201708.21
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Being Rational

In April 2011, the European Central Bank’s staff and Governing Council were all optimistic. They had suffered through the panic and Great “Recession” and then the relapse in 2010 that birthed the term PIIGS. Despite all that and with considerable effort on their part (especially the purchasing of bonds), they thought there was reason to…

201708.21
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Weight Of Recovery

In 1871, W. Stanley Jevons in the preface to his book The Theory of Political Economy writes of a fundamental human issue with Economics. He makes a distinction between it and other sciences which do not suffer, as he said a century and a half ago, “the weight of authority.” Finding such words from so…

201708.18
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Commitment of Traders: Crude Confounding Confusion

The price of oil can’t seem to climb out of the $40’s despite a lot going for it at the moment. Oil prices matter right now as much as three years ago when they signaled serious trouble ahead. For them to get above $50 and then continue on would indicate for a lot of important…

201708.18
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Still Written in Chinese

The world of eurodollars is always going to be hidden. What goes on, really goes on, often sees no light of day. The most basic financing transactions are typically bilateral, meaning that the only people who really know the terms and the reasons are the two counterparties engaged. That is also true if one of…

201708.17
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The Fed Tries To Tighten By Rates, But The System Instead Tightens By Repo

The Fed voted for the first federal funds increase in almost a decade on December 15, 2015. It was the official end of ZIRP, and though taking so many additional years to happen, to many it marked the start of recovery. The yield on the 2-year Treasury Note was 98 bps that day. A lot…

201708.17
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Lack Of Industrial Momentum Is (For Now) Big Auto Problems

Industrial Production disappointed in the US last month, dragged down by auto production. Despite the return of an oil sector tailwind, IP was up just 2.2% year-over-year in July 2017 according to Federal Reserve statistics. It marks the fourth consecutive month stuck around 2% growth. The lack of further acceleration is unusual in the historical…

201708.16
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Running Out of TIC ‘Reflation’

Adding to the FOMC’s general inflation confusion about money and economy, all the major factors it is supposed to be competent about, policymakers are also having trouble figuring out why as they raise rates overall financial conditions haven’t actually tightened. According to one view, the easing of financial conditions meant that the economic effects of…

201708.16
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Stuck in the Basement Until Something Actually Changes

Housing construction continues to lag in 2017. Total permits in July fell on a seasonally-adjusted basis to 1.22 million. While not a huge decline, it continues to undershoot the post-taper trend that began in 2013 (after the mini-bubble wave crested from the trough of the housing bust). The break in that trend dates, unsurprisingly, to…

201708.16
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Really Sweating Inflation

The markets actually turned before the Fed minutes were released, but once in the public (assuming they weren’t leaked again) the anti-“reflation” direction was amplified. Bonds have rallied as have eurodollar futures (near Friday’s recent high), JPY dropped (so you know gold was up, too), and even stocks shifted. As usual, it is being characterized…

201708.15
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Inventory Slips Higher, Downside Economic Risks That Much More

Last week the Commerce Department reported wholesale sales in June 2017 had risen by 5.6% year-over-year (unadjusted). Having increased by nearly 10% in May, and by the most in five years in January, 5.6% was instead the same kind of 2014 disappointment that is becoming far too common. These growth figures include petroleum sales on…