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Why Interest Rates Don’t Need To Rise Much To Cause Recessions Now

Authored by Jesse Colombo via RealInvestmentAdvice.com, As the probability of a U.S. recession in the next year grows rapidly (it may be as high as 64%), many bullish economists and financial commentators are unsurprisingly downplaying this risk. One of their main arguments is that interest rates have not been hiked aggressively enough to tip the economy over into a recession. While it is true that U.S. interest rates are still very low by historic standards, the reality is that rates do not have to rise anywhere near as high as they did in the past to cause recessions due to America’s debt load that has grown dramatically over the past several decades. Since the early-1980s, total U.S. debt – both public and private – has been growing at a faster rate than the underlying economy, as measured by the nominal GDP: As a result of debt growing faster than our underlying economy, America’s debt as a percent of GDP soared from just over 150% in the early-1980s to approximately 350% in recent years. This higher debt burden is the reason why our economy simply cannot handle interest rates as high as they were before 2008. Particularly worrisome is the fact that U.S. federal debt is at a record of over 100% of the GDP (vs. 62% before the Great Recession), which will make it a much greater challenge to keep the economy afloat in the coming...

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2 Year Auction Unexpectedly Strong Just As Powell Pours Cold Water On Treasuries

In the chaos over Powell’s unexpectedly less dovish comments which hit the tape at exactly 1pm, when sent stocks lower, and the dollar and bond yields sharply higher, the primary market had no time to react as it had already submitted its indications for today’s $40 billion 2 Year auction when Powell suddenly pulled the rug from under the bond market, sending 2Y yields higher and yet since there was solid demand for the auction before Powell’s commentary, the sale of 2Y bonds was a smashing success, stopping at a high yield of 1.695%, 1bp inside the 1.705% When Issued, the 6th consecutive 2Y auction that did not tail. This was the lowest 2Y yield since October 2017, and 43bps below May’s 2.2125%. The bid to cover came in at 2.576, modestly lower than May’s 2.745, if just above the 2.54 six auction average. Finally, the internals were unremarkable with foreign buyers, i.e. Indirects taking 48.5% up from 46.6% last month, and on top of the 47.9% average. And with Directs taking down 24.2%, well above the 17.7% average, Dealers were tstuck with 27.3%, modestly above May’s 26.2 but only the second lowest print of 2019. Overall, a very strong auction which could have had a far different outcome if Powell’s prepared remarks had hit just an hour...

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Silence From White House As Russia Again Parks A Military Plane In Venezuela

Though US external pressures on the Maduro regime in Caracas appear to have calmed for the moment, with President Trump reportedly “bored” with pursuing regime change in a complicated political climate that’s “low-hanging fruit” for American foreign policy goals, continued Russian military involvement there could again spark ratcheting tensions.  On Monday a large Russian air force transport plane touched down in Caracas (specifically an Ilyushin IL-62), as first noticed by the monitoring website Flight Radar 24, and now confirmed by Russia’s Deputy Foreign Minister Sergei Ryabkov on Tuesday, according to the Interfax news agency. Ryabkov described the deployment’s purpose as to service Russian military equipment already in the country, as reported by Reuters.  Russian military transport plane in Caracas. Image source: Manaure Quintero/Reuters Just three months ago a similar Russian air force plane arrival resulted in condemnations out of the White House. At that time Trump said that “Russia has to get out” amid US efforts to back opposition leader Juan Guaido. And John Bolton went further in essentially invoking the 19th century Monroe doctrine, saying at the time: “We strongly caution actors external to the Western Hemisphere against deploying military assets to Venezuela, or elsewhere in the Hemisphere, with the intent of establishing or expanding military operations” comments which came in late March . Given Trump’s latest expressed desire to get out of the regime change business in Venezuela, will Monday’s Russian jet landing in Caracas be...

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Can AI Save The Nuclear Industry?

Authored by Haley Zaremba via OilPrice.com, Attitudes about nuclear energy are changing, with pundits on both sides of the aisle touting its benefits for extremely efficient and relatively clean energy. Despite an ever more positive public opinion, the nuclear industry in the United States, the largest in the world, is currently experiencing a downturn, even going so far as to need government subsidies to keep afloat. In fact, at present the fastest growing sector of the nuclear industry is profiting not off of growth, but off of the nuclear sector’s slow death in the United States. According to reporting by Bloomberg, “the fastest growing part of the nuclear industry in the U.S. involves a small but expanding group of companies that specialize in tearing reactors down faster and cheaper than ever before.” this statement begins the article appropriately entitled “Fastest-Growing Nuclear Business Is Tearing Down U.S. Plants“. Tearing down old nuclear reactors is no easy feat, however. Not only is it historically extremely expensive, it’s also highly hazardous. Even in nuclear plants in good condition, it’s a job that requires the utmost level of care and a ton of specialized gear in order to protect workers from radioactive materials. “Those who do handle radioactive material must first don protective suits that are inherently cumbersome and are further encumbered by the air hoses needed to allow the wearer to breathe,” a report from the Economist details. “Even...

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Stocks Extend Losses After Bullard, Powell Comments

Update: Fed Chair Powell is speaking now and is less than his recently dovish self. Signaling that they will “monitor,” Powell added that “damage arises when policy bends to political interests” seemingly signaling a more hawkish bias than the market’s greed requires… *  *  * St.Louis Fed President Jim Bullard – and uber-dove – has apparently decide to distance himself from going ‘full-Kashkari’ by noting while “it seems like a good time for an insurance rate-cut,” the situation “doesn’t call for 50bps.” *BULLARD: SITUATION DOESN’T CALL FOR 50 BASIS POINT RATE CUT@neelkashkari to Trump: “fire this traitor and make me Fed emperor: I got you NIRP next month” — zerohedge (@zerohedge) June 25, 2019 Unfortunately the market needs moar (40% odds priced in of a 50bps cut)… And so stocks tumbled to show their disapproval Don’t worry though, Bullard assures the American public that “he has no immediate concerns about asset bubbles” unlike Kaplan. Treasury yields spiked… As did the dollar… And the dollar’s gain was gold’s loss… Will The Fed fold even...

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