Feb 232019
 


Henri Rousseau The sleeping gypsy 1897

 

A Fed Pivot, Born Of Volatility, Missteps, And New Economic Reality (R.)
Get Out Of The Bond And Stock Market, Put Your Money In Cash – Stockman (MW)
Global Sovereign Debt Will Top $50 Trillion This Year (ZH)
Mueller Won’t Deliver Report To DOJ Next Week (Hill)
Schiffting to Phase 2 of Collusion (Strassel)
‘Even Nixon Wasn’t Like Him’: Trump’s Bid To Upend Russia Inquiry (G.)
Great Investigations (Kunstler)
Theresa May Must Go In Three Months, Cabinet Ministers Say (G.)
UK Food Imports From EU Face ‘£9bn Tariff Bill’ Under No-Deal Brexit (G.)
Dianne Feinstein Snaps At Group Of Environmental Activist Children (ZH)
The Cold War in Tech (Barron’s)
Silicon Valley Wants In On It Pair Of Gene-Edited Chinese Twins (ZH)
China Blocks 17.5 Million Plane Tickets Due to Lack of ‘Social Credit’ (Ind.)

 

 

The folly of our times. The Fed has completely destroyed America’s market system, and thus its economy, and they are treated as wise men. There are no markets left, there are no pensions left, there’s only the Fed.

A Fed Pivot, Born Of Volatility, Missteps, And New Economic Reality (R.)

The Federal Reserve’s promise in January to be “patient” about further interest rate hikes, putting a three-year-old process of policy tightening on hold, calmed markets after weeks of turmoil that wiped out trillions of dollars of household wealth. But interviews with more than half a dozen policymakers and others close to the process suggest it also marked a more fundamental shift that could define Chairman Jerome Powell’s tenure as the point where the Fed first fully embraced a world of stubbornly weak inflation, perennially slower growth and permanently lower interest rates. Along with Powell’s public comments, Fed minutes, and other documents, the picture emerges of a central bank edging towards a period of potentially difficult change as it reviews how to do business in light of that new reality.

[..] Concern that years of solid economic growth and falling unemployment would inevitably rekindle inflation or threaten financial stability have been a staple of Fed debates, but had largely disappeared by the Fed’s Dec. 18-19 meeting, according to a review of Fed meeting minutes and officials’ public statements. It was a conclusion hiding in plain sight. After a year when the Trump administration pumped around $1.5 trillion of tax cuts and public spending into a full employment economy, the Fed in 2018 would miss its 2 percent inflation target yet again.

“I hate to say we were right,” Dallas Federal Reserve president Robert Kaplan told reporters on Jan. 15 in Dallas. “But we have been warning for quite some time that…the structure of the economy has changed dramatically.” Technological innovation, globalization, and the Fed’s commitment to its inflation target all held down prices, and “those forces are powerful and they are accelerating,” he said.

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Dave Stockman, too, keeps referring to markets. Stop it. A market has a definition, a function, based one-on-one on price discovery. And that simply ceased to exist.

Get Out Of The Bond And Stock Market, Put Your Money In Cash – Stockman (MW)

[..] thus far the market has bounded higher after shaking off a withering decline toward the end of 2018 that culminated in the worst Christmas Eve drop on record. The Dow Jones Industrial Average is up 19.4% since that time, breaking above a psychologically significant at 26,000 level on Friday, while the S&P 500 has advanced 19.5%, the Nasdaq Composite has risen 22.4% and the small-capitalization focused Russell 2000 index has returned more than 25%, according to FactSet data. Much of that gain has been underpinned by a Fed that has signaled that it is likely to slow a reduction of its $4 trillion balance sheet as soon as this year and a willingness to wait before increasing borrowing costs further. Both of those plans had been cited as a source of friction for markets.

However, Stockman has said a yawning deficit and an economic expansion in the U.S. that is making history for its length are signs that a reckoning my be at hand. He says easy-money days cannot last and has ramifications for all, arguing that the Fed must normalize its policy, at some point: “My point is, it’s finally catching up with us. We’ve gotten by with this for 30 years ‘cause the Fed has been monetizing the debt — buying bonds hand over fist. When Greenspan arrived, the balance sheet of the Fed was $200 billion; at the peak it was $4.5 trillion,” he told Cavuto, referring to former Fed boss Alan Greenspan. “We need to wake up and smell the roses here. We’re in year 10 of the longest business expansion in history.

We’re increasing the deficit at the very wrong time. They say it’s $900 billion this year it’ll be $1.2 trillion of borrowing at the same time that the Fed is beginning to shrink its balance sheet, which means they’ll be dumping bonds into the market,” he said.

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All that new debt and still pension systems are being fully gutted.

Global Sovereign Debt Will Top $50 Trillion This Year (ZH)

It has been one week since the US Treasury revealed that the national debt had topped $22 trillion (only 11 months after it had topped the $21 trillion threshold). And as the US budget deficit shows no signs of shrinking thanks to the Trump tax cuts and the death of the Obama-era budget sequester that has allowed for an expansion of federal spending (with more presumably on the way once the Trump infrastructure plan comes into focus), S&P warned on Thursday that worldwide sovereign debt could reach $50 trillion this year. According to Reuters, S&P predicted that governments will borrow some $7.78 trillion this year, up 3.2% since 2018 (the US will constitute more than $1 trillion of that all by itself). That’s a 6% increase in the total debt pile from the year before.

Most of this borrowing will be rolling over long-term debt. “Some 70 percent, or $5.5 trillion, of sovereigns’ gross borrowing will be to refinance maturing long-term debt, resulting in an estimated net borrowing requirement of about $2.3 trillion, or 2.6 percent of the GDP of rated sovereigns,” said S&P Global Ratings credit analyst Karen Vartapetov. Governments, like corporations and individuals, took advantage of low interest rates around the world to step up borrowing in the wake of the financial crisis. Now, with borrowing costs expected to rise, these long-term burdens will become more burdensome to service. And with central banks slowly beginning to allow their inflated balance sheets to run off…

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No collusion.

Mueller Won’t Deliver Report To DOJ Next Week (Hill)

Special counsel Robert Mueller will not deliver his report to the Justice Department on Friday or next week, a Justice Department official told The Hill. The news comes amid broad speculation that Mueller’s probe into Russia’s electoral interference is wrapping up, with several news outlets reporting Wednesday that newly confirmed Attorney General William Barr was preparing to receive Mueller’s final report as soon as next week. The highly anticipated report is expected to cap off a sprawling, nearly two-year investigation into Russia’s attempts to meddle in the 2016 presidential election, a probe that has ensnared multiple former Trump campaign officials and associates.

Next week is already slated to be a busy week in Washington, with former longtime Trump lawyer Michael Cohen appearing for testimony on Capitol Hill and several other major hearings and votes set to take place. President Trump is also slated to travel to Vietnam next week for his second summit with North Korean leader Kim Jong Un, which is scheduled for Wednesday and Thursday. It remains unclear when Mueller will ultimately wrap up and submit his final documentation, though Friday’s news indicates the end of the investigation is at least a week away.

Mueller has been investigating Russian interference and potential coordination between the Trump campaign and Moscow since May 2017, weathering constant attacks from Trump, who views the investigation as a “witch hunt” and has long denied allegations of collusion between his campaign and the Kremlin. In the course of his investigation, Mueller has unveiled charges against more than two dozen Russians for hacking Democratic emails and committing fraud in an elaborate plot to use social media to meddle in the election. The special counsel has also charged six Trump associates with making false statements, illegal foreign lobbying, financial violations and other crimes. However, none of the charges have alleged a conspiracy between the campaign and the Russians to interfere in the election.

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“No acknowledgment that Mr. Schiff & Co. for years have pushed fake stories that accused innocent men and women of being Russian agents. No relieved hope that the country might finally put this behind us. Just a smooth transition—using Russia as a hook—into Mr. Trump’s finances. Mueller who?”

Schiffting to Phase 2 of Collusion (Strassel)

There’s been no more reliable regurgitator of fantastical Trump-Russia collusion theories than Democratic Rep. Adam Schiff. So when the House Intelligence Committee chairman sits down to describe a “new phase” of the Trump investigation, pay attention. These are the fever swamps into which we will descend after Robert Mueller’s probe. The collusionists need a “new phase” as signs grow that the special counsel won’t help realize their reveries of a Donald Trump takedown. They had said Mr. Mueller would provide all the answers. Now that it seems they won’t like his answers, Democrats and media insist that any report will likely prove “anticlimactic” and “inconclusive.” “This is merely the end of Chapter 1,” said Renato Mariotti, a CNN legal “analyst.”

Mr. Schiff turned this week to a dependable scribe—the Washington Post’s David Ignatius—to lay out the next chapter of the penny dreadful. Mr. Ignatius was the original conduit for the leak about former national security adviser Mike Flynn’s conversations with a Russian ambassador, and the far-fetched claims that Mr. Flynn had violated the Logan Act of 1799. Mr. Schiff has now dictated to Mr. Ignatius a whole new collusion theory. Forget Carter Page, Paul Manafort, George Papadopoulos—whoever. The real Trump-Russia canoodling rests in “Trump’s finances.” The future president was “doing business with Russia” and “seeking Kremlin help.”

So, no apologies. No acknowledgment that Mr. Schiff & Co. for years have pushed fake stories that accused innocent men and women of being Russian agents. No relieved hope that the country might finally put this behind us. Just a smooth transition—using Russia as a hook—into Mr. Trump’s finances. Mueller who? What’s mind-boggling is that reporters would continue to take Mr. Schiff seriously, given his extraordinary record of incorrect and misleading pronouncements. This is the man who, on March 22, 2017, helped launch full-blown hysteria when he said on “Meet the Press” that his committee already had the goods on Trump-Russia collusion. “I can’t go into the particulars, but there is more than circumstantial evidence now,” Mr. Schiff declared then. Almost two years later, he’s provided no such evidence and stopped making the claim..

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Perhaps even more than politicians, it’s the media that will keep the collusion tale alive. They wouldn’t know how to make money anymore if they didn’t.

‘Even Nixon Wasn’t Like Him’: Trump’s Bid To Upend Russia Inquiry (G.)

It was yet another bombshell report for a president already ensnared in multiple investigations against his campaign, administration and family members. This time it had to do with hush money paid to women to silence them from speaking about alleged affairs they had with Donald Trump. According to a New York Times report published this week, Trump asked Matthew Whitaker, his controversial acting attorney general, if he could install a loyalist at the helm of the investigation into the hush money.

Although Whitaker declined Trump’s request, the story has raised fresh questions over whether the president was seeking to obstruct justice and how the reported move fits into a broad pattern of Trump attempting to interfere with an investigation concerning himself. Since taking office, Trump’s fixation on the federal inquiry into Russian interference in the 2016 election – and potential collusion between his campaign and Moscow – has spurred a series of actions that could now imperil his presidency and prospects of a second term.

From high-level firings to public misstatements, Trump’s repeated steps to undermine the investigations that have clouded his two years in office paint a picture of a president who is his own worst enemy, legal experts say. “It is quite clear from all the evidence that the president has had the intent to obstruct this investigation,” said Andy Wright, a former associate counsel to Barack Obama and the founding editor of the legal blog Just Security. “It’s been in plain sight.” “It’s a fundamental abuse of power for the president to be trying to shut down an investigation in which he has a personal stake – both as a potential target himself and his political allies and family members,” he added.

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Jim stays on message. I changed the headline from Great Expectations to Great Investigations.

Great Investigations (Kunstler)

Meanwhile, their antics may be eclipsed by the now inevitable inquiry around the misdeeds carried out by public officials in Act I of the show: the Russia Collusion Ruse. Based just on the current Andy McCabe book tour, there will be an awful lot to get to, and it is liable to be far more compelling than the nonsense conjured up by the Three Stooges. Mr. McCabe, in his quest to hand off the hot potato of culpability to his former colleagues, and to sell enough books to pay his lawyers’ retainers, has neatly laid out the case for his orchestrating a coup d’etat within the FBI. It’s an ugly story, and it’s all out there now, like so much spaghetti hurled against the wall, and it won’t be ignored.

There are many other spaghetti wads already plastered on that wall ranging from Hillary Clinton’s Fusion GPS hijinks, to Loretta Lynch’s written assurances to the Clinton campaign that the email server matter would be dropped, to the rather complete failure of the FISA process, and much much more that needs to be ventilated in a court of law. I suspect that Barack Obama and his White House confidents will enter the picture, too, sooner later, and to the great dismay of his partisans who do not want to see his legacy tarnished. Whatever your view of all these dark events, it would be pretty awful for the country to have to see him in a witness chair, but it may be unavoidable. Ditto Hillary, who is liable to go all Captain Queeg-y when she finally has to answer for her campaign’s turpitudes.

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Can both major parties in Britain dissolve in just 4 weeks time?

Theresa May Must Go In Three Months, Cabinet Ministers Say (G.)

Cabinet ministers will make it clear they believe Theresa May should step down after the local elections in May and allow a new leader to deliver the next phase of the Brexit negotiations, the Guardian understands.Senior figures in government have suggested they want the prime minister to leave shortly after the first phase of the Brexit negotiations finishes – or risk being defeated in a vote of no confidence at the end of the year. May wants to stay in place for long enough after Brexit to secure a political legacy beyond the fraught negotiations. But some ministers believe she should announce the timeline for her departure “on a high” after the local election results, paving the way for a Conservative leadership contest over the summer.

Brexiters in the cabinet are keen to see a new leader take over for the next stage of the negotiations with the EU, which May has already pledged will involve more active involvement for politicians rather than advisers. The hardening mood among cabinet ministers on the timeline for her departure will place further pressure on May before a critical week of Brexit talks and votes amid a febrile climate in Westminster. On Thursday the Guardian revealed that remainer ministers emboldened by the departure of three MPs to the Independent Group (TIG) were threatening to rebel against her leadership to prevent a no-deal outcome – daring her to sack them.

And in a fresh blow to May, three cabinet ministers publicly say they would back moves to delay Brexit if she fails to get her deal through parliament. In a joint newspaper article, Amber Rudd, the work and pensions secretary, David Gauke, the justice minister, and the business secretary, Greg Clark, say they want to ensure the UK does not crash out of the EU without a deal on 29 March. And they insist they are prepared to defy the prime minister and join those MPs pushing for an extension to article 50 if there is no significant progress next week.

Writing for the Daily Mail on Saturday, they argue that a no-deal Brexit would wreck the country’s economy and put its security at risk. “If there is no breakthrough in the coming week, the balance of opinion in parliament is clear – that it would be better to seek to extend article 50 and delay our date of departure rather than crash out of the European Union on 29 March,” they write. “It is time that many of our Conservative parliamentary colleagues in the ERG recognised that parliament will stop a disastrous no-deal Brexit on 29 March. If that happens, they will have no one to blame but themselves for delaying Brexit.”

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Both May and Brussels appear to think they stand to gain from a no-deal Brexit. Maybe that makes it more likely than we think.

UK Food Imports From EU Face ‘£9bn Tariff Bill’ Under No-Deal Brexit (G.)

The government is expected next week to spell out its plan to mitigate a potential £9bn food-price shock from a no-deal Brexit, as analysts predict the cost of staples such as beef, cheddar cheese and tomatoes could soar. With just over a month until the Brexit deadline, the Department for International Trade is expected on Monday to publish a list of new import taxes, or tariffs, that will apply to 5200 products, including food and clothing, should the UK crash out of the EU without a deal. The relationship with the EU is key to the price of food because nearly one third of the food eaten in the UK comes from the bloc. At this time of year the situation is more acute because, with UK produce out of season, 90% of lettuces, 80% of tomatoes and 70% of soft fruit is sourced from, or via, the EU.

“Food and drink tariff rates will be higher than those in any other supply chain,” says Richard Lim, chief executive of consultancy firm Retail Economics. “All stages within the food supply chain will experience increased costs, with retailers hit disproportionately as processed goods attract higher duties than raw materials and semi-processed goods.” In 2017 the UK bought about £34bn of groceries from the EU, which arrived on supermarket shelves and at factory gates without being hit by customs duties or other trade costs. But if the UK leaves the EU without a deal, both will fall back on the World Trade Organisation’s “most favoured nation” tariffs, which means they must pay import duties on each other’s trade. On that basis the UK’s 2017 EU food imports would come with a hefty £9.3bn tariff bill on top, according to Retail Economics’s analysis.

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Having been there for 30 years is not exactly a positive thing, given how much things have deteriorated in that time. Hand it over to the kids, they couldn’t possibly do worse.

Dianne Feinstein Snaps At Group Of Environmental Activist Children (ZH)

Armed with an impassioned letter and memorized talking points, the children belonging to three Bay Area environmentalist groups (Sunrise Bay Area, Youth Versus the Apocalypse, and Earth Guardians San Francisco) implored Feinstein to support the Green New Deal. The Senator responded: “Ok, I’ll tell you what. We have our own Green New Deal.” The video skips forward to the children warning Feinstein that “some scientists have said that we have 12 years to turn this around” – referring to a conclusion by a recent UN-backed report that man-made climate change will become irreversible if carbon emissions are not significantly reduced over the next 12 years (which Ocasio-Cortez turned into “the world is gonna end in 12 years if we don’t address climate change”).

