By www.CentralBankNews.info The Bank of Japan (BOJ) kept its benchmark overnight call rate steady at 0 to 0.1 percent, as widely expected, and repeated that it would “pursue aggressive monetary easing” to meet its new 2.0 percent price stability target by keeping interest rates at virtually zero and buying financial assets.
It was the last BOJ meeting chaired by Governor Masaaki Shirakawa who is being replaced by Haruhiko Kuroda, expected to pursue a much more aggressive strategy to help defeat deflation which has dogged Japan for almost two decades.
In its statement, the BOJ said Japan’s economy had now stopped weakening and overseas economies showed signs of picking up even if they still remain in a phase of deceleration.
“With regard to the outlook, Japan’s economy is expected to level off more or less for the time being, and thereafter, it will return to a moderate recovery path mainly against the background that domestic demand remains resilient partly due to the effects of various economic measures and overseas economies gradually emerge from the deceleration phase,” the BOJ said.
Japan’s Gross Domestic Product contracted by 0.1 percent in the fourth quarter from the third, narrower than the third quarter’s 1.0 percent shrinkage, for an annual fall of 0.1 percent.
Inflation remained negative in January for the eighth month in a row with consumer prices falling by 0.3 percent.
www.CentralBankNews.info
Brazil holds, drops guidance of stable rates for long period
By www.CentralBankNews.info Brazil’s central bank held its benchmark Selic rate steady at 7.25 percent, as expected, and said it would “monitor the microeconomic scenario until its next meeting to then define the next steps in its monetary policy strategy,” omitting the previous guidance that stable monetary conditions for a prolonged period was appropriate.
Banco Central do Brasil also said in its very brief statement that the decision to hold the rate steady was without any bias and all members of the Copom committee had voted in favor of the decision.
In November the central bank froze rates for the first time after 10 consecutive cuts and introduced the statement that keeping rates steady for a “prolonged period” was the most appropriate strategy to ensure that inflation would return to the bank’s target.
This guidance was repeated at the bank’s previous meeting in January, but inflation has continued to accelerate and economic growth is improving, fueling expectations that rates may soon be raised.
Brazil’s inflation rate picked up to 6.15 percent in January from December’s 5.84 percent, the seventh month in a row with rising prices. The central bank targets annual inflation of 4.5 percent, plus/minus 2 percentage points.
Brazil’s Gross Domestic Product rose by 0.6 percent in the fourth quarter from the third for annual growth of 1.4 percent, up from 0.9 percent in the third quarter.
The central bank started cutting interest rates in August 2011 when economic growth began slowing, and slashed rates by a total of 525 basis points between then and November 2012.
Brazil’s economy grew 1.35% in 2012, says central bank
Source: XINHUA | 2013-2-21 | 
ONLINE EDITION
ONLINE EDITION
BRASILIA, Feb. 20 (Xinhua) — Brazil’s economy grew 1.35 percent in 2012, well above the market forecast of 1 percent, estimated the country’s central bank Wednesday.
The official figure will be released by the Brazilian Institute of Geography and Statistics (IBGE) on March 1.
While the central bank’s growth estimate is higher than the market prediction, it still falls short of the government’s 4 percent growth projection announced at the beginning of last year.
The country’s economic activity in December rose 0.26 percent compared with the previous month, lower than November’s 0.57 percent compared with October, indicating an economic slowdown towards the end of last year, according to the bank.
In 2012, the Brazilian government announced a series of measures to stimulate growth, including cutting the central bank’s overnight rate to a record-low 7.25 percent, reducing taxes for industries, increasing credits and lowering prices.
For 2013, the government forecasts a 4 percent gr
The official figure will be released by the Brazilian Institute of Geography and Statistics (IBGE) on March 1.
While the central bank’s growth estimate is higher than the market prediction, it still falls short of the government’s 4 percent growth projection announced at the beginning of last year.
The country’s economic activity in December rose 0.26 percent compared with the previous month, lower than November’s 0.57 percent compared with October, indicating an economic slowdown towards the end of last year, according to the bank.
In 2012, the Brazilian government announced a series of measures to stimulate growth, including cutting the central bank’s overnight rate to a record-low 7.25 percent, reducing taxes for industries, increasing credits and lowering prices.
For 2013, the government forecasts a 4 percent gr
Brazil’s Tombini: Interest Rate Will Be Adjusted as Needed
By Dow Jones Business News, February 19, 2013, 10:02:00 AM EDT
BRASILIA–Brazil’s central bank plans to maintain firm control of inflation and will adjust its interest-rate policy as necessary to do so, central bank president Alexandre Tombini said Tuesday.
Speaking at the unveiling of an administrative cost-cutting program, Mr. Tombini said that the bank remained poised to act on rising prices and that there was no risk
of uncontrolled inflation in Brazil’s economy.
of uncontrolled inflation in Brazil’s economy.“When necessary as determined by the outlook for inflation, the posture of the central bank in relation to monetary policy will be adjusted adequately,” he said.
Mr. Tombini, however, also said that he believed interest rates would tend to vary “within a lower range than in the past.”
Some analysts have speculated that the central bank could act to raise its base Selic interest rate as early as the second quarter of this year after the IPCA consumer-price index topped 6% in the 12 months through January. The inflation rate remains well above the 4.5% centerpoint of the country’s inflation target range.
The Selic rate currently stands at a record low of 7.25%.
Mr. Tombini’s comments Tuesday come after Brazilian Finance Minister Guido Mantega at a meeting of Group of 20 officials late last week said that the country planned to rely on monetary-policy measures rather than foreign-exchange policy measures to maintain inflation under control.
