Archive for July, 2014

Western Media censorship

Posted: July 10, 2014 in Uncategorized

Before I told you the the Reserve Banks were meddling in the markets and I think some of you have thought…a classic conspiracy theorist.

Then the Financial Times two weeks ago wrote an article in which stated that the various world reserved banks poured USD 23 trillions in the stock market.

Now I am constantly telling you that there is a media censorship via Washington and the Council of Foreign Relation (a think tank -Washington sponsored were all the major media are members.

And now on a “peer to peer” US journalist publication says that over three dozens journalist organizations including the National Press Foundation and the Association of Professional Journalist ihave accused the Obama Administration of suppression of information.

Long live Democracy!

The Islamic State issue seemed to disappear. In reality it is just a temporary media reprieve.

What worries me is that there seems to be a coordination of the events that could unite.

Let’s see

Syria- Iraq:

Islamic State (IS) is consolidating positions and more and more Syrian rebels are pledging alliance with IS, increasing the IS power in Syria.
Iraq central Government is accusing Kurdish forces to give harbour to IS (a sort of non-conflict agreement).
There is sporadic fighting episodes between IS, Iran, Saudi Arabia and Jordan forces, unreported by the normal media.
Jordan is particularly interesting as it as defence agreements with Israel and the US.

Israel is in a full on rampage against Hamas/Fatah and increased its presence along the Lebanese border. Hezbollah has not yet retaliated (as it as enough issues with IS, probably), but prevention is better than cure – in Israel mind. The main real motivation is to double: take care of the rockets smuggled in Gaza (with the help of Iran) and avoid a Fatah/ Hamas normalization.

Further afar, in Yemen some rebels (Shia, so not IS) took over a northern city, just 70km from the capital.

In Pakistan the Government is fighting back after the Karachi airport attack.

Baharain sent back the US Assistant Secretary of State – clearly a Saudi message about their unhappiness of the new USA/Iran friendship.

As you see there is enough fuel to create issues. Also the recent withdrawals of the oil price look like more a consolidation from oversold than a retreat. Oil is in a triangular pattern – pointing more to a breakout and gold is consolidating just under the main 1,330 resistance (notwithstanding the accommodative words of the FED)

Oil Monthly 

Fidelity is one of the largest American Investment Manager.

Rarely I put on my blog articles from other party, but this summarize my thought and concerns on Yellen (as described yesterday) in a depth which I have no time to write about.

I would just add two point as why inflation will pick up sooner than expected in the US.

-Foodflation in the US is rampant (so meat etc. An American breakfast is up 24% since 1 Jan 2014 – Pork Belly (BACON) +42%, sugar +6%, milk +21%, coffee +72%, orange juice +12%!)

-The skilled jobless rate US is at a record low level about 5%

-oil prices are in a breakout triangular pattern, and they can be the trigger.

Enjoy the read

Yellen’s unusual priority for a central banker

by Michael Collins, Investment Commentator at Fidelity

July 2014

Alan Greenspan in 2006 retired a hero after 19 years as chairman of the Federal Reserve. Within two years, the global financial crisis trashed his reputation as a prudent central banker. In February this year, Ben Bernanke stepped down as Fed chairman with endorsements – that are holding up so far – for how his radical remedies from 2007 prevented a greater disaster than the “Great Recession”. Janet Yellen’s reputation as Fed chair will largely depend on how she oversees the escape from the sweeping solutions Bernanke’s invoked.[1]

The crux of Bernanke’s monetary radicalism was to cut the US cash rate to an historical low close to zero, protect the financial system via emergency loans that are estimated to have topped US$1.2 trillion[2] (A$1.4 trillion) and then to embark on three rounds of central-bank asset buying that have expanded the Fed’s balance sheet five-fold to more than US$4 trillion. He helped his successor by outlining in May last year the planned end of the Fed’s asset buying and then implementing the first drop in monthly purchases – the amount was reduced from US$85 billion to US$75 billion in January this year. Yellen has continued “tapering” the Fed’s asset buying, which is now down to US$35 billion a month and is on track to cease during the third quarter.

The ending of quantitative easing, for all the scares last year when Bernanke announced its inevitable end, appears to be proceeding smoothly enough. Perhaps far harder, and Yellen’s challenge only, is how to raise interest rates to more normal levels as the economy heads towards full employment. Investors are concerned that an unusual priority that Yellen brings to the Fed chair will delay rate rises for longer than necessary and that this postponement carries risks for the US economy. The predisposition that might delay rate increases is Yellen’s unusual focus for a central banker on the long-term unemployed, a group that includes those who have stopped looking for work and the underemployed.

