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Economy
by
Chris Martenson
World stock markets were in meltdown mode last night. Japan was off more than 10% at one point.
So the world’s Central Banks got together and performed an emergency coordinated rate cut of 0.50% (50 basis points).
[quote]The US Federal Reserve has cut rates from 2% to 1.5% and the European Central Bank trimmed its rate from 4.25% to 3.75%.
The central banks of Canada, China, Sweden and Switzerland [and the UK] all took similar action in the coordinated move.
The unprecedented step is aimed at steadying a faltering global economy and slumping stock markets. [/quote]
Fed Funds were already at 1.25% after a stealth rate cut. This 50 basis point cut just gets us officially closer to what was already in effect. So it will not actually change the cost of money in the US at all. Not one tiny bit. Rather, this was symbolic for the US. For the EU it does represent an actual decline in the cost of money, which brings me to my next point.
Second, I cannot figure out how a rate cut does anything at this point. Yes, so money is cheaper to borrow from the Central Banks. Okay. So what?
In order for that to be effective, somebody has to want to borrow it.
Again the Central Banks are fighting the wrong fight. Where they battled liquidity, solvency was the issue.
Now, where they are battling the cost of borrowed money, they have done nothing about the desire to borrow money.
I am quite intrigued to see China on the list of involved Central Banks. This is the first time I can recall their coordinated involvement in the actions of the world banking cartel. Welcome to the club.
Japan was not involved, because they don’t have 50 basis points to cut – their monetary policy has been riding the rails right down near the zero line for years. So Japan is now saying to the rest of the world "welcome to the club!"
Despite the fact that the move was merely symbolic, the impact on the US futures was immediate and pronounced. I’ve never seen a 60 point pop in a 5 minute window before.
Bottom line: The world’s Central Banks are desperately pulling on their main lever, with fingers crossed, hoping that it will work one more time. Unfortunately, the interest rate lever cannot fix our current ills…this was merely a psychological shot in the arm, meant to let the world know that the Central Banks are taking all this seriously. A measure meant to add confidence to an economic system that operates on confidence.
Central banks cut interest rates
by Chris MartensonWorld stock markets were in meltdown mode last night. Japan was off more than 10% at one point.
So the world’s Central Banks got together and performed an emergency coordinated rate cut of 0.50% (50 basis points).
[quote]The US Federal Reserve has cut rates from 2% to 1.5% and the European Central Bank trimmed its rate from 4.25% to 3.75%.
The central banks of Canada, China, Sweden and Switzerland [and the UK] all took similar action in the coordinated move.
The unprecedented step is aimed at steadying a faltering global economy and slumping stock markets. [/quote]
Fed Funds were already at 1.25% after a stealth rate cut. This 50 basis point cut just gets us officially closer to what was already in effect. So it will not actually change the cost of money in the US at all. Not one tiny bit. Rather, this was symbolic for the US. For the EU it does represent an actual decline in the cost of money, which brings me to my next point.
Second, I cannot figure out how a rate cut does anything at this point. Yes, so money is cheaper to borrow from the Central Banks. Okay. So what?
In order for that to be effective, somebody has to want to borrow it.
Again the Central Banks are fighting the wrong fight. Where they battled liquidity, solvency was the issue.
Now, where they are battling the cost of borrowed money, they have done nothing about the desire to borrow money.
I am quite intrigued to see China on the list of involved Central Banks. This is the first time I can recall their coordinated involvement in the actions of the world banking cartel. Welcome to the club.
Japan was not involved, because they don’t have 50 basis points to cut – their monetary policy has been riding the rails right down near the zero line for years. So Japan is now saying to the rest of the world "welcome to the club!"
Despite the fact that the move was merely symbolic, the impact on the US futures was immediate and pronounced. I’ve never seen a 60 point pop in a 5 minute window before.