Minister Guido Mantega at a meeting of Group of 20 officials late last week said that the country planned to rely on monetary-policy measures rather than foreign-exchange policy measures to maintain inflation under control.Brazil Anticipates Higher Interest Rates To Control Inflation
BRASILIA, Feb 18 (BERNAMA-NNN- MERCOPRESS) – Brazil’s Finance minister Guido Mantega in Moscow for the G-20 meeting, said that inflation above the government’s target raises a yellow flag and that monetary policy, not the exchange rate, is the right tool to control prices.
“The interest rate isn’t fixed. If you have more worrying inflation, it can move, but this is up to the central bank to decide,” Mantega said in an interview from Moscow. “The government will do what it takes to keep inflation under control.” Inflation which has exceeded the 4.5% target in the past 29 months, quickened to 6.15% in January.
Mantega said the government will not allow the currency to over-appreciate in a bid to rein in consumer prices after the currency strengthened to a nine-month high last week. A stronger currency helps tame inflation by making imports cheaper.
Traders see a 50% chance of policy makers raising the Selic rate to 7.5% from 7.25% in April, Diego Donadio, Latin America strategist at Banco BNP Paribas Brasil SA, said in a telephone interview.
Brazil’s real appreciated 0.4% to 1.9582 per dollar last week, the strongest level since May 10, on speculation the government would allow the currency to appreciate to contain inflation. A drop in U.S. jobless claims also fostered demand for emerging-market assets.
“We will not allow for an over-appreciation of the Real,” Mantega said, adding that the government isn’t thinking of a specific level. “We won’t tolerate abnormal fluctuations”.
Speculation that Brazil was changing policy and seeking a stronger currency to help tame inflation started last month after the central bank surprised the markets with an intervention in swaps to prop up the Real.
The Real rallied to a level stronger than 2 per dollar on Jan. 28 for the first time since July after the central bank renewed US$1.85 billion of currency swaps about to expire, refraining from buying dollars to settle the contracts.
On Jan. 31, the government exempted foreigners from a tax on real-estate funds traded on the stock exchange, spurring speculation that inflows will help sustain the real.
The Brazilian central bank swung in 2012 between selling currency swaps to prevent the Real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the Real from strengthening beyond US$2.
The central bank Monetary Policy Committee, Copom next meeting is scheduled for March 5/6.
WRAPUP-Brazil’s central bank points to new FX trading band
* Real initially rallies as gov’t seen favoring strong FX
* Central bank intervenes to halt currency gains
* Mantega suggests gov’t willing to accept stronger real
* Analysts see new trading band of 1.95-2.05 per dollar
By Walter Brandimarte
RIO DE JANEIRO, Feb 8 (Reuters) – Brazil’s central bank intervened to halt a currency rally on Friday, essentially setting the boundaries of a new informal trading band that government officials hope will help curb inflation without hurting exporters.
The intervention followed a week of intense volatility in the currency market as investors scrambled to figure out how policymakers were adjusting Brazil’s foreign exchange policy. The real, which stabilized around 1.97 per dollar in the afternoon, is now likely to enter the traditional Carnival lull that will halt Brazilian markets for most of next week.
The real was rallying for a second day early on Friday after comments by a number of policymakers, including Finance Minister Guido Mantega, suggested the government was ready to accept a stronger currency to cheapen the price of imported goods and put a lid on inflation.
In an interview with Reuters on Thursday night, Mantega said the real, which last week gained past the level of 2 per dollar for the first time in seven months, “has found a reasonable floating band.”
The minister, who has always defended a weaker real to support exporters, sounded more amenable to a stronger currency as he cited the 1.85-per-dollar threshold as an example of a level that would not be allowed.
His remark was interpreted as a green light for a stronger real, driving the currency more than 1 percent higher early on the day. It added to comments by central bank chief Alexandre Tombini, who on Thursday said he was worried about inflation in the short term.
The real had already gained about 0.8 percent on Thursday as investors speculated the government would use the exchange rate to curb inflation, which is dangerously close to the ceiling of a government target.
Brazil’s currency had lost nearly 30 percent against the dollar between July 2011 and last November, but gained about 8 percent since then.
TOO FAST?
Signs that the government was not happy about the speed of appreciation of the real in the past couple of days were already evident early on Friday, when a source on President Dilma Rousseff’s economic team told Reuters gains had been “somewhat exaggerated.”
After piercing the level of 2 per dollar last week, market analysts estimated the real’s informal trading range, which for months was set at 2.0 to 2.1 per dollar, was shifting to something around 1.95 to 2.05.
Investors, eager to test that theory, pushed the real to a nine-month high of 1.9510 per dollar this morning.
That was when the central bank intervened, offering to sell as much as 30,000 reverse currency swaps – derivative contracts that emulate the sale of dollars in the futures market and are often used by policymakers to weaken the currency.
“They seem to be doing two things: one is to try to slow down the appreciation of the real, but they also seem to be putting a boundary for the real at 1.95 per dollar, at least for now,” said Enrique Alvarez, chief of Latin America research at IDEAglobal in New York.
Further adding to the notion of a new trading band around the level of 2 per dollar, Development Minister Fernando Pimentel told Valor Economico newspaper that a real between 1.96 and 2.05 per dollar would be acceptable to industry.
UPDATE 4-Brazil inflation spike fans bets of interest rate hike
* IPCA index rises 0.86 percent in January
* Monthly inflation highest since April 2005
* Futures market bets on 100 bps hike this year
* Twelve-month inflation edges up to 6.15 percent
* Central bank says it is worried, uncomfortable
By Silvio Cascione
SAO PAULO, Feb 7 (Reuters) - Brazil's inflation accelerated
to the fastest rate in nearly eight years in January, raising
bets of an interest rate hike this year that could complicate
the government's drive to reignite a near-stagnant economy.
The Brazilian currency, the real , also jumped
on the news, hitting a 9-month high against the dollar after
central bank president Alexandre Tombini said he was worried
about inflation.