Other challenges Yellen could face may well be trickier than just raising the cash rate, to be sure. In particular, she may confront the dilemma of needing to puncture asset bubbles in a stagnating economy. If the US economy keeps shrinking – it contracted at an annual pace of 2.9% in the first quarter – then all the speculation about when Yellen might raise rates is moot. Or conversely, perhaps no matter what Yellen does, the raising of the cash rate in the US will cause global ructions, as it often does, especially as monetary policies in Europe and Japan are loosening. Ultimately, though, it’s likely that the cash rate’s rise from close to zero will be among Yellen’s greatest challenges and will make or shatter her reputation. After all, monetary policy at its heart is about setting interest rates at an appropriate rate for prevailing economic conditions.

Restless idle

The Fed, like the Reserve Bank of Australia, is essentially tasked with two conflicting goals; tame inflation and full employment. (Other central banks such as the European Central Bank are only charged with keeping inflation at a reasonable level.) The Fed interprets its goal of price stability as keeping inflation at around 2%. Thus, it will increase the cash or Fed funds rate when economic growth is fast enough to reduce employment to a level that fans inflation through wages growth. The Fed generally holds that the jobless rate can drop to around 5.5% without stirring inflation, a level known by economists as the non-accelerating inflation rate of unemployment.

The bellwether jobless rate in June just gone was 6.1%. Fed watchers have calculated that if the US economy keeps adding about 200,000 jobs a month then the non-accelerating inflation rate of unemployment will be reached sometime late in 2015, assuming no change to the participation rate, which records the percentage of the population employed or looking for work. Bang. That’s around when Yellen should, according to the Fed’s template, raise the cash rate from the 0% to 0.25% level it has sat at since December 2008.

Well, not quite, investors fret because of Yellen’s concern for the unusually high percentage of the unemployed who have been jobless for a long time, the part-timers who can’t find full-time work and those who have dropped out of the workforce in despair of finding a job. The US Labor Department defines the long-term unemployed as those who have been without work for at least 27 weeks. In June this year, about 32.6%, or 3.1 million, of the US’ 9.5 million jobless were long-term unemployed compared with just 25% during the recession of the early 1980s. Reluctant part-timers amounted to 7.5 million in June this year compared with 4.3 million in June 2007. The participation rate in October 2013 fell to its lowest since at least 1978 when it tumbled to 62.4%, a 3.6 percentage-point drop from June 2007, though it had edged back to 62.8% in June this year.

Yellen’s concern for long-term idle workers was highlighted in March this year when she spent an hour on the phone with some unemployed people in Illinois and spoke of the troubles of these “real people behind the statistics” in a speech.[3] She has previously talked about the “substantial social cost” of employment failing to reach its potential, the self-perpetuating nature of long-term unemployment and how atrophied skills among the unemployed lead to their exclusion from the workforce.[4]

The US Labor Department estimates a truer level of unemployment with its U-6 measure, which adds back those who have dropped out of the workforce in despair plus the marginally attached. The U-6 measure estimates that the real jobless rate in the US was 12.1% in June this year, almost double the most-watched barometer of employment, the U-3 measure.


Yellen’s concern for the long-term, or U-6, jobless is to be applauded. The economic significance of her concerns is that she thinks the Fed can help these people by keeping rates low. That is the disputed aspect to her thinking that could carry risks for the US economy.

A debate is swirling in the US about whether the high level of long-term unemployment is structural or cyclical. Some commentators contend that only a minority of the long-term jobless will ever find gainful employment again for various reasons including that companies discriminate against the long-term jobless. A just-released influential paper by three Princeton economists found the long-term unemployed only have a 10% chance of finding a job in any month, often only return to transitory work and are twice as likely to quit the labour force than find steady full-time jobs.[5] If the problem of the long-term jobless is structural, then low interest rates won’t help these people and these folk have little sway over wage settings. If these people are right then wage pressures might build in the US economy sooner rather than later for the employable pool of workers is smaller than thought. In a nutshell, the US economy will reach its non-accelerating inflation rate of unemployment faster than many expect.

Yellen, however, thinks long-term unemployment is a cyclical problem; that “the decline in participation likely represents labour market slack,” as she said in April.[6] Yellen has made many other similar statements that predict that the long-term employed, including those who have stopped looking for work, will be re-employed again as the economy improves. If she is correct then the U-3 measure of unemployment won’t drop as fast as some assume to the 5.5% level that portends rate increases. The US economy may only boast a jobless (U-3) rate of 5.5% by 2017, as the IMF predicts.[7] That would mean postponed rate cuts.

What worries investors is that inflation is likely to be consistently well above 2% before then. The latest reports show the consumer prices in the US rose 2.1% in the year to May, even as wages growth stayed modest. The Fed’s preferred barometer of inflation, the price index for personal consumption expenditure, rose less, at 1.8% in the 12 months to May this year, but that’s still up from 0.8% in the year to February this year.

If inflation on most measures goes beyond 2% then inflation hysteria will pressure Yellen to lift the US cash rate well before the US economy reaches its non-accelerating inflation rate of unemployment. The big question for investors is whether she takes steps against inflation in time or whether she delays a rate increase to help the long-term jobless regain work.

