In the last three months, I’ve read the following from Ben Bernanke and his Fed governors:

We will continue asset purchases at the rate of $85 billion per month until the employment picture improves to pre-2009 levels;

We will taper asset purchases in the months to come, eventually ending them in 2014;

We will increase asset purchases if continued weakness in the economy justifies it;

We may taper asset purchases in the near future;

We may not taper asset purchases in the near future;

We will taper asset purchases soon;

We won’t begin tapering asset purchases until 2014.

Now I’m not entirely certain, but sometimes my hearing is a little sketchy, and for all I know, I’m hearing “paper asset purchases” as opposed to “taper”.

Essentially, the Fed can now do anything it wants with its asset purchase program, and will be able to say with a straight face, that this is exactly what was planned back in 2013.

In other words, the Fed has lost all credibility. 

……read more HERE

Portuguese borrowing costs topped 8 percent for the first time this year after two ministers quit, signaling the government will struggle to implement further budget cuts as its bailout program enters its final 12 months.

Secretary of State for Treasury Maria Luis Albuquerque replaced Vitor Gaspar at the Ministry of Finance. That prompted Paulo Portas, who leads the smaller CDS party in the coalition government, to quit, saying the new minister would offer “mere continuity” of the country’s deficit-cutting plans.

“It sounds the alarm bell of austerity fatigue,” said David Schnautz, a strategist at Commerzbank AG in New York. “This domestic noise is definitely negative.”

…..read more HERE

Closing comments by Mark Leibovit:

Stocks began the shortened session on a lower note as global events injected a degree of uncertainty into the market.

In Egypt, President Mohammed Morsi was removed from his post through a military coup after he failed to answer the demands of protesting crowds within the timeframe specified by the country’s armed forces.

Gold prices ended the U.S. day session moderately higher Wednesday, on some safe-haven demand amid geopolitical tensions, and on more short-covering and bargain hunting. A weaker U.S. dollar index Wednesday’s was also a positive for the gold and silver markets. August gold was last up $8.90 at $1,252.10 an ounce. Spot gold was last quoted up $7.70 at $1,250.75. September Comex silver last traded up $0.421 at $19.72 an ounce.

Elsewhere, Portugal returned to headlines after two key government officials (finance minister and foreign minister) submitted their resignations. In addition, reports indicate two more ministers (agriculture and social security) are set to follow suit. Prime Minister Pedro Passos Coelho is scheduled to meet with the country’s president tomorrow to discuss the ongoing situation. As a result, the country’s benchmark 10-yr yield spiked 85 basis points to 7.31%. In addition Portugal’s PSI index fell 5.3%. The concerns regarding the country’s future spilled over to other peripheral economies. Italy’s 10-yr yield climbed 11 basis points at 4.51% while Spain’s benchmark 10-yr yield jumped 14 basis points to 4.70%.

Equities fought back from their opening losses with the technology space pacing the advance.

Today’s economic data was plentiful.

The initial claims level decreased from an upwardly revised 348,000 (from 346,000) for the week ending June 15 to 343,000 for the week ending June 29. The Briefing.com consensus pegged the initial claims level at 348,000.

For the past several weeks, the initial claims level has moved in a slight sawtooth pattern, but overall, trends have been relatively flat. Labor conditions have not materially changed over this time.

June ADP Employment Change came in at 188,000 while the Briefing.com consensus expected a reading of 150,000. In addition, June Challenger Job Cuts rose 4.8% year-over-year to follow the prior month’s decline of 41.2%.

The June ISM Services Index was reported at 52.2, below the 54.0 forecast by the Briefing.com consensus, and down from the May reading of 53.7.

Separately, the U.S. trade deficit widened to $45.0 billion in May from an upwardly revised $40.1 billion (from $40.3 billion) in April. That was the largest deficit since November 2012. The Briefing.com consensus expected the trade deficit to increase to $40.8 billion.

The goods deficit rose to $63.4 billion in May from $58.4 billion while the services surplus increased to $18.4 billion from $18.3 billion.

May exports fell by $0.5 billion from $187.6 billion in April to $187.0 billion.

Bond and equity markets will be closed tomorrow in observance of Independence Day. On Friday, June nonfarm payrolls, nonfarm private payrolls, average workweek, hourly earnings, and the unemployment rate will all be reported at 8:30 ET.

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IN THE NEWS:
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Will Tightening Cure as Carney Takes Over in Britain?

As Mark Carney arrives at the Bank of England, are we seeing the end of QE? … Mark Carney votes for the first time on the Monetary Policy Committee … will be a seminal decision, albeit one the rest of the country won’t discover until the minutes are published on July 17. The new Bank of England Governor has to choose whether to follow his predecessor Sir Mervyn King and call for more quantitative easing (QE), or to vote with the majority of the committee and judge that the £375bn already injected is enough. – UK Telegraph

Ed Note: For a VRTRADER.COM Trial Signup go HERE

They say that one sign of creeping old age is that memories from past decades are more vivid than those from past days or weeks. They’re right. I don’t remember what I had for lunch yesterday but clearly recall bragging about refinancing our mortgage for 6% back in the early 2000s. That was a killer rate at the time, and my thought was that if banks were dumb enough to give us such cheap money for 30 years, then we should take as much as possible.