A central bank source told Reuters that 12-month inflation
will remain slightly above 6 percent through the first half of
2013, dangerously near the 6.5 percent ceiling of the government
target, but that a more stable exchange rate will help inflation
ease "a lot" in the second half of the year.
The country's benchmark IPCA consumer price index
rose 0.86 percent in January, the highest monthly
reading since April 2005, government data showed on Thursday.
In the 12 months through January, inflation
rose to 6.15 percent, the highest reading in a year. The
government targets inflation at 4.5 percent, with a tolerance
margin of plus or minus 2 percentage points.
Interest rate futures rose across the board in the
BM&FBovespa exchange, suggesting more bets that the central bank
would raise its benchmark interest rate by around 100 basis
points this year, according to traders. The rate has been cut to
an all-time low of 7.25 percent to stimulate economic growth.
Low interest rates and a depreciated currency are key
elements of President Dilma Rousseff's plans to boost investment
and output in Brazil's manufacturing industries. Taming
inflation has also been a top priority for her, but January's
number shows she just can't have it all.
"The central bank will tolerate a stronger real in an effort
to limit imported inflation, but this will come at the expense
of a further deterioration in Brazil's external competitiveness,
which will weigh on economic growth," wrote Neil Shearing, chief
emerging markets economist at Capital Economics in London.
In an interview posted on O Globo website, Tombini said he
is feeling uncomfortable.
"Inflation worries us in the short term. It's very
resilient, but it's not out of control," Tombini told O Globo
financial journalist Miriam Leitao.
Asked whether it was time for the central bank to adjust its
monetary policy, Tombini said he is "paying attention to
inflation.".
The Brazilian real strengthened about 1.1 percent to 1.965
reais to the dollar after the publication of Tombini's remarks.
A Reuters poll showed on Wednesday that analysts expected the
real to remain around 2 per dollar for the next 12 months.
Food and cigarettes were the main inflation drivers in
January, though analysts noted accelerating price rises for
nearly three of every four product categories. Core measures
were also stronger than in the same month a year ago, suggesting
the recent inflation spike is not likely to fade quickly.
"If inflation worsens in the next two or three months, that
can lead to a monetary tightening later," said Carlos Kawall,
chief economist at J.Safra in Sao Paulo.
Brazil is alone in its struggle against inflation among the
largest market-friendly Latin American economies. Inflation has
subsided elsewhere in the region, such as in Mexico and Chile,
as a spike in global food prices fades.
The central bank cut interest rates 10 straight times
through October 2012, saying Brazil no longer needed one of the
highest borrowing costs in the world to tame inflation. With low
interest rates as a top priority, the government has been trying
to use other tools to fight price rises, such as tax breaks.
A government-sponsored reduction in electricity power rates
prevented January inflation from reaching 1 percent, said Juan
Jensen, an economist with Tendencias Consultoria in Sao Paulo.
It should also limit the monthly price rise in February,
though annual inflation is expected to remain above 6 percent -
and possibly even breach the target ceiling - by at least
mid-year, economists said.
The government is also mulling tax cuts on food staples,
Rousseff and Finance Minister Guido Mantega said recently. Such
measures will probably force the government to miss a key budget
target this year.
The January IPCA index had been expected to rise 0.84
percent, from an increase of 0.79 percent in December, according
to the median forecast of 31 economists surveyed by Reuters.
Forecasts for the rise ranged from 0.78 to 0.90 percent.
Personal expenses rose 1.55 percent from December; the
category includes cigarettes, whose prices spiked 10.11 percent.
Food prices rose 1.99 percent.
UPDATE 2-Brazil central bank signals more interest rate cuts unlikely
By: Alonso Soto
Brazil Says Monetary Policy Not Best Tool to Lift Growth Now
Brazil’s central bank said additional monetary policy stimulus will fail to boost economic growth that is recovering more slowly than expected due to limited supply.
Policy makers, in the minutes to their Jan. 15-16 meeting published today, said the balance of risks for inflation has worsened and reiterated that the best policy for bringing consumer price increases to the 4.5 percent target is to keep rates at a record low for a “sufficiently prolonged period.”
While inflation is slowing in Mexico and Chile, price pressures are building in Brazil as demand remains robust amid record low interest rates and unemployment. At the same time, a contraction in investment and industrial output is offsetting President Dilma Rousseff’s efforts to revive the slowest growth in three years by stimulating consumption.
The central bank “considers that the recovery of domestic economic activity, which is slower than expected, is essentially due to supply limitations,” the minutes said. “Given their nature, these impediments cannot be addressed by monetary policy, which is by definition an instrument to control demand.”
Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose five basis points, or 0.05 percentage point, to 7.91 percent at 9:42 a.m. local time. The real strengthened 0.3 percent to 2.0353 per U.S. dollar.
Improve Productivity
The central bank signaled in its minutes that it will stay put on rates and that the government needs to step up measures to improve productivity, said Neil Shearing, chief emerging markets economist at Capital Economics Ltd.
“The minutes reinforce the idea that rates are going nowhere for the time being,” Shearing said in a telephone interview from London. “This puts the ball back in the government’s court and says, ’We’ve done all we can. Your side of the bargain is to improve the supply side of the economy and productivity.’ That requires structural reform measures.”
The bank’s board, led by President Alexandre Tombini, voted unanimously in January to hold the benchmark Selic rate at 7.25 percent for the second straight meeting. While the bank estimates Brazil’s $2.5 trillion economy grew 1 percent last year, the slowest among major emerging markets, policy makers kept borrowing costs steady as food price shocks and consumer demand caused inflation to accelerate faster than economists’ forecasts for the seventh straight month through mid-January.
