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Fed’s Williams says new economic outlook necessary for rate hikes

New York Fed President John Williams on Tuesday said he was comfortable with the level U.S. interest rates are at now, and sees no need to raise them again unless growth or inflation shifts to an unexpectedly higher gear.

In an interview with Reuters, Williams estimated the Fed would continue trimming its bond portfolio well into next year. He also said he felt rates had reached his current view of a lower “neutral” level, with growth and unemployment leveling off and inflation, if anything, a bit weaker than hoped for.

Asked if it would take some sort of shock to resume rate increases, he said it would require one or more of those factors to surprise to the upside.

“I don’t think that it would take a big change, but it would be a different outlook either for growth or inflation” to return to hiking rates, Williams, one of the Fed’s three vice chairs and a key voice on rate policy, told Reuters.

Williams’ comments, made just weeks after the central bank paused its once quarterly rate hikes, underscore just how high the bar would be for tighter monetary policy, and suggest that such a move may not come anytime soon.

The Fed could also keep levels of bank reserves on its books that are far closer to current levels than previously thought, Williams said.

Along with its rate-hike holiday, Fed policymakers are currently finalizing plans on how they would end the reduction of their balance sheet, which includes holdings of bank reserves bulked up in part by the Fed’s need for cash to buy bonds to halt the global financial crisis a decade ago.

Williams estimated the so-called balance sheet rolloff could end when bank reserves get to “maybe $1 trillion of reserves or somewhat more than that,” about $600 billion less than current levels. That implies the runoff would continue at least into next year at its current pace.

The figure is “a guess today of the amount of reserves that will be held in the system in the future – but again we are learning and will get a finer touch on that,” he said.

Williams, who is vice chairman of the rate-setting Federal Open Market Committee and votes when that group meets, said policymakers are “in a very good place” on policy, with rates around neutral, the U.S. economy in a strong place and pressures on prices subdued.

“Monetary policy is where it should be,” he said. “It’s around my view of what neutral interest rates are.”

After its most recent meeting, Fed policymakers signaled their three-year drive to tighten monetary policy may be at an end due to a suddenly cloudy outlook for the U.S. economy, a global growth slowdown and impasses over trade and government budget negotiations.

The Fed increased interest rates three times in 2017 and four times last year, pushing them up to 2.25 percent to 2.5 percent at its final 2018 meeting in December.

Further details on that policy meeting at the end of January are expected when the Fed releases records from its deliberations on Wednesday.

In recent days Cleveland Federal Reserve President Loretta Mester and Fed Governor Lael Brainard both said they supported ending the U.S. central bank’s unwinding of its bond holdings this year.

The Fed’s balance sheet ballooned to over $4 trillion in the wake of the 2007-09 recession but policymakers began trimming its bond holdings in the final months of 2017.

Further details on that policy meeting at the end of January are expected when the Fed releases records from its deliberations on Wednesday.


New Round of U.S.-China Trade Talks to Begin in Washington on Tuesday

U.S. President Donald Trump said on Tuesday that trade talks with China were going well and suggested he was open to pushing off the deadline to complete negotiations, saying March 1 was not a “magical” date.

Tariffs on $200 billion worth of Chinese imports are scheduled to rise to 25 percent from 10 percent by March 1 if the world’s two largest economies do not settle their trade dispute, but Trump has suggested several times that he would be open to postponing the deadline.

“They are very complex talks. They’re going very well,” Trump told reporters in the Oval Office. “I can’t tell you exactly about timing, but the date is not a magical date. A lot of things can happen.”

Trump said the real question would be whether the United States would raise the tariffs as planned.

“I know that China would like not for that to happen, so I think they’re trying to move fast so that doesn’t happen.”

On Tuesday, the United States and China launched a new round of talks in Washington, with follow-up sessions at a higher level scheduled for later in the week. The negotiations followed a week of talks in Beijing that ended last week without a deal but which officials said had yielded progress on some key issues.

Bloomberg reported on Tuesday that the United States as part of a trade deal was seeking to secure a pledge from China that it will not devalue its yuan currency.

Officials from the two countries, which resumed talks on Tuesday in Washington, are discussing how to address currency policy in a “Memorandum of Understanding” that would form the basis of a U.S.-China trade deal, the news agency reported, citing unnamed people involved in and briefed on the discussions.