Bottom line: The world’s Central Banks are desperately pulling on their main lever, with fingers crossed, hoping that it will work one more time. Unfortunately, the interest rate lever cannot fix our current ills…this was merely a psychological shot in the arm, meant to let the world know that the Central Banks are taking all this seriously. A measure meant to add confidence to an economic system that operates on confidence.
by
Chris Martenson
I have long advocated that owning physical gold is the cornerstone of a prudent portfolio. How much is up to you, but in my estimation it should be somewhere north of 10% of your total holdings.
I have recently had difficulty trying to help a few individuals obtain the gold and/or silver they desired. In my 6 years of being a very active gold/silver investor, I have never seen anything like this. Product is hard to find, and getting harder.
The "official price," as set by the paper traders in the NY Comex pits, is miles away from the actual price you’d have to pay to actually get real physical gold, and growing wider by the week.
This "spread" between the "official" spot price and the real price you’d have to pay has doubled for gold in the past month and is now a whopping 40% for quality silver product.
And that’s if you can find any.
Today the US mint announced that "due to high demand" they are ceasing production of a wide range of gold products.
[quote]US Mint halts some American Eagle coin production
NEW YORK, Oct 7 (Reuters) – Unprecedented demand for precious metals and volatile markets forced the U.S. Mint to cease production for the half-ounce and quarter-ounce popular American Eagle gold coins for the rest of this year and to supply other bullion coins on an allocation basis.[/quote]
The ‘explanation’ given is that with demand so high the mint has decided to cease production so that it can "catch up". I am no production expert, but halting production seems like an odd way to go about "catching up".
What makes more sense to me is that the US Mint is running out of stock material with which to work. That fits the decision like a t-shirt that’s three sizes too small.
At Colorado Gold, a very reliable gold dealing website, these messages now grace the front page:
[quote]Gold: No Credit Suisse, Buffalos, Maple Leafs, or tenth ounce or half ounce Gold Eagles till you see it here
Silver: SORRY. NO SILVER ORDERS ACCEPTED TILL ALL EXISTING ORDERS ARE FILLED. THE MINTS WILL NEVER CATCH UP, IF ORDERS KEEP PILING UP. IT COULD BE SEVERAL WEEKS BEFORE SILVER ORDERS ARE ONCE AGAIN TAKEN.[/quote]
Physical gold market “on fire”
by Chris MartensonI have long advocated that owning physical gold is the cornerstone of a prudent portfolio. How much is up to you, but in my estimation it should be somewhere north of 10% of your total holdings.
I have recently had difficulty trying to help a few individuals obtain the gold and/or silver they desired. In my 6 years of being a very active gold/silver investor, I have never seen anything like this. Product is hard to find, and getting harder.
The "official price," as set by the paper traders in the NY Comex pits, is miles away from the actual price you’d have to pay to actually get real physical gold, and growing wider by the week.
This "spread" between the "official" spot price and the real price you’d have to pay has doubled for gold in the past month and is now a whopping 40% for quality silver product.
And that’s if you can find any.
Today the US mint announced that "due to high demand" they are ceasing production of a wide range of gold products.
[quote]US Mint halts some American Eagle coin production
NEW YORK, Oct 7 (Reuters) – Unprecedented demand for precious metals and volatile markets forced the U.S. Mint to cease production for the half-ounce and quarter-ounce popular American Eagle gold coins for the rest of this year and to supply other bullion coins on an allocation basis.[/quote]
The ‘explanation’ given is that with demand so high the mint has decided to cease production so that it can "catch up". I am no production expert, but halting production seems like an odd way to go about "catching up".
What makes more sense to me is that the US Mint is running out of stock material with which to work. That fits the decision like a t-shirt that’s three sizes too small.
