BOOM as at 28th January 2019

WHO WILL PAY FOR CLIMATE CHANGE?

A survey, conducted jointly by Yale and George Mason University, last November and December on 1,114 American adults, showed dramatic shifts in public sentiment about belief in global warming. It found that 73 % of Americans now believe global warming is happening, an increase of 10 percentage points from March 2015. And more than 60 % now believe that humans are the cause.

But the survey also showed that Americans don’t want to pay very much to fight climate change. A $1 per month fee was favored by 57 percent of those surveyed. However, if the monthly charge increased to $10 a month, just 28 percent would be supportive, while 68 percent would be opposed.

$ 1 per month is not much even if paid by all adults. BOOM wonders if this is sufficient expenditure to save the planet from the forecast of apocalyptic destruction, amounting to approximately $ 3 Billion per year in the US. That sounds impressive but it is just 0.015 % of US GDP (total transactions) and 0.004% of global GDP.

$ 10 per month is better but still amounts to just $ 30 Billion per year if paid by all adults in the US. That sounds more impressive but it is just 0.15 % of US GDP (total transactions) and 0.04% of global GDP.

BOOM finds this contradiction everywhere in the climate change mitigation debate. People are concerned enough about climate change to “support” new technologies such as solar panels and windmills. They may even be prepared to buy solar panels for their home roof. But they still want large 4 wheel drive cars, trucks and SUVs and they want to travel overseas and inter-state by air as often as possible. Behavior modification is not even on the agenda while they are being offered the magic of technological solutions.

THE QE UNWIND

Many BOOM readers have asked BOOM about the US Federal Reserve’s QT program. They are worried about this in regard to the future health of the US economy and the global impact. For those who don’t know, the QT program is the reversal of the central bank asset holdings accumulated during the previous Quantitative Easing QE asset purchase programs that were run over the last decade since the 2008 crisis.

The Federal Reserve currently aims to reduce its total balance sheet assets of around $ 4, 500 Billion by $ 50 Billion per month throughout 2019. In reality, it is not actually doing that. It reduced the balance sheet by about $ 30 Billion in December last year and this is likely to (roughly) be the monthly scenario throughout 2019 if it continues with its current QT program. Many observers attach great importance to this program, predicting great problems for the US economy stemming from such a reduction program. However, BOOM feels that this is over stating the influence of the Fed’s balance sheet on the economy as a whole. Why?

Let’s look at the numbers, the facts. Let’s assume that the Fed will reduce its balance sheet assets by $ 30 Billion per month for the next 12 months. That amounts to a $ 360 Billion reduction. Sounds big. But that is approximately only an 8% reduction in the central bank total balance sheet assets. And with a GDP of $ 20 Trillion, that amounts to just 1.8% of GDP.

Can a central bank balance sheet reduction of 1.8% of GDP make a significant difference in the stability or growth of that GDP? BOOM thinks not especially while the Federal Government is expanding its annual deficit rapidly toward $ 1.44 Trillion. Long term readers will remember that BOOM has been openly skeptical of the so-called “positive” effects of QE in the past. So BOOM is just being consistent here, remaining equally skeptical concerning the removal of QE acquired assets.

Can reducing the central bank balance sheet asset total by 8% over 12 months be catastrophic to the economy? BOOM thinks not. Reserve assets at the central bank theoretically support the banking system, not the real economy and, anyway, it can be argued that $ 4.5 Trillion worth of central bank assets is clearly excessive in the current situation where most people regard the US banking sector as much better capitalized and no longer riven as much by the fraudulent practices that were the cause of the crisis in 2008.

BOOM stands by the observations that the massive expansion of government expenditure via an annual Federal Government deficit of $ 1.44 Trillion plus recent evidence of credit expansion in bank loans for housing mortgages is sufficient to negate any theoretical risk to the US economy at large from central bank balance sheet reduction.

THE US FED BLINKS — QT SLOWDOWN

This story is changing rapidly due to pressure being brought to bear on the Federal Reserve. According to a report in a major US journal covering Wall Street, an official slowdown of their QT program is now being considered and may be announced in the near future. If this happens, it will be a major concession of defeat by the Fed. Not quite a total capitulation but, nonetheless, a major back-down in its recent hawkish tone.

ECB BLINKS — ON HOLD

In early December, BOOM predicted that the central banks of the world would all soon “blink” under severe pressure. That means that they would react to the slowing global economy by changing their monetary policy settings significantly towards more stimulation of their respective national economies. The Federal Reserve in the US has since blinked with further interest rate rises now clearly on hold as they “watch the data”. The Australian central bank has blinked with the Deputy Governor stating on 6th December …. “it is the level of interest rates that matters and they can still move lower”. He also said “QE is a policy option in Australia, should it be required”. The Chinese central bank has blinked many times, almost jamming its eyes shut. And now the European Central Bank ECB has officially blinked.