“It’s not gonna get turned around in 10 years,” responded Feinstein – drawing a harsh rebuke from an angry chaperone. “Senator if this doesn’t get turned around in 10 years you’re looking at the faces of the people who are going to be living with these consequences,” said the adult – as one of the children chimed in “the government is supposed to be for the people and by the people and for all the people!” Feinstein was not amused. I’ve been doing this for 30 years. I know what I’m doing. You come in here and you say “it has to be my way or the highway.” “I don’t respond to that,” shot back Feinstein. “I’ve gotten elected. I just ran. I was elected by almost a million vote plurality. And, I know what I’m doing. So, you know, maybe people should listen a little bit. -Dianne Feinstein

One kid shot back “I hear what you’re saying but we’re the people who voted you. You’re supposed to listen to us, that’s your job.” “How old are you?” challenged Feinstein. “I’m 16. I can’t vote,” said the girl. “Well you didn’t vote for me,” replied the Senator.

https://twitter.com/sunrisemvmt/status/1099075460649107458

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The new fight for control of the world. Orwell International Inc.

The Cold War in Tech (Barron’s)

Cisco Systems, an early Silicon Valley success story, has become one of the nation’s top tech exporters. Today, roughly half of the networking giant’s sales come from outside the U.S. As foreign countries sought to catch up with U.S. connectivity, Cisco helped plug them in. But a wave of nationalist thinking has put Cisco—and most of its peers—in an uncomfortable position. Earlier this month, Cisco CEO Chuck Robbins described the current climate as “one of the more complex macro, geopolitical environments that I think we’ve seen in quite a while with all the different moving parts.” It’s likely to get worse.

While investors are cheering indications of progress being made toward a resolution of trade issues between China and the U.S., the battle for tech supremacy between the two global superpowers shows few signs of abating. Even as the White House was negotiating on trade with Beijing, it was also contemplating a U.S. ban of telecommunications equipment from Chinese companies like Huawei Technologies, essentially China’s version of Cisco. As President Donald Trump was tweeting about the importance of 5G on Thursday, Secretary of State Mike Pompeo was pushing U.S. allies to ditch Huawei. This is a fight that is not going to end anytime soon. For years, U.S. officials have worried about Chinese equipment being used to infiltrate U.S. networks and businesses for possible espionage and theft of intellectual property.

Even a resolution of the trade war won’t quell those fears. “The perception is that too much of the information- and communication-technology supply chain is centered on China,” says Paul Triolo, who focuses on global technology policy issues for risk consulting firm Eurasia Group. “If we are in a conflict and using infrastructure built by China, they could theoretically hit a button and shut off everything.” “After 30 years of saying companies should optimize supply chains and move some abroad, now we are saying it’s a security concern,” he says. “Adjusting to that is jarring.”

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The sort of thing you know someone will always try, no matter what laws are invented. And it’s not about Silicon Valley, it’s about the CIA through big Tech.

Silicon Valley Wants In On It Pair Of Gene-Edited Chinese Twins (ZH)

A pair of Chinese twins who were gene-edited for resistance to HIV may also have ‘supercharged’ brains, along with possible resistance to age-related cognitive diseases such as Alzheimer’s. In a controversial experiment led by Chinese scientist He Jiankui, the embroys of seven couples had their genes “edited” using a tool known as CRISPR. By removing a gene called CCR5, Jiankui sought to create a natural immunity to HIV – which requires CCR5 to enter blood cells. Based on new research, however, Jiankui may have also left the twins, Lulu and Nana, with improved memory and enhanced cognition, according to MIT Technology Review. They may also enjoy some degree of protection from Alzheimer’s Disease and other maladies which are rapidly being linked to chronic inflammation, as some groups of mice without CCR5 – or who have been given CCR5 inhibitors, experience less severe dementia or Alzheimer’s symptoms.

“The answer is likely yes, it did affect their brains,” says UCLA neurobiologist Alcino J. Silva, whose lap discovered a link between CCR5 and the brain’s ability to form new connections. “The simplest interpretation is that those mutations will probably have an impact on cognitive function in the twins,” says Silva, adding that the exact effect on the girls’ cognition cannot be predicted, which is “why it should not be done.” Jiankui’s human experiments drew harsh rebuke after news of Lulu and Nana’s birth in late October or early November, and has reportedly been fired from his position at the Southern University of Science and Technology (SUSTech) in Shenzhen, China. Jiankui says there are more gene-edited babies on the way.

Silva tells the MIT Technology Review that “because of his research, he sometimes interacts with figures in Silicon Valley and elsewhere who have, in his opinion, an unhealthy interest in designer babies with better brains.” When word of Jiankui’s experiment went public, Silva says he immediately questioned whether enhanced cognition was the real goal of the experiment. “I suddenly realized—Oh, holy shit, they are really serious about this bullshit,” said Silva. “My reaction was visceral repulsion and sadness.” He Jiankui acknowledged that he knew about the potential cognitive benefits of removing the CCR5 gene discovered by the UCLA team during a Q&A session, though he said “I am against using genome editing for enhancement.”

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Brave new world: gene-edited superhumans controlled through embedded technology. That Orwell guy appears smarter by the day.

China Blocks 17.5 Million Plane Tickets Due to Lack of ‘Social Credit’ (Ind.)

The Chinese government blocked 17.5 million would-be plane passengers from buying tickets last year as a punishment for offences including the failure to pay fines, it emerged. Some 5.5 million people were also barred from travelling by train under a controversial “social credit” system which the ruling Communist Party claims will improve public behaviour. The penalties are part of efforts by president Xi Jinping‘s government to use data-processing and other technology to tighten control on society. Human rights activists warn the system is too rigid and may lead to people being unfairly blacklisted without their knowledge, while US vice-president Mike Pence last year denounced it as “an Orwellian system premised on controlling virtually every facet of human life”.

Authorities have experimented with social credit in parts of China since 2014. Points are deducted for breaking the law, but also, in some areas, for offences as minor as walking a dog without a lead. Offences punished last year also included false advertising and violating drug safety rules, said China’s National Public Credit Information Centre. It gave no details of how many people live in areas with social credit systems. [..] The ruling party is spending heavily to roll out facial recognition systems, and human rights activists say people in Muslim and other areas with high ethnic minority populations have been compelled to give blood samples for a genetic database. Those systems rely heavily on foreign technology, which has prompted criticism of US and European suppliers for enabling human rights abuses.

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Jan 312019
 


René Magritte The key to the fields 1936

 

Dovish Fed Sparks Stock-Market Rally And Tanks The US Dollar (MW)
Will The EU To Cave On May’s Brexit At The Very Last Minute? (ZH)
China Manufacturing Contracted For The Second-Straight Month In January (CNBC)
Macron Has Declared War On The French People – Yellow Vest Activist (RT)
UK Consumer Borrowing Slowed Sharply In December, Says Bank of England (Ind.)
British Car Production Slumps To Five-Year Low (G.)
US Refiner CITGO Caught In Venezuela Political Upheaval (R.)
Russia Vows To Defend Its Venezuelan Oil Assets (RT)
US Regime Change Laboratory Created Venezuela’s Coup Leader
Facebook Reports Record Profit, Stock Surges 12% After Earnings (MW)
Mueller: Evidence Against Russian Firm Used In Disinformation Campaign (CNBC)
Mueller Claims Evidence Shared Leaked To ‘Discredit Investigation’ (RT)
Mueller Says Russians Are Altering Evidence From Investigation (Ind.)
Acropolis Museum Director: British Museum Not Owner Of Parthenon Marbles (K.)

 

 

Powel’s Fed started off promising, but now concedes that it doesn’t want functioning markets. Too risky for the rich.

Dovish Fed Sparks Stock-Market Rally And Tanks The US Dollar (MW)

The Federal Reserve and its chairman, Jerome Powell, changed their tune Wednesday, striking a surprisingly dovish tone that sparked a stock-market rally, tanked the U.S. dollar and roiled other financial markets. The Fed hinted that it may be at the end of its rate-hike cycle and further surprised investors by issuing a separate statement regarding its balance sheet, indicating that its efforts to reduce the $4 trillion asset portfolio could end sooner than expected. The tone was seen as an about-face from the Fed’s hawkishly received December meeting when it delivered its fourth rate increase of 2018. “This is one of the most dovish turnarounds by a Fed chair that I have ever seen in my 30-year career,” said Tom di Galoma, managing director at Seaport Global Holdings.

And the initial reaction across markets appeared in keeping with the perceived shift. The message delivered by the Fed “just couldn’t be much better for both bonds and equities and for the credit markets that track Treasurys,” said Mark Grant, chief global strategist at B. Riley FBR, in a note. [..] Not everyone was popping the champagne. Some economists feared the Fed had eroded its credibility, caving in to market pressure. “Talk about a Fed put,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note, referring to the idea that central bank policy makers have grown increasingly sensitive over the years to stock-market declines and stand ready to intervene in an effort to provide calm.

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Someone in Britain appears to be spreading rumors about Brussels willing to give in. Is that just so May will still be PM at the end of March? Are the Brits going to risk that based on rumors alone?

Will The EU To Cave On May’s Brexit At The Very Last Minute? (ZH)

After a series of embarrassing Parliamentary defeats (and still more embarrassing triumphs over a series of no-confidence votes), Theresa May is we imagine reveling in what was a rare win for on Tuesday: MPs backed an amendment that calls for removing the backstop from her Withdrawal agreement and replacing it with a commitment to find something better after the prime minister vowed to ask the EU to reopen negotiations (something she has reportedly been trying to persuade the block to do behind the scenes for weeks now with little apparent success).

Now that she’s won what her cabinet believes is enough support for a modified version of the deal, having finally corralled a majority for something resembling her current deal, the hard work truly begins: Convincing the EU to reopen negotiations on the withdrawal agreement, something officials have publicly insisted will not happen (though there have been whispers that they have been slowly coming around to the idea). In a speech on Wednesday, European Commission President Jean Claude Juncker blasted the vote as irresponsible and once again insisted that removing the backstop from the agreement is out of the question. “This is not a game,” he said, according to Bloomberg.

If there’s anything new to take away from the developments of the past two days, it can be found in a Bloomberg report published Wednesday afternoon that effectively confirmed what many have long suspected: That there won’t be any movement on the deal – either from the EU or, likely, the UK, until the last possible minute. According to BBG, EU diplomats have pointed to a last-minute summit set for March 21 and March 22 – just a week before Brexit Day – as the likely time when a deal may finally be struck.

“The European Union is prepared to take Brexit down to a last-minute, high-stakes summit rather than cave into U.K. Prime Minister Theresa May’s demands over the next few weeks, diplomats said. Although May is getting ready to head back to Brussels to reopen the Brexit deal that she negotiated over the past 18 months, the EU isn’t planning to give her any concessions before she returns for a vote in the British Parliament on Feb. 14, according to the diplomats. Behind closed doors, European officials are sticking to their well-coordinated public line that they won’t rework the deal.”

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And that’s official numbers.

China Manufacturing Contracted For The Second-Straight Month In January (CNBC)

China said on Thursday its manufacturing activity contracted for the second-straight month in January — another sign that the world’s second-largest economy is slowing down amid domestic headwinds and the ongoing trade dispute with the U.S. The official manufacturing Purchasing Managers’ Index (PMI) for January was 49.5, according to the Chinese National Bureau of Statistics. That’s higher than the 49.3 expected by analysts in a Reuters poll, and the 49.4 reported in the previous month when China’s manufacturing PMI fell into contraction territory for the first time since July 2016. The PMI — a widely-watched indicator — is a survey of businesses in a specific industry about the operating environment.

A reading above 50 signals expansion in the sector from the previous month, while one below 50 represents contraction. Meanwhile, China’s services PMI for January came in at 54.7 — better than the 53.8 reported in the previous month, according to official data. The services sector accounts for more than half of the Chinese economy and has helped cushion the impact of a slowing manufacturing industry. Despite the better-than-expected PMI numbers, some economists said the statistics — particularly the manufacturing data — still point to a weakening Chinese economy.

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See my article last night: Flash-Balls, Pitchforks And A Backstop

Macron Has Declared War On The French People – Yellow Vest Activist (RT)

The French government won’t stop the Yellow Vests by force, but only by doing what the people demand, according to prominent protester Jerome Rodrigues, who may remain blind in one eye after being injured by the police. “The president [Emmanuel Macron] declared war on us and our injuries are battle wounds. The traumatic weapons are equipped with collimators [optical sights] – such equipment is used on the battlefield, at war,” Rodrigues told RT. “I never thought that such a thing could happen in France,” he added, describing what the country has been going through in recent months as “dark times.” The activist, who calls himself “a hyper pacifist,” was broadcasting live on Facebook from a rally in Paris last weekend when a police officer fired at him from an LBD 40 non-lethal gun.

A projectile hit him in the eye, leading to hospitalization and a medically induced coma. The man said “there are no guarantees that the injured eye will be able to see again.” Now we understand that by going to a rally we put ourselves at risk of becoming victims of the government. It happened to me, but could’ve well happened to anyone,” Rodrigues said. The French authorities are employing violence to scare the people off the streets, but “we won’t retreat,” he said. Rodrigues promised to resume protesting after he gets better, saying that his family fully supported him in this decision.

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The hurt is only starting.

UK Consumer Borrowing Slowed Sharply In December, Says Bank of England (Ind.)

UK consumer borrowing slowed sharply in December, adding to the impression of weakening confidence among households ahead of Brexit. The Bank of England reported that the annual growth of unsecured lending in the month fell to 6.6 per cent, down from 7.2 per cent in November. This was the weakest figure since December 2014. Credit card lending growth slowed to 7.1 per cent, down from 7.9 per cent the previous month. Surveys have shown consumer confidence to be at a 5 year low due, in part, to concerns over Brexit.

The Bank of England’s credit conditions survey showed last week showed that demand over the next three months for such unsecured lending is expected by lenders to be the weakest since the survey began in 2007. Household spending accounts for around 60 per cent of the UK economy, and any weakening of the appetite for consumers to spend will be negative for overall GDP growth. The UK economy grew by 0.6 per cent in the third quarter of 2018 but GDP growth is likely to have fallen sharply in the final three months of the year as business investment and household spending fell.

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Good! Fewer cars!

British Car Production Slumps To Five-Year Low (G.)

British car production dropped to a five-year low in 2018, as manufacturers warned that fears of a no-deal Brexit have prompted a slump in new investment. UK car factories produced 1.52m vehicles last year, 9.1% fewer than 2017, according to figures published on Thursday by the Society of Motor Manufacturers and Traders (SMMT), the UK auto industry lobby group. Production for the British market fell by 16.3%. Investment into British car manufacturing almost halved during the year to £588.6m, a fall which the SMMT blamed on Brexit uncertainty.

Publicly announced investments were lower than in any year since 2012, the first year comparable data was collected. “Investment is effectively stalled,” said Mike Hawes, the SMMT’s chief executive. “Industry is waiting to see what happens. Business is sitting on its hands in terms of investment.” The global automotive industry is already struggling with multiple challenges. Car sales in China fell in 2018 for the first time since the 1990s, while demand for diesel vehicles in Europe has been rocked by the regulatory backlash to Volkswagen’s emissions-cheating scandal.

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CITGO is a Venezuelan refiner.

US Refiner CITGO Caught In Venezuela Political Upheaval (R.)

Citgo Petroleum Corp, the eighth largest U.S. refiner and Venezuela’s top foreign asset, is in the middle of a tug-of-war as the Trump administration tries to use the company as leverage to topple Venezuelan President Nicolas Maduro. Following the U.S. decision to impose sanctions on Venezuela’s oil industry this week, both sides have engaged in aggressive moves for control of Citgo, which has roots in the United States dating back 100 years, but has been owned by Venezuela’s state-owned Petroleos de Venezuela, or PVDSA, for three decades.

[..] As Guaido this week worked with Washington to wrest control of the company, Venezuela responded by ordering dozens of Citgo’s expatriate staff in the United States to return to Caracas by the end of February, people familiar with the matter said. Earlier in the week, Citgo sent a team of executives to Washington amid efforts by Guaido and the U.S. government to appoint a new board of directors for Citgo, the people said. PDVSA also has said it would pursue legal efforts to block a Citgo takeover. White House national security adviser John Bolton on Wednesday tweeted photos confirming the meeting with Citgo executives. “The United States is continuing to work to make sure that the economic benefits of Venezuela’s resources are not pilfered by Maduro and his cronies,” he wrote.

[..] The Houston-based company has accumulated cash and credit lines in recent months as dividends payments to Caracas have been blocked by U.S. sanctions imposed in 2017. [..] Citgo has been struggling to refinance a revolving line of credit, a task that must be completed by July

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Putin: So far, so soft.

