at odds with what the White House wanted to see and also with what the market needed (USD funding markets are still tight and the forthcoming Treasury supply deluge isn't going to help).


(Heisenberg)

The "reviews" (if you will) of Powell's performance were bad, and analysts generally implored market participants to focus on the underlying message. Here, for example, is a quick bit from BofA's front-end rates team:

    FOMC communications this week, especially Chair Powell’s press conference, reflected a confused and muddled message. We encourage investors to look through the noise and focus on the underlying message from the Fed: they are uncertain, in risk management mode, and worried about low inflation. Elevated risks surrounding trade (i.e. potential 10% increase in China tariffs on Sept 1) and global developments leaves us still expecting lower US rates, a steeper curve, and favoring ways to position for an out of consensus uptick in inflation risk premium.

Here's an easy way to visualize the "worried about low inflation" bit:


(Heisenberg)

As far as the trade concerns go, less than 24 hours after Powell told reporters that trade tensions had "returned to a simmer", Trump huddled with Steve Mnuchin, Mick Mulvaney and Larry Kudlow in the Oval Office.

According to Bloomberg's Jennifer Jacobs, Mnuchin attempted to convince the president to give the Chinese a heads-up before threatening more tariffs. Mnuchin had, after all, just gotten back from talks in Shanghai the previous day.

According to Jacobs, Trump overruled Mnuchin and sent the tweets threatening to impose a 10% tariff on the remaining $300 billion in Chinese goods while everyone was still sitting in the Oval Office.

The rest is history. Stocks, which had bounced nicely on Thursday morning following the Powell-inspired selloff the previous afternoon, plunged. 10-year yields dove to their lowest since early November 2016. And most importantly, traders began to price back in more Fed cuts. In other words, if Powell was hoping to push back against expectations for the kind of "aggressive" (to quote the President) cutting cycle that Trump and the market wants, the trade broadside negated that effort.


(Heisenberg)

One of the most important takeaways from what Nomura's Charlie McElligott called "one of the most manic 36 hours of trading I've seen in my 18-year career," is that to the extent President Trump was attempting to engineer more Fed cuts (where the most immediate concern would be ensuring that September is a "go", so to speak), it puts us right back in a familiar loop. Here's a simple illustration:


(Heisenberg)

That's something BofA warned about in June. Other desks (including Deutsche and JPMorgan) have produced similar analysis. "If the ‘Powell Put’ and ‘Trump Call’ are strong enough, they could create an ever-escalating trade war matched by an ever lower funds rate," BofA cautioned less than two months prior to the latest trade broadside, adding that "the stock market would be left in a range-bound ‘collar’ trade, with its upside and downside capped by the trade war and the Fed, respectively."

This was always the risk for the Fed in getting roped into implicitly underwriting the trade war. If Powell continues to play the game, he risks perpetuating trade tensions until things get so bad that the inflationary effects become impossible to mitigate no matter how hard Bob Lighthizer tries by fiddling with the list of affected products.

Consider this. Nearly two thirds of goods that will be affected in the next prospective round of tariffs are consumer goods, with apparel, footwear, toys and cellphones all in play. Have a look:


(Heisenberg)

See the problem? According to Goldman's estimates, the proposed next round of tariffs (i.e., what Trump threatened on Thursday) would boost PCE inflation 20bps by year-end and exert another 0.1-0.2% drag on GDP, with that latter figure coming in addition to a 0.2% hit from tariffs already imposed.

Do note that the latest read on core CPI was the hottest since January of 2018 and the July jobs report showed wage growth coming in hot.

No, a sudden breakout of inflation to the upside isn't likely (a disinflationary quagmire is still the base case for most folks, including the Fed, even if they won't readily acknowledge it). But the point is simply that as the trade war worsens, it puts the Fed in an impossible position. If the tariffs continue (and Trump indicated he would be willing to go above 25% on all Chinese goods if that's what it takes to extract the concessions he wants), it will eventually threaten to exert material upward pressure on consumer prices, while serving as a drag on GDP. There is no adequate monetary policy response to that. If you cut rates to offset the GDP hit, you risk worsening the inflation issue. If you stand pat or hike to head off inflation, you chance making the hit to growth worse.

This is complicated immeasurably by the fact that we are headed into an election year, so any action the Fed does take (or doesn't take) will be viewed through the lens of politics. President Trump's public calls for rate cuts make that dynamic even more acute.