At Colorado Gold, a very reliable gold dealing website, these messages now grace the front page:
[quote]Gold: No Credit Suisse, Buffalos, Maple Leafs, or tenth ounce or half ounce Gold Eagles till you see it here
Silver: SORRY. NO SILVER ORDERS ACCEPTED TILL ALL EXISTING ORDERS ARE FILLED. THE MINTS WILL NEVER CATCH UP, IF ORDERS KEEP PILING UP. IT COULD BE SEVERAL WEEKS BEFORE SILVER ORDERS ARE ONCE AGAIN TAKEN.[/quote]
by
Chris Martenson
Fed Boosts Cash Auctions to $900 Billion, May Do More
by Chris Martenson
by
Chris Martenson
Europe is a real mess
by Chris Martenson
by
Chris Martenson
Bailout Bill Passes – Markets Plunge
by Chris Martenson
by
Chris Martenson
While I consider the employment report to be among the Fuzziest of Numbers, I still look at it when it comes out (like it did this morning at 8:30 a.m.) because there is some value in the trend, even if the number itself is not worth much.
Plus, seeing the amount of fudging in the Birth-Death model is one of my favorite activities, because I think it provides insight into just how unreliable government statistical models really are.
[quote]WASHINGTON (MarketWatch) – U.S. employment fell by 159,000 in September, the worst job losses since March 2003, the Labor Department reported Friday.[/quote]
This would have, of course and as always, been even worse had the infamous Birth-Death model not inexplicably added 42,000 jobs to the count.
Payrolls fall by 159,000 in September
by Chris MartensonWhile I consider the employment report to be among the Fuzziest of Numbers, I still look at it when it comes out (like it did this morning at 8:30 a.m.) because there is some value in the trend, even if the number itself is not worth much.
Plus, seeing the amount of fudging in the Birth-Death model is one of my favorite activities, because I think it provides insight into just how unreliable government statistical models really are.
[quote]WASHINGTON (MarketWatch) – U.S. employment fell by 159,000 in September, the worst job losses since March 2003, the Labor Department reported Friday.[/quote]
This would have, of course and as always, been even worse had the infamous Birth-Death model not inexplicably added 42,000 jobs to the count.
by
Chris Martenson
While we all pay attention to the stock market and the failout, er, bailout bill and such, behind the scenes the credit markets are continuing to signal record levels of stress in the banking system.
First, the TED spread (definition here, worth your time if you are unfamiliar), a traditional measure of banking stress, hit another recent high today at 3.62 and closed the day at 3.61 – pretty much right at the high of the day.
A second measure of the reluctance of banks to lend to each other is the "Swap Spread," which hit a record today. Not a ‘recent record,’ but a record.
[quote]Oct. 2 (Bloomberg) — The spread between the rate on a two-
year interest-rate swap and surged to a record
as money-market rates climbed and concern increased about the
success of a proposed U.S. financial-rescue package. [/quote]
Together these measures tell us that banks are not lending to each other. They don’t trust each other. When banks don’t trust banks it is not a big stretch to conclude that they don’t trust anybody else either. This is a direct measure that the credit markets are in complete disarray.
A third measure is the London Interbank Offered Rate or LIBOR, which hit the second highest rate of the year today at 4.21%.
As reported today in CFO magazine:
[quote]The recent rise in Libor rates is a dire warning to borrowers that
interest rates won’t be dropping any time soon, according to a report
issued by Merrill Lynch.
Libor is the benchmark interest rate banks charge each other for short-term loans. The rate is based on what the world’s most creditworthy banks charge each other, so it is a starting point for the interest rates lenders charge less creditworthy borrowers — such as corporations. The rise in Libor is worrisome, emphasizes Merrill, because the rate is used to set the terms for numerous financial transactions.[/quote]
I recently wrote that September 19 would be remembered as the day that the markets changed forever. We are only now finding out why the extraordinary steps of that week were taken:
[quote]The credit crisis has played out in places most people cannot see.
It is banks refusing to lend to other banks – even though that is one
of the most essential functions of the banking system. It is a loss of
confidence in seemingly healthy institutions like Morgan Stanley and
Goldman – both of which reported profits, even as the pressure was
mounting. It is panicked hedge funds pulling out cash.