Russia Vows To Defend Its Venezuelan Oil Assets (RT)

Russia will defend its interests in Venezuela within the international law using “all mechanisms available to us,” Dmitry Peskov, spokesman for Russia’s President Vladimir Putin, told Russian media on Tuesday. Russia has kept close ties with Venezuelan President Nicolas Maduro and has extended loans to Venezuela, including oil firm Rosneft lending money to Venezuela’s state-held firm PDVSA. Rosneft has extended $6 billion of loans to PDVSA, which needs to be fully redeemed in crude oil supplies by the end of this year. According to S&P Global Platts, as of November 2018, Venezuela had $3.1 billion outstanding loan to repay to Rosneft. The Russian company also has five joint upstream projects with PDVSA in Venezuela.

However, the US Treasury slapped another round of sweeping sanctions against PDVSA on Monday, in order to “help prevent further diverting of Venezuela’s assets by Maduro and preserve these assets for the people of Venezuela.” The US backed last week Juan Guaido, the chairman of the National Assembly, as the legitimate president of Venezuela, after Guaido declared himself interim president. “The path to sanctions relief for PdVSA is through the expeditious transfer of control to the Interim President or a subsequent, democratically elected government,” Secretary of the Treasury Steven T. Mnuchin said. The Kremlin considers the sanctions against PDVSA as “illegal”, a sign of “unfair competition” and an attempt to interfere with Venezuela’s internal affairs, Peskov said on Tuesday. Russia is assessing the potential consequences of the sanctions on PDVSA for Moscow, Peskov added.

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Dan Cohen and Max Blumenthal paint the picture.

US Regime Change Laboratory Created Venezuela’s Coup Leader

Before the fateful day of January 22, fewer than one in five Venezuelans had heard of Juan Guaidó. Only a few months ago, the 35-year-old was an obscure character in a politically marginal far-right group closely associated with gruesome acts of street violence. Even in his own party, Guaidó had been a mid-level figure in the opposition-dominated National Assembly, which is now held under contempt according to Venezuela’s constitution. But after a single phone call from from US Vice President Mike Pence, Guaidó proclaimed himself president of Venezuela. Anointed as the leader of his country by Washington, a previously unknown political bottom-dweller was vaulted onto the international stage as the US-selected leader of the nation with the world’s largest oil reserves.

Echoing the Washington consensus, the New York Times editorial board hailed Guaidó as a “credible rival” to Maduro with a “refreshing style and vision of taking the country forward.” The Bloomberg News editorial board applauded him for seeking “restoration of democracy” and the Wall Street Journal declared him “a new democratic leader.” Meanwhile, Canada, numerous European nations, Israel, and the bloc of right-wing Latin American governments known as the Lima Group recognized Guaidó as the legitimate leader of Venezuela. While Guaidó seemed to have materialized out of nowhere, he was, in fact, the product of more than a decade of assiduous grooming by the US government’s elite regime change factories.

Alongside a cadre of right-wing student activists, Guaidó was cultivated to undermine Venezuela’s socialist-oriented government, destabilize the country, and one day seize power. Though he has been a minor figure in Venezuelan politics, he had spent years quietly demonstrating his worthiness in Washington’s halls of power.

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Amid reports that at least 50% of its accounts are fake.

Facebook Reports Record Profit, Stock Surges 12% After Earnings (MW)

After weeks of controversy, Facebook Inc. reported record profits — about $1 billion more than any previous quarter — as the company beat Wall Street expectations for fourth-quarter earnings and revenue late Wednesday, sending shares soaring. Record profits, a growing user base and healthy top line suggest that Facebook’s base of advertisers is continuing to pour dollars into the social networking giant’s swath of apps and services that now attract 2.7 billion people a month around the world. The strong results cap weeks of negative news cycles that has evidently left Facebook relatively unscathed.“Facebook has had so much bad news — even this week,” Forrester analyst Brigitte Majewski said over the phone, referring to another scandal that surfaced this week.

“But you can’t deny the numbers. They’ve had an increase in daily active users, and growth in all regions.” The company reported $6.88 billion in net income for the fourth quarter, which amounts to $2.38 a share, up from $1.44 a share in the year-ago period. Analysts’ average estimates for fourth-quarter profits called for $2.18 a share, according to FactSet. Overall, Facebook logged sales of $16.91 billion, up from $12.97 billion in the year-ago period, beating Wall Street expectations for sales of $16.39 billion, according to FactSet. Facebook’s main source of revenue is ads, which brought in 93% of revenue, up from 89% in the year-earlier period.

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A few versions of the same thing, first CNBC and RT, different for obvious reasons, then Independent, who report what most others completely missed (NY Post is an exception), which is that Mueller claims the evidence was altered.

Mueller: Evidence Against Russian Firm Used In Disinformation Campaign (CNBC)

Special counsel Robert Mueller claimed Wednesday that evidence in one of his criminal cases related to Russian interference in the 2016 presidential campaign was recently used in an online disinformation campaign, apparently to discredit Mueller’s investigations. Mueller made that allegation in a court filing in his criminal case pending against Concord Management and Consulting, a Russian company owned by Yevgeny Prigozhin, the oligarch who is known as “Putin’s chef.” The special counsel charged Concord Management last year with funding a multimillion-dollar social media disinformation campaign to bolster the presidential campaign of Donald Trump.

Mueller’s filing Wednesday objects to Concord’s request that the special counsel be compelled to disclose documents he has deemed “sensitive” to the defendant and its employees as it prepares for trial.Concord wants to be able to send that information to Russia for review by company officers and employees. But Mueller said in his filing that doing so “unreasonably risks the national security interests of the United States.” The special counsel said that Concord should not be given such sensitive material because of alleged misuse in October by an unknown party of “non-sensitive” materials already in Concord’s possession as a result of the normal discovery process that litigants use to share information during a court case.

Mueller said that “sensitive” materials identifies individuals and entities that have not been criminally charged, but whom “the government believes are continuing to engage in operations that interfere with lawful U.S. government functions like those activities charged in the indictment.” [..] The special counsel said that, “On October 22, 2018, the newly created Twitter account @HackingRedstone published the following tweet: ‘We’ve got access to the Special Counsel Mueller’s probe database as we hacked Russian server with info from the Russian troll case Concord LLC v. Mueller. You can view all the files Mueller had about the IRA and Russian collusion. Enjoy the reading!'”

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What Mueller really wants is to stop Concord from fighting his probe. He never expected them to come to court. He thought they were just more anonymous Russians he could accuse of anything he wanted without being called on it.

Mueller Claims Evidence Shared Leaked To ‘Discredit Investigation’ (RT)

In an apparent bid to shield his case against alleged Russian trolls from legal challenge, special counsel Robert Mueller claimed some evidence previously provided was hacked and published to discredit his probe. On Wednesday, Mueller filed a motion to oppose discovery in case against Concord Management and Consulting LLC, which he indicted last February on charges of running the Internet Research Agency, also known as the “St. Petersburg troll factory.” “Sensitive” evidence in the case cannot be turned over to Concord’s lawyers, because that would make it accessible to their clients in Russia – and back in October, Mueller claimed, someone claimed to have hacked Concord’s computers and posted evidence previously handed over online “as part of a disinformation campaign aimed (apparently) at discrediting ongoing investigations into Russian interference in the US political system.”

It was that claim that got the attention of the media and the ‘Russiagate’ crowd. What Mueller actually alleges is less headline-worthy and far more tenuous. Namely, on October 22 last year, a Twitter account @HackingRedstone claimed to have gained “access to the Special Counsel Mueller’s probe database as we hacked Russian server with info from the Russian troll case Concord LLC v. Mueller,” offering “all the files Mueller had about the IRA and Russian collusion.” According to a footnote in the filing, Mueller’s team was informed of this by an unnamed reporter. However, the Twitter account referenced comes up as suspended, and aside from that notice there are no entries for it in the Internet Archive, making Mueller’s claim impossible to independently verify.

The webpage allegedly linked in the tweet is said to have contained “file folders with names and folder structures that are unique to the names and structures of materials… produced by the government in discovery.” Of the 300,000 files on the site, “over 1,000” matched the hashtag values of documents provided by Mueller to Concord, the filing said. Mueller argued these must have been obtained from Concord, because the FBI “found no evidence” that US government servers fell victim to any hack involving the files. Somewhat confusingly, the filing argued that many other file names used a reference to the Relativity database, which the US government “has not used” to store materials related to this case. Concord’s lawyers have informed the court that the company’s computers have not been hacked, but Mueller’s filing accused them of lying, saying that the webpage contained “actual discovery materials from this case.”

[..] To wit, Mueller is making an assertion based on a tweet and a webpage – that currently do not exist – to argue that it should not disclose further “sensitive” evidence to defendants in a Russiagate case.

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How did the majority of news outlets miss that Mueller claims the info was altered? They didn’t read it?

Mueller Says Russians Are Altering Evidence From Investigation (Ind.)

Russians have obtained evidence from special counsel Robert Mueller’s inquiry into Moscow’s interference in US politics and altered it in a bid to discredit the probe, federal prosecutors have claimed. The files were shared with attorneys working for Concord Management and Consulting, a Russian company that allegedly funded hacking operations by Russia’s Internet Research Agency (IRA), they said in a court filing. The sharing evidence and documents between prosecutors and defence lawyer as part of routine discovery is common legal practice. But the files shared by Mr Mueller’s investigation were later uploaded and disseminated on Twitter in October.

However, the files shared online, “appear to have been altered and disseminated as part of a disinformation campaign aimed (apparently) at discrediting ongoing investigations into Russian interference in the US political system,” the court filing states. A team had reviewed files to determine that roughly 1,000 files linked to by that account out of 300,000 available matched non-public evidence provided. “The fact that the file folder names and folder structure on the webpage significantly match the non-public names and file structure of the materials produced in discovery, and the fact that over 1,000 files on the webpage match those produced in discovery, establish that the person(s) who created the webpage had access to at least some of the non-sensitive discovery produced by the government in this case,“ the filing states.

Concord Management was among 13 Russian entities or people to be charged in connection with Mr Mueller’s investigation last February. Mr Mueller’s team has charged dozens of Russian individuals or entities for attempting to influence the 2016 presidential election, primarily through hacking Democratic Party email systems. The most recent filing argued that attorneys for Concord should not be given access to “sensitive” evidence gathered for the case. It said: “The person who created the webpage used their knowledge of the non-sensitive discovery to make it appear as though the irrelevant files contained on the webpage were the sum total evidence of ‘IRA and Russian collusion’ gathered by law enforcement in this matter in an apparent effort to discredit the investigation.”

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Amal Clooney told Greece in 2015 to take Britain to an international court. They didn’t.

The marbles stem from 2,500 years ago. Their splendor is unmatched, at least until the Romans, and the Middle Ages. They were stolen by Britain when the Ottomans had invaded Greece.

Acropolis Museum Director: British Museum Not Owner Of Parthenon Marbles (K.)

The British Museum is not the legal owner of the Parthenon Marbles and therefore the long-running dispute with Greece over their fate could only be resolved with their unconditional repatriation and not with a lending plan, the director of the Acropolis Museum, Dimitrios Pandermalis, reportedly told German public radio on Wednesday. “The full return of the Parthenon Marbles is the only solution. Everything that is inextricably linked to the monument must be reunited,” he was quoted as telling Deutschlandfunk, adding that the sculptures exhibited in London form an integral part of the monument. He also said his museum would gladly offer something to the British Museum in exchange for the marbles’ return, without going into details.

Pantermalis was responding to Hartwig Fischer, the director of the British Museum, who dismissed the possibility of returning them to Greece, arguing that their exhibition in London is in “a context of world cultures.” “The Trustees of the British Museum feel the obligation to preserve the collection in its entirety, so that things that are part of this collection remain part of this collection,” he was quoted as telling Greek daily Ta Nea in an interview published on January 26. Asked if that is the reason why the Museum will not permanently return the Sculptures, he replied: “Yes”. In another part of the same interview he said they are “in the fiduciary ownership of the Trustees of the Museum.”

Fischer also said that the removal of the marbles from Greece in the 19th century could be seen as “a creative act.” The sculptures are the work of great Athenian sculptor Phidias who added them to the Parthenon in the fifth century BC. In the early 19th century, men working for the 7th Earl of Elgin dismantled a large part of the frieze and shipped the sculptures back to London.

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Dec 282018
 
 December 28, 2018  Posted by at 10:33 am Finance Tagged with: , , , , , , , , , , , ,  


Berthe Morisot After luncheon1881

 

Investors Fear Historic Market Rebound Was Just A ‘Wicked Bear Trap’ (MW)
US Stocks Follow Record-Breaking Rise With Day Of Wild Swings (G.)
VIX Is About To Do Something It Hasn’t Done Since 2011 (MW)
Watch Out When Men Of War Come To The Rescue (Fisk)
Giuliani: Mueller Must Be Investigated For Destruction Of FBI Evidence (Hill)
Donald Trump ‘Worst Perpetrator’ Of Fake News: UN Special Rapporteur (Pol.eu)
Macron ‘Lost Authority’ After Caving To Yellow Jackets, Says Oettinger (Pol.eu)
Corbyn Wants May To Recall MPs Early Over Critical Brexit Vote (Ind.)
Brexit’s Aura Of Inevitability Is Vanishing (Kaletsky)
Turning Brexit Into a Celebration of Democracy (Varoufakis)
Crime and Punishment in an Age of the Jungle (Vallianatos)

 

 

Catchy, but A Christmas Carol might be a better example. ‘Investors’ believe the ghosts are real, just like they believe markets are real. Read yesterday’s 2019: Zombie Markets Before The Fall to understand why that is nonsense.

Investors Are Speechless: “It’s Like Watching Pulp Fiction” (ZH)

With market action becoming increasingly surreal and the panicked, vertigo-inducing bear market rallies (spawned by a record $64 billion pension fund reallocation into stocks in a historically illiquid market) reminiscent of the chaos observed at the depths of the financial crisis, it is only appropriate that some of the quotes Bloomberg picked for its daily wrap piece which commemorated the biggest intraday reversal since 2010, be just as surreal. “Investors are becoming desensitized,” Bryce Doty, SVP at Sit Investment Associates, told Bloomberg, then continued the verbal poetry: “It’s like watching ‘Pulp Fiction.’ Halfway through, the violence doesn’t even bother you anymore.”

He’s right, although whereas the market “violence” in past weeks was one directional, this week it has developed a twist to trap both the bulls and bears, and while the latest Dow swing (of nearly 1000 points) was only slightly bigger than the average up-and-down move last week, back then equities were merely tumbling, now it tends to drop early in the day then soar in afternoon trading. So fast forwarding to the post-Christmas chaos – which this website explicitly warned about when last Friday we said to “Brace For Seismic Volatility” – strategists are starting to ask: if days like these are now normal, is there a context in which the whole three-month rout starts to feel routine?

There are the optimists like Jim Kelleher, director of research at Argus Research, who said market turmoil that happens when the economy is holding up reminds him of past stock declines that ended gently. Unless evidence emerges of deep global growth erosion, what’s going on now “will prove to be shorter and more shallow than the declines experienced in ‘classic’ bear markets.” Others are not so sure: “Investors are wondering if this will be a crash,” said Dave Campbell, a principal at San Francisco’s BOS, who nonetheless still managed to put a favorable spin on events.

“The risks are there, but they’re always there. They’re more heightened but it’s not the most likely outcome. The economy continues to grow – maybe a little more slowly – but next year markets will have hit their lows and we’ll be on the rebound.” Then there are those who echo what we asked yesterday, namely if this is only a bear market rally, although granted a very furious one: as Bloomberg writes in its second end of day wrap, “on the surface, the rally is good news for investors searching for a bottom after a three-month sell-off sent the S&P 500 to the brink of a bear market. But days like this are rarely good omens.”

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What’s happening is much more profound than bear markets.

Investors Fear Historic Market Rebound Was Just A ‘Wicked Bear Trap’ (MW)

It’s been a rough three months, and a particularly difficult December, for stocks, however. The Nasdaq is in a bear market while the Dow and S&P 500 are solidly in correction territory and nursing hefty December losses and year-to-date declines. Some market watchers find big bounces in such an environment less than convincing. Russ Mould, investment director at AJ Bell, offered up the table below in a Thursday note. It takes a look back at the 20 biggest one-day percentage gains for the S&P 500 going back to 1970, a stretch that includes nearly 12,800 trading days.

[..] Bulls can take encouragement from the fact that three of the 17 other days that saw an advance of 5% or more came immediately in the aftermath of the October 1987 crash, “when buying did prove a good plan,” while two more came in March 2009, when the S&P 500 hit bottom and began its current bull run. But here’s the rub: Eight of those gains of 5% or more came during the 2007-09 bear market and three more occurred during the downturn of 2000-03, “to suggest there is still a risk that this year’s Boxing Day bonanza could be no more than a wicked bear trap set to lure investors into more trouble,” Mould wrote ahead of Thursday’s open, saying that traders and investors “will be looking out for a couple of further definitive signals before they decide it really is time to buy on the dips following this year’s Christmas selloff.”

