Tag: Stocks
FED LUNACY IS TO BLAME FOR THE COMING CRASH
This week John Hussman’s pondering about the state of our markets is as clear and concise as it’s ever been. He starts off by describing the difference between an economy operating at a low level versus a high level. He’s essentially describing a 2% GDP economy versus a 4% GDP economy. We have been stuck in a low level economy since 2008. And there is one primary culprit for the suffering of millions – The Federal Reserve and their Wall Street Bank owners. They are the reason incomes are stagnant, the labor participation rate is at 40 year lows, savers can only earn .25% on their savings, and consumers have been forced further into debt to make ends meet. Meanwhile, corporate America and the Wall Street banks are siphoning off record profits, paying obscene pay packages to their executives, buying off the politicians in Washington to pass legislation (TPP) designed to enrich them further, and arrogantly telling the peasants to work harder.
In economics, we often describe “equilibrium” as a condition where demand is equal to supply. Textbooks usually depict this as a single point where a demand curve and a supply curve intersect, and all is right with the world.
In reality, we know that economies often face a whole range of possible equilibria. One can imagine “low level” equilibria where producers are idle, jobs are scarce, incomes stagnate, consumers struggle or go into debt to make ends meet, and the economy sits in a state of depression – which is often the case in developing countries. One can also imagine “high level” equilibria where producers generate desirable goods and services, jobs are plentiful, and household income is sufficient to demand all of that output.
The problem is that troubled economies don’t just naturally slide up to “high level” equilibria. Low level equilibria are typically supported and reinforced by a whole set of distortions, constraints, and even incentives for the low level equilibrium to persist. In developing countries, these often take the form of legal restrictions, price controls, weak property rights, political and civil instability, savings disincentives, lending restrictions, and a full catastrophe of other barriers to economic improvement. Good economic policy involves the art of relaxing constraints where they are binding, and imposing constraints where their absence allows the activities of some to injure or violate the rights of others.
In the United States, observers seem to scratch their heads as to why the economy has shifted down to such a low level of labor force participation. Even after years of recovery and trillions of dollars directed toward persistent monetary intervention, the economy seems locked in a low level equilibrium. Yet at the same time, corporate profits and margins have pushed to record highs, contributing to gaping income disparities.
Continue reading “FED LUNACY IS TO BLAME FOR THE COMING CRASH”
LIQUIDITY TIME BOMB
NEW YORK (Project Syndicate) — A paradox has emerged in the financial markets of the advanced economies since the 2008 global financial crisis. Unconventional monetary policies have created a massive overhang of liquidity. But a series of recent shocks suggests that macro liquidity has become linked with severe market illiquidity.
Policy interest rates are near zero (and sometimes below it) in most advanced economies, and the monetary base (money created by central banks in the form of cash and liquid commercial-bank reserves) has soared — doubling, tripling, and, in the United States, quadrupling relative to the pre-crisis period.
This has kept short- and long-term interest rates low (and even negative in some cases, such as Europe and Japan), reduced the volatility of bond markets, and lifted many asset prices (including equities, real estate, and fixed-income private- and public-sector bonds).
This combination of macro liquidity and market illiquidity is a time bomb. So far, it has led only to volatile flash crashes and sudden changes in bond yields and stock prices.
And yet investors have reason to be concerned. Their fears started with the “flash crash” of May 2010, when, in a matter of 30 minutes, major U.S. stock indices fell by almost 10%, before recovering rapidly. Then came the “taper tantrum” in the spring of 2013, when U.S. long-term interest rates shot up by 100 basis points after then-Fed Chairman Ben Bernanke hinted at an end to the Fed’s monthly purchases of long-term securities.
Bernanke Says “No Large Mispricings In US Securities”; These 5 Charts Say Otherwise
We all know Bennie is a financial guru. His foresight is unquestioned. He saved the world, don’t you know? His wisdom and ability to portend the future is unrivaled. Who could forget his previous market calls?
(October 20, 2005) “House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.”
(January 10, 2008) “The Federal Reserve is not currently forecasting a recession.”
(March 28, 2007) “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
(July, 2005) “We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”
(February 15, 2007) “Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low.”
(November 15, 2005) “With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.”
(January 18, 2008) “[The U.S. economy] has a strong labor force, excellent productivity and technology, and a deep and liquid financial market that is in the process of repairing itself.”
(May 17, 2007) “All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.”
“The GSEs are adequately capitalized. They are in no danger of failing.”