U.S. Treasury Secretary Steven Mnuchin had told Reuters last October that currency issues must be part of U.S.-China trade negotiations and that Chinese officials told him that further depreciation of the yuan was not in their interests.

The Bloomberg report said the U.S. request for a pledge to keep the yuan’s value stable was aimed at neutralizing any effort by Beijing to devalue its currency to counter American tariffs.

Spokesmen for the U.S. Trade Representative’s office, which is leading the talks, and the U.S. Treasury, which leads currency policy, could not immediately be reached for comment.

Two days of negotiations between deputy-level officials began on Tuesday, led by Deputy U.S. Trade Representative Jeffrey Gerrish on the U.S. side. Higher-level talks involving Mnuchin and led by USTR Robert Lighthizer, are expected to begin on Thursday.

This week’s talks were aimed at “achieving needed structural changes in China that affect trade between the United States and China. The two sides will also discuss China’s pledge to purchase a substantial amount of goods and services from the United States,” the White House said in a statement issued late on Monday.

Trump, who is eager for a deal and has praised his counterpart, Chinese President Xi Jinping, while also insisting on structural changes to China’s practices related to intellectual property and forced technology transfers by companies doing business there, emphasized that progress was being made.

“I can only say that the talks with China on trade have gone very, very well,” he said.


Mexico: February 22 Recreational marijuana is legal

The First Chamber of the Supreme Court reported that there is jurisprudence for all judges to grant amparos to those who require it, for the recreational use of marijuana. The resolution will be published in 6 days.

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The recreational and recreational use of marijuana in Mexico is one step away from being achieved. The First Chamber of the Supreme Court of Justice of the Nation approved the eight jurisprudences that support the use of the herb for these purposes.

Once the ruling is published in the Judicial Weekly, all the federal judges of the country will be obliged to grant amparos to the persons who request them to consume marijuana in a legal manner.

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It is expected that on February 22 the judicial texts will be published in the Judicial Weekly of the Federation so that it is communicated to the judges of the country that must grant, without delay, the respective protections to any citizen that requires the permission to freely plant, harvest , transport and smoke, without commercial purposes and without affecting third parties.

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This First Chamber understands that the fundamental right to the free development of the personality allows, prima facie, that people of legal age decide without interference what type of recreational or recreational activities they wish to carry out, as well as carry out all the necessary actions or activities to be able to materialize said election ” , the thesis points out.

The jurisprudences derived from the five amparos resolved by the first courtroom between 2015 and 2018. One of them was the one that was granted, last June, to the former senator and exasperant to the Presidency of the Republic, Armando Ríos Piter ; the resolution protects him against any act of authority that prevents him from free consumption, acquisition of seed, until he prepares, possesses and transports cannabis.

Activists of the Mexican Society of Responsible Self-Consumption , the litigant Ulrich Richterand two other individuals, also have the protection of federal justice for the same purposes.

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After the publication of the jurisprudence in the official informative organ of the Judicial Power, the Congress of the Union shall be notified ; as of that moment, the legislators will have a period of 90 calendar days to modify or repeal the five articles of the General Health Law that prohibited the recreational and recreational use of marijuana and that were declared unconstitutional.

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” This First Chamber concludes that the prohibition contained in articles 235, last paragraph, 237, 245, section I, 247, last paragraph, and 248 of the General Health Law, effectively (…) constitute a legal obstacle that prevents the exercise of Right to decide what kind of recreational or recreational activities you want to perform, ” the document says.

For Sara Znapp , who promoted an amparo and is a co-founder of the RIA Institute (Mexico) and a member of the Collective Drug, Policy and Culture , said that processes are still pending to finalize the legalization of marijuana in Mexico.

He explained that they have had contacts with senators and federal deputies.

” We have requested a working group, where we could create a counterpoint of civil society and the health and safety committee in the Senate (…) we are getting closer, ” he said.

” What we have heard is that it will happen, there is political will, but it has been difficult with the political conjuncture , ” he said.

In case the Legislative Power omits the notice, the full Court will initiate the respective procedures to make the general declaration of unconstitutionality , whose effect is to expel from the Law the five unconstitutional articles.

This opens the door for anyone to start their own process before COFEPRIS, and then seek protection before a judge. Recall that case law does not bind any other authority than those of the judiciary, so neither the police, nor COFEPRIS, nor the Ministry of Health are obliged to recognize this right until the amparo is delivered.