Last week, the ECB left their official interest rate settings on hold and stated their intention to maintain their balance sheet asset holdings at current levels. They said that this stance would continue until the end of the Northern Hemisphere Summer, maybe much longer. Their Press Release says it all — total capitulation. They are, again, doing “whatever it takes” to rescue the deteriorating economic situation in Europe.

ECB Press Release —

At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Regarding non-standard monetary policy measures, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The head of the ECB, Mario Draghi said — “At this point in time, we’re just assessing the situation”.  He said the meeting assessed “where we are, why are we here, and how long will the slowdown last.”

The ECB kept its short-term benchmark rate at zero %. It also left the rate on deposits left overnight by commercial banks at the central bank at minus 0.4 %, a penalty aimed at pushing banks to make more loans.

The ECB said it will maintain the 2.6 Trillion-Euro (US $2.95 trillion) holdings of government and corporate bonds that it bought over the last four years.

MORE STIMULATION IN CHINA 

The central bank of China is not sitting on its hands either. After last week’s giant Reverse Repurchase Agreement action to add liquidity to the Chinese commercial banks, they are now encouraging the issuance of Perpetual Bonds from the commercial banks in order to further boost their capital base and the PBOC are possibly purchasing some of those bonds.

This is yet another step that allows the Chinese commercial banks to create more loans. The issuance by Bank of China Ltd, China’s 4th largest commercial bank, was the first ever issuance of perpetual bonds by a Chinese commercial bank. The yield was reported as being 4.5%. That is a great yield from a major commercial bank in a dis-inflationary world if you believe that the bank will survive the long term and you see the currency as stable. More than 140 investors, including insurance companies and some offshore institutions, subscribed to the issue, the central bank said.

NO ECB NO PROBLEM

Meanwhile, in Europe, Portugal, Spain and Italy are having no difficulty in finding buyers for their government bond issues despite the ECB now standing back. According to Bloomberg, recent sovereign bond offerings from Italy, Spain and Portugal in January have drawn “unprecedented” attention from buyers, for a total of €106 billion Euros ($120 billion), up 14 % from a year ago. There are reports that the major buyers were Japanese pension funds.

This means that Italy, Spain and Portugal can now fund their annual deficits going forward thus ensuring their government expenditure programs. Austerity is now dying if not dead as a policy response in Europe.

All the European stock markets responded with strong buyer support during the week.

FACEBOOK 50% FAKE?

Facebook has essentially been accused of fraud last week in a report that suggested that up to 50% of Facebook accounts may be fake. If the report is true, then Facebook may have been mis-leading advertisers. This is a grave accusation for the giant US company. We can watch how this plays out next week in the prices for Facebook shares.

The 75 page report is available here

https://www.scribd.com/document/398148747/Facebook-50-Users-Fake#from_embed

The words used in the report are potential dynamite for Facebook. This will be interesting to watch.

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.

CLICK HERE FOR PODCASTS:   OUR BRAVE NEW ECONOMIC WORLD

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/

EMAIL: gerry [@] boomfinanceandeconomics.com

==================================================================

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

Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://

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”.

Youtube Video —  https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction

and

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy

Paper:  Money in the Modern Economy  PDF —  CLICK HERE

Quarterly Bulletins Index

http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q1.aspx

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).”

Reference: https://www.bundesbank.de/Redaktion/EN/Topics/2017/2017_04_25_how_money_is_created.html

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 28th January 2019:

1. EMERGING MARKETS ETF (EEM) — Changed to UP Arrow Dominant
2. HANG SENG — Changed to NO Arrow Dominant
3. NATURAL GAS (SPOT PRICE) — Changed to NO Arrow Dominant
4. YUAN (AGAINST USD) ETF — Changed to UP Arrow Dominant

eem

hong kong

 

NATURAL GAS SPOT PRICE.JPG

yuan

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 28th 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)

# EMERGING MARKETS ETF (EEM) — UP Arrow Dominant
# YUAN (AGAINST USD) ETF — UP Arrow Dominant
# 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
# 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
# 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
# HANG SENG — NO Arrow Dominant
# US HIGH GRADE CORP BONDS (LQD) — NO Arrow Dominant
# TED SPREAD —  NO Arrow Dominant
# SINGAPORE STOCKS — NO Arrow Dominant
# RWR (US Real Estate REIT Fund) — NO Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — NO Arrow Dominant

Disclaimer: All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.


 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s