Fragile Investment
While investments remain fragile due to increased uncertainty and a slow recovery in confidence, domestic demand will continue to be fueled by low interest rates, moderate credit expansion, government social spending and a tight labor market, the central bank said in today’s minutes.
Rousseff today implemented energy price cuts to consumers and industry that were deeper and took effect earlier than expected in a move to increase competitiveness and tame inflation.
The government has also cut taxes on payrolls and consumer goods, eased reserve requirements for banks that provide credit for capital goods investment and announced plans to attract billions of reais in infrastructure investments. So far, the world’s sixth-largest economy has responded unevenly to the stimulus measures.
Retail sales in November increased for the sixth straight month and grew 8.4 percent over the same period last year, while industrial production in November fell for the second time in three months on lower capital goods investments. Analysts covering Brazil have cut their 2013 growth forecasts in 9 of the last 10 weeks, to 3.19 percent, according to the latest weekly central bank survey.
Inflation quickened to 6.02 percent through mid-January, the national statistics agency said yesterday. Annualized consumer price increases have exceeded the central bank’s target for the last 29 months.
To contact the reporters on this story: Matthew Malinowski in Brasilia at [email protected]; Raymond Colitt in Brasilia Newsroom at [email protected]
Brazil Central Bank Faces Credibility Test in Inflation Fight
–Brazil’s January mid-month IPCA-15 jumps on food, service-sector prices
–Rolling 12-month inflation rate tops 6%, above government’s 4.5% target
–Brazil Central Bank needs to tip market on strategy, economist says
By Jeff Fick
RIO DE JANEIRO–Brazil’s consumer price index showed a surprising surge in the first half of January, undermining the credibility of the country’s central bank as Latin America’s largest economy appeared stuck in stagflation.
The mid-month IPCA-15 consumer price index advanced a bigger-than-expected 0.88% through mid-January, up from a 0.69% gain through mid-December, the Brazilian Institute of Geography and Statistics, or IBGE, said Wednesday. More important, the rolling 12-month rate accelerated to 6.02%–rising further above the government’s 4.5% target but within the tolerance band of plus or minus two percentage points. Brazil ended 2012 with inflation of 5.84%, down from 6.5% the previous year.
The upswing in prices at the start of 2013 followed growing inflationary pressures in the second half of 2012 despite sluggish economic growth, raising concerns about whether the Brazilian Central Bank has allowed inflation to get out of control, economists said. The market is no longer buying the central bank’s explanation that temporary price shocks are behind inflationary pressures and a gloomy global economic scenario will drive inflation lower.
January’s inflation imprint “reinforces the perception that inflation is getting worse and worse,” Espirito Santo Investment Bank said in a research report. While food prices continued to climb in the first half of January, a jump in service-sector prices showed thatpressures were broad, the bank said.
Some relief is expected, but it will likely be temporary, economists said. Food prices typically stabilize, or even decline, as harvest season ramps up in the late first and early second quarters, and an expected reduction in electricity rates should shave about a half-percentage point off inflation. But that will only create “a false perception that inflation has improved quickly,” Espirito Santo said.
Complicating matters is a sluggish economy that has not yet responded to record-low interest rates and government stimulus measures. Brazil expected a rebound in the second half of 2012 that never materialized, with the economy expanding at an annualized rate of 2.4% in the third quarter–well below government and market forecasts. Brazil’s economy only grew by about 1% in 2012.
“Brazil is seeing stagflation,” said Tony Volpon, managing director at Nomura Securities International. “We all know stagflation is the worst possible situation for any central bank to be in, and this central bank has made the choice to react on the side of growth.”
The latest inflation figures will also increase the focus on Thursday’s release of minutes from last week’s central bank meeting, which included changes to the post-meeting statement.
The central bank held interest rates steady at a record-low 7.25%, pledging to leave rates at that level for a “sufficiently prolonged period.” But in a distinct change from previous statements, the bank signaled it may be more concerned about growth than inflation. While the bank recognized Brazil’s economic rebound has been “less intense than expected,” central bankers appeared to downplay inflation concerns by saying price risks have increased only “in the short term.”
While the central bank made a decision to act rather than “suffering from deer-in-the-headlights syndrome” when it embarked on a rate-cutting cycle in August 2011, Mr. Volpon said that tilting monetary policy toward growth has allowed inflation expectations to rise above the bank’s mandate of 4.5%. “The strategy has limits, and we’re seeing those limits,” Mr. Volpon said. “Inflation is getting worse and the economy is not going anywhere.”
Inflation expectations have become less important under the leadership of Central Bank President Alexandre Tombini compared with former president Henrique Meirelles. “And that’s a major mistake,” Mr. Volpon said. If the central bank wants to retain what little credibility it has left in the market, there has to be better communication, Mr. Volpon added.
“The central bank needs to tell us what their game plan is,” Mr. Volpon said. “They need to tell us that there is a limit to how far they are willing to let inflation go before they act.”
Nomura expects inflation to end 2013 at 6%, forcing the central bank to start raising interest rates to 8.25% by the end of the year.
BRASILIA: New projections by Brazil’s central bank show a slightly more benign outlook for inflation this year, a government source told Reuters on Tuesday, giving President Dilma Rousseff some breathing room as she tries to revive the sputtering economy.
The bank’s latest projections suggest that an upcoming 20 percent cut in electricity prices should shave a full percentage point off consumer inflation by the end of 2013, the source said, speaking on condition of anonymity.
The bank’s estimate of the electricity cuts’ disinflationary effect is about double that of many private analysts.
The more dovish forecast could make it easier for Rousseff to enact tax cuts and other stimulus measures without worrying about inflation breaching the bank’s target range this year.
Independent economists on average see the IPCA inflation index finishing 2013 at 5.65 percent.
The central bank declined comment.