In a few words, until you are protected, you still run the risk of being arrested for possession of cannabis. We invite readers to express caution with their consumption and not risk their safety.


Hey UK! It’s not just Venezuela, what happened to Australia’s gold?

Geopolitical and trade tensions along with US sanctions have shaken trust in the US dollar over recent years. As a result, a number of global central banks have been boosting their national reserves of gold bullion.

In 2018, world central banks added 651.5 tons to official gold reserves, as a greater pool of regulators turned to the precious metal as a diversifier, according to data released by the World Gold Council. Some countries, like Russia and Turkey increased their gold reserves while dumping US dollar holdings at the same time. India, China, Kazakhstan, Iraq, Poland and Hungary were among the other big purchasers of the yellow metal.

Net sales of gold from central banks reportedly remained insignificant, totaling less than 15 tons with Australia, Germany, Sri Lanka, Indonesia and Ukraine accounting for almost the entire figure.

While some countries opt to hold their bullion reserves domestically, others still trust their precious reserves to the central banks of other nations. Vaults in Paris, New York and London have become popular gold storages for many developing countries.

The Bank of England has kept a reported 80 tons of Australian gold for years. However, the UK regulator has not allowed Australia to carry out a proper audit of its bullion holdings. In an attempt to find out what happened to Australia’s gold RT talked to Ronan Manly, a precious metals analyst with BullionStar in Singapore.

The Reserve Bank of Australia (RBA) claims to have 80 tons of the precious metal. Nearly all of the country’s gold bars are reportedly stored in a bailment arrangement, in an allocated gold account, at the Bank of England vaults in London, with a very small amount of gold stored at the RBA headquarters in Sydney. However, there are questions whether the gold is still there, according to Manly.

“There have never been any independent physical audits of this gold, which means that there is no way to verify the RBA’s claim that it has all the gold it claims to have,” Manly told RT.

The latest, partial, audit of Australia’s gold holdings was reportedly conducted in 2013, but the results of the checking have never been released neither by the Bank of England nor by the RBA, with a freedom of information request for the findings and the final report denied by both.

“Throughout the last 20 years, the RBA also admits that a lot of its claimed gold holdings have been lent out in the secretive London Gold Lending Market, but there is no information whatsoever available on any of these lending transactions or the bar numbers involved,” Manly said.

“That the RBA and Bank of England refuse to do any of these things is highly suspicious. Therefore, there is no way to say that the RBA has the 80 tons of gold it claims to have.”

The RBA participated in the gold lending market at times lending almost all of its gold holdings for over 30 years, according to the regulator. The lending activity has reportedly deteriorated over the past decade. Earnings from gold loans amounted to just $0.71 million during the last financial year.

According to Manly, providing the documents on the latest audit of the holding “would, or could reasonably be expected to, cause damage to” good relations between the Bank of England and the RBA.

“The real reasons that the Bank of England does not allow proper gold bar audits and the real reason it will never provide central bank customers with proper weight lists of refiner serial numbers is that the Bank of England wants total secrecy about gold lending and where the lent gold goes to,” the expert told RT.

According to Manly, the Australian government should reconsider its approach to the national gold holdings, as the country’s gold industry and infrastructure is perfectly good for storing and handling its precious metal on its own territory. The RBA could easily store the gold in Canberra, Sydney or Perth like the Bank of Russia’s gold is held in Moscow and St Petersburg.

“The rationale claimed by the RBA that it stores its gold in London so as to be in proximity to the London Gold Trading market is also wearing thin given that the Bank of England has now confiscated the gold of Venezuela’s central bank, the Banco Central do Venezuela,” the analyst pointed out.

“This is sovereign gold of another nation which was placed into custody storage by a foreign central bank. It is also absolutely extraordinary that the Bank of England has succumbed to US Government and State Department bullying to use,” said Manly, referring to the refusal by the Bank of England to return Venezuela’s gold.


Canada’s black market to account for 71% of cannabis sales in 2019

The marijuana industry had itself a year in 2018 like none before it. Having entered the year as a still somewhat taboo topic, cannabis exited 2018 on solid ground. That’s because the industry was legitimized following the legalization of recreational pot in Canada on Oct. 17, 2018.

The passage of the Cannabis Act in June and the official kickoff of sales in October rolled out the red carpet (or dare I say “green” carpet) for the legal weed industry, which should result in billions of dollars in added annual sales by the early part of the upcoming decade. This legalization also signaled that the pot industry was here to stay and to welcome investors.

