Since the US Federal Reserve (their central bank) put up the white flag 2 weeks ago, capitulated and agreed to cease raising interest rates immediately and to also cease the sell down of its bond portfolio in September, there has been a quick re-alignment of investment capital flows preferencing bonds over stocks. Some mainstream media analysts and “expert” economic bloggers have reported fulsomely that “a recession is imminent as the US Treasury yield curve is inverted”. They have tried to create fear and panic as a means of attracting attention to their publications and TV shows. They have forecast mayhem for the stock market, often suggesting “a crash is imminent”.
But as Mark Twain once said “Reports of my death have been greatly exaggerated”.
BOOM is a close watcher of Yield Curves. And yield curve inversions can certainly be ominous if they occur during a period of frenetic bull market action in the stock market, over-enthusiastic optimism, rollicking asset and CPI inflation and high interest rates. They are then an indicator of a central bank slamming on the brakes and desperately trying to slow the economy. But, at present, these circumstances simply do not apply. So we can all calm down. Can the Gold Bugs rest easy especially?
The central banks of the advanced western economies for over a decade have been actually trying to trigger optimism, CPI inflation and economic growth. They have succeeded to various degrees in various nations but, overall, they have been flogging an economic dead horse. Please note — they have NOT been trying to stop it from frenetically galloping over the hills in an uncontrolled fashion.
BOOM consistently outlines the current circumstances and future long term outlook for the advanced economies as one of continued low growth, low CPI inflation and low interest rate settings. This is linked to huge demographic changes in the advanced economies plus the effects of low energy costs, dis-inflation and deflation triggered by robotization and the off-shoring of jobs to China (and other low wage nations). Also the advanced western nations are persistently moving steadily towards becoming more predominantly service oriented economies. In the US, for example, services now make up 79.7 % of total GDP. So the goods economy in the US is barely 20 % of the total. In Japan, services make up 71.4 % of the total GDP. In Germany, it is 71.1 % and in the UK, it is 78.3 %.
Now consider this — if wages growth is poor in the service sectors of the advanced economies, then CPI inflation simply cannot get traction there. Most people in the advanced economies just don’t have excess funds to spend on higher priced goods and services (or higher interest rate settings). They are worried about their financial future, their job security and “tight” with their money.
Another thing to note is that the whole US Treasury Yield Curve is not actually inverted so the factual basis of the “panic” narrative is false. At the time of writing on 30th March 2019, there is some (slight) inversion in the short end up to 3 years in duration but from 3 years to 30 years, it is still a positive curve. The 3 year Treasury Note yield is currently 2.21 %. The 30 year T Bond yield is 2.817 %.
BOOM stands adamant that 2.817 is a greater number than 2.21. The narrative of “dangerous yield curve inversion” simply does not stack up.
Unconvinced? Here are the current yields on US Treasuries from 1 month duration to 30 years.
1 Mth: 2.432 % 3 Mths: 2.396 % 6 Mths: 2.436 % 1 Year: 2.403 % 2 Years: 2.266 %
3 Years: 2.21 % 5 Years: 2.236 % 7 Years: 2.317 % 10 Years: 2.407 % 30 Years: 2.817 %
CHINA BUYS AIRBUS
The President of China, Xi Jinping, traveled from Italy to Monaco and France last week. The French and German governments had been issuing stern warnings to Italy to be wary of signing up to the China Belt and Road Initiative. But their attitudes suddenly changed when China pulled out an order for 300 aircraft from Airbus worth US$ 35 Billion — along with the obvious fact that they were not going to be buying those aircraft from US manufacturer Boeing. 290 of the 300 planes are in Airbus’s A320 range. This is the range with which Boeing was hoping to compete when it developed its 737 Max 8 aircraft.
Presidents Macron and Merkel were all smiles and shaking hands gleefully within minutes. Such is the power of China’s purse.
Note that in last week’s editorial, BOOM said “China is rumored to be considering the cancellation of Boeing aircraft orders as they expand their own manufacture of aircraft. No other country has more demand for aircraft than China, which is estimated to need over 7,000 new planes worth $1.2 trillion in the next 20 years.”
The Russian government has placed the S300 missile system in Venezuela and also landed 100 military advisers, including the First Deputy Commander-in-Chief of the Russian Land Forces, Colonel General Vasily Tonkoshkurov.
The Russian energy minister, Alexander Novak, also said that he would soon meet with Manuel Quevedo, Venezuela’s oil minister and the president of the Organization of Petroleum Exporting Countries OPEC. Novak said he’d talk about increasing Russia’s purchases of Venezuelan oil.