As far as the near-term outlook is concerned, there are two possibilities. Either the Fed bends the proverbial knee in the face of trade tensions and indicates that a September cut is all but a sure bet, thereby putting us squarely in the "collar" dynamic illustrated in the flow chart above, or else policymakers attempt to stick to their guns and remain reluctant to explicitly countenance markets' efforts to price in additional rate cuts.

In that latter scenario, the dollar will remain stubbornly resilient, potentially exacerbating any squeeze in USD funding markets, stocks will struggle mightily and volatility will probably spike into an already favorable seasonal (see below).


(Bloomberg, Nomura's annotation)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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🏦 'Crazy inverted yield curve' vexes Fed, with no clear resolution
« Reply #244 on: August 16, 2019, 04:23:03 AM »
https://www.reuters.com/article/us-usa-fed-yieldcurve-graphic/crazy-inverted-yield-curve-vexes-fed-with-no-clear-resolution-idUSKCN1V52LF

August 15, 2019 / 3:34 PM / Updated 6 hours ago
'Crazy inverted yield curve' vexes Fed, with no clear resolution


7 Min Read

WASHINGTON (Reuters) - Amid the recent financial market volatility, the interest rates on some long-dated government bonds have fallen below the level for short-term debt.
FILE PHOTO: A trader looks at screens as he works on the floor at the New York Stock Exchange, August 13, 2019. REUTERS/Eduardo Munoz

Called a “yield curve inversion,” this has been a traditional warning sign for the economy: If smart investors see more risk two years ahead than 10 years down the road, it can’t be good for near-term growth.

In response, President Donald Trump and others have upped demands for a U.S. Federal Reserve rate cut.

So do U.S. central bankers care about what Trump called the “crazy inverted yield curve” or not?

Policymakers have been trying to get a handle on the issue for a while, with no consensus on whether a curve inversion today means the same thing it did in the past.

Here are selected comments of Fed policy makers over the last two years on the issue:

Dec. 1, 2017: “There is a material risk...if the (Federal Open Market Committee) continues on its present course” - St. Louis Federal Reserve President James Bullard.

He was off by a few months, expecting a yield curve inversion late in 2018, but Bullard as well as Dallas Fed President Robert Kaplan flagged early on what might happen if the Fed continued to hike, as it did throughout last year.
Reuters Graphic

 Aug. 20, 2018: “I pledge to you I will not vote for anything that will knowingly invert the curve and I am hopeful that as we move forward I won’t be faced with that.” - Atlanta Federal Reserve President Raphael Bostic.

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The comment captured the Fed’s dilemma at that point. The economy was growing faster than expected and seemed robust enough to warrant rate increases. Bostic voted for two more by the end of the year. Yet through the year, bond spreads narrowed.
Reuters Graphic

 Sept. 6, 2018: “I don’t see the flat yield curve or inverted yield curve as being the deciding factor in terms of where we should go with policy.” - New York Fed President John Williams

Williams was among the most vocal in saying that in the “new normal” economy, when all rates and the spreads between them were inherently lower, a yield curve inversion may be a product of structural changes in markets, and not the scary signal it used to be.
Reuters Graphic

 Sept. 12, 2018: Lower overall rates and changing investor behavior “may temper somewhat the conclusions that we can draw from historical yield curve relationships.” - Fed Governor Lael Brainard.

Some members of the Fed board agreed that the yield curve may not be as meaningful as in the past.
Reuters Graphic

 March 24, 2019: “Some of this is structural, having to do with lower trend growth, lower real interest rates...In that environment, it’s probably more natural that yield curves are somewhat flatter.” - Chicago Fed President Charles Evans.

March 25, 2019: “I don’t take nearly as much information from the shape of the yield curve as some people do.” - Boston Fed President Eric Rosengren.

March 26, 2019: “I’m not freaked out.” - San Francisco Fed President Mary Daly.

That month, the spread between the three-month Treasury note and the 10-year bond, closely watched by some at the Fed, did invert. There remained division about what it meant and reluctance to read it as a sign of economic weakness.
Reuters Graphic

June 4, 2019: “We are early into it. It’s certainly something we’ll keep looking at.” - Fed Vice Chair Richard Clarida.

The Fed by this point was preparing for rate cuts, but even its leadership was not fully ready to put the yield curve at the center of its thinking. In Clarida’s view, time matters: If the curve stayed upside down, he said he would take it “seriously.”
Reuters Graphic

June 25, 2019: “We do, of course, look at the yield curve ... it’s one financial condition among many ... There’s no one thing in the broad financial markets that we see as the dominant thing.” – Fed Chairman Jerome Powell.