Indeed, market veterans warn that massive, one-day rallies are often more characteristic of downturns, occurring as selloffs lead to significantly oversold technical conditions that leave markets ripe for short covering only to give way to renewed selling once the frenzy of forced buying is exhausted. Investors who short a stock are essentially betting that its price will fall by first borrowing the shares, but those traders can be forced to buy shares back if prices suddenly swing higher, which, in turn, can amplify price swings.

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When is all this cheap money going to bail out?

US Stocks Follow Record-Breaking Rise With Day Of Wild Swings (G.)

US stock markets seesawed again on Thursday as a record-breaking day of gains gave way to selling once again before rising again in late trading. By lunchtime all the major US markets were in the red, with the Dow Jones Industrial Average down 1.4%, the S&P 500 losing 1.5% and the Nasdaq off 1.9%. But most US markets ended the day in the black with the Dow up 1.13%, the S&P adding 0.85% and the Nasdaq 0.38%. After a series of often wild swings the US stock markets are still on course to end the year in bear market territory – triggered when markets fall 20% from their most recent high. A bear market would be the first in close to a decade.

Michael Antonelli, managing director, institutional sales trading at Robert W Baird in Milwaukee, said he expected more dramatic days aheads. “There’s only two more sessions left before the end of the year. I would expect volatility to reign. It’s dug in like a tick,” he said. Stocks had fallen for four consecutive days through Monday. Wednesday’s rally – with the Dow adding close to 5% and a record 1,080 points – could have signaled a turning point. Markets closed up in Japan and Australia but European markets sank again on Thursday, with the FTSE closing down 1.5% in London, sinking to it’s lowest level since July 2016 (a month after the Brexit vote). Germany’s DAX closed down 2.3% and France’s CAC fell 0.6%

Stock markets have become increasingly volatile in recent months and recorded both record losses and record gains this week. The Dow Jones plummeted 653 points on Monday, capping its worst week in a decade and marking its “worst day of Christmas Eve trading ever”.

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The low VIX shows you how out of touch the financial world is. There can be only one reason for it: the Fed.

VIX Is About To Do Something It Hasn’t Done Since 2011 (MW)

It shouldn’t come as a surprise to anyone paying attention that stock-market volatility is on the rise. But here’s a statistic that underlines the phenomenon. The Cboe Volatility Index, commonly known as the VIX and often, if not sometimes derisively, referred to as Wall Street’s fear gauge, was on track Thursday to close above 30 for the fourth day in a row. The index, an options-based measure of expected volatility over the coming 30-day period, traded at 32.92 in recent action, up 2.51 points. According to data compiled by Dow Jones Market Data, that would be the longest streak since a 14-day run that ended in November 2011, surpassing a three-day period seen in August 2015. The index has a long-term average near 20.

It’s certainly been a week of whipsaw trading for investors. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all falling more than 2% in Monday’s holiday-abbreviated session to post the worst Christmas Eve performance in Wall Street history, only to roar back on Wednesday to more than reverse those declines as the S&P and Dow jumped 5% each and the Nasdaq gained 5.8%. On Thursday, stocks were back under pressure, with the Dow giving up more than half of the previous day’s 1,086-point gain.

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Robert Fisk is done. Comparing Putin to Hitler on the brink of 2019 is all we need to know. BTW, Mattis DID consider running.

Watch Out When Men Of War Come To The Rescue (Fisk)

When a general popularly known as James “Mad Dog” Mattis abandons a really mad American president, you know something has fallen off the edge in Washington. Since the Roman empire, formerly loyal military chiefs have fled crackpot leaders, and Mattis’s retreat from the White House might have the smell of de Gaulle and Petain about it. De Gaulle was confronted by an immensely powerful hero of the people – the Lion of Verdun – who was, in his dotage, about to shrug off the sacred alliance with Britain for Nazi collaboration (for which, I suppose, read Putin’s Russia). The decision was made to have nothing to do with Petain, or what Mattis now refers to as “malign actors”. De Gaulle would lead Free France instead.

Mattis has no such ambitions – not yet, at any rate – although there are plenty of Lavals and Weygands waiting to see if Trump chooses one of them for his next secretary of defence. Besides, history should not grant Trump and Mattis such an epic panorama. After all, no Trump tweet could compare with Petain’s 1916 “We’ll get them!” (“on les aura”) slogan, and the dignified, cold and fastidious de Gaulle would never have lent himself to the rant Mattis embarked upon in San Diego in 2005: “You go into Afghanistan, you got guys who slap women around for five years because they didn’t wear a veil. You know, guys like that ain’t got no manhood left anyway. So it’s a hell of a lot of fun to shoot them. Actually, it’s a lot of fun to fight. You know, it’s a hell of a hoot. It’s fun to shoot some people. I’ll be right upfront with you, I like brawling.”

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If investigations like this are not held, the US risks becoming a very volatile place.

Giuliani: Mueller Must Be Investigated For Destruction Of FBI Evidence (Hill)

Rudy Giuliani has an unmistakable New Year’s message for special counsel Robert Mueller: It is time for the chief investigator in the Russia case to be investigated in 2019. In wide-ranging interviews with Hill.TV’s Buck Sexton and me on Wednesday and Thursday, President Trump’s defense lawyer pointedly accused Mueller’s office of destroying evidence by allowing text messages from now-fired FBI official Peter Strzok and his FBI lover, Lisa Page, to be erased in the Russia probe. “Mueller should be investigated for destruction of evidence for allowing those text messages from Strzok to be erased, messages that would show the state of mind and tactics of his lead anti-Trump FBI agent at the start of his probe,” Giuliani said.

The Justice Department inspector general (IG) reported this month that it found large gaps in the preservation of official government text messages between Strzok and Page, the two top FBI agents who helped to start the Russia probe in 2016, who were having an affair at the time, and who expressed disdain for Trump. The report said a technical glitch was to blame for the FBI’s failure to save those text messages, but the IG was able to recover more than 19,000 from the early part of the Russia probe before Mueller was named special prosecutor. However, the IG said it was unable to recover messages from the time Strzok and Page worked for Mueller’s office in spring and summer 2017 because the memories of both FBI officials’ government phones were wiped clean by technicians.

That erasure occurred after Strzok and Page left Mueller’s team over revelations they exchanged anti-Trump text messages, including one string in which they talked about stopping Trump from becoming president. “That should be investigated, damn it, that should be investigated fully. You want a special counsel, get one for that,” Giuliani said.

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Really? The UN is going to pick sides? Against Trump and pro Big Tech?

Donald Trump ‘Worst Perpetrator’ Of Fake News: UN Special Rapporteur (Pol.eu)

The President of the United States is the “worst” perpetrator of misinformation on the internet, the U.N. Special Rapporteur on Freedom of Expression and Opinion David Kaye said in an interview published today. “Governments are real offenders when it comes to disinformation,” said Kaye. “In my own country, the United States, the worst perpetrator of false information is the President of the United States.” The problem of fake news emanating from governments should be covered by journalists, the rapporteur said. Platforms such as Google, Facebook or Twitter can help the broader fight against disinformation — bots, foreign interference… — but should not remove content, Kaye said.

“The platforms, I think, can do things that are more technical as long as they are not evaluating content. There are things they can do. They can’t just zap it and say, “This is fake news, it’s off the platform.” According to Kaye, platforms should focus on reducing spam and bot accounts rather than on policing content. And even bots are “tricky, because there are good bots and bad bots.” Google, Facebook and Twitter are under intense pressure from the European Commission to tackle fake news ahead of the European election in May 2019.

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When did the Yellow Vests become an insect species?

Macron Lost Authority After Caving To Yellow Jackets – EU’s Oettinger (Pol.eu)

The EU will accept a French budget deficit above the EU’s 3 percent ceiling in 2018 “as a one-time exception,” Budget Commissioner Günther Oettinger said in an interview published Thursday. Oettinger told the Funke media group of German newspapers that French President Emmanuel Macron had “lost authority with his budget for 2019” by upping his spending in response to the Yellow Jackets protests, “but he remains a strong supporter of the European Union.” Brussels reviewed the French budget several weeks ago and won’t be revisiting it, Oettinger added. “It crucial now that Macron continues his reform agenda, especially in the labor market, and that France remains on its growth track.”

“Under this condition, we will tolerate a national debt higher than 3 percent as a one-time exception. However, it must not continue beyond 2019.” Oettinger also told the Funke media group that there’s still a chance Britain’s parliament will vote in favor of Prime Minister Theresa May’s Brexit deal in January and that “there is certainly no majority for a disorderly Brexit or for a new referendum.” If the U.K. leaves the bloc without a Brexit deal, it will become “a third country like Morocco or Azerbaijan,” Oettinger said. He added that if Britain withholds its divorce payment in 2019, Germany would be left footing the bill “in the mid-three-digit range” of hundreds of millions of euros.

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The sudden urgency is too late.

Corbyn Wants May To Recall MPs Early Over Critical Brexit Vote (Ind.)

Jeremy Corbyn has challenged Theresa May to cut short the Christmas recess and recall parliament early in the new year in order to bring forward a critical vote on the Brexit deal. In an interview with The Independent, the Labour leader said he believed the prime minister and her allies were engaged in a “cynical manoeuvre” to run down the clock and offer MPs the “choice of the devil or the deep blue sea”. His remarks come as the Commons prepares to vote on the UK-EU deal in the week beginning 14 January – in what is being billed as the most significant moment in parliament for a generation.

With just 91 days remaining until Britain formally leaves the European Union, Mr Corbyn also reiterated it is a matter of “when, not if” Labour attempts to force a general election by tabling a motion of no confidence in the government, which he signalled will come in the aftermath of Ms May’s deal failing to receive MPs’ backing. But he refused to be drawn on whether a Labour government would seek to extend Article 50, given that just weeks would remain for any renegotiation of Britain’s exit from the bloc, and claimed: “Lots of things are possible, the EU has longform on reopening and extending negotiations, but let’s not jump too many hoops when we haven’t arrived at them.”

Speaking in his constituency office in Islington, north London, ahead of Christmas Day, he poured scorn on the prime minister’s decision earlier this month to pull a vote on the deal in the face of near-certain defeat and instead begin a last-ditch attempt to seek assurances from the EU to assuage Brexiteers’ concerns over the contentious issue of the Irish backstop. Pressed on whether he believed Ms May should now recall parliament a week early, on 2 January, the Labour leader replied: “Well it is in her hands to recall parliament. I want us to have a vote as soon as possible, that’s what I’ve been saying for the past two weeks, and if that means recalling parliament to have the vote let’s have it.

“But it looks to me the government has once again reneged on that and tried to put it back another week. We need to have that vote so a decision of parliament can be made. What I suspect is that it’s a completely cynical manoeuvre to run down the clock and offer MPs the choice of the devil or the deep blue sea.”

Read more …

For some, perhaps.

Brexit’s Aura Of Inevitability Is Vanishing (Kaletsky)

In times of political turmoil, events can move from impossible to inevitable without even passing through improbable. In early 2016, the idea of Britain leaving the European Union seemed almost as absurd as the next American president being the six-time bankrupt and serial sex pest Donald Trump. A few months later, Brexit and the Trump presidency were universally acknowledged as the inevitable consequence of an anti-elitist, anti-globalization backlash that was predictable decades ago. This sense of inevitability, far more than genuine anti-European conviction, is what has discouraged Britain from changing its mind about a pointless and self-destructive policy that few voters cared about until 2016.

The message from post-Brexit polling and focus groups has been: “We all know that Brexit has to happen, so why don’t the politicians just get on with it?” But with the Brexit process now moving toward its climax, another outcome is moving from impossible to inevitable: Britain could soon change its mind and decide to stay in the EU. This reversal of fortune could begin next month, when Prime Minister Theresa May is expected to lose the decisive parliamentary vote on her Brexit deal. If and when this defeat happens, May will face two unpalatable options. She could preside over a “No Deal” rupture with Europe — tantamount to a declaration of economic war against the EU — and risk a 2008-level economic crisis accompanied by a border upheaval in Ireland that could reignite the “Troubles.”

Or she could break her extravagant promises to honor the “people’s instruction” from the 2016 referendum and allow a new popular vote that might cancel Brexit. To avoid this invidious choice, May could try one last time to push her proposals through Parliament after losing the vote scheduled for the week of January 14. But if this last-ditch effort fails, her choices will be reduced to a No Deal rupture with Europe and a new referendum.

Read more …

Varoufakis is basically right, but I can’t see a three-year People’s Debate tackling 6 issues. Brits will think: we can’t even deal with one issue. And an extension of a transition period until 2022 is hard to see, too.

Turning Brexit Into a Celebration of Democracy (Varoufakis)

With weeks left before the UK leaves the EU by default, none of the three main options on offer – a no-deal Brexit, Prime Minister Theresa May’s withdrawal agreement with the EU, and rescinding Article 50 in order to remain in the EU – commands a majority in Parliament or among the population. Each generates maximum discontent: The no-deal scenario strikes most as a dangerous plunge into the unknown. May’s deal appalls Remainers and is seen by most Leavers as the kind of document only a country defeated at war would sign. Lastly, a Brexit reversal would confirm Leavers’ belief that democracy is allowed only when it yields results favored by the London establishment.

The conventional wisdom in Britain is that this impasse is lamentable, and that it proves the failure of British democracy. I disagree on both counts. If any of the three immediately available options were endorsed, say, in a second referendum, discontent would increase and the larger questions plaguing the UK would remain unanswered. Britons’ reluctance to endorse any Brexit option at present is, from this perspective, a sign of collective wisdom and a rare opportunity to come to terms with the country’s great challenges while re-thinking the UK’s relationship with the EU. But to seize it, the UK must invest in a “People’s Debate,” leading, in time, to a “People’s Decision.”

The People’s Debate must address six issues: the British constitution, including the creation of an English parliament or multiple regional English assemblies; the electoral system and the role of referenda; the Irish question, including the possibility of joint UK-Irish sovereignty over Northern Ireland; migration and freedom of movement; Britain’s economic model, particularly the outsize role of finance and the need to boost green investment across the country; and of course the UK-EU relationship.

Read more …

Proudly poisoning your food for 100 years.

Crime and Punishment in an Age of the Jungle (Vallianatos)

[..] studies funded by EPA and others have been connecting farmers’ sprays to ecocide, disease and death. I traced the catastrophic decline of honeybees to the neurotoxic pesticides of the farmers. This brought me in touch with a caring beekeeper from Colorado named Tom Theobald. He was telling me his days as a beekeeper were coming to an end. In December 2018, he summarized 44 years of living with honeybees and the poisoners of honeybees. “Almost every problem we face,” he said, “can be traced to a Criminal Corporatism and an out of control Capitalism. If there is a profit to be made, there is little regard paid to the consequences. If challenged, we get denial, diversion, excuses and junk science. It simply doesn’t matter how many people are sickened or die, how many species are pushed to extinction or how seriously the planet is compromised.”

[..] We are fortunate we have a reliable history of that irresponsible age by Deborah Blum, director of the Knight Science Journalism Program at MIT. A prolific and outstanding writer, Blum is telling a story that illuminates both early twentieth century, but, perversely, our own times. Her timely book, The Poison Squad: One Chemist’s Single-Minded Crusade for Food Safety at the Turn of the Twentieth Century (Penguin Press, 2018) paints an unforgettable picture of an American table full of “adulterated” food. Milk and meat were routinely treated with formaldehyde, a carcinogen used for embalming of corpses. Wine drinkers drank a liquid that had nothing to do with grapes. Wine was made from “tannin and coal tar.”

The poisonous copper sulphate dressed canned vegetables. The cleaning chemical borax coated butter. Honey had nothing to do with real honey. It was rather a version of “thickened, colored corn syrup.” Coffee was usually “sawdust, or wheat, beans, peas and dandelion seeds, scorched black and ground to resemble the genuine article.” Bread was baked with alum or chalk, or “sawdust chopped up very fine or gypsum in powder… Terra alba just out of the mine.” There was no law against the poisonous adulteration of food and drink. However, the adulteration of food, Blum says, gave sickness and death, potentially to huge number of Americans. Tainted milk alone killed thousands of children in New York City every year.

Read more …

Dec 272018
 
 December 27, 2018  Posted by at 9:25 pm Primers Tagged with: , , , , , , , , , , ,  


Francis Tattegrain La ramasseuse d’épaves (The Beachcomber) 1880

 

I haven’t really written about finance since April of this year, and given recent fluctuations in what people persist in calling the markets, maybe it’s time. Then again, nothing has changed since that article in April entitled This Is Not A Market. I was right then, and I still am.

[..] markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is. Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all.

