Last Thursday, Wells Fargo was fined $185 million (including a $100 million penalty imposed by the Consumer Financial Protection Bureau, its largest penalty ever) for engaging in pervasive fraud. What they did will shock you. Since 2011, the bank opened 1.5 million bank accounts and “applied” for 565,000 credit cards that were not authorized by their customers. Bank employees created fake email accounts and issued fake PIN numbers to sign up customers for online banking services and new credit cards without the knowledge or authority of customers.
In March 2015, the European Central Bank (ECB) began its journey into Quantitative Easing, setting up to buy €60 billion in bonds monthly. The total was soon raised to €80 billion per month. In the 18 months since, the ECB has now purchased over €1 trillion in government (and corporate) bonds, bringing the ECB balance sheet to nearly Federal Reserve levels as this chart shows.
As I wrote two days ago, the world’s central bankers have spent the last seven years pushing interest rates toward zero and below. In response, millions of financial operators and capital users have scoured the globe looking for ways to profit from the lowest interest rates in history. Their favourite method was to create and sell higher yielding debt to institutional and individual investors desperate for income, thereby creating the next sub-prime take-down that will be worse than 2008.
The world’s central bankers have spent the last seven years pushing interest rates toward zero and below. At the same time, millions of financial operators and capital users have scoured the globe looking for ways to profit from it. Their favourite method was to create and sell higher yielding debt to institutional and individual investors anxious for income.
Last Friday we got the latest wisdom from Janet Yellen, Fed Chair, in a speech to the Jackson Hole conference for central bankers and other assorted Marxists. It was a wonderful example of how to confuse and baffle markets.
The latest U.S. manufacturing PMI report shows once again how the market seizes on good news to make the case that the recovery is here…and then ignores the inevitable lack of follow-through. August’s preliminary manufacturing PMI printed a disappointing 52.1 (against expectations of 52.6). Weakness in Employment (lowest in 4 months) and New Orders underpinned the drop from 52.9 in July as a two month long bounce faded away.
According to Stephen McBride of Mauldin Economics, the current market cap of the world’s entire gold industry now stands at $324.4 billion. That’s a little less than the market value of Amazon and less than half of Apple.
On June 5, 2014 the ECB officially announced that the interest rate on its deposit facility for commercial banks would go negative. NIRP (Negative Interest Rate Policy) was born. It was only a question of time before the impact of NIRP worked its way down to the consumer. And now it has. Last week, Raiffeisen Gmund am Tegernsee, a German cooperative savings bank in Bavaria, became the first to give in to the ECB’s monetary repression, announcing it will start charging retail customers to hold their cash. Starting in September, Raiffeisenbank will charge a 0.4% interest rate on savings in excess of €100,000 euros.
Market pundits are back to predicting a more hawkish Fed and a greater likelihood of rate hikes in the near term because the last two jobs reports were good. How many times can investors fall for the same story?
As readers know, I think Durable Goods Orders are one of the best economic indicators available. Why? Because it’s real economic data, not a survey of business expectations like the ISM index. Durable Goods collapsed in June, down 4% from the prior month (versus expectations of -1.4%), the biggest drop since August, 2014. This represents a 6.6% decline from one year ago. Meanwhile, core durable goods orders have now posted year-over-year declines for 18 straight months, the longest streak of declines in U.S. history outside of a major recession.