(Two months before Fannie Mae and Freddie Mac collapsed and were nationalized) “They will make it through the storm.”
(June 10, 2008) “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”
Submitted by Tyler Durden on 05/24/2015 22:28 -0400
Retired central banker, blogger, bond guru and hedge fund consultant Ben Bernanke just uttered the following total rubbish…
- *BERNANKE: NO LARGE MISPRICINGS IN U.S. SECURITIES, ASSET PRICES
In an effort to save whoever it is that will pay him $250,000 next for these wise words, we offer five charts.
One of these things is not like the others…
AS JANUARY GOES, SO GOES THE YEAR
Isn’t it funny how CNBC wasn’t blathering about how January finishes, that is how the year usually finishes. If stocks were up, with gold and silver down, Cramer, the shills and the bimbos would have been screaming it from the mountaintop. Stocks were down big in the 1st five days and the first month. Gold and silver were up big. Sounds of silence from the faux financial journalists, aka cheerleaders. Bond yields are crashing. Global recession has arrived. The storm is just beginning.
WHEN YOUR CURRENCY CRASHES, WHAT WILL SAVE YOUR ASS?
If you are Russian or European, owning gold would have been beneficial in 2014. Our time will come.
“Whenever destroyers appear among us, they start with the money. Destroyers seize gold and leave to its owners, a counterfeit pile of paper.”
Ayn Rand
FUNDAMENTALS
BE VEWWY QUIET, I’M HUNTING BUBBLES
ACTUAL PICTURE OF FEDERAL RESERVE VICE CHAIRMAN STANLEY FISCHER HUNTING BUBBLES
Guest Post by Anthony Sanders
Fed’s Fischer Leads Committee Watching for Asset-Price Bubbles (Here Are Bubbles To Watch, Stan!)
The Federal Reserve’s Stanley Fischer is now leading a committee to watch for asset bubbles. Fed officials want to ensure that six years of near-zero interest rates don’t lead to a repeat of the excessive risk-taking that fanned the U.S. housing boom and subsequent financial crisis.
Let me help you out, Stan!
Here is a chart of the S&P 500 stock market index against The Fed’s Balance Sheet to proxy for near-zero interest rates. Yes, it looks a bubble to me!
Here is a chart of average hourly wage earnings growth YoY against The Fed’s Balance Sheet. No bubble in wages.
Similarly, there is no bubble in real median household income since The Fed’s massive intervention. Quite the opposite, in fact.
How about home prices? Yes, there appears to be a bubble in home prices since 2012 given the poor growth in wage earnings.
Gold? Gold was soaring until 2011 with the growth in The Fed’s Balance Sheet, but has been declining/stagnant since then. So, no current bubble.
There you go Stan! Home prices and equity markets are in a bubble (thanks to NO bubble in wages and earnings). And no current gold bubble either. It’s hard to sustain housing and stock market bubbles with stagnant wage earnings and household income.
So I would watch the equity markets and home prices for excessive risk taking by wealthy investors.
Stanley Fischer with “Orange Lady” Christine Lagarde from the International Monetary Fund (IMF) looking for asset bubbles over coffee. And apparently Lagrade has been promoted to General in the Global Monetary Army.
JANET SAYS STOCKS ARE FAIRLY VALUED – NO BUBBLE HERE
Janet Yellen declared during her press conference today that stocks are fairly valued and not in bubble territory. Do you remember Ben Bernanke’s words of wisdom from 2005 and 2006?
(July, 2005) “We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”
(February 15, 2006) “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
I have a feeling we’ll look back on this day in a few years and realize Janet Yellen was either a fool or a liar. Or both. Her job is to lie on behalf of her employers – The Wall Street banking cabal. Never forget who she works for. It’s certainly not you.
“Presently the Stock Prices Regression to the Mean is at the 1929 Euphoric Exuberance level. It is imperative to notice S&P500 Regression to the Trend Mean peaked in 1901, 1929, 1966 and 2000. To be sure each peak was followed by material stock market corrections.”
Even assuming trailing earnings are valid, sustainable, and not goosed by the Fed itself (not to mention non-GAAP accounting gimmickry): the most recent median S&P 500 Price to Earnings ratio as of this moment is higher than 89% of all P/E prints in the history of the market. Said otherwise, equities have only been more expensive just about 10% in the history of the S&P.
GDP SHOCKER!!! – NOT
One month ago I made this post. On that day our beloved government drones at the BEA announced 1st quarter GDP of POSITIVE 0.1%.