[..] we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

But perhaps that is confusing, and confusion in and of itself doesn’t lead to better understanding. So maybe I should call what there is out there today ‘zombie markets’. It doesn’t really make much difference. What murdered functioning markets is intervention by central banks, in alleged attempts to save those same markets. Cue your favorite horror movie.

Now Jerome Powell and the Fed he inherited are apparently trying to undo the misery Greenspan, Bernanke and Yellen before him wrought upon the economic system, and people, cue Trump, get into fights about that one. All the while still handing the Fed, the ECB, the BoJ, much more power than they should ever have been granted.

And you won’t get actual markets back until that power is wrestled from their cold dead zombie fingers. Even then, the damage will be hard to oversee, and it will take decades. The bankers and investors their free and easy trillions were bestowed upon will be just fine, thank you, but everyone else will definitely not be.

Central banks don’t serve societies, they serve banks. They fool everyone, politicians first of all, into believing that societies automatically do well if only the demands of banks are met first, and as obviously stupid as that sounds, nary a squeak of protest can be heard. Least of all from ‘market participants’ who have done nothing for the better part of this millennium except feast at the teat of main street largesse.

In the past few days we’ve had both -stock- market rallies and plunges of 5% or so, and people have started to realize that is not normal, and it scares them. So you get Tyler posting DataTrek’s Nicolas Colas saying “Healthy” Markets Don’t Rally 1,086 Points On The Dow. Well, he’s kinda right, but there hasn’t been a healthy market in 10+ years, and he’s missed that last bit. Like most people have who work in those so-called ‘markets’.

 

Here’s why Colas is right, but doesn’t understand why. Price discovery is the flipside of the coin that is a functional market, because it allows for people to see why something is valued at the level it is, by a large(r) number of participants. Take that away and it is obvious that violent price swings may start occurring as soon as the comforting money teat stutters, or even just threatens to do so; a rumor is enough.

In physics terms, price discovery, and therefore markets themselves -provided they’re ‘healthy’ and ‘functioning’- delivers negative feedback to the system, i.e. it injects self-correcting measures. Take away price discovery, in other words kill the market, and you get positive feedback, where -simplified- changes tend to lead to ever bigger changes until something breaks.

Also, different markets, like stocks, bonds, housing, will keep a check on each other, so nothing will reach insane valuations. If they tend to, people stop buying and will shift their money somewhere else. But when everything has an insane value, how would people know what’s insane anymore, and where could they shift that is not insane?

It doesn’t matter much for ‘market participants’, or ‘investors’ as they prefer to label themselves, they shift trillions around on a daily basis just to justify their paychecks, but for mom and pop it’s a whole different story. In between the two you have pension funds, whose rapid forced move from AAA assets to risk will strangle mom and pop’s old-age plans no matter what.

 

People inevitably talk about the chances of a recession happening, but maybe they should first ask what exactly a recession, or a bear market, is or means when it occurs in a zombie (or just plain dead) market.

If asset ‘values’ have increased by 50% because central banks and companies themselves have bought stocks, it would seem logical that a 10% drop doesn’t have the same meaning as it would in a marketplace where no such manipulation has taken place. Maybe a 50% drop would make more sense then.

The inevitable future is that people are going to get tired of borrowing as soon as it becomes too expensive, hence unattractive, to do so. Central banks can still do more QE, and keep rates low for longer, but that’s not an infinity and beyond move. It a simple question of the longer it lasts the higher will be the price that has to be paid. One more, one last, simple question: who’s going to pay? We all know, don’t we?

 

That’s where the Fed is now. You can let interest rates rise, as Powell et al are indicating they want to do, but that will cut off debt growth, and since debt is exclusively what keeps the economy going, it will cut into economic growth as well. Or you can keep interest rates low (and lower), but then people have less and less idea of the actual value of assets, which can, and eventually necessarily will, cause people to flee from these assets.

Powell’s rate hikes schedule looks nice from a normalizing point of view, and g-d knows what normal is anymore, but it would massacre the zombie markets the Fed itself created when it decided to kill the actual markets. You can get back to normal, but only if the Fed retreats into the Eccles Building and stays there until 2050 or so (or is abolished).

They won’t, the banks whose interests they protect will soon be in far too dire straits, and bailouts have become much harder to come by since 2008. It’ll be a long time before markets actually function again, and we won’t get there without a world of pain. Which will be felt by those who never participated in the so-called markets to begin with. Beware of yellow vests.

To top off the perversity of zombie markets, one more thing. Zombie markets build overcapacity. One of the best things price discovery brings to an economy is that it lets zombies die, that bankrupt companies and bankrupt ideas go the way of the dodo.

That, again, is negative feedback. Take that away, as low rates and free money do, and you end up with positive feedback, which makes zombies appear alive, and distorts the valuation of everything.

Most of what the ‘popular’ financial press discusses is about stocks, what the Dow and S&P have done for the day. But the bond markets are much bigger. So what are we to think when the two are completely out of sync -and whack-?

 

Oh well, those are just ‘the markets’, and we already know that they are living dead. Where that may be less obvious, if only because nobody wants it to be true, is in housing markets. Which, though this is being kept from you with much effort, are what’s keeping the entire US, and most of Europe’s, economies going. And guess what?

The Fed and Draghi have just about hit the max on home prices (check 2019 for the sequel). Prices have gotten too high, Jay Powell wants higher interest rates, Draghi can’t be left too far behind him because EU money would all flow to the US, and it’s all well on its way to inevitability.

And anyway, the only thing that’s being achieved with ever higher home prices is ever more debt for the people who buy them, and who will all be on the hook if those prices are subject to the negative feedback loops healthy markets must be subject too, or else.

The only parties who have profited from rising home prices are the banks who dole out the mortgages and the zombie economy that relies on them creating the money society runs on that way. We have all come to rely on a bunch of zombies to keep ourselves from debt slavery, and no, zombies are not actually alive. Nor are the financial markets, and the economies, that prop them up.

Among the first things in 2019 you will see enormous amounts of junk rated debt getting rated ever -and faster- lower , and the pace at which ever more debt that is not yet junk, downgraded to(wards) junk, accelerating. It looks like the zombies can never totally take over, but that is little comfort to those neck deep in debt even before we start falling.

And as for the ‘players’, the economic model will allow again for them to shove the losses of their braindead ventures onto the destiny of those with ever lower paying jobs, who if they’re lucky enough to be young enough, start their careers in those jobs with ever higher student debts.

You’d think that at some point they should be happy they were never sufficiently credit-worthy to afford one of the grossly overpriced properties that are swung like so many carrots before their eyes, but that’s not how the system works. The system will always find a way to keep pushing them deeper into the financial swamp somehow.

The last remaining growth industry our societies have left is inequality, and that’s what our central banks and governments are all betting on to keep Jack Sparrow’s Flying Dutchman afloat for a while longer. Where the poor get squeezed more so the 1% or 10% get to look good a little longer.

But in the end it’s all zombies all the way down, like the turtles, and some equivalent of the yellow vests will pop up in unexpected places. My prediction for next year.

It doesn’t look to me that a year from now we’ll see 2019 as a particular peaceful year, not at all like 2018. I called it from Chaos to Mayhem earlier, and I’m sticking with that. We’re done borrowing from the future, it’s getting time to pay back those loans from that future.

And that ain’t going to happen when there are no functioning markets; after all, how does anyone know what to pay back when the only thing they do know is everything is way overvalued? How wrong can I be when I say debts will only be paid back at fair value?

2019, guys, big year.

 

 

Dec 182018
 


Titian The rape of Europe 1560-62

 

It took me a while to decide which word(s) best define the past year and the next one, but I think this is pretty much it. 2018 was chaotic more than anything else, and that chaos will give rise to mayhem in 2019.

What I think is striking is that this is true across the board, in all walks of life so to speak. In finance, in politics, in energy markets, in ecological matters, and perhaps most of all in the ways all these topics are being covered by what once were trusted media.

I’m going to have to come back to all these topics separately, so it’s promising to be a very busy holiday season, but it’s also good to try and put them together in one place, if only to show how interconnected everything is. And how futile it is to look at the economy without seeing its connection to energy flows and ecosystems. And vice versa.

 

In finance and economics, we’ve seen an avalanche of falling numbers recently, in stock prices, bond prices, housing, across the globe, and obviously that evokes a lot of comments in the financial press. But that press, and bankers investors on their own, still talk about markets.

However, as I wrote in April 2018, if there is no price discovery, and there isn’t, there ARE NO markets, and it would be good and beneficial if many more people absorb that simple reality. Many more so-called traders and investors would be a start, but by no means enough. Lots more people who have nothing to do with the ‘markets’ should understand why there is no such thing anymore.

As long as you limit it to stock and bond markets, it may appear fine that people don’t understand. But as soon as you acknowledge there are no housing markets either for the exact same reasons, the story changes considerably. Because then it becomes clear that all -former- markets, bar none, have been eviscerated by central bank policies that sought to prop up banks, often highly successfully so, which they knew could only happen at the expense of communities and societies.

We’ve ended up with scores of mom and pop ‘investors’ who own hugely overpriced stocks and homes, while their pensions funds hold zillions ‘worth’ of bonds and also increasingly stocks. The link between pensions and AAA-rate assets was pulverized in the process. That looks set to continue, and worsen, in 2019. But that may be just the look of things. Because there really are no markets, there is no price discovery.

What is still there is a lot of talk about whether the Fed -and other central banks- will raise rates further or not, or will stop or continue their asset buying schemes. Central banks are the only game in town, there are no markets, nobody knows what anything is really worth because the Fed etc. took the discovery process beyond their reach.

And now all those financial ‘subjects’ are sitting on all this stuff that only appears to have value, and that value hinges exclusively on what Draghi, Kuroda, Yellen and now Jay Powell have decided things are worth. And yes, it does make matters appear okay, but because they can’t do QE forever, all of those values will need to be re-assessed by actual markets once Powell et al. are either thrown out or decide for themselves to leave the arena.

It won’t be pretty, it will be devastating. It’s impossible to say if it will come to a head in 2019, because the Fed can lower rates a bit again after its recent rate hikes and prop up the zombie for longer. Then again Draghi can’t do that anymore since he’s already in negative rate territory, and while the euro could fall to parity with the USD as a consequence, there’s a limit to that too.

Anyway, more on that later.

 

Energy and ecology seem to become more intertwined as we go along, though that may well be a trompe oeil, trick of the eye. Still, if you see and read what people have to say about things like the big COP24 event in Katowice last week, it’s obvious that the 2nd law of Thermodynamics is a hard one to internalize. Because that law seems to say that the use of energy, period, produces waste, while all these mostly well-meaning folk are merely focusing on shifting between energy sources.

There is surprisingly little attention for not using energy in the first place, which the 2nd Law appears to stipulate is the only way to stop the rot. And it’s entirely feasible to build homes that use 70-80% less power to heat and cool, or to design a transport system in a city that saves that much energy.

But the ‘leaders’, politicians and business people, prefer to address solar panels and wind turbines that allow for the amount of energy used to fall only moderately, which when combined with the economic growth that nobody questions, will lead to the use of ever more energy.

And I get that, you need to shrink your present economies, and the models they’re based on, in order to save the planet. I’m not so much talking about climate change, since the earth is a system so complex we should really be very cautious about deriving any conclusions about it from simplified models, but the species extinction reported in 2018 is another, and more immediately convincing, story.

Still, conferences like COP24, or its predecessor COP21 which I wrote about 3 years ago in CON21, are not just entirely useless, they move everything backward that all the worried boys and girls are so worried about.

The movers and shakers of the world all owe their positions to the economies, and therefore the levels of energy use, that the worried people now want to move away from. And then they turn to the same movers and shakers to make that happen. Sorry, no can do. All you’ll get is lip service from people looking for money and power, who are not interested in being proved wrong if they are.

Today’s climate discussion is a road to nowhere where down the line there’ll be nobody left to talk to and no birds singing. You yourself probably won’t be there either. There is not one politician who will volunteer to give up their power if that could save the world their children will have to live in. They’ll come up with a story where their position is save and so is that world, and they’re more than likely to believe it.

 

As for the media, the tale gets darker fast. It didn’t start in 2018, but it did become a lot more outspoken. As I’ve said before, there are three targets for the former trusted sources of impartial news, even as those sources rapidly become more partial as we move forward. And that of course has to do with their new business model I wrote about a lot: writing negative stories about Donald Trump became an obvious source of revenue well before he was president.

Once he was elected, the media doubled down. They wrote against Trump at first thinking he would be beaten in the GOP primaries, then some more when he faced Hillary, then because they didn’t like him in the White House, and finally because he turned out to be the business proposition that quite literally kept them alive. What was it, over 100,000 new subscribers for the NYT a MONTH at a certain point?! Would CNN and Rachel Maddow even exist anymore without the Donald?

But that also means that the MSM cannot report anything positive about the man, with the exception of a bombing campaign in a faraway sandbox, and that is pretty crazy. No matter where you stand politically, not even Trump can do everything wrong, but CNN, MSNBC, WaPo,NYT et al can’t say it out loud, because their new readers and viewers want negative stories.

I’m not at all a Trump fan, I find it insane that America can’t find a single person among its 320 million inhabitants who could better represent it, but I also saw well over two years ago that the reporting on Trump was so biased someone had to restore at least some balance. And if that was to be me, so be it.

It’s like the entire US -and UK- press has become the National Enquirer, where the questions of truth or accuracy have become, and/or always was, a complete afterthought, irrelevant to whatever is actually published. And the readers and viewers caught inside the echo chamber will never know any better than that that is what the world really looks like.

It’s the ‘old’ media’s response to the threat of social media, a fight they cannot possibly win in the end, but not one they will relinquish easily; it will be the end of them. So there’s Trump, and then there’s Russia and Julian Assange. And there’s a live shooting practice going on in which all three are fair game.

According to two reports published just yesterday in the NY Times and the BBC, African Americans and French Yellow Vests were targeted by Russian bots, trolls, give them a name. What these once trusted media no longer understand, or don’t care about, is that they are effectively saying that African Americans and Yellow Vests are all so stupid and so unconvinced and unconvincing in their political convictions that a bunch of poorly defined Russians made them throw their votes away from Hillary Clinton and towards Trump.

Like African Americans have no opinions and therefore in the end no functioning brains. Like their f*king robots, some inferior lifeform. Is there anything you can say that is more racist than that? I come up empty. And I understand Kanye.

And that the ‘Russians’ caused tens of thousands of Frenchmen and -women to put on a yellow vest and protest Macron’s dismantling of -very- long-standing labor rights and taxation ‘reforms’ that benefit the rich French elite. You cannot insult two such vast yet diverse groups of people, who seem to have little if anything in common, African Americans and Yellow Vests, you cannot insult them more or worse than such reports do.

And they simply don’t see it. In their view, and which they -rightly by now- trust their public will eat up like hot cakes, their 24/7 anti-Trump and anti-Russia campaigns have been so convincing that they can basically say anything at all by now. If Trump or the Russians deny, that’s just what they would do if they were guilty. Assange can’t deny anything at all, they’ve totally silenced him. They being the US deep state in liaison with the MSM.

 

That’s how we’re about to enter 2019, how we’re about to move from chaos to mayhem. It is scary not just because of what we see happening today, but even more because we’ve never seen anything remotely like it. Sure, US media, any country’s media, have always supported government strategic lies in times of warfare or other tensions.

But an overall campaign against a sitting president, comprised of dozens of articles a day consisting of mere allegations and rumors, let alone the same against a state nuclear power arguably mightier than the US itself, and a journalist who’s the only one in his profession who’s actually done what journalists should do, not the well-paid follow the party line thing going on at the MSM, all this is unprecedented.

And given what we’ve seen in 2018 in the realm of banned social media accounts, in a wider sense of the word, we can only wonder how much worse the censorship can get in the mayhem year of 2019.

Can the Automatic Earth, and for instance our friends at Zero Hedge, only continue to exist next year if we agree to increasingly become the poodles of the ruling political classes, intelligence services, and their press masters and lackeys?

It’s starting to look that way. So in closing, I want to call on you to support us by donating a Christmas gift, and preferably a recurring one all through the 2019 mayhem year, so we know we can continue to present you with an alternative to the ‘appropriate’ information you’re ‘supposed’ to be receiving.

It’s later than you think.

 

 

Apr 232018
 
 April 23, 2018  Posted by at 12:46 pm Finance Tagged with: , , , , , , , , ,  


René Magritte La trahison des images 1929

 

“[Price discovery] is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers”, says Wikipedia. Perhaps not a perfect definition, but it’ll do. They add: “The futures and options market serve all important functions of price discovery.”

What follows from this is that markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is.

Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all. Also, if you don’t have functioning markets, you have no investors. Who’s going to spend money purchasing things they can’t determine the value of? (I know: oh, wait..)

 

Ergo: we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

Or is it because they once started out as ‘investors’ or finance journalists, bankers or politicians, and wouldn’t know what to call themselves now, or simply can’t be bothered to think about such trivial matters?

