MORTGAGE APPLICATIONS SURGE IN USA
Last week, there was a big surge in mortgage applications in the US. Home purchasers are on the move. This is an early sign that credit expansion is happening again in the US and should be a strong positive signal for financial markets.
According to the Mortgage Bankers Association, total mortgage application volume rose 13.5 percent, compared with the previous week. That includes refinancing applications plus new purchase applications. It came after a 23 percent jump the previous week. Mortgage interest rates on 30 year loans have been falling steadily since November.
CHINA LIQUIDITY SURGES $ 1 TRILLION
Also last week, the central bank of China, the PBOC, People’s Bank of China, forced over US $ 1 Trillion of liquidity into the Chinese banking sector via its Repurchase Agreement strategy (Repos and Reverse Repos). This is a method whereby the central bank can force liquidity back into the banking system, encouraging banks to lend (or vice versa). The PBOC has also recently lowered the RRR, the Reserve Ratio Requirement for Chinese commercial banks.
All of this amounts to very significant “stimulation” of the Chinese economy. The Chinese 10 Year bond yield is now at 3.12% after falling ever since January 1st. So Chinese bonds are rising in price while the stock market in Shanghai is also rising since the beginning of 2019. It looks like China is setting out to rescue the global economy yet again after very poor economic growth figures have been released in Europe. The only question remaining is this — will it be enough?
TRUMP “WILL DEVASTATE TURKEY”
If you were an “ally” of the United States and the second largest military force in NATO, how would you feel if your biggest partner made threats to “devastate” your economy? Would that make you positively predisposed toward them?
Donald Trump tweeted this on January 13th.
“Starting the long overdue pullout from Syria …………. Will devastate Turkey economically if they hit Kurds. Create 20 mile safe zone,” Trump tweeted. ……….. it is now time to bring our troops back home. Stop the ENDLESS WARS!”
— Donald J. Trump (@realDonaldTrump) January 13, 2019
Since that date, the Turkish Lira has weakened against the US Dollar but not by a wide or significant margin. The inverted Turkish government bond market yield curve has steepened a little bit more but, again, not by a wide or significant margin. And the demand for Turkish 10 Year government bonds has actually increased. The Turkish stock market index (called the BIST) has risen rather strongly. So there is no evidence of an all out attack on the Turkish economy (yet). In fact, there appears to be strong support by domestic and international investors.
BOOM has discussed the Geo-political importance of Turkey in the past and the defiance of the US by their President Erdogan. These threats by Trump won’t help. BOOM watches Turkey’s financial markets closely.
CITY OF LONDON
The City of London is only The Square Mile mainly East of Middle Temple and St Paul’s cathedral. It has its own government and police force. The financial sector has its Headquarters there e.g. the Banks and LLoyds (insurance) and it is run by a corporation called the City of London Corporation.
The corporation that runs the city of London is older than the United Kingdom by several hundred years and the ruling monarch doesn’t just enter the City of London but instead asks for permission from the Lord Mayor at a ceremony. This all began when William the Conquerer invaded England in 1066 and did not successfully invade the square mile which we now call the City of London — (not to be confused with Greater London).
The Remembrancer is the title of an almost completely unknown but powerful, unelected functionary who, when Parliament is sitting, has a special seat to the right of the Speaker in the House of Commons in the Parliament in Westminster. He also has a mirror image seat in the upper House of Lords.
The current Remembrancer is a former barrister and he has been in the role since 2003. In that time, he has not provided a single interview to the media. He has a budget of £5.3m, and a £500,000 staff which includes six lawyers.
The City has a unique political status, a legacy of its uninterrupted integrity as a corporate city since the Anglo-Saxon period and its singular relationship with the Crown.
This is important to grasp if you are trying to understand how the global financial system actually works.
In regard to markets, conventional mainstream economics states that markets always clear and are efficient with prices reflecting all knowledge. This is called the Efficient Markets Hypothesis. The conclusion is that prices are the key to understanding markets and that they are determined by demand and supply.
The assumptions to this theory are 1. that there is such a thing as perfect information 2. that markets are complete (worlds of their own) 3. that perfect competition exists 4. that prices adjust instantly 5. that transaction costs are zero 6. that there are no time constraints or considerations 7. that rational agents always seek to maximize profits and 8. that nobody is influenced by the actions of others.