It is frightened big investors protecting themselves by buying
credit default swaps – a financial insurance policy against potential
bankruptcy – at prices 30 times what they normally would pay.
It was this 36-hour period two weeks ago – from the morning of Sept.
17 in New York and Washington, to the afternoon of Sept. 18 – that
spooked policy makers by opening fissures in the worldwide
financial system.
In their rush to do something, and do it fast, the Federal Reserve
chairman, Ben Bernanke, and the Treasury secretary, Henry Paulson Jr.,
concluded that the time had come to use the "break-the-glass" rescue
plan they had been developing.[/quote]
In short, most of the direct market action that you and I can observe from out here in the cheap seats is only minimally telling the tale of just how profound this crisis really is.
$700 billion? A meaningless amount, concocted in a moment of fear, that almost certainly has no bearing on the final amounts, whatever they may be.
Take care and be nimble. Things are shifting rapidly.
Credit Crisis Worsens
by Chris MartensonWhile we all pay attention to the stock market and the failout, er, bailout bill and such, behind the scenes the credit markets are continuing to signal record levels of stress in the banking system.
First, the TED spread (definition here, worth your time if you are unfamiliar), a traditional measure of banking stress, hit another recent high today at 3.62 and closed the day at 3.61 – pretty much right at the high of the day.
A second measure of the reluctance of banks to lend to each other is the "Swap Spread," which hit a record today. Not a ‘recent record,’ but a record.
[quote]Oct. 2 (Bloomberg) — The spread between the rate on a two-
year interest-rate swap and surged to a record
as money-market rates climbed and concern increased about the
success of a proposed U.S. financial-rescue package. [/quote]
Together these measures tell us that banks are not lending to each other. They don’t trust each other. When banks don’t trust banks it is not a big stretch to conclude that they don’t trust anybody else either. This is a direct measure that the credit markets are in complete disarray.
A third measure is the London Interbank Offered Rate or LIBOR, which hit the second highest rate of the year today at 4.21%.
As reported today in CFO magazine:
[quote]The recent rise in Libor rates is a dire warning to borrowers that
interest rates won’t be dropping any time soon, according to a report
issued by Merrill Lynch.
Libor is the benchmark interest rate banks charge each other for short-term loans. The rate is based on what the world’s most creditworthy banks charge each other, so it is a starting point for the interest rates lenders charge less creditworthy borrowers — such as corporations. The rise in Libor is worrisome, emphasizes Merrill, because the rate is used to set the terms for numerous financial transactions.[/quote]
I recently wrote that September 19 would be remembered as the day that the markets changed forever. We are only now finding out why the extraordinary steps of that week were taken:
[quote]The credit crisis has played out in places most people cannot see.
It is banks refusing to lend to other banks – even though that is one
of the most essential functions of the banking system. It is a loss of
confidence in seemingly healthy institutions like Morgan Stanley and
Goldman – both of which reported profits, even as the pressure was
mounting. It is panicked hedge funds pulling out cash.
It is frightened big investors protecting themselves by buying
credit default swaps – a financial insurance policy against potential
bankruptcy – at prices 30 times what they normally would pay.
It was this 36-hour period two weeks ago – from the morning of Sept.
17 in New York and Washington, to the afternoon of Sept. 18 – that
spooked policy makers by opening fissures in the worldwide
financial system.
In their rush to do something, and do it fast, the Federal Reserve
chairman, Ben Bernanke, and the Treasury secretary, Henry Paulson Jr.,
concluded that the time had come to use the "break-the-glass" rescue
plan they had been developing.[/quote]
In short, most of the direct market action that you and I can observe from out here in the cheap seats is only minimally telling the tale of just how profound this crisis really is.
$700 billion? A meaningless amount, concocted in a moment of fear, that almost certainly has no bearing on the final amounts, whatever they may be.
Take care and be nimble. Things are shifting rapidly.
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