Doesn’t a little warning voice pop up, somewhere in the back of their minds, in the middle of a sweaty sleepless night, that says perhaps they shouldn’t get this one wrong? Because if you think about, and treat, a ‘thing’, as something that it’s not at all, don’t you run the risk of getting it awfully wrong?

A cow is not a dinner table; but both have four legs. And “Art is Art, isn’t it? Still, on the other hand, water is water. And east is east and west is west and if you take cranberries and stew them like applesauce they taste much more like prunes than rhubarb does. Now you tell me what you know”. And when you base million, billion, trillion dollar decisions, often involving other people’s money, on such misconceptions, don’t you play with fire -or worse?

 

This may seem like pure semantics without much practical value, but I don’t think it is. I think it’s essential. What comes to mind is René Magritte’s painting “La Trahison des Images”, better known as “Ceci n’est pas une pipe”, (The Treachery of Images – this is not a pipe). People now understand -better- what he meant, but they were plenty confused in the late 1920s when he painted it.

An image of a pipe is not a pipe. In Magritte’s words: “The famous pipe! How people reproached me for it! And yet, could you stuff my pipe? No, it’s just a representation, is it not? So if I had written on my picture ‘This is a pipe’, I’d have been lying!”.

But isn’t that what the entire financial community is doing today? Sure, they’re making money right now, but that doesn’t mean there are actual markets. They don’t have to go through “the process of determining the price of an asset in the marketplace..” I.e. they don’t have to check if the pipe is a real pipe, or just a picture of one.

 

 

What killed price discovery, and thereby markets? Central banks did. What they did post-2008 is two-fold: they bought many, many trillions in ‘assets’, mortgage-backed securities, sovereign bonds, corporate bonds, etc., often at elevated prices. It’s hard to gauge how much exactly, but it’s in the $20+ trillion range. Just so all these things wouldn’t be sold at prices markets might value them at after going through that terrible process of ‘price discovery’.

Secondly, of course, central banks yanked down interest rates. Until they arrived at ultra low interest rates (even negative ones), which have led to ultra low yields and the perception of ultra low volatility, ultra low risk, ultra low fear, which in turn contributed to ultra low savings (in which increasing household debt also plays a major role). As a consequence of which we have ultra high prices for stocks, housing, crypto(?), and I’m sure I still forget a number of causes and effects.

People wanting to buy a home are under the impression they can get “more home for their buck” because rates are so low, which in turn drives up home prices, which means the next buyers pay a lot more than they would have otherwise, and get “less home for their buck”. In the same vein, ultra-low rates allow for companies to borrow on the cheap to buy back their own stock, which leads to surging stock prices, which means ‘investors’ pay more per share.

 

Numbers of the S&P 500 and its peers across the world are still being reported, but what do they really represent? Other than what central banks and financial institutions have bought and sold? There’s no way of knowing. If you buy a stock, or a bond, or a home, you no longer have a means of finding out what they are truly worth.

Their value is determined by central banks printing debt out of thin air, not by what it has cost to build a home, or by what a company has added to its value through hard work or investment in labor, knowledge or infrastructure. These things have been rendered meaningless.

Central banks determine what anything is worth. The problem is, that is a trap. And your money risks being stuck in that trap. Because you’re not getting any return on your savings, you want to ‘invest’ in something, anything, that will get you that return. And the only guidance you have left is what central banks purchase. That is a much poorer guidance than an actual market place. The one thing you can be sure of is that you’re paying more for ‘assets’ -probably much more- than you would have had central banks remained on the sidelines.

The Fed may (officially?) have quit purchasing ‘assets’, but the Bank of Japan and ECB took over with a vengeance (oh, to be a fly on the wall at the BIS); in Q1 2017 the latter two bought over $1 trillion in paper. The Bank of Japan has effectively become its nation’s bondmarket. The European Central Bank is not far behind that role in Europe.

And the ‘market’, or rather the 2-dimensional picture of a market, depends only on what they do. The one remaining question then is when will this end? Some say it can go on forever, or, you know, till these policies have restored growth and confidence. But can, will, anyone have confidence in a market that doesn’t function? Martin Armstrong recently addressed the issue:

 

The Central Bank Crisis on the Immediate Horizon

While the majority keep bashing the Federal Reserve, other central banks seem to escape any criticism. The European Central Bank under Mario Draghi has engaged in what history will call the Great Monetary Experiment of the 21st Century – the daring experiment of negative interest rates. A look behind the scenes reveals that this experiment has been not just a failure, it has undermined the entire global economic structure.

We are looking at pension funds being driven into insolvency as the traditional asset allocation model of 60% equity 40% bonds has failed to secure the future with negative interest rates. Then, the ECB has exceeded 40% ownership of Eurozone government debt. The ECB realizes it can not only sell any of its holdings ever again, it cannot even refuse to reinvest what it has already bought when those bonds expire. The Fed has announced it will not reinvest anything.

Draghi is trapped. He cannot stop buying government debt for if he does, interest rates will soar. He cannot escape this crisis and it is not going to end nicely. When this policy collapses, forced by the free markets (no bid), CONFIDENCE will collapse rapidly. Once people no longer believe the central banks can control anything, the end has arrived. We will be looking at the time at the WEC. We will be answering the question – Can a central bank actually fail?

 

So where do you go from here? Everything you -think you- know about markets is potentially useless and doesn’t apply to what you see before you today. There are many voices who talk about similarities and comparisons with what happened to markets for instance in 1987, but what’s the value of that?

Back then, to all intents, constructions, and purposes, markets were functioning. There was price discovery. There were some ‘novel’ instruments, such as portfolio insurance, that you could argue influenced markets, but nothing on the scale or depth of what we see today with high-frequency trading, robots, Kurodas and Draghis.

The temptation is obvious, and large, to compare today’s financial world with that of any point in the past that seems to fit, even if not perfectly. But the lack of price discovery means any such comparisons must of necessity be way off the mark; you cannot stuff that 2-D pipe.

The BIS-designed unity in central bank policies is under threat, as Armstrong indicates. The Fed has moved towards quantitative tightening, not investing or even re-investing, and raising rates, but it doesn’t look like the ECB will be able to follow that change of direction. It can’t stop ‘investing’ because it has become too big a player. The Bank of Japan appears to be in that same bind.

Central bankers jumped into the markets to save them (or so goes the narrative), but they will instead end up killing them. In fact, they killed them the minute they entered the fray. Markets can’t survive without price discovery, and vice versa. The moment it becomes clear that Draghi MUST keep buying sovereign debt from countries with failing economies, the game is up.

 

All those trillions created by central banks, and the even much bigger amounts conjured up by the creation of loans by commercial banks, will have to be eradicated from the system before markets and price discovery can return. And return they will. There are lots of things wrong with our economic and financial machinery, but functioning markets are not wrong.

Things run off the rails when governments and central banks start interfering, not when markets are allowed to function. But it’s long turned into a giant game of whack-a-mole, in which economists and other know-it-betters are forced to plug one hole by digging another, and so forth.

The best we can hope for is some sort of controlled demolition, but the knowledge and intelligence required to make that happen don’t appear to be available. The political climate certainly isn’t either. A politician who campaigns on “let’s take this sucker down slowly” will always lose out to one who claims to know not only how to save it, but to let it bloat even more.

The Draghis of the world will continue to believe they are in control until they are not. At first, some people will start taking out their money while it’s still there, and then after that the rest will trample over each other in a bloody stampede on the way to the exits trying to save what’s left. After the first $100 trillion is gone, we’ll be able to survey the terrain, but by then we won’t, because we’ll be too busy trying to save ourselves.

And I know you’ve heard this before, and I know central banks bought us 10 years of respite. But it was all fake, it was all just a picture of a pipe. They had to pile on insane amounts of debt on your heads, kill off your pension systems and make markets a meaningless term, to achieve that respite.

They had to kill the markets to create the illusion that there still were markets. With the implied promise that they would be able to get out when they had ‘restored growth’.

But you can’t buy growth. And yet that is the only trick they have up their sleeves, and the only thing the emperor is wearing. Next up: a rabbit and a hat. And a pipe. And then the lights go out and someone shouts “FIRE!”.

 

 

 

 

Apr 122018
 
 April 12, 2018  Posted by at 1:09 pm Finance Tagged with: , , , , , , , , , , , , ,  


Pieter Bruegel the Elder The Triumph of Death c1562

 

This is turning into a comedy. A black comedy, for sure, but still. As both the Skripal novichok ‘poisoning’ case in Britain and the ‘chemical attack’ in Douma, Syria fall flat on their faces on a total and absolute lack of evidence, it’s becoming clear that western ‘authorities’ are not at all planning to let go of the privilege that in times gone by allowed them to claim whatever they wanted and demand to be believed.

And despite the insane amounts of spying that underlies their business models and will lead to their demise(s), here is where social media do play a decisive role. See, if you’re an ‘authority’, there’s nothing you would rather do than to close down those social media that let people spread news that contradicts and/or doubts what you just said, and undermines that privilege. But that also would mean you can’t spy on them anymore through social media. A toss-up?!

Whatever the outcome will be, it’s obvious that Donald Trump is having war talks with his military and closest advisers. And they can basically tell him anything, he’s not a military man. Which is fine, Lincoln wasn’t either. But it does mean he’s vulnerable to narratives and briefings that are simply not true. Lincoln went to great lengths to surround himself with people who could trust.

What about Trump? Does he know that, as Paul Craig Roberts said on Twitter yesterday ..

The Russians know that they can, at will within a few minutes, sink the entire US fleet, destroy every US airplane & ship in the ME & within range of the ME, completely destroy all of Israel’s military capability & wipe out the military of the two-bit punk state of Saudi Arabia.

.. or do they keep that from him? Because if he did know, why have this entire circus going on? Why did the King of Twitter yesterday threaten with his new and shiny toys and then today switch to:

Never said when an attack on Syria would take place. Could be very soon or not so soon at all! In any event, the United States, under my Administration, has done a great job of ridding the region of ISIS. Where is our “Thank you America?”

We already knew that US military won’t be ready for another 10 days or so for an attack on Syrian targets. So that makes sense. It takes the surprise factor out of the game, but nobody seems to want to surprise anyone much anyway. Syrian and Russian military are already way out of the way, and left the most decrepit infrastructure behind for the coalition of the willing (no Germany, Canada) to waste their firepower on.

But does Trump really want to start shooting anything? Certainly only if he knows he will win. And that, he doesn’t. And there’s something else. he’s not only talking to his military people, he’s got a financial/economic team as well. What will the financial effects of a military action be? That might give him some pause. And his military guys can’t fill him in on that.

Can Trump risk imploding the ‘markets’? They’re not actually markets anymore, and that makes them much less predictable.

As Bill Holter says talking to Greg Hunter:

 

It’s Pure Math – We’re Headed for a Train Wreck

Holter also points out the explosion of global debt. Holter charges, “It’s now $237 trillion. The amount of debt grew by $21 trillion globally over the last 12 months. That’s roughly 10 %. How much did global GDP grow? 2% or 3%, I mean that is totally unsustainable.” The biggest worry for Holter right now is escalating military action in Syria. Holter warns, “This is so, so dangerous. Obviously, you worry about a hot war because with the weapons you have today, you could have WWIII start in a heartbeat. But look at the market today. It’s up 400 or 500 points. You have talk of trade wars. You have talk of hot wars. It’s amazing the markets can hold together and ignore potential annihilation.”

David Stockman has something very similar:

 

The Deep State Closes In On The Donald, Part 1

Yes, maybe Wall Street has figured out that the Donald is more bluster than bite. Yet when you consider the broader context and what the Russian side is now saying, it is just plain idiotic to own the S&P 500 at 24X. After all, earnings that have been going nowhere for the past three years (earnings per share have inched-up from $106 in September 2014 to $109 in December 2017), and now could be ambushed by a hot war accident in Syria that would rapidly escalate.

Indeed, did the robo-machines and boys and girls down in the casino not ponder the meaning of this message from the Kremlin? It does not leave much to the imagination: #Russian ambassador in Beirut : “If there is a strike by the Americans on #Syria , then… the missiles will be downed and even the sources from which the missiles were fired..”

Trump would be much more likely to fire away if he thought he would win. And even then. Even if he could win, the whole situation is replete with unknown unknowns. If god forbid the thing escalates and the US and Russia end up facing each other, what will China do? Don’t forget that Beijing and the PBOC play an instrumental part in propping up the world economy, and the S&P 500.

It wouldn’t be hard for Xi to pull that carpet out from under Trump’s feet; it would be costly for China too, but if war were the reality, the rules and priorities change. And you can bet Xi and his people have run through the kinds of scenarios many many times. They’re prepared to “withdraw upon themselves”.

As for the US, the ‘markets are holding on to crazy levels so far despite the threat that hangs in the air, but once the first rockets fly, and gold and bitcoin -oil?- are still available, why hold on to stocks?

It’s the insanity of the so-called markets that makes them so vulnerable and unpredictable. And starting a war on very shaky grounds increases that unpredictability by a factor of 10 or so. And the MSM may -well, there’s no doubt- still fill their role as cheerleaders the way they used to, but social media are a different story.

And besides, which investors are going to say, hell, I feel so patriotic, I’m going to hold on to stocks that have been onvervalued for years already, just to support Bolton and McCain and Tony Blair and Boris Johnson’s fantasies? Who would do that who understands that it is at least quite possible that Russia has the better weapons today? Or that perhaps this kind of conflict is simply not winnable anymore?!

I don’t think there’ll be many. Nor do I think Trump wants to be known as the man who collapsed the S&P 500. So, abandoned buildings in the desert it is. And lots of CNN. Anderson Cooper’s your MC.

 

 

Oct 132017
 
 October 13, 2017  Posted by at 7:45 pm Finance Tagged with: , , , , , , , ,  


Rembrandt Old man with a beard 1630

 

“The Cost of Missing the Market Boom is Skyrocketing”, says a Bloomberg headline today. That must be the scariest headline I’ve seen in quite a while. For starters, it’s misleading, because people who ‘missed’ the boom haven’t lost anything other than virtual wealth, which is also the only thing those who haven’t ‘missed’ it, have acquired.

Well, sure, unless they sell their stocks. But a large majority of them won’t, because then they would ‘miss’ out on the market boom… Some aspects of psychology don’t require years of study. Is that what behavioral economics is all about?

And it’s not just the headline, the entire article is scary as all hell. It reads way more like a piece of pure and undiluted stockbroker propaganda that it does resemble actual objective journalism, which Bloomberg would like to tell you it delivers. And it makes its point using some pretty dubious claims to boot:

 

The Cost of Missing the Market Boom Is Skyrocketing

Skepticism in global equity markets is getting expensive. From Japan to Brazil and the U.S. as well as places like Greece and Ukraine, an epic year in equities is defying naysayers and rewarding anyone who staked a claim on corporate ownership. Records are falling, with about a quarter of national equity benchmarks at or within 2% of an all-time high.

If equity markets in places like Greece and Ukraine, ravaged by -in that order- financial and/or actual warfare, are booming, you don’t need to fire too many neurons to understand something’s amiss. Some of their companies may be doing okay, but not their entire economies. Their boom must be a warning sign, not some bullish signal. That makes no sense. Stocks in Aleppo may be thriving too, but…

“You’ve heard people being bearish for eight years. They were wrong,” said Jeffrey Saut, chief investment strategist at St. Petersburg, Florida-based Raymond James, which oversees $500 billion. “The proof is in the returns.” To put this year’s gains in perspective, the value of global equities is now 3 1/2 times that at the financial crisis bottom in March 2009.

If markets crash by, pick a number, 20-30-50% next week, will Mr. Saut still claim “The proof is in the returns”? I doubt it. Though this time he might be right. As for the ‘value’ of global equities being 250% (give or take) higher than in March 2009, does that mean those who were -or still are- bearish were wrong? Or is there some remote chance that the equities are part of a giant planetwide bubble?

Aided by an 8% drop in the U.S. currency, the dollar-denominated capitalization of worldwide shares appreciated in 2017 by an amount – $20 trillion – that is comparable to the total value of all equities nine years ago. And yet skeptics still abound, pointing to stretched valuations or policy uncertainty from Washington to Brussels. Those concerns are nothing new, but heeding to them is proving an especially costly mistake.

$20 trillion. That’s a lot of dough. It’s what all equities in the world combined were ‘worth’ 9 years ago. It’s also, oh irony, awfully close to the total increase in central bank balance sheets, through QE etc. Might the two be related in any way?

 

 

Clinging to such concerns means discounting a harmonized recovery in the global economy that’s virtually without precedent – and set to pick up steam, according to the IMF. At the same time, inflation remains tepid, enabling major central banks to maintain accommodative stances.

‘Harmonized recovery’ is a priceless find. But you have to feel for anyone who believes it. And it’s obviously over the top ironic that central banks are said to be ‘enabled’ to keep rates low precisely because they fail to both understand and raise inflation. Let’s call it the perks of failure.