The Fed did cut rates in July. The key, 10-year to two-year portion of the yield curve nevertheless inverted just two weeks later. It seemed a reaction to broader problems, including a sense that the U.S.-China trade war was becoming a bigger threat than thought, and the spread quickly moved back above zero.

But will that brief inversion be read as a warning?

The central bank next meets on Sept. 17-18.
Reuters Graphic

Reporting by Howard Schneider in Washington; Ann Saphir in San Francisco; Trevor Hunnicutt in New York; Editing by Dan Burns and Cynthia Osterman
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Re: 🏦 'Crazy inverted yield curve' vexes Fed, with no clear resolution
« Reply #245 on: August 16, 2019, 06:10:33 AM »
https://www.reuters.com/article/us-usa-fed-yieldcurve-graphic/crazy-inverted-yield-curve-vexes-fed-with-no-clear-resolution-idUSKCN1V52LF

August 15, 2019 / 3:34 PM / Updated 6 hours ago
'Crazy inverted yield curve' vexes Fed, with no clear resolution


7 Min Read

WASHINGTON (Reuters) - Amid the recent financial market volatility, the interest rates on some long-dated government bonds have fallen below the level for short-term debt.
FILE PHOTO: A trader looks at screens as he works on the floor at the New York Stock Exchange, August 13, 2019. REUTERS/Eduardo Munoz

Called a “yield curve inversion,” this has been a traditional warning sign for the economy: If smart investors see more risk two years ahead than 10 years down the road, it can’t be good for near-term growth.

In response, President Donald Trump and others have upped demands for a U.S. Federal Reserve rate cut.

So do U.S. central bankers care about what Trump called the “crazy inverted yield curve” or not?

Policymakers have been trying to get a handle on the issue for a while, with no consensus on whether a curve inversion today means the same thing it did in the past.

Here are selected comments of Fed policy makers over the last two years on the issue:

Dec. 1, 2017: “There is a material risk...if the (Federal Open Market Committee) continues on its present course” - St. Louis Federal Reserve President James Bullard.

He was off by a few months, expecting a yield curve inversion late in 2018, but Bullard as well as Dallas Fed President Robert Kaplan flagged early on what might happen if the Fed continued to hike, as it did throughout last year.
Reuters Graphic

 Aug. 20, 2018: “I pledge to you I will not vote for anything that will knowingly invert the curve and I am hopeful that as we move forward I won’t be faced with that.” - Atlanta Federal Reserve President Raphael Bostic.

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The comment captured the Fed’s dilemma at that point. The economy was growing faster than expected and seemed robust enough to warrant rate increases. Bostic voted for two more by the end of the year. Yet through the year, bond spreads narrowed.
Reuters Graphic

 Sept. 6, 2018: “I don’t see the flat yield curve or inverted yield curve as being the deciding factor in terms of where we should go with policy.” - New York Fed President John Williams

Williams was among the most vocal in saying that in the “new normal” economy, when all rates and the spreads between them were inherently lower, a yield curve inversion may be a product of structural changes in markets, and not the scary signal it used to be.
Reuters Graphic

 Sept. 12, 2018: Lower overall rates and changing investor behavior “may temper somewhat the conclusions that we can draw from historical yield curve relationships.” - Fed Governor Lael Brainard.

Some members of the Fed board agreed that the yield curve may not be as meaningful as in the past.
Reuters Graphic

 March 24, 2019: “Some of this is structural, having to do with lower trend growth, lower real interest rates...In that environment, it’s probably more natural that yield curves are somewhat flatter.” - Chicago Fed President Charles Evans.

March 25, 2019: “I don’t take nearly as much information from the shape of the yield curve as some people do.” - Boston Fed President Eric Rosengren.

March 26, 2019: “I’m not freaked out.” - San Francisco Fed President Mary Daly.

That month, the spread between the three-month Treasury note and the 10-year bond, closely watched by some at the Fed, did invert. There remained division about what it meant and reluctance to read it as a sign of economic weakness.
Reuters Graphic

June 4, 2019: “We are early into it. It’s certainly something we’ll keep looking at.” - Fed Vice Chair Richard Clarida.

The Fed by this point was preparing for rate cuts, but even its leadership was not fully ready to put the yield curve at the center of its thinking. In Clarida’s view, time matters: If the curve stayed upside down, he said he would take it “seriously.”
Reuters Graphic

June 25, 2019: “We do, of course, look at the yield curve ... it’s one financial condition among many ... There’s no one thing in the broad financial markets that we see as the dominant thing.” – Fed Chairman Jerome Powell.

