Digital Gold? Bitcoin Rebounds From Correction While US Dollar Weakens

Yes, the US Dollar is FIAT currency (not backed by a precious commodity like gold, silver or even iron pyrite).

Bitcoin, the largest crypto-currency, has more than recoverd from the “correction” last week. It has resumed its all-time high price This is happening as the US Dollar weakens.

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Here is Bitcoin relative to Gold. Check out their relative performance since September.

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Is it digital gold? Well, Bitcoin is an alternative to FIAT currency like the US greenback, the Euro and the Yen. The massive expansion of Central Bank balance sheets has certainly concerned investors.

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An example of an 1899 $5 silver certificate.

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US Industrial Production Rises To 2.88% YoY, Capacity Utilization Rises To 77% (M2 Velocity Still Dead)

Call it rebound from the horrible hurricanes in Texas, Florida and even Georgia. The October Industrial Production numbers are out and IP YoY climbed to 2.88%.

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Capacity utilization rose to 77%, although it is still below the Fed target (not spoken of recently) of 80%. The last time was 80% Capacity Utilization was during the housing bubble.

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The problem is that M2 Money Velocity (GDP/Money Stock) remains at an all-time low.  Although we are seeing a stabilization in labor force participation.

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The US Federal Reserve is printing currency (M2) at a rate almost twice as fast as Industrial Production growth.

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Here is a photo of a young Janet Yellen contemplating print more and more money.`

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M2 Money Velocity Rises Above All-time Low In Q3 ’17 (While Stock Market Momentum Increases To Highest Since dot.com Bubble)

M2 Money Velocity (GDP/M2 Money Stock) actually rose in Q3 2017 to 1.4282.

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At least it rose above the all-time from Q2 of 1.428.

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As M2 Money growth continues to be >2x real GDP growth YoY.

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Yet momentum in the stock market is the greatest since the dot.com bubble.

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Well, Fed Chair Janet Yellen keeps telling us everything is groovy.

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US Treasury 10Y-2Y Slope Drops To Near 10 Year Lows (Ahead Of Fed FOMC Meeting)

It is doubtful that we will learn much from today’s Open Market Committee (FOMC). Hopefully we will get additional clarity on the Fed Balance Sheet unwind schedule (it was supposed to start in October and it is now November).

Ahead of the meeting, both the 10Y-2Y and 30Y-5Y Treasury slopes fell to near 10 year lows.

And the 10 year Treasury Note volatility index, TYVIX, remains near historical lows.

And just a reminder, core PCE prices YoY (“inflation”) is at 1.33%, well below the 2% Fed target rate for inflation.

Well, apparently Janet Yellen and The FOMC aren’t following the Taylor Rule (or ANY  rule that I can detect).

I am sure that Janet Yellen would like to lock up John Taylor (in gold) and throw away the key.

Big Bubbles: Endless Printing and Rate Suppression Have Created The Mother of All Asset Bubbles

Crooner Don Ho almost got it right in his signature song “Tiny Bubbles.” But it is now “BIG BUBBLES in the economy, make me nervous all over, with a feeling that I’m gonna lose it it all.”

Check it out. Home prices are seemingly unstoppable and the S&P500 index is relentless. The unstoppable asset price bubbles started in the mid-1990s when M2 Money Velocity peaked. The housing bubble burst then rallied back it bubble levels again, but the stock market has outpaced its former glory.

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Of course, the M2 Money stock is over 3 times greater than in 1995 (that’s a lot of printing!) and interest rates have been depresssed since December 2008.

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Now, The Federal Reserve is tapping the brakes by ever-so-slowly raising The Fed Funds Target Rate while at the same time slowing M2 Money Supply YoY (we are now at the slowest YoY growth rate of money since early 2011. Next up? Today’s FOMC meeting.

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Big bubbles thanks to Central Banks.`tinybuubl

Spending Bubble? Federal Government Spends 3x Tax Receipts

While some are preoccupied (like me) with how the next Federal Reserve Chair is going return to monetary normality (and unwinded the $4.4 trillion balance sheet), others (like me) worry about the unsustainability of US Federal spending. Particulalry how much politicians have promised Americans in terms of entitlements.

Here is a chart showing Government total expenditures (red line) along with their source of taxes (personal in green and corporate in purple). The total Federal current tax receipts is in blue. As of Q2 2017, total expenditures exceed current tax receipts (personal and corporate) by 3 times (or 3x).

With M2 Money Velocity at a historic low, printing more money isn’t doing the trick.

And with unfunded liabilities (GAAP) at $108.7 TRILLION (around $900,000 per taxpayer), the Federal government has a spending problem.

Yes, mandatory (entitlements such as Social Security, Medicare and Medicaid) going hyperbolic, discretionary spending is being crowded out and is predicted to decline.

When we included the grossly underfunded public pensions, the big scarcity in the near future is where governments are going to come up with all the money thay have promised.

Yes, Congress is “over the line.” And has been for some time.

If Jeffrey Lebowski running Congress??

TIPS Auction Points to Inflation Below Fed Target for Decades

(Bloomberg) — As traders prepare to underwrite $5 billion of inflation-linked Treasuries on Thursday, they’re as confident as ever that the Federal Reserve’s predicted inflation rebound won’t materialize at any point in the next 30 years.

Low inflation, which Fed Chair Janet Yellen last weekend called “the biggest surprise in the U.S. economy this year,” has been a fact of life for years in the $1.29 trillion market for Treasury Inflation Protected Securities. The market-implied inflation expectation signaled by five-year TIPS has rarely been above the 2 percent mark since 2013.

There’s an even stronger signal that traders see little pickup in consumer prices for a generation to come, especially with the Fed intent on tightening monetary policy. The anticipated inflation rate implied by 30-year TIPS yields, at 1.91 percent, is a mere 18 basis points above that on five-year TIPS, among the narrowest gaps seen in the past two decades.

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The bond market’s view shows the Fed has some convincing to do that the economy will reach and sustain officials’ inflation goal of 2 percent, expressed in terms of the deflator for personal consumption expenditures. TIPS reflect expectations for the consumer price index, which historically has exceeded the PCE deflator by about 40 basis points on average. So if the Fed were expected to meet its goal, the TIPS breakeven rate should be at least 2.40 percent.

The TIPS breakeven rate is only 1.76%. And has mostly been below 2% since early 2013.

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And with the US Treasury 10 year Note yielding 0.64% in real terms, …

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With almost 100 million people NOT in the labor force, that might have something to do with the puzzling lack of inflation.

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