“When policy is easy and growth is strong, this is an environment more conducive for people paying up for valuations,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. “The markets are up in line with what the earnings have done, and stronger earnings helped drive a higher level of enthusiasm and a higher level of risk taking.”

Oh boy. He actually said that? What have earnings done? He hasn’t read any of the warnings on P/E (price/earnings) for the (US) market in general –“the Shiller P/E Cyclically Adjusted P/E, or CAPE, ratio, which is based on the S&P 500’s average inflation-adjusted earnings from the previous 10 years, is above 30 when its average is 16.8”– or for individual companies (tech) in particular?

The CAPE ratio has been higher than it is now only twice in history: right before the Great Depression and during the dotcom bubble, when tech companies didn’t even have to be able to fog a mirror to attract billions in ‘capital’. And the chief cross-asset strategist at Morgan Stanley says markets are in line with earnings? Again, oh boy.

No, it’s not earnings that “..helped drive a higher level of enthusiasm and a higher level of risk taking.” Cheap money did that. Central banks did that. As they were destroying fixed capital, savings, pensions.

 

 

The numbers are impressive: more than 85% of the 95 benchmark indexes tracked by Bloomberg worldwide are up this year, on course for the broadest gain since the bull market started. Emerging markets have surged 31%, developed nations are up 16%. Big companies are becoming huge, from Apple to Alibaba.

Look, emerging markets and developed economies have borrowed up the wazoo. Because they could. Often in US dollars. That may cause a -temporary- gain in stock markets, but it casts a dark spell over the reality of these markets. If it’s that obvious that a substantial part of your happy news comes from debt, there’s very little reason to celebrate.

Technology megacaps occupy all top six spots in the ranks of the world’s largest companies by market capitalization for the first time ever. Up 39% this year, the $1 trillion those firms added in value equals the combined worth of the world’s six-biggest companies at the bear market bottom in 2009. Apple, priced at $810 billion, is good for the total value of the 400 smallest companies in the S&P 500.

To cast those exact same words in a whole different light, no, Apple is not ‘good for the total value of the 400 smallest companies in the S&P 500’. Yes, you can argue that Apple’s ‘value’ has lifted other stocks too, but this has happened in a time of zero price discovery AND near zero interest rates. That means people have no way to figure out if a company is actually doing well, so it’s safer to park their cash in Apple.

Ergo: Apple, and the FANGs in general, take valuable money out of the stock market. At the same time that they, companies with P/E earnings ratios to the moon and back, buy back their stocks at blinding speeds. So yeah, Apple may be ‘good’ for the total value of the 400 smallest companies in the S&P 500, but at the same time it’s not good for that value at all. It’s killing companies by sucking up potential productive investment.

And Apple’s just an example. Silicon Valley as a whole is a scourge upon America’s economy, hoovering away even the cheapest and easiest money and redirecting it to questionable start-up projects with very questionable P/E ratios. But then, that’s what you get without price discovery.

 

 

Overall, U.S. corporate earnings are expected to rise 11% this year, on track to be the best profit growth since 2010. And after years of disappointments, European profits are set to climb 14% in 2017, Bloomberg data show. The expectations for both regions are roughly in line with forecasts made at the beginning of the year, defying the usual pattern of analysts downgrading their estimates as the months go by.

Come on, the European Central Bank has been buying bonds and securities at a rate of €60 billion a month for years now. How can it be any wonder that officially stock markets are up 14%? Maybe we should be surprised it’s not 114%. Maybe the one main point in all of this is that the ECB is still buying at that rate, and thereby signaling things are still as bad as when they started doing it.

Meanwhile, Asia is home to some of the world’s steepest rallies, led by Hong Kong stocks that are up 29% this year. Shares in Tokyo also hit fresh decade highs this week, bolstered by investor confidence before the local corporate earnings season and a snap election this month. “Asia will benefit from continued improving regional growth, stable macroeconomic conditions and undemanding valuations,” said BNP Paribas Asset Management’s head of Asia Pacific equities Arthur Kwong. Any pullback in Asian equities after the year-to-date rally presents a buying opportunity for long-term investors, he wrote in a note.

In Japan, so-called investor confidence is based solely on the Bank of Japan continuing to purchase anything that’s not bolted down. In China, the central bank buys the kitchen sink as well. How, knowing that, can you harp on about increased investor confidence? As if central banks taking over entire economies either isn’t happening, or makes no difference to economies? Buying opportunity?

Global economic growth has been robust in most places, with Europe finally joining the party and the euro-area economy on track for its best year since at least 2010. The region’s steady recovery has eclipsed worries about populism, which a few years ago would have been enough to derail any stock market rally.

No, global economic growth has not been ‘robust’. Stock market growth perhaps has been, but that’s only due to QE and buybacks. Still, stock markets are not the economy.

“I’ve never been so optimistic about the global economy,” said Vincent Juvyns, global market strategist at J.P. Morgan Asset Management. “Ten years after the financial crisis, Europe is recovering and we have synchronized economic growth around the world. Even if we get it wrong on a country or two, it doesn’t change the big picture, which is positive for the equity markets.”

Oh man. And at that exact moment the ECB announces it wants to cut its QE purchase in half by next year.

Nowhere is the shifting sentiment more pronounced than in Europe, where global investors began the year with a election calendar looming like a sword of Damocles. Ten months later, the Euro Stoxx 50 Index is up 10%, Italy’s FTSE MIB Index is up 17% and Germany’s DAX Index is up 13%. The rally is even stronger when priced in U.S. dollars, with the Euro Stoxx 50 up 23% since the start of the year.

Sure, whatever. I don’t want to kill your dream, and I don’t have to. The dream will kill itself. You’ll hear a monumental ‘POP’ go off, and then you’re back in reality.

 

 

Note: Rembrandt painted the portrait above when he was just 23-24 years old.

 

 

Oct 092017
 
 October 9, 2017  Posted by at 2:08 pm Finance Tagged with: , , , , , , , ,  


Fan Ho In Paris 1953

 

 

Update: I never did this before, but now I think I must: change the title of an article. “Minsky and Volatility” isn’t nearly as good as “The S&P Is A Bloated Corpse”. Simple, really. The URL will be the same as before

 

 

According to Hyman Minsky, economic stability is not only inevitably followed by instability, it inevitably creates it. Complacent humans being what they are. If he’s right, and would anyone dare doubt it, we’re in for that mushroom cloud on the financial horizon. We know that because market volatility, as measured for instance by the VIX, the Chicago Board Options Exchange (CBOE)’s volatility index, is scraping the depths of the Mariana trench.

Two separate articles at Zero Hedge this weekend, one by NorthmanTrader.com and one by LPLResearch.com, address the issue: it is time to be afraid and wake up. And that is not just true for investors or traders, it’s true for ‘everyone out there’ perhaps even more. Central bank policies, QE and ultra low rates, have distorted the financial system to such an extent -ostensibly in an attempt to save it- that the depressed, compressed volatility these policies have created can only come back to life with a vengeance.

Feel free to picture zombies and/or loss of heartbeat as much as you want; it’s all true. Financial markets haven’t been functioning for years, and there have been no investors either, only gamblers and profiteers, as savers and pensioners have been drawn and quartered. Central bankers have eradicated price discovery, nobody knows what anything is really worth anymore, be it stocks, bonds, housing, gold, bitcoin, you name it.

If you make interest rates ‘magically’ disappear anyone can spend any amount of money on anything they fancy buying. And it’s not just traders and investors either. Scores of people think: look, I can buy a house, others think they can buy a bigger house, many will get into stocks and/or bonds, because prices just keep going up. Even savers and pensioners are drawn into the central bank Ponzi, often in an effort to make up for what they lose when their accumulated wealth no longer pays them any returns. Shoeshine boys are dishing out market tips.

Crypto may or may not be a new tulip, but many Silicon Valley start-ups -increasingly funded by crypto ICO’s- certainly are. There’s so much money sloshing around nobody can tell, or even cares, whether they are actually worth a penny. It’s all based on gossip multiplied by the idea that they will be smart enough to get out in time in case things go awry.

 

People mistakenly think that a market’s heartbeat can be found in for instance rising stock prices, the Dow, the S&P. But that’s simply not true. The S&P is a bloated corpse increasingly filling up with gases that will eventually cause it to explode, with guts and blood and body parts and fluids flying all around.

The US stock market’s heartbeat manifests itself in volatility, and the overall economy’s heartbeat in interest rates. Rising and falling volatility and interest rates is how we know whether a market is in good health, or even alive at all. They are its vital signs.

That follows straight from Minsky. Ultra-low rates and ultra-low volatility, especially if they last for a longer period of time, are signs of trouble. The markets the central banks’ $20+ trillion QE and ZIRP have created are bloated corpses that no longer have a heartbeat. They are zombies. But markets, unlike natural bodies, won’t die, they can’t. They will instead rise from their graves and take over Wall Street, the City, and then everyone else’s street.

Bernanke, Yellen, Draghi and Kuroda are sorcerer’s apprentices and Dr. Frankensteins, who have created walking dead monsters they have no control over. But the monsters won’t turn on them personally; that’s the tragedy here as much as it is the reason why they have worked their sorcery. They themselves won’t go bankrupt, other will. No skin in the game.

Enough with the metaphors. First, here’s NorthmanTrader:

 

Flatliners

In the movie Flatliners aspiring medical doctors tried to unlock the mysteries of death by, well, killing themselves. It was meant to be a controlled death of course, to flat line on the heart rate monitor for a few minutes to find out what wonders where to be found “on the other side” only to then return safe & sound thanks to medical intervention. Well, they soon found out the other side wasn’t everything it was cracked up to be and the main character soon got regular beatings as the sins of his past came back to haunt him.

In my view markets find themselves in a very similar script. The promise of investor nirvana where the pains of real life no longer matter. If you only pay attention to the record highs headlines it all looks rather fantastical these days. [..] any trader staring at the tape knows that we find ourselves in the most compressed price environment in history. This is not normal, there’s no heartbeat:

As I’m writing this I’m fully aware I may be viewed as the bear who cried wolf. After all I’ve been outlining structural risk factors for a while and markets have moved past my technical risk zones of 2450-2500 and most recently 2530. That’s what bubbles do. They blow past anyone’s expectations, they make believers of the unbelievers, make bears look like idiots and the most reckless look like geniuses. But an extreme market that only becomes more extreme is not any less extreme, it is just more extreme. As no risk is apparent these extremes are then dismissed as the new normal. Yet momentum driven price appreciation has absolutely zero predictive value of future price appreciation, it only appears as such at the time.

We find ourselves in a very unique point in history and in a world dominated by false narratives. It is a challenge to keep an analytical grip on reality, but I’ll try to tie a few threads together here to put everything in a macro context. Firstly the underlying base reality: Free money, easy money, whatever you want to call it, permeates everything we see in financial markets. Indeed I would argue price appreciation has been paid for with unprecedented and, in my view, unsustainable volatility compression. A couple of charts really highlight this. Most clearly perhaps is the precise trend line tagging we can observe in the correlated picture of price appreciation and volatility compression since the February 2016 lows:

The $VIX’s corollary, the inverse $XIV, embarked on an explosive near one way journey since the US election coinciding with over $2 trillion central bank intervention in just the first 9 months of 2017:

And it has continued to this day and just made another all time high this past week on a massive negative divergence. It is the magnitude of this volatility compression that explains the current trading environment we find ourselves in.

 

[..] Debt expansion at low rates continues to sustain the illusion of real prosperity for the 90%:

 

And then LPLResearch with another indicator that goes to show we’re dealing with a zombie here: stock prices are not moving, either up or down. Or rather, they’re moving up all the time, but in too small increments. Yeah, like that bloated corpse.

 

Where Did All the Big Moves Go?

There have only been eight moves of at least 1% for the S&P 500 Index so far this year—the least since 13 in 1995. The all-time record was an incredible three in 1963. What about a big move? The last time the S&P 500 moved at least 4% was nearly six years ago. In fact, the S&P 500 had four consecutive days with 4% (or greater) changes in August 2011. Other than 2008 and the crash of ’87, that is the only other time since the Great Depression to see four consecutive 4% changes. That isn’t anything like today’s action.

As the chart below shows, so far in 2017, big moves have been nonexistent; and even 1% changes have been rare. Per Ryan Detrick, Senior Market Strategist, “If you had forecast that the 11 months after the 2016 U.S. presidential election would be one of the least volatile periods ever, you would be in the minority. Then again, the last time we saw a streak of calm like this was the year after John F. Kennedy was assassinated in November 1963. Once again proving that the market rarely does what the masses expect and usually surprises us.”

You want a heartbeat. That tells you if a body or a market is alive, healthy, functioning. We don’t have one. We haven’t for years. But we will again. Natural bodies can tend towards equilibrium, i.e. death. Markets cannot. They’re doomed to flatline, and then to always come back from near death experiences. They tend to do so in violent ways though. When volatility at last returns, so will price discovery. It won’t be pretty.

 

 

Oct 032017
 
 October 3, 2017  Posted by at 9:28 am Finance Tagged with: , , , , , , , ,  


Fan Ho Obsession 1964

 

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)
The Pricing of Risk is Kaput (WS)
Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)
What You Are Not Being Told About The Economy – Steve Keen (RT)
An Accountant Smells a Rat in Our Global Credit Bubble (WS)
26 Recession-Free Years Hide a Darker Picture for Australia (BBG) >
Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)
Fall of the Great Pumpkin (Jim Kunstler)
Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)
Catalonia Set For General Strike Over Independence Poll Violence (AFP)
100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

 

 

 

 

A point I made again recentlly “It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.”

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)

It would be a dangerous bet to say interest rates are going to stay low forever, but I don’t see many people taking that bet. And you see, even if interest rates were to stay where they are, that would argue for P/E ratios to stay where they are. And if they do, then stocks will only appreciate at the same rate as earnings, which is not really fast; there would be no multiple expansion. This market is not built on some euphoric view of the future, but mainly on the unwillingness to accept zero or negative returns on cash and safe instruments. It’s based on the view that there is no alternative: people are afraid to be out of the market. But then again, a perceived lack of alternatives is not a good argument for chasing yield and taking big risks. That’s why I think this is the time to turn cautious.

It’s not smart, but people think that’s what they have to do now. You remember Chuck Prince, the CEO of Citigroup, who in July of 2007 said «when the liquidity dries up, this will end badly, but as long as the music is playing, you have to dance?» What does that even mean? People always say they’ll stay in the market, thinking it has further to go, but if it starts to turn down they will get out. Maybe that’s what people are thinking in today’s stock market: «It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.

[..] I see a lot of worries. One example: What’s going to happen when central banks start unwinding their balance sheets? We have no clue. There is no historical precedent for the measures they used to stimulate the economies in the past years, so we don’t know what will happen when they unwind them. If QE was stimulative, won’t the unwinding of it be the opposite of stimulative? I don’t know where the money came from for the QE programs, and I don’t know where the money will go to next. We don’t know what it will mean for interest rates and inflation.

Another worry is the low economic growth, combined with politics. All these right-wing populist movements – what are the implications of that? This is not imaginary. Where will the person with a low education level get a job in ten or twenty years, when all the cars are self-driving and all the stores have no clerks? I don’t know what the solution is. But I see a lack of political leadership around the world. Another worry concerns our pension systems. In the US and in other countries, defined benefit systems are hundreds of billions of dollars in the red. What’s going to happen to the people who expect to get their promised retirement payments? But today, nobody’s talking about the problems in our pension systems.

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“..when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.”

The Pricing of Risk is Kaput (WS)

US Treasury Securities with longer maturities fell this morning, with the 10-year Treasury yield rising above 2.37% early on and currently trading at 2.34%. This is still low by historical standards, and it’s still in denial of the Fed’s monetary tightening: Four rate hikes since it started this cycle, and the QE unwind has commenced as of today. But it cannot hold a candle to the Draghi-engineered negative-yield absurdity still unfolding in the Eurozone. The average yield of junk bonds denominated in euros hit a new all-time record low at the close on Friday of 2.30%. Let that sink in a moment. These euro corporate bonds are rated below investment grade. Companies, unlike the US, cannot print their own money to prevent default.

There is little liquidity in the junk bond market, and selling these bonds when push comes to shove can be hard or impossible. The reason they’re called “junk” is because of their high risk of default. And yet, prices of these junk bonds have been inflated by the ECB’s policies to such a degree that their yield, which falls as prices rise, is now lower than that of 10-year US Treasury securities that are considered the most liquid securities with the least credit risk out there. The average yield of the euro junk bonds is based on a basket of below-investment-grade corporate bonds denominated in euros. Issuers include junk-rated American companies with European subsidiaries – in which case these bonds are called “reverse Yankees.”

They include the riskiest bonds. Plenty of them will default. Losses will be painful. Investors know this. It’s not a secret. But they don’t mind. They’re institutional investors plowing other people’s money into these bonds, and they don’t need to mind, but they have to buy these bonds because that’s their job. This chart, based on BofA Merrill Lynch Euro High Yield Index Effective Yield via the St. Louis Fed, shows that the average euro junk bond yield is on the way to what? Zero?