The Fed did cut rates in July. The key, 10-year to two-year portion of the yield curve nevertheless inverted just two weeks later. It seemed a reaction to broader problems, including a sense that the U.S.-China trade war was becoming a bigger threat than thought, and the spread quickly moved back above zero.

But will that brief inversion be read as a warning?

The central bank next meets on Sept. 17-18.
Reuters Graphic

Reporting by Howard Schneider in Washington; Ann Saphir in San Francisco; Trevor Hunnicutt in New York; Editing by Dan Burns and Cynthia Osterman

I saw this yesterday. Glad you posted this....
I know exactly what you mean. Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world.
You don’t know what it is but its there, like a splinter in your mind

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🏦 FDIC approves Volcker revamp, in latest move to roll back bank rules
« Reply #246 on: August 21, 2019, 01:31:03 AM »
https://www.politico.com/story/2019/08/20/volcker-rule-joseph-otting-banks-1672620

FDIC approves Volcker revamp, in latest move to roll back bank rules

By KATY O'DONNELL
08/20/2019 12:50 PM EDT
Updated 08/20/2019 04:09 PM EDT


Comptroller of the Currency Joseph Otting signed the revised Volcker rule Tuesday. Three other agencies — the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission — must still approve it. | Chip Somodevilla/Getty Images

The Federal Deposit Insurance Corp. board voted 3-1 Tuesday to give big banks more leeway to make risky short-term bets in financial markets by loosening a landmark but highly contentious regulation known as the Volcker rule.

The FDIC and four other independent agencies have dropped their proposal to tie the rule to a strict accounting standard — a move that banks argued would have made it more burdensome by subjecting additional trades to heightened supervision. Instead, regulators will give banks the benefit of the doubt on a much wider range of trades, according to the text of the final rule.

Democrats immediately slammed the Trump administration for loosening the rule, which was mandated by the 2010 Dodd-Frank Act in an effort to protect depositors' money from being used by banks to turn a quick profit on short-term price changes in stocks, bonds and other financial assets.

The rewrite “will not only put the U.S. economy at risk of another devastating financial crisis, but it could potentially leave taxpayers at risk of having to once again foot the bill for unnecessary and burdensome bank bailouts,” House Financial Services Chairwoman Maxine Waters (D-Calif.) said in an email.

“The final rule published today would curtail prohibitions in a manner that Congress never intended and allow Wall Street megabanks to gamble with the same types of risky loan securitizations that turned toxic in 2008, at a time when these risky products are once again on the rise,” Waters added.

The Volcker rule — a 2013 regulation named after former Federal Reserve Board Chairman Paul Volcker, who came up with the concept — bars banks from making risky trades on their own behalf and restricts them from owning hedge funds or private equity funds. It has long come under fire for its complexity and has been a source of dissatisfaction for the regulators themselves.
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The rewrite is an attempt to clarify what kinds of activity would be exempt from the proprietary trading ban for market-making, hedging or underwriting purposes. Regulators aim to introduce a separate revamp of the covered-funds provision of the rule this fall.

Comptroller of the Currency Joseph Otting on Tuesday signed the revised rule. Three other agencies — the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission — must still approve it.

The new rule — the latest step by President Donald Trump's regulators to roll back post-financial crisis rules — would go into effect Jan. 1. Banks will have until Jan. 1, 2021, to become compliant but may opt in earlier.

Among other provisions, the revamp would create a presumption of compliance for trades held for longer than 60 days, the inverse of the current version of the rule, which presumes that any investment held for less than 60 days is banned, with the onus on banks to argue that a given trade is exempt.

The accounting standard that regulators proposed last year was meant to clear up ambiguity surrounding the intent standard under the 60-day provision, which ties the legitimacy of a bank’s position to its intent in making the short-term trade.

Under the final rule, the short-term intent prong will only apply to banks that are not subject to the market risk capital rule or that do not elect to apply the market risk capital standard.

The inclusion of the accounting provision in the original Volcker 2.0 proposal had been key in securing the support of Martin Gruenberg, then FDIC chairman and now a regular board member at the agency.

Gruenberg, an Obama appointee, voted against the revised rule Tuesday morning, saying it would “effectively undo” the Volcker rule’s ban on proprietary trading.

As amended, “the Volcker rule will no longer impose a meaningful constraint on speculative and proprietary trading by banks and bank-holding companies benefiting from the public safety net” of insured deposits, Gruenberg said.

Banks, meanwhile, applauded the new rule.