The US National Security Adviser, John Bolton, responded with a statement on Friday that included these words — “We strongly caution actors external to the Western Hemisphere against deploying military assets to Venezuela, or elsewhere in the Hemisphere, with the intent of establishing or expanding military operations. We will consider such provocative actions as a direct threat to international peace and security in the region. We will continue to defend and protect the interests of the United States, and those of our partners in the Western Hemisphere, which are rooted in a shared respect for liberty, security, and the rule of law.”
Translation: “We can meddle wherever we like while we caution other nations not to meddle”.
American meddling, Russian meddling, China meddling, British meddling ………. pretty soon everyone will be meddling? It reminds BOOM of the rather brilliant Pink Floyd album way back in 1971 called …….. Meddle.
BOOM asks the question — so who does not meddle?
Last week the Australian Signals Directorate ASD director-general, Mike Burgess said — ‘When we talk about ‘offensive cyber’ at ASD, we’re referring to a broad range of activities designed to disrupt, degrade or deny our adversaries. And to be clear, all our activities are focused offshore.
We do this by using specialized tools and techniques to disrupt their communications or interfere with the way they operate online.’
“In my experience, when people think of offensive cyber, they focus on the high-end of the spectrum involving computer network attack operations to destroy an adversary’s communication device,” the ASD head said. “Yes, this is something that ASD does, but in very specific circumstances, and within a strict legal framework. But it’s just one of the ways we can disrupt our target’s behavior online.”
He also said — “Over the next few years, we will be recruiting many hundreds of people to be part of our cyber workforce.”
Such refreshing honesty from a Spy Chief.
TURKISH LIRA ATTACKED
BOOM covered the attack on the Turkish Lira (their currency) last August/September. It was repelled successfully. But last week, the attack was resumed by forces unknown or at least, unstated. Turkey’s determination to continue with its purchase of the Russian S400 Missile system may be a factor.
On Friday, Turkey’s government rejected US pressure over its disputed deal to purchase Russian missiles, saying Ankara was already in talks over delivery of the S-400 defence system. “We have signed a deal with Russia, and this deal is valid. Now we are discussing the delivery process,” Foreign Minister Mevlut Cavusoglu said during a press conference with his Russian counterpart in the Turkish city of Antalya.
“We have an agreement with Russia and we are bound by it,” he said, adding pressure from other countries was against international law.
During the last 10 days of trading, the Turkish Stock market index, the BIST 100 fell 13.4 %. But on Thursday and Friday it rose by 3.6 % from its low point on Wednesday.
Also during the last 10 days of trading, the Turkish Government 10 Year Bond Yield rose by 3.36 %. It fell on Friday and Thursday. The 1 Year Bond Yield rose by over 4 %. But the cost of borrowing Turkish Liras overnight on the offshore swap market soared past 1,000 %. This was a defensive measure to prevent foreign banks and fund managers from betting against the currency.
Turkey is determined to fight off foreign aggressors and may have powerful allies to do so. Raising overnight interest rates to 1,000 % is a strong message. And having allies purchase Turkish stocks and bonds is also a strong message.
BOOM expects Turkey to win this battle yet again. We can watch the drama unfold in the stock, bond and foreign currency markets. This is subtle financial warfare unseen by most of the world’s population and mostly unreported (or mis-reported) by the mainstream media. BOOM keeps you up to date.
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 31st March 2019:
NO CHANGES THIS WEEK — ALL PRICE PULSE DIRECTIONS UNCHANGED
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 31st March 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)
# TAIWAN STOCKS — UP Arrow Dominant
# US LONG BOND PRICE (TLT) — UP Arrow Dominant
# SHANGHAI STOCKS — UP Arrow Dominant
# COPPER PRICE — UP Arrow Dominant
# SWISS STOCKS — UP Arrow Dominant
# SOIL (POTASH ETF) — UP Arrow Dominant
# SINGAPORE STOCKS — UP Arrow Dominant
# US JUNK BOND PRICES — UP Arrow Dominant
# HANG SENG — UP Arrow Dominant
# RWR (US Real Estate REIT Fund) — UP Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — UP Arrow Dominant
# US HIGH GRADE CORP BONDS (LQD) — UP Arrow Dominant
# EMERGING MARKETS ETF (EEM) — UP Arrow Dominant
# YUAN (AGAINST USD) ETF (CYB) — UP Arrow Dominant
# AGGREGATE US BOND PRICES (BND) — UP Arrow Dominant
# GOLD PRICE in USD — 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
# RIO 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)
# TED SPREAD — DOWN Arrow Dominant
# NATURAL GAS (SPOT PRICE) — 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
# 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
# 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
# FVL — VALUE LINE — DOWN Arrow Dominant
# YEN (AGAINST $US) — DOWN Arrow Dominant
# COAL ETF (KOL) — 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
# 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 –
# DENMARK STOCKS — NO Arrow Dominant
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