The bank also anticipates that an imminent rise in gasoline prices will push the IPCA consumer price index about 0.3 of a percentage point higher in 2013, the source said.
That forecast is based on Rousseff’s government authorizing a roughly 7 percent increase in gasoline prices, although no final decision on the actual amount is expected until at least the beginning of February, the source said.
The central bank has declined to publicly release its forecast for the effect higher gasoline prices could have on inflation, because Rousseff has not made a decision yet.
Copyright Reuters, 2013
How to Survive the Coming Generational Storm
By Justice Litle – insideinvestingdaily.com
When you think about Florida what comes to mind?
For me it’s sunshine… golf courses… Lincolns, Buicks and
Cadillacs… big-box “senior living” centers… and, of course,
ubiquitous retirees.
We may make fun of Florida as one big old folks’ home. But by 2030 the average American will be older than the average Floridian is today.
That observation comes from Stan Druckenmiller, one of the most successful money managers of all time.
Now retired — and worth billions — Druckenmiller made a name for
himself running George Soros’ Quantum Fund, as well as his own Duquesne
Capital fund.
It was Druckenmiller, not Soros, who architected the famous sterling
short that “broke the bank of England” in 1992. (Soros was the one who
insisted on betting big on the trade and as the senior manager in the
fund got the media credit.)
Druckenmiller’s long-term track record is astounding. He made average returns of over 30% over more than 30 years. If you had given Druckenmiller $10,000 at the start of his career, it would have compounded to more than $26 million.
To deliver that kind of performance, Druckenmiller had to be skilled
at discerning future trends. And his latest prediction is not a pretty
one. Druckenmiller sees a generational storm coming. In his own words
(via a Bloomberg TV interview):
The seniors have a very, very
powerful lobby. They keep getting more and more transfer payments from
the youth. But the demographics storm is just starting now…
What’s going to happen is we now have
a working population — this is the way entitlements work — where the
current workforce is paying for the benefits of the seniors. Since 2000
we’ve had about 4.5 to 4.8 workers for every retiree. By 2050 that
number will drop to 2.4 workers per retiree…
Supporting retirees without enough workers is like scraping butter over too much bread. Soon enough you run out of butter.
The problem is that today’s seniors are using their political clout
to take more than that which can be reasonably given in the form of
“transfer payments.”
The final result? Disaster. Think of those bankrupt California cities on a nationwide scale.
Druckenmiller doesn’t mince words…
And let me just say one thing. I am
not against seniors, okay. I love seniors. Unfortunately I’m going to be
one in the not-too-distant future. What I am against is current
seniors… stealing from future seniors.
Many of today’s retirees will cry foul at this accusation. They will
point to their long history of faithfully paying into the system. They
will say it’s not their fault that the cupboard is bare. They will say
what is owed is owed.
But regardless of what’s fair and what’s not, Druckenmiller is right. A generational storm is coming. As
tens of millions of baby boomers hit retirement age, the system will
run out of funds with which to pay them what is contractually owed.
Retirees and retiring baby boomers will then cry havoc at the ballot
box. Demagogue politicians will respond. And all hell will break loose.
You need to prepare for this coming generational storm. It will impact every American, regardless of age, opinion or financial status.
Not all investment assets will withstand this storm when it hits full
force. Some areas will warrant avoiding at all costs. Others will do
extremely well.
One asset you definitely won’t want to be caught in, once the storm
hits full force, is U.S. Treasury bonds. When the realization sinks in
how aggressively politicians will be promising the world to boomer
seniors — without being able to pay for it — bonds could transition
from “attractive” to “radioactive.”
If you are heavily invested to the Treasury market, I strongly recommend you reduce your exposure before the coming storm hits.
Carpe Divitiae,
Justice
Editor’s note: I’m putting the final touches on my new advisory, Strategic Wealth Report.
In it I will follow powerful economic “mega trends” like the coming
generational storm in America. And I’ll recommend more concrete ways for
you to play these powerful market forces. The first issue of Strategic Wealth Report will come out in the coming weeks, so keep your eyes peeled…
Final Stages of The Advance on SP 500-The Wave Pattern
By David Banister – markettrendforecast.com
Over at our TheMarketTrendForecast.com service we have been projecting a potential rally pivot at 1552-1576 for many weeks now. The recent drop to 1485 although harrowing, was a normal fibonacci re-tracement of the last major rally leg to 1531 pivot highs. We believe that this 5 wave advance 1343 pivot lows is nearing an end based on mathematics and relationships to prior waves 1-3.
At 1569 the SP 500 would mark a perfect fibonacci relationships to waves 1-3 for this final 5th wave to the upside. In the big picture, we are still working higher off the 1010 pivot lows on the SP 500, and this rally takes 5 full waves to complete. We think we are near wave 3 highs, and wave 4 correction would be up next, followed by another thrust to highs if all goes well this year.
That all said, a multi-week correction and consolidation wave 4 pattern is likely once we pivot at 1552-1576. We should expect this correction to retrace anywhere from 80-100 points on the SP 500, but one week at a time.
See our updated pattern views below, and sign up for free reports or a 33% discount at www.markettrendforecast.com
By David Banister – markettrendforecast.com
Why the Dow Jones Record High Doesn’t Matter
The story of the moment is the Dow Jones breaking out to a new all-time high. It certainly makes a nice headline, but does it really mean anything?
The first point to understand is that the Dow Jones is a price weighted index. Rather than relying on the changing market cap of a company to calculate the movements, the index uses the changing price instead.
This means that a higher priced stock (eg. 3M Co.: share price USD$104, market cap USD$72 billion) will have more influence over movements in the index than a smaller priced stock (eg. Microsoft: share price $28, market cap USD$237 billion).
This obviously doesn’t make much sense because there is no relation between the price of a stock and its market cap.