If these assumptions hold, then according to conventional mainstream economics, markets will always clear through prices.
As is always the case, the problem with conventional mainstream economics is in the assumptions. If any of the assumptions are false, then any resultant theory will be false and any subsequent conclusions will not be worth the paper they are written on. This does not seem to bother mainstream economists much. They even extend micro-economic theories into the larger real world of macro-economics. That is the world outside their class rooms. They make statements like “the oil price will rise soon because the supply is falling”. BOOM wishes that the real macro world was as easy to predict as this. Unfortunately complexity and feedback loops abound in the real world, making it hellishly un-predictable especially if you use false assumptions.
BOOM has collected a list of assumptions upon which mainstream conventional economics lies. It is a bit tongue in cheek, probably incomplete, but nonetheless, worth considering. Many of these were initially assembled by a brilliant economist, Professor Michael Hudson, who tends to specialize in the history of economics. But BOOM has added quite a few as the years have gone by. The list has been run in previous editorials but it is so good, BOOM can’t resist the urge to run it again.
“Mainstream economics assumes that there are
no financial crime,
the whole economy operates on a barter system,
there is no debt,
there are no banks,
everyone wants to help everyone else,
nobody inherits money,
everybody earns all of their income and their wealth,
humans tend predominantly towards rationality,
markets will operate solely on the principles of supply and demand,
there is no time,
people can accurately predict the future,
all goods are infinitely divisible,
there are no economies of scale,
workers prefer to starve in their spare time if wage rates get low enough,
society consists of only one person,
infinitesimally small amounts equate to zero,
banks only loan deposited money, (the “loanable funds” theory — false),
banks only loan savings (false),
government debt is the same as bank loan debt (it isn’t),
governments run household budgets,
GDP is a valid way to measure success in an economy,
economies tend towards equilibrium,
there is limitless growth on a finite planet,
then they wait for “exogenous shocks” and say “no one could have seen that coming” (!!)
In economics, things work until they don’t. Until next week ………… Make your own conclusions, do your own research. BOOM does not offer investment advice.
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
EMAIL: gerry [@]
HOW MOST MONEY IS CREATED
BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR
(but they always need a Borrower to do so)
THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS
BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
How is Most New Money Created ?
LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).
From the Bank of England Quarterly Bulletin Q1 2014 —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.“
“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.
Quarterly Bulletins Index
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.
On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —
“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”
The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans”
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
PRICE PULSE DOMINANCE CHANGES DURING LAST WEEK Ended 20th January 2019:
1. NATURAL GAS (SPOT PRICE) — Changed to NO Arrow Dominant
2. US HIGH GRADE CORP BONDS (LQD) — Changed to NO Arrow Dominant
3. TED SPREAD — Changed to NO Arrow Dominant
NOTE — RED ARROWS INDICATE BOOM PRICE PULSE DOMINANCE in the present moment (as indicated by the date of the chart and taking into account the 3 year time frame shown). The charts are now arranged in PRICE PULSE RED ARROW DOMINANCE. NOTE: All Charts are WEEKLY Charts over the last 3 YEARS time frame. Arrows indicate PAST price action (not future). No predictions are implied from past action.
Comments refer to past PRICE PULSE (Red Arrow DOMINANCE) over the last 3 years, the week ended 20th January 2019. You can RIGHT CLICK a chart and OPEN in a New Tab. Make your own conclusions, do your own research. BOOM does not offer investment advice.
PLEASE NOTE — Many charts are ETF’s from NY Market (not the base commodity or currency etc). The NY Stock Code is in the Top Left Hand Corner of each chart.