“The changes in the new rule will help reduce the incidental damage the original rule has done to responsible banking activity and legitimate market making activity, and the massive and needless compliance costs it imposed,” said Greg Baer, president and CEO of the Bank Policy Institute.

The Office of Financial Research issued a report this month that appeared to support industry complaints about the current rule with its finding that the rule led to “significant adverse liquidity effects on covered firms’ corporate bond trading.”

Victoria Guida contributed to this report.
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🏦 Opinion: The Federal Reserve’s math problem with interest-rate cuts
« Reply #247 on: August 21, 2019, 01:44:40 AM »
https://www.marketwatch.com/story/the-federal-reserves-math-problem-with-interest-rate-cuts-2019-08-20

Opinion: The Federal Reserve’s math problem with interest-rate cuts

Published: Aug 20, 2019 2:11 p.m.


The central bank may not have enough ammunition at its disposal if the economy sinks into a recession
Bloomberg
Federal Reserve Chairman Jerome Powell

By Sven Henrich

The Federal Reserve has a math problem, and so do investing markets.

Everyone from the president on down is demanding interest-rate cuts, lots of them. Fed Chairman Jerome Powell called the July rate cut a “mid-cycle” adjustment, and it has bought the Fed precious little as markets sold off in the wake off more trade tensions and yields continued to plummet. And now the markets are demanding more — a lot more. A 50-basis-point cut to the federal funds rate appears to be the bare minimum investors are demanding for September. Call it pricing it in, and the implication is clear: The Fed can ill afford to disappoint.

And what markets are currently pricing in is anything but a “mid-cycle” adjustment:


Bloomberg

That is nearly a 100-basis-point rate cut over the next year. President Trump, of course, wants that large a cut now and some quantitative easing sprinkled on top of that:

Leaving aside a discussion about the economic wisdom of such demands, let’s look at the implications of Trump’s wishes, and on a longer time frame, the market’s demand for 100 basis points of rate cuts.

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The problem is the Fed has very limited ammunition compared with previous cycles, and that fact seems to escape everyone.

Between December 2015 and December 2018, the Fed raised rates nine times after keeping the federal fund’s target range between zero and 25 basis points since Dec. 16, 2008 — the weakest rate-hiking cycle ever. In 2018 expectations were still high for further rate increases in 2019. In fact, Goldman Sachs had projected five rate increases for 2019 as late as November 2018.

Those days are long gone as global yields have collapsed and economic data has continued to show significant slowing. Hence the rate cut in July:


Federal Reserve Bank of St. Louis

And therein lies the math problem. With one rate cut already under its belt, the Fed now only has eight rate cuts to work with before being right back to zero-bound.

Cutting by 50 basis points in September would leave the Fed with only six 25-basis-point rate cuts to play with. Cutting another 50 basis points over the next year would leave the Fed with only four 25-basis-point rate cuts, implying the Fed would have given back nearly half of its entire rate-raising cycle, which took three years to accomplish, in only 12 months. That wouldn’t be a “mid-cycle” adjustment.

For reference: In 2001, the Fed had to embark on a rate-cutting cycle of 550 basis points to stop the unfolding recession. In 2007 it took 500 basis points. This time the Fed has started its rate-cutting cycle from a 225-250 basis-point basis. When cycles turn in earnest, they get angry and demand a lot of Fed hand holding.

So I must ask: With such limited ammunition to work with and so much ammunition required to actually stop a cycle turn, why would the Fed waste more rate cuts with markets still near all-time highs and unemployment still at 50-year lows? Why risk a 50-basis-point cut and be left with only six 25-point cuts in the coffer? Recession risk, after all, is rising and even Pimco is acknowledging this. Unless the ultimate future is rates into the negative 200-250 basis-point territory, which would imply a full-out disastrous crisis, then perhaps markets are expecting way too much from Momma Fed at this stage.

And if this is the case, then markets may be setting themselves up for disappointment. The first test of this thesis will come on Friday during Powell’s Jackson Hole speech. Markets are eagerly awaiting a signal to confirm more aggressive rate cuts. The Fed has a math problem and a market beast that wants to be fed. By the Fed.

Powell can ill afford to disappoint. But there may be another problem lurking. If the Fed is too aggressive, feeling beholden to markets, it may inadvertently send a signal that the recession risk is real and markets may ultimately not like the sound of that.

Sven Henrich is founder and the lead market strategist of NorthmanTrader.com. He’s well-known for his technical, directional and macro analysis of global equity markets. Follow him on Twitter at @NorthmanTrader.
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