Also there are only 30 stocks in the index, so it’s not a broad reflection of the overall health of the market. For example if Apple [NASDAQ: AAPL] was in the index there is no way that the Dow Jones would be hitting all-time highs, because Apple is currently down 38% from its all-time highs set last year.
But having said that there is no doubt the money printing is currently working wonders on the US equity markets. The S&P 500 is also only a skip and a jump from its all-time high.
I’m sure I’m not the only one who thought it would be impossible for the market to retest all-time highs so soon after the market crash.
US Federal Reserve chairman Ben Bernanke always said he wanted to get stock prices up so that the wealth effect would kick in and help heal the US economy. He has certainly succeeded in stoking prices higher, but has he succeeded in getting consumers to open their wallets? Not really, and here’s why…
The last US GDP figures were actually negative in the US and unemployment remains stubbornly high.
A Bleak Picture Behind the Headlines
The Wall Street Journal even noted yesterday that 50,000 people slept each night in New York City’s homeless shelters, which is a record. In the article Mary Brosnahan, president of the coalition for the homeless said that, ‘New York is facing a homeless crisis worse than any time since the Great Depression.’
So it looks like Bernanke’s printed dollars aren’t filtering down to the masses as he told us they would. What a surprise.
Legendary hedge fund trader Stanley Druckenmiller said on CNBC the other day that the party in stocks may continue for a while longer and he doesn’t know when it will end but ‘my guess is it’s going to end very badly’.
A great comparison recently on ZeroHedge.com between now and the Dow’s previous all-time high in 2007 paints a very bleak picture:
- Dow Jones Industrial Average: Then 14164.5; Now 14164.5
- Regular Gas Price: Then $2.75; Now $3.73
- GDP Growth: Then +2.5%; Now +1.6%
- Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
- Americans On Food Stamps: Then 26.9 million; Now 47.69 million
- Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
- US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
- US Deficit (LTM): Then $97 billion; Now $975.6 billion
- Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
- US Household Debt: Then $13.5 trillion; Now 12.87 trillion
- Labor Force Participation Rate: Then 65.8%; Now 63.6%
- Consumer Confidence: Then 99.5; Now 69.6
- S&P Rating of the US: Then AAA; Now AA+
- VIX: Then 17.5%; Now 14%
- 10 Year Treasury Yield: Then 4.64%; Now 1.89%
- USDJPY: Then 117; Now 93
- EURUSD: Then 1.4145; Now 1.3050
- Gold: Then $748; Now $1583
- NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares
There’s not much about the comparison above that fills me with confidence that this breakout to new highs is sustainable.
When the upside momentum is as strong as it is currently it can be nearly impossible to imagine the stock market selling off at all. People who have missed out on the rally will be chasing the market higher and higher, adding fuel to the fire.
Most of the bears will have given up trying to short the market long ago. And so, breaking out to new highs can inspire a new set of investors to make the leap into the market hoping for even higher prices.
The Risk Lies This Way
I’ll keep hammering home the view that the highest likelihood from here is that we see a false break of the highs and a sharp correction in prices.
The topping process can take weeks and even months to play out while the market whips traders out of positions. But I feel very confident that the risk is heavily to the downside over the next month or so.
You probably know the old saying of, ‘Sell in May and go away’, but the fact is the selling has arrived in April over the last few years.
The chart below shows the S+P 500 over the last three years…
S&P 500 Daily Chart
Source: Slipstream Trader
I’ve placed vertical lines in the chart around mid-April of each year. It’s quite clear there has been a multi-month sell-off after April in each year.
I wouldn’t be surprised at all if many market players try to pre-empt the April sell-off this year by selling in March instead. The momentum is still definitely up but in my view the risk of buying now is extremely high.
Murray Dawes
Editor, Slipstream Trader
From the Port Phillip Publishing Library
Special Report: Australia’s Energy Stock BLOWOUT
Daily Reckoning: Why Central Bankers Really Don’t Want Deflation
Money Morning: Taking China’s Economic Pulse from Hong Kong
Pursuit of Happiness: Here’s Why I’m Positive about the Future and Technology
A Big Price Change Brewing in the Crude Oil Market
After a two-month rise, the oil price has pulled back.
On 12 November last year, the International Energy Agency (IEA) declared that, thanks to ‘fracking’ – blasting dense underground rocks apart to release fossil fuels within – the US would overtake Saudi Arabia to become the world’s biggest oil producer by 2017.
You might have thought this would be extremely bearish for the price of light crude oil. Greater supply leads to falling prices, after all.
Yet as it so often seems to, the reverse happened. Oil headed higher almost non-stop for more than two months after the announcement was made.
But now it seems to have hit a hurdle. Given that this is one of the most important commodities in the world, I want to take a look at where the oil price is likely to go next in today’s Money Morning…
A Potential Trade on a Rallying Oil Price
That IEA announcement pretty much marked the low. Over the next two and a half months, the price of light crude oil (as measured by the West Texas Intermediate – WTI – benchmark) duly rose nearly 20% from $84 a barrel to $98 by the end of January.
That phrase ‘buy the rumour, sell the news’ is ringing my ears once again. We should all have it taped to our computer screens, or some other conspicuous place. It’s a great warning flag for when a particular market gets gripped by excessive expectation.
However, the oil price has now turned down, falling about 10% in the last two weeks. It saw a double top at $98, and has now fallen to about $90 – just as the Dow Jones Industrial Average broke out to new highs.
I have illustrated the recent action in the chart below.
The question we must now ask is, ‘Where will the current fall end?’
Light crude oil staged a mini-rally, but I’m not holding my breath. One possible line of support is on that dotted black trend line I have drawn. If that doesn’t hold – and I’m not betting it will – then I suspect we will give back all of the recent gains and head back into the $84-85 zone.