Charts are produced from http://www.stockcharts.com
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
PRICE PULSE RISING — (RED ARROW UP DOMINANCE)
# GOLD PRICE in USD —Changed to UP Arrow Dominant
# US LONG BOND PRICE (TLT) — UP Arrow Dominant
# AGGREGATE US BOND PRICES (BND) — UP Arrow Dominant
# GOLD PRICE (in Aus Dollars) — UP Arrow Dominant
# INDIAN STOCKS — UP Arrow Dominant
# BRAZIL STOCK INDEX — UP Arrow Dominant
# PALLADIUM PRICE — UP Arrow Dominant
# ARGENTINA STOCKS — UP Arrow Dominant
# US INFLATION PROTECTED BOND PRICES — UP Arrow Dominant
# US UTILITIES STOCKS — UP Arrow Dominant
# VALE STOCK (Iron Ore) — UP Arrow Dominant
# US 3 MTH T BILL YIELD — UP Arrow Dominant
# LIBOR — UP Arrow Dominant
PRICE PULSE FALLING — (RED ARROW DOWN DOMINANCE)
# SWISS STOCKS — DOWN Arrow Dominant
# US DOW STOCK INDEX — DOWN Arrow Dominant
# US BIOTECHNOLOGY INDEX — DOWN Arrow Dominant
# JAPAN STOCKS — DOWN Arrow Dominant
# WEST TEXAS OIL PRICE — DOWN Arrow Dominant
# US TRANSPORT INDEX — DOWN Arrow Dominant
# US INSIDER SENTIMENT (KNOW) — DOWN Arrow Dominant
# SOIL (POTASH ETF) — DOWN Arrow Dominant
# QUAL (Quality ETF) — DOWN Arrow Dominant
# MTUM (Momentum ETF) — DOWN Arrow Dominant
# RUSSELL 2000 INDEX — DOWN Arrow Dominant
# TRIM TABS US FLOAT (TTAC) — DOWN Arrow Dominant
# EMERGING MARKETS ETF (EEM) — DOWN Arrow Dominant
# FINANCIAL SECTOR ETF (XLF) — DOWN Arrow Dominant
# US KBW BANK INDEX — DOWN Arrow Dominant
# NASDAQ COMP INDEX — DOWN Arrow Dominant
# US JUNK BOND PRICES — DOWN Arrow Dominant
# COMMODITIES INDEX (USCI) — DOWN Arrow Dominant
# SWISS FRANC (AGAINST $US) — DOWN Arrow Dominant
# FRANCE STOCKS — DOWN Arrow Dominant
# AUSSIE ALL ORDS INDEX — DOWN Arrow Dominant
# THAI SETI INDEX — DOWN Arrow Dominant
# GERMAN DAX — DOWN Arrow Dominant
# TAIWAN STOCKS — DOWN Arrow Dominant
# FVL — VALUE LINE — DOWN Arrow Dominant
# YEN (AGAINST $US) — DOWN Arrow Dominant
# DENMARK STOCKS — DOWN Arrow Dominant
# COAL ETF (KOL) — DOWN Arrow Dominant
# COPPER PRICE — DOWN Arrow Dominant
# INDUSTRIAL METALS ETF (DBB) — DOWN Arrow Dominant
# HANG SENG — DOWN Arrow Dominant
# SOUTH KOREA STOCKS — DOWN Arrow Dominant
# AUSSIE DOLLAR AGAINST US DOLLAR — DOWN Arrow Dominant
# CANADIAN DOLLAR AGAINST USD — DOWN Arrow Dominant
# BRITISH POUND AGAINST USD — DOWN Arrow Dominant
# EURO (AGAINST $US) — DOWN Arrow Dominant
# NOMURA HOLDINGS — DOWN Arrow Dominant
# PLATINUM PRICE — DOWN Arrow Dominant
# SHANGHAI STOCKS — DOWN Arrow Dominant
# BITCOIN INDEX $NYXBT — DOWN Arrow Dominant
# DEUTSCHE BANK SHARES — DOWN Arrow Dominant
# FOOD INPUT PRICES (DBA) — DOWN Arrow Dominant
# EURODOLLAR INDEX ($XED) — DOWN Arrow Dominant
PRICE PULSE UNCERTAIN — NON-DOMINANCE OF RED ARROW –
# NATURAL GAS (SPOT PRICE) — NO Arrow Dominant
# US HIGH GRADE CORP BONDS (LQD) — NO Arrow Dominant
# TED SPREAD — NO Arrow Dominant
# SINGAPORE STOCKS — NO Arrow Dominant
# YUAN (AGAINST USD) ETF — NO Arrow Dominant
# RWR (US Real Estate REIT Fund) — NO Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — NO Arrow Dominant
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