But in spite of Canada going green, the industry itself hasn’t exactly launched out of the gate as expected. Rather, it’s dealt with a series of logistical issues that have worked to constrain supply at a time when residents and tourists are eager to buy cannabis products.

Canada’s cannabis industry is facing a number of logistical challenges

Just hours after legal sales commenced in October, a dispensary in Winnipeg, Manitoba, ran out of product and had to shutter its doors. Supply issues have plagued practically every Canadian province at one point, and there’s no exact timetable on when supply will be sufficient to meet demand.

How, exactly, did the industry and regulators not foresee this coming? One problem is with Health Canada itself. The regulatory agency tasked with overseeing the legal weed industry is absolutely buried in cultivation license and sales permit applications. Back in May 2018, Marijuana Business Daily found that Health Canada had a backlog of more than 500 cultivation license applications and that sales permits were taking, on average, 341 days to be issued following the receipt of the application. Essentially, it’s taking more than a year to complete the process of getting approved to plant cannabis crops and then selling those crops.

Another under-the-radar issue is packaging. Prior to the launch of recreational cannabis products, Health Canada outlined a rigorous set of packaging regulations that would need to be followed if marijuana products were to be approved for sale. This included creating packaging that was tamper and child resistant and that contained a yellow warning label. These restrictions have led to a packaging shortage. If that isn’t an opportunity for branding and packaging specialist KushCo Holdings to step up and shine in the months to come, I don’t know what is.

The ongoing ramp-up of capacity in Canada is the third and final major problem. While growers would have preferred to have started construction on greenhouses earlier, none were willing to pony up $100 million or more without knowing with certainty that the Cannabis Act would become law. Prime Minister Justin Trudeau had spoken of legalization for years without any legislative follow-through, which caused growers to wait until December 2017 or January 2018 before they really began expanding their capacity. It’ll likely be two more years before the industry is operating on all cylinders.

The black market is loving this logistical nightmare

Then again, the underground market for marijuana, often referred to as the black market, has to be enjoying these logistical challenges. Having insufficient supply in dispensaries creates the perfect opportunity for illicit growers to take or reaffirm their market share.

As a reminder, legal sales channels involve a 10% excise tax, require profitable companies to pay federal corporate income tax, and take time to get the appropriate cultivation licenses and sales permits. Black-market marijuana, on the other hand, has no excise taxes to pay, nor federal income taxes, and the underground growers certainly don’t abide by cultivation licenses or sales permits. In other words, the illicit market can handily beat legal sales channels on price, making them an attractive go-to for consumers.

However, it’s always been hard to quantify how much of the cannabis market illicit growers control. A new research note from Scotiabank analysts Oliver Rowe and Ben Isaacson, courtesy of BNN Bloomberg, specified this figure.

According to Scotiabank, logistical issues are expected to allow the black market to control 71% of all Canadian cannabis sales in 2019, with this figure plummeting to 37% by 2020, once many of these packaging and regulatory red-tape issues are dealt with. Further, the firm lowered its projected sales of legal cannabis in 2019 by 30% and slashed revenue estimates in the fiscal third quarter for Canopy Growth, the largest pot stock in the world, by more than 40% to 79 million Canadian dollars. 

A person using dried cannabis flower to roll a joint.

On one hand, the expectation that a third of all purchases in Canada will shift from the black market to legal sales channels in the span of one year is incredible. If accurate, it demonstrates that Trudeau’s push for a low excise tax rate of 10% will be justified.

On the other hand, it’s just as staggering to realize that more than two out of three marijuana sales this year are liable to be conducted under the table and out of the sight of regulators. That’s a massive amount of lost revenue for a legal cannabis industry that’s trying to prove its worth to investors.

For example, Canopy Growth has had plenty of things working in its favor. It landed a $4 billion equity investment from Corona and Modelo beer maker Constellation Brands, is projected to be the second-largest grower by peak annual output, and has what’s arguably the most well-known cannabis brand in its product portfolio in Tweed. But it’s also a company that lost a whopping CA$215 million on an operating basis this past quarter, and that’s not going to get any better anytime soon until these logistical issues throughout the country are dealt with. That makes Canopy Growth and many of its peers particularly risky investments.

Even though this is an estimate from a solitary investment bank, it speaks volumes to the challenges yet to be tackled by the legal cannabis industry.