I have drawn some areas where I see support on the three-year chart below. One in the $85 area; two around $75; three just below $70; and finally, with the dotted blue line, at $65.
I would be very surprised to see us back at $65 any time this year. Anything can happen, of course. But buying at $84-85, with a stop just below that red band, at say $81-82, seems a decent gamble to me.
If this doesn’t work you might try the same trick at the second red band in the $75 area.
The pattern of many markets over the last three years has been for them to trade in increasingly narrowing ranges. I have written about this in both gold and sterling in recent weeks. We can see the same thing happening in light crude.
Here is a chart of it since its historic low in 1999. I have drawn a red trend line off the 1999 and 2009 lows. In dotted red lines I have shown how that range is narrowing. On this log chart – which measures the percentage gain on the Y-axis, rather than price gain – that narrowing range is even more distinct.
If you follow chart patterns, you might also see a ‘bullish pennant’ forming. Such a pennant – or a flag formation – is seen as a continuation pattern, representing a pause in an on-going bull market. The market makes a big move (1999 to 2008), pauses and consolidates at these higher levels, then heads on up in its merry way.
What Technical Analysis is Useful For
This sounds banal, but my experience with such formations is that they work when they work, and they don’t when they don’t. The reason I like them and find them useful (and this probably goes for all technical analysis methods), is because they help manage risk and identify points at which to place entry and exit points, stop-losses and so on.
That long-term chart of light crude oil, for example, furthers my belief that a bet on oil at $84-85, with a stop just below the dotted line (perhaps at $81-82) might prove a good one.
Fairly soon that pennant formation is going to be broken. The way that oil breaks out of it – above or below – should be a good indication of its long-term direction.
But given the chart patterns, not to mention the inflationary practices of central bankers and the simple fact that oil is getting harder and harder to find, and, finally, the current indifference towards oil among speculators and investors (it’s all about the stock market, folks), I suggest that long-term direction is going to be up and very much so.
Dominic Frisby
Contributing Editor,
Join Money Morning on Google+
Publisher’s Note: This article originally appeared in MoneyWeek
From the Archives…
Gold’s Dark Hour Before Dawn
1-03-2013 – Dr. Alex Cowie
The Primary Colours of Investing
28-02-2013 – Kris Sayce
Revealed: Inside a Share Trader’s Den
27-02-2013 – Murray Dawes
Where to Find Value in this Rising Stock Market
26-02-2013 – Kris Sayce
China Bull Versus China Bear – There Can Only Be One Winner
25-02-2013 – Dr. Alex Cowie
Eating the Dow Jones for Breakfast
How to get past money illusion now that it’s day-break in America once again…
Forget about the Apple effect. Not including AAPL in its 30 constituents is just one of the Dow Jones Industrial Average’s many quirks.
So too is its ever-changing Dow divisor, a number seemingly picked at random to smooth out the math in the DJIA. But neither of these oddities changes the fact that this oddest of equity averages is hitting new all-time highs right now.
Signalling, if you ever doubted it, that the United States’ economy is being re-forged as well.
But wait! If you think there’s any link between the rise of the stock market and the health of the economy, then you might want to double-check the Dow’s value in real inflation-adjusted dollars.
Or better still, now that it’s morning in America once again, adjust the Dow by the cost of eating your breakfast…
Alternatively, you could judge the Dow in terms of the stock market’s dark, benighted opposite – a lump of gold bullion. Many people do, in fact. The Dow/Gold Ratio as it’s known plots the value of the 30 Dow stocks in ounces of gold.
As you can see, the recent drop in gold bullion prices, plus the Dow’s re-found vitality, have dented the stark trend of the last 13 years. During that time gold cut the cost of the United States’ biggest listed businesses (well, a random selection of them) by some 85% top to bottom. Some die-hard gold bugs pointed time and again (ahem) to the historical low at 1 ounce for 1 unit of the DJIA.
Stocks have rallied however by 43% since the two-decade low of 6.3 ounces in the Dow/Gold Ratio hit in late-summer 2011. And turning to the broader, more respected (and AAPL-laden) index the S&P500, it was overtaken by gold – in nominal terms – back in April 2010. That was odd, as we noted at the time. Because gold in dollar terms hadn’t traded above the S&P in almost two decades.
Each of these 3 charts looks backwards, of course. None can say much about where the cost of breakfast goods, gold or productive business assets might go from here. But even with the Apple issue aside, it’s worth putting the Dow’s new record highs into context.
Against the backdrop of zero rates and quantitative easing, at least the Dow/Gold ratio, like our new Dow/Breakfast measure above, doesn’t fall for money illusion.
Adrian Ash
Contributing Writer, Money Morning
Publisher’s Note: Adrian Ash is head of research at BullionVault.
Join Money Morning on Google+
From the Archives…
Gold’s Dark Hour Before Dawn
1-03-2013 – Dr. Alex Cowie
The Primary Colours of Investing
28-02-2013 – Kris Sayce
Revealed: Inside a Share Trader’s Den
27-02-2013 – Murray Dawes
Where to Find Value in this Rising Stock Market
26-02-2013 – Kris Sayce
China Bull Versus China Bear – There Can Only Be One Winner
25-02-2013 – Dr. Alex Cowie
How to Collect “Golden Income Checks”
By Jim Nelson –
For income investors, it has always been tough to find a way to invest in gold.
Gold bullion doesn’t pay you any income. And gold mining stocks have never been great dividend-paying companies.
Big names in the gold mining sector such Barrick Gold Corp. (NYSE:ABX) and Goldcorp Inc. (NYSE:GG)
have averaged dividend yields of just 1% — about a quarter of what the
dividend-friendly utilities sector has yielded. And many others haven’t
even paid that much.