This illustrates the relaxed attitude about debt that a lot of baby boomers had back then, and also the way the previously-unthinkable becomes normal after a while. Where a 6% mortgage seemed cheap ten years ago, now 4% seems expensive. And apparently even 4% is now in the rear view mirror:

Say goodbye to ultralow mortgage rates

CHICAGO (MarketWatch)—Mortgage rates spiked over the past week, causing some to believe the ultralow rates of recent years could be gone for good.

The 30-year fixed-rate mortgage averaged 3.93% last week, according to Freddie Mac’s weekly survey of conforming mortgage rates. But the results to be released this Thursday could very well shock the average mortgage shopper, as the average rate for the 30-year mortgage could move closer to 4.5%—or maybe even higher than that, said Dan Green, loan officer with Waterstone Mortgage in Cincinnati.

“Since Wednesday morning [June 19], pricing is worse by roughly four points. This means that last week’s zero-point rate of 4.25% would require four discount points today,” Green said. A point is 1% of the mortgage amount, charged as prepaid interest.

“Since May 1, rising mortgage rates have reduced the purchasing power of U.S. home buyers by 18%,” he said.

Surveys by HSH.com pegged the conforming 30-year fixed-rate mortgage at 4.56% on Tuesday, said Keith Gumbinger, vice president of the consumer loan information firm. That’s up from 4.33% on Friday.

Mortgage rates started rising last week, after Federal Reserve Chairman Ben Bernanke spoke of the Fed’s intention later this year to scale back the stimulus program that kept rates low. Rates jumped again over the weekend, a reflection of the unsettled market.

Gumbinger said it’s likely the market overreacted and that mortgage rates could move downward. But it’s probable that very low rates are gone for good. “Do I think we’re going back to 3.5%? No. Do I think we should be closer to 4% than 4.5%? Probably,” he said.

Even if market did overreact, it doesn’t necessarily mean that rates will reverse, Green said. “Mortgage rates are trading on fear and sentiment, and right now those forces are pulling rates higher.”

What it means for housing

The rate spike reduces the number of people who could benefit from a refinance. When people save on their mortgage each month, that extra money in their pockets can be spent elsewhere, also helping the economy.

But the new concern, Gumbinger said, is how much rising rates will affect the housing market recovery.

Even assuming a 30-year mortgage with a 4.33% rate, the monthly payment on a median-priced existing home has risen by 11% from the low at the beginning of May, Gumbinger figured. That also assumes a 20% down payment. The median-priced existing home was $208,000 in May, according to the National Association of Realtors.

“Active home buyers, and there are a lot of them, are finding that their purchasing power has decreased,” Green said. “It’s not enough that there’s a race to beat rising home prices, but there’s a race to beat rising interest rates.” Prospective buyers may now need to make new choices between amenities, or in the size of house that they can afford, he said.

Borrowers on the cusp of affordability to begin with could become priced out of the market in a rising-rate environment, Gumbinger said.

Some Thoughts
Mortgage rates are a crucial piece of the transition to a post-quantitative easing economy. “Normal”, historically, would be 7%, or roughly double the rate that ignited the past year’s mini-housing bubble.

What would this do to the average buyer’s ability to get out of their existing house and into a bigger, better one? It would definitely change the calculation for the worse, but how much worse? The answer is probably not within the housing market but the overall economy. Things nearly fell apart back in 2009 because society-wide debt had grown to unmanageable levels. The only way to keep the system together was for interest rates to fall to the point where debt service costs were commensurate with a much smaller debt load.

In the ensuing four years we’ve lowered consumer debt a bit but replaced it with a more-or-less equal amount of government debt. So the system remains just as leveraged as it was in 2008. The plan seems to be to take that same amount of leverage and impose the interest rates on it that were in place in 2008, and to hope for a different outcome. As with so many other things, you have to wonder if they’ve thought this through.

also from John:

Developing Crisis in the Developing World

Things have been a little erratic lately here in US, but not really headline-worthy. The economy continues to grow, sort of, houses continue to sell and stock and bond prices fluctuate but can’t seem to follow through in either direction. We are not, in short, engulfed in any kind of crisis.

But out in the world, especially in once-hot emerging markets like Brazil and China, the story is very different. As Prudent Bear’s Doug Noland explains in his most recent Credit Bubble Bulletin:

Quotable

“The way to build superior long-term returns is through preservation of capital and home runs…When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.”

Stanley Druckenmiller

Commentary & Analysis

The weekly charts below (shared with our forex service members yesterday) continue to support our view the US dollar is in a longer term bull trend against the pack..The charts include wave count, 21- vs. 55-day exponential moving average, and MACD (moving average

convergence divergence oscillator).

Key summary:

• Interesting that EUR/USD & USD/CHF only now entering a 21 vs. 54-week moving average
• crossover, i.e. EUR/USD down and USD/CHF up.
• AUD/USD appears oversold on the MACD; but clearly the trend is down
• GBP/USD following the triangle wave pattern very nicely
• USD/JPY looks to go much higher; looking oversold at the moment weekly.

USDollar Index Weekly

……the Canadian chart & all other currencies can be see HERE