During the peak of the Financial Crisis, the average junk bond yield hit 25%. During the dog days of the euro debt crisis in the summer of 2012, when Draghi pronounced the magic words that he’d do “whatever it takes,” these bonds yielded about 9%. The yield dropped below 5% in October 2013, for the first time ever. This juxtaposition of the already low 10-year US Treasury yield and the even lower euro junk bond yield creates one of the most fascinating WTF-charts for our amusement at central-bank absurdist policies – and we’d be laughing at these bond investors gone nuts, if it weren’t so serious:

.. this is Draghi’s ultimate accomplishment in his nutty bailiwick: The total destruction of the market’s risk-pricing mechanism at the expense of other people’s money – this includes pension funds and life insurance companies that play a large role in Europe’s private pension system. They have to buy corporate bonds. Their beneficiaries that paid into the systems will have to bear the costs in future years. And then there’s the comforting thought that when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.

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“..when we had the taper tantrum they hadn’t even done anything yet, they’d just threatened to taper..”

Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)

Market veteran Art Cashin, the head of NYSE floor operations for UBS, made an interesting observation earlier today just minutes before the close, as US stocks headed for another record finish after shrugging off the worst mass shooting in US history. Asked by CNBC’s Kelly Evans to explain how US stocks have continued to outperform while the 10-year Treasury yield has remained anchored below 2.5%, Cashin acknowledged that, during a career that’s spanned more than six decades, he’s never seen anything like today’s market. “I’ve been doing this for over 50 years and I’ve never seen anything like it so it is rather odd.” And given global stocks’ strong performance this year, with markets weathering a series of political crises, natural disasters, terror attacks and other nominally destabilizing events (with a little help from central banks, of course) – Cashin says the outlook isn’t as dire as some would believe.

“Right now, Europe’s doing all right emerging markets are okay, and maybe they’re not going to take away the punchbowl that quickly – so we’ll see,” Cashin said. In September, the Fed suggested that while it would likely raise interest rates more quickly than previously believed during the coming quarters, median forecasts for the Fed funds rate in 2019, as well as the longer-run median target, declined compared with a set of forecasts released in July. Looking ahead to the fourth quarter, the most pressing questions that investors should be asking themselves is ‘is this the quarter where tapering – or the expectation of further tapering – finally triggers a market correction.

“What’s really going to be interesting to watch in this final quarter, is will there be an impact of quantitative tightening. As Peter Boockvar points out…it’s only going to be a token amount. But when we had the taper tantrum they hadn’t even done anything yet they’d just threatened to taper. When asked what it would take to spark a meaningful correction in stocks, Cashin said he expects investors will take notice once the 10-year yield climbs above 3%. “I think we’ve got to get a bit higher. Probably up around 3% you start to get everybody’s attention and you’ll start to hear that in the conversation more and more.”

Read more …

Are you rational? Economics is not.

What You Are Not Being Told About The Economy – Steve Keen (RT)

As Karl Marx’s ‘Das Kapital’ turns 150 and the global financial crisis enters its tenth year, we ask why it is that we are still no closer to creating an economy that actually works. Perhaps more importantly, why do mainstream economists continue to miss the fundamental drivers of financial instability? Host Ross Ashcroft talks about what’s next for the global economy with Professor Steve Keen, an economist who correctly predicted the financial crisis and the author of ‘Debunking Economics.’

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“Economists can’t see it. They can’t model money and credit. ”

An Accountant Smells a Rat in Our Global Credit Bubble (WS)

Twenty years ago Doug Noland was so worried about imbalances surrounding the dot.com boom that he began to title his weekly reports “The Credit Bubble Bulletin. Years later, he warned the world about the impending 2008 crisis. However a coming implosion, he says, could be the biggest yet. “We are in a global finance bubble, which I call the grand-daddy of all bubbles,” said Noland. “Economists can’t see it. They can’t model money and credit. However, to those outside the system, the facts are increasingly clear.” Noland points to inflating real estate, bond and equity prices as key causes for concern. According to the Federal Reserve’s September Z.1 Flow of Funds report, the value of US equities jumped $1.5 trillion during the second quarter to $42.2 trillion, a record 219% of GDP.

Noland may be right. A report by the International Institute of Finance released in June estimated that global government, business and personal debts totaled $217 trillion earlier this year. That’s more than three times (327%) higher than global economic output. Adding to the complexity is the fact that not all debts are fully recorded. For example, according to a World Economic Forum study, the world’s six largest pension saving systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to experience a $224 trillion funding shortfall by 2050. Noland’s warnings come during a time of exceptional public trust in governments, central banks, regulators and other institutions. Market volatility is trending at near record lows. In June, Federal Reserve Chair Janet Yellen spoke for many when she said that she did not see a financial crisis occurring “in our lifetimes.”

So why would Noland, who during his day job runs a tactical short book at McAlvany Wealth Management, see things that government, academic, and central bank economists don’t? One possibility is because Noland, who studied accounting and finance in college and began his career as a CPA at Price Waterhouse, is not an economist. He is thus not burdened with the “dismal science’s” limitations. Although Noland eventually completed an MBA and some doctoral studies, he was never forced to buy into the econometrics groupthink that plagues the profession. Noland is thus free to incorporate historical, financial, geographical and other data into his analyses. Another possible reason is that Noland (unlike almost all professional economists who missed both major market implosions/recessions of the last two decades) doesn’t hide it when he makes a bad call.

Read more …

 

 

But Australians won’t believe it until it hits them in the head.

26 Recession-Free Years Hide a Darker Picture for Australia (BBG)

The global crown for the longest stretch of uninterrupted economic growth is within sight for Australia. But it’s limping to the line as policy paralysis weighs on the nation’s prospects. Twenty-six years without recession have put Australia within two years of overtaking the Netherlands’ record growth streak and government, central bank and economist forecasts all suggest it’ll take the mantle. After all, the economy has a head start with 2.5% growth virtually baked in – 1.5% from population gains that are among the developed world’s quickest and 1% from resource exports feeding Asia’s giant economies. Yet the reliance on rapid immigration is straining infrastructure, while mining profits fuel riches for stakeholders but do little for the vast majority of Australians living in major cities.

Meantime, wages are barely growing, households carry some of the world’s heaviest debt loads, and productivity gains from the economic reforms of the 1980s and early 1990s have petered out. There’s been no major economic reform since the turn of the century, with just about every attempt reversed or cannibalized by toxic politics. And the impact is starting to show. Just when the economy needs growth drivers outside of mining, a slide in global rankings for innovation and education suggest living standards could decline. The miracle economy that shrugged off the global recession is turning mediocre. “Now that we don’t have the benefit of the mining boom, there’s nothing really that replaces it in terms of driving economic activity,” said Jeremy Lawson, chief economist at Aberdeen Standard Investments in Edinburgh and a former Reserve Bank of Australia economist.

“The really big task of governments over the next 5 to 10 years is to deal with these big structural issues that Australia is facing. Potential growth is relatively weak.” A decade of political infighting has seen the nation change prime ministers five times since 2007 and sidelined substantive policy debate. Meanwhile, attempts at reform have been held hostage by populists and single-issue parties who’ve harnessed voter frustration with mainstream politicians to take the balance of power in parliament’s upper house. That political dysfunction is threatening the nation’s prospects. A policy vacuum around energy has seen electricity prices surge to among the highest in the world, despite Australia holding some of the largest coal and gas reserves on the planet.

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“The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years. ”

Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)

Vladimir Putin is doing his part to keep the upswing in gold alive. Since the Russian president went on a geopolitical offensive in Ukraine in 2014, the haven asset had its first annual gain in four years in 2016 and is on track for another in 2017. A beneficiary of economic and political perils from North Korea to Brexit, it’s among the top-performing commodities this year. Meanwhile, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data. In the second quarter alone, it accounted for 38pc of all gold purchased by central banks. The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.

It’s one of a handful of central banks to keep the faith as global demand for the precious metal fell to a two-year low in the second quarter. But what may matter most is that gold is as geopolitics-proof an investment as any in the age of sanctions and a deepening rift with the US. “Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government,” said Matthew Turner, metals analyst at Macquarie Group in London. “This might appeal given Russia has faced financial sanctions.” Besides being the largest official buyer of gold, Russia is also among the world’s three biggest producers, with the central bank purchasing from domestic miners through commercial banks and not in the open market. Since starting to accelerate bullion purchases in 2007, Russia’s holdings have more than quadrupled to 1,556 tonnes at the end of June, just behind China and more than Turkey, India and Mexico combined, bringing its share in Russia’s $427bn (€361bn) reserves to near 17pc.

Read more …

 

 

“Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.”

Fall of the Great Pumpkin (Jim Kunstler)

Welcome to the witching month when America’s entropy-fueled death-wish expresses itself with as much Halloween jollity and merriment as the old Christmas spirit of yore. The outdoor displays alone take on a Babylonian scale, thanks to the plastic factories of China. I saw a half-life-size T-Rex skeleton for sale at a garden shop last week surrounded by an entire crew of moldering corpse Pirates of the Caribbean in full costume ho-ho-ho-ing among the jack-o-lanterns. What homeowner in this sore-beset floundering economy of three-job gig-workers can shell out four thousand bucks to decorate his lawn like the set of a zombie movie? The overnight news sure took on that Halloween tang as the nation woke up to what is probably a national record for a civilian mad-shooter incident.

So far, fifty dead and two hundred wounded at the Las Vegas at the Route 91 Harvest Festival (one up in fatalities from last year’s Florida Pulse nightclub massacre, and way more injured this time). The incident will live in infamy for maybe a day and a half in the US media. Stand by today as there will be calls far and wide, by personas masquerading as political leaders, for measures to make sure something like this never happens again. That’s rich, isn’t it? Meanwhile, the same six a.m. headlines declared that S &P futures were up in the overnight markets. Nothing can faze this mad bull, apparently. Except maybe the $90 trillion combined derivatives books of CitiBank, JP Morgan, and Goldman Sachs, who have gone back whole hog into manufacturing the same kind of hallucinatory collateralized debt obligations (giant sacks of non-performing loans) that gave Wall Street a heart attack in the fall of 2008.

Europe’s quaint doings must seem dull compared to the suicidal potlatch of life in the USA, but, believe me, it’s a big deal when the Spanish authorities start cracking the heads of Catalonian grandmothers for nothing more than casting a ballot. The video scenes of mayhem at the Barcelona polls looked like something out of the 1968 Prague uprising. And now that the Catalonia secession referendum passed with a 90% “yes” vote, it’s hard to imagine that a good deal more violent mischief will not follow. So far, the European Union stands dumbly on the sidelines. (For details, read the excellent Raul Ilargi Meijer column on today’s TheAutomaticEarth.)

[..] Finally — well, who know what else may pop up now — there is the matter of Puerto Rico. Halloween there is not like New England, with our nippy fall mornings, steaming mugs of hot cider, and quickening fall color. It will remain 90-degrees-plus down there in the fetid, stinking ruins, with lots of still-standing water, broken communications, shattered supply lines, and very little electricity. FEMA and the US Military may be doing all they can now, but they must be on watch for the ominous blossoming of tropical disease epidemics. The story there is far from over. Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.

Read more …

Catalonia wants to talk. But it will no longer accept many of the things it would have before Sunday.

Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)

In Madrid, Barcelona, Bilbao and beyond, the question is the same: Now what? Sunday’s vote for independence in Catalonia, one of Spain’s most populous and prosperous regions, has thrust the country into its gravest political crisis since the days of the dictator Francisco Franco. Few see an easy way out. The results of the referendum give Prime Minister Mariano Rajoy stark choices – try to deal a blow to the independence movement by suspending Catalonia’s semi-autonomous status, or meet the secessionists halfway and start talks with Catalan President Carles Puigdemont. Puigdemont said the vote, rejected by the central government as illegal, justifies a unilateral declaration of independence. That could come by the end of the week, if the regional parliament agrees.

The European Union refused to recognize the rebel region’s bid, but Spanish bonds and stocks fell Monday as the risks of a breakaway rose. The clash puts Rajoy in a tight corner. Head of a minority government that relies on support from regional parties to rule, he has pledged to protect Spain’s territorial integrity. His main ally in parliament, Ciudadanos party leader Albert Rivera, called on the prime minister to invoke a never-before-used article of the 1978 constitution and pull Catalonia’s special regional standing, which gives it certain administrative powers. “It’s the moment to act with calm but with firmness,” said Rivera, who is Catalan, after meeting with Rajoy on Monday. Rivera said an independence declaration may be 72 hours away and suggested invoking Article 155 would cut off any attempt to make such a move.

But Pedro Sanchez, head of the main Socialist opposition party, said after his own meeting with Rajoy that the central government should hold talks with the secessionists. While Sanchez made no mention of Article 155 in the statement he issued, socialists in Catalonia said the party wouldn’t support the prime minister taking that step. That means Rajoy will have little political cover if he opts to suspend Catalan self-government – the most powerful card he has left. The crisis has already caused him problems: Last week, he had to withdraw plans to present his 2018 budget after allies in the Basque PNV party withheld their support as they criticized his position on Catalonia.

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The Guardia Civil will have to leave Catalonia at some point. And what then?

Catalonia Set For General Strike Over Independence Poll Violence (AFP)

Large numbers of Catalans are expected to observe a general strike on Tuesday to condemn police violence at a banned weekend referendum on independence, as Madrid comes under growing international pressure to resolve its worst political crisis in decades. Flights and train services could be disrupted as well as port operations, after unions called for the stoppage to “vigorously condemn” the police response to the poll, in which Catalonia’s leader said 90% of voters backed independence from Spain. Barcelona’s public universities are expected to join the strike, as is the contemporary art museum, football club FC Barcelona and the Sagrada Familia, the basilica designed by Antoni Gaudi and one of the city’s most popular tourist sites. “I am convinced that this strike will be widely followed,” Catalan leader Carles Puigdemont said ahead of the protest.

The central government has vowed to stop the wealthy northeastern region, which accounts for a fifth of Spain’s GDP, breaking away from Spain and has dismissed Sunday’s poll as unconstitutional and a “farce”. Violent scenes played out in towns and cities across the region on Sunday as riot police moved in on polling stations to stop people from casting their ballots, in some cases charging with batons and firing rubber bullets to disperse crowds. UN rights chief Zeid Ra’ad Al Hussein said he was “very disturbed” by the unrest while EU President Donald Tusk urged Madrid to avoid “further use of violence”. The European Parliament will hold a special debate on Wednesday on the issue. “We call on all relevant players to now move very swiftly from confrontation to dialogue. Violence can never be an instrument in politics,” European Commission spokesman Margaritis Schinas said, breaking weeks of virtual EU silence on the Catalan issue.

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“Florida Gov. Rick Scott has declared a state of emergency in Florida..”

100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

As mayors of cities with large Puerto Rican populations continue to advocate for federal assistance to help with the resettlement of hundreds of thousands of Puerto Ricans who are expected to temporarily seek shelter with friends and families in the US, Florida Gov. Rick Scott has declared a state of emergency in Florida, allowing state agencies to take extraordinary measures to assist families that will soon be arriving in droves to cities like Orlando and Miami, both of which feature large Puerto Rican populations. The Orlando Sentinel reports that Scott announced that disaster relief centers will be set up at Orlando International Airport and in Miami to help those seeking refuge in Florida. “Puerto Rico is absolutely devastated and so many families have lost everything,” Scott said in a released statement.

“Our goal is to make sure that while [Puerto Rican] Governor [Ricardo] Rosselló is working to rebuild Puerto Rico, any families displaced by Maria that come to Florida are welcomed and offered every available resource from the state.” The relief center at OIA, and two others at Miami International Airport and the Port of Miami, open Tuesday, according to a release from Scott’s office, just days after Puerto Rican airports reopened following the devastation caused by Hurricane Maria. [..] Scott’s emergency order will allow state agencies broad autonomy to waive regulations and do whatever is necessary to help Puerto Ricans. Importantly, it could also help bring more federal funding to help the state cope with aid efforts.

State lawmakers have said they expect at least 100,000 Puerto Ricans to flee to Florida because of Maria, forcing the state to step up its education, housing and job-placement offerings. It’s expected that some of those displaced by the storm could resettle permanently, as the reconstruction effort in Puerto Rico is expected to take months, if not years. State Rep. Carlos Guillermo Smith, D-Orlando, said the Legislature should hold a special session, as he estimates hundreds of thousands of Puerto Ricans are coming to Florida. The 2018 regular session starts in January. “FL needs 2 deal w/humanitarian crisis + over 100K Boricuas who’ll seek refuge here right now, not in Jan.,” he tweeted.

We now wait to hear from New York Gov. Andrew Cuomo and New York City Mayor Bill De Blasio. NYC officials have said more than 100,000 Puerto Ricans could arrive in NYC alone.

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