But that’s changing. In fact, as I’ll show you today, we could be
entering a new era of “golden income checks” from some of the world’s
biggest gold mining stocks.
And that’s a BIG opportunity if you are an income investor and also long-term bullish on gold, like me.
The short-term price movement for gold and gold mining stocks has
been miserable of late. The gold price has dropped 12% over the last
four months. And gold miners have been even worse hit. The Market Vectors Gold Miners ETF (NYSE:GDX) is down 33% over the same time.
This is a rare opportunity for income investors. That’s because gold
mining stocks’ prices are falling just as their dividend payments have
been rising.
And one company is leading the charge toward higher dividend payouts. In April 2011 gold producer Newmont Mining Corp. (NYSE:NEM) announced it would start paying its dividend based on the price of gold.
Newmont has since refined this policy. Last July, it announced it
would link its dividend payout to the average gold spot price for the
preceding quarter. This has led the company to hike its first quarter
dividend by 21% this year compared to the same quarter last year, based
on an average gold price for the fourth quarter of $1,718/oz.
This makes Newmont one of the highest yielding mining companies in the world. The
stock now yields 4.4% — or almost double the S&P 500 average of
2.5% and well over double the puny 1.8% yield on the 10-year Treasury
note.
Newmont has proven and probable reserves of 99 million ounces of gold
in the ground. So even with gold selling for $1,000/oz, Newmont would
still be netting over $300 per ounce, plenty to continue paying its
dividends going forward.
Of course, gold prices could continue to fall. And this would affect
Newmont’s dividend payments. But even if gold falls another $100 (not
likely, but certainly possible) Newmont’s dividend yield would still be
above 3% — triple the historical rate for gold miners.
As my colleague Chris Hunter has written about, despite recent price falls, the fundamentals are still supportive of gold.
Thirty-eight countries around the world are pursuing a zero or
negative real interest rate policy. And many of the world’s major
developed central banks — including the Fed, the European Central Bank,
the Bank of Japan and the Bank of England — are pursing a policy of
limitless money printing.
Gold hasn’t been responding to this inflation threat of late. But
over time, you can expect the world’s only “honest currency” to perform
well in a time of widespread currency debasement. And that means that
beaten-down gold mining stocks such as Newmont should benefit.
So not only is Newmont’s 4.4% dividend yield extremely attractive,
but also adding some exposure to gold in your portfolio is a prudent
protection against future inflationary cycles.
I recommend you take advantage of the correction in prices to buy
shares in Newmont Mining and lock in some “golden income checks.” This
opportunity won’t be around forever.
Sincerely,
Jim Nelson –
West African central bank cuts rate 25 bps to 3.75%
By www.CentralBankNews.info The Central Bank of West African States (BCEAO) cut its benchmark marginal lending rate by 25 basis points to 3.75 percent in light of moderate inflation and weak global demand.
The central bank, which has held its rates steady since June 2012 when it cut by 25 basis points, said inflation expectations over the medium term are in line with the bank’s objective, with inflation forecast at 1.5 percent year-on-year in the fourth quarter of 2013.
“Factors behind the moderation of the inflation include weak global demand that mitigates the risk of imported inflation and lower food prices in the perspective of a 2013/14 crop that is satisfactory,” the central bank said in a statement.
Inflation in the eight states that comprise the West African Monetary Union has gradually declined since last October to 2.2 percent at the end of January.
Economic growth in the eight nations confirms real Gross Domestic Product growth of 5.8 percent in 2012 and “for 2013, the revival of economic activity is expected to continue with a projected real growth rate of 6.5%,” the central bank said.
“Analyzing the economic situation, the Committee noted the persistence of a gloomy international economic situation fraught with uncertainty,” the central bank said.
www.CentralBankNews.info
Poland sees inflation contained by moderate growth
By www.CentralBankNews.info Poland’s central bank continued to cut interest rates earlier today, saying economic growth is expected to remain moderate, even if it picks up in coming quarters, and this will restrain inflation.
The National Bank of Poland (NBP), which has cut rates by 150 basis points since embarking on an easing cycle in November 2012, said these rate cuts “will allow inflation to run close to target in the medium term and at the same time supports recovery of the Polish economy.”
The bank cut its rate by a larger-than-expected 50 basis points earlier today in light of the risk that inflation may run below the bank’s target in the medium term. The NBP targets inflation of 2.5 percent target, plus/minus one percentage point.
“In the opinion of the Council, incoming data confirm persistently low economic growth in Poland, no wage pressure and low inflationary pressure. Economic activity may gradually improve in the coming quarters. However, GDP growth will probably remain moderate, which will continue to contain inflationary pressure,” the bank said in a statement.
The NBP said data point to low economic growth early this year with rising unemployment holding back wage growth and household and corporate lending subdued.
Under the bank’s latest forecasts, Poland’s Gross Domestic Product is expected to grow at an annual rate of between 0.6-2.0 percent in 2013, down from the November forecast of 0.5-2.5 percent, and between 1.4 and 3.7 percent in 2014, compared with 1.1-3.5 percent. In 2015, the forecast looks for growth of 1.9-4.4 percent.
In the fourth quarter of last year, Poland’s Gross Domestic Product rose by 0.2 percent from the third quarter for annual growth of 1.1 percent, down from 1.8 percent. In 2012 economic growth was estimated to have declined to 2.0 percent from 4.3 percent in 2011.
Inflation in January fell more than expected to 1.7 percent from 2.4 percent in December and core inflation also remained low, which the “confirms limited demand pressure in the economy,” the bank said, adding that inflationary expectations decreased further. The bank said there is a 50 percent probability of inflation being 1.3-1.9 percent in 2013, down from the November forecast of 1.8-3.1 percent, and between 0.8-2.4 percent in 2014 and between 0.7 and 2.4 percent in 2015.