At the moment, many investors think the Yellen Fed is too focused on long-term unemployment and that Yellen is too convinced she can help them. They fret that the Fed will be slow to hike rates and inflation will speed far enough past 2% to trigger a forceful Fed response, no matter what the jobless rate is. The problem when central banks are tardy in responding to inflationary pressures is that they often need to boost rates in bigger steps over a shorter period than otherwise to compensate. When this happens, the damage to the economy, bonds and stocks is generally significant.

To think along these lines is to implicitly buy into the narrative that central-bank policy debates are between hawks and doves when it comes to inflation. The reality is the discussion is generally between mega-hawks and hawks. Yellen’s concern about the long-term unemployed does her credit but only shows that she is a hawk. It would be a surprise if she let concerns about the long-term jobless jeopardise public confidence in the Fed’s anti-inflation credentials, faith that was first built when revered Paul Volcker headed the Fed from 1979 to 1987. If Yellen were to let inflation slip beyond her control, she would end up with a worse reputation than Greenspan, even before she’s retired.

US unemployment statistics come from the Bureau of Labor Statistics, a part of the US Department of Labor. See “Labor force statistics from the current population survey” at Among the databases, click on “Top picks” for “Labor force statistics including the national unemployment rate (current population survey – CPS)”. Other financial information comes from Bloomberg unless stated otherwise. The jobs report for June 2014 was released on 3 July 2014.

Markets in Euphoric State

Posted: July 7, 2014 in Uncategorized

When I first commented on Yellen election (US FED Chairman), I highlighed a potential issue.

From her comments and position on rates and unemployment, I wrote in December that the issue of such a dovish Fed Chairman is that she could keep QE/low rates for so long that risks creating “tail issues” – keeping rates for so long that provokes a fast backlash sparking a new crisis with interest rates out of control. Practically the FED losing credibility.

Now important institutions like the IMF, the Bank of International Settlements, The Office of Comtroller of Currencies (Not an error, it is a department inside the Treasury Office) are starting saying the same things.

US household assets allocated to equities is at 34% (equal to the peak in 2007) and the level of gearing in credit markets is very high.

This is not to say that the situation is about to explode. It is saying it could explode between now and end of 2015 (not a typo) – but if condition to not change it will explode in a new crisis (Eg historically the conditions present in the market that brought the 2008 crisis started to appear in 2003/04…but we are now way passed that point…somewhere in 2007/2008)

News from Baghdad

Posted: July 4, 2014 in Uncategorized

Well already all the news seems to have forgotten the Islamic State and Iraq.

US Council of Foreign Affairs anyone?

Well what is happening in reality.

IS (for Islamic State, former ISIL) is consolidating its power base and battling the Iraq Army. The main battles are for the controls of rivers and dams…which provide energy to all Iraq.

-Secondly, there are quite a few IS rebels inside Baghdad ready to assist an invasion (some says approximately 2,000)

– Saudi Arabia deployed 30,000 troops along the border as there are unconfirmed reports that the Iraq Army is abandoning their border posts

– The kurds announced that they broke contact with Baghdad and they are forming their own state

And now Israel

Posted: July 1, 2014 in Uncategorized

All the secret service agencies are trying to make sense of the killing of the three teenagers in Israel.

There are signs that Israel is not reacting to the killing as per “normal” flare up as Israel is readying major forces.

The theories going around around are

An Israeli false flag attack to disrupt the realignment between Fatah and Hamas

An Iranian (Hezbollah) attack with the same scope

An IS (the previous ISIL of Iraq fame) attack to provoke also Israel.

A Russian hit to provoke Israel (and so the US) and create a further distraction from Ukraine (sounds funny, but Israeli Army raided an RT (Russian news outlet) station).

Well, it is very hard for the movies to beat this mess.

PS. Israel clearly points at Hamas as responsible, even though the reality is probably different. It looks like there is a different agenda somewhere.

Japan Rising Sun is back

Posted: July 1, 2014 in Uncategorized

As anticipated, today Japanese Prime Minister Abe successfully approved a Constitutional change that allows Japan the use of force to protect itself and its allies.

The rule of pacifist Japan had been imposed by the US after the Second World War. As China is rising, it fits perfectly for the US to let (or push) Japan to re arm for its new strategy of unleashing regional rivalries (like Saudi/Iran) instead of being the world policeman. It is definitely cheaper, if riskier.

Again, this is another tectonic shift in this new millennium. It is not that we will pass immediately from a pacifist Japan to a fully militarized Japan, but Japan will be a force to be reckoned with in the Pacific (still in peace time it had the 6th largest military budget in the world).

Definitely China will notice and things around the Seniauku island will be hotting up. And now also Japan can start serious military collaborations with the Philippines, Vietnam, China