YES VIRGINIA, EVEN THE MANIPULATED GOVERNMENT GDP REVEALS RECESSION
I called bullshit and made these comments:
We all know the government’s first reported economic number is manipulated to its best result in order for Wall Street shysters to levitate the stock market with their HFT supercomputers. Then subsequent revisions downward are downplayed and ignored. It’s the American way. This figure will be revised into negative territory over the next few months.
This report was an absolute disaster and PROVES we are in recession. Wall Street will be ecstatic and will levitate to new highs. If Obama can just get World War III started in the 2nd quarter, GDP will soar and economic recovery will have arrived.
Well the first revision is out today and guess what? I was right again. First quarter GDP is now down to NEGATIVE 1%. It will be revised down further. The talking heads will regurgitate the bad weather meme until the cows come home, but it was exports that were revised strongly downward. Did bad winter weather across the entire world keep people from buying our products?
The government drones still insist inflation was only 1.2% in the 1st quarter. That is beyond laughable. REAL GDP in the 1st quarter was closer to NEGATIVE 5%. The higher costs you paid for energy, food and Obamacare actually boosted GDP. Now that is fucked up.
For 99.9% of the people in this country we are experiencing a recession. Meanwhile, the stock market reaches new heights as the .1% have rigged the political, economic and financial system to only benefit themselves. Their time is coming. The music is still playing and they’re still dancing. But the music will end – sooner than they expect. Then there will be hell to pay.
US Economy Shrank By 1% In The First Quarter: First Contraction Since 2011
Submitted by Tyler Durden on 05/29/2014 08:49 -0400
Weather 1 – Quantitative Easing 0.
Spot on the chart below just how high the culmination of over $1 trillion in QE3 proceeds “pushed” the US economy.
Joking aside, even if the realization that nobody can fight the Fed except a cold weather front is quite profound, in the first quarter GDP “grew” by a revised -1.0%, down from the 0.1% first estimate, and well below the -0.5% expected, confirming that while economists may suck as economists, they are absolutely horrible as weathermen.
Bottom line: for whatever reason, in Q1 the US economy contracted not only for the first time in three years, but at the fastest pace since Q1 of 2011. It probably snowed then too.
The breakdown by components is as follows:
Some highlights:
- Personal consumption was largely unchanged at 2.09% from 2.04% in the first estimate and down from 2.22% in Q4. Considering the US consumer savings rate has tumbled to post crisis lows at the end of Q1, don’t expect much upside from this number.
- Fixed investment also was largely unchanged, subtracting another 0.36% from growth, a little less than the -0.44% in the first estimate and well below the 0.43% contribution in Q4.
- Net trade, or the combination of exports and imports, declined from
-0.83% to -0.95%, far below the positive boost of 0.99% in Q4. - The biggest hit was in the change in private inventories, which tumbled from -0.57% in the first revision to a whopping -1.62%: the biggest contraction in the series since the revised -2.0% print recorded in Q4 2012.
- Finally, government subtracted another -0.15% from Q1 growth, more than the -0.09% initially expected.
So there you have the New Normal growth, which incidentally now means that in the rest of the year quarterly GDP miraculously has to grow at just shy of 5% in the second half for the Fed to hit the “central tendency” target of 2.8%-3.0%.
And now we await for stocks to soar on this latest empirical proof that central planning does not work for anyone but the 1%.
YOU DON’T OWN WHAT YOU THINK YOU OWN
If you own stocks or bonds or any investment through a broker, you don’t really own those investments. They are pooled and if the broker goes under, you’re shit out of luck. Not only don’t you own the investments you bought with your own money, but your broker has pledged those assets many times over. The Casey Report has a jaw dropping interview with hedge fund manager David Webb, who reveals the truth about our financial system. The conclusion is that your owners don’t give a fuck about you. They have your money and they want more. And they will get it. Here are a few choice quotes from the interview:
“It took me some years to uncover the basis for how this has changed. It all arises from a revision of the Uniform Commercial Code, Article 8, in 1994. This article governs securities “ownership.” When they did this revision in 1994, they created a completely new legal concept called a “security entitlement,” which means that a security is now a contractual claim rather than property. That’s the key, and it’s hugely important because a contractual claim in a bankruptcy proceeding has very little standing. So even though there are records that a particular security is your property, it’s really not. If your broker goes bankrupt, those securities, by law, become part of the bankruptcy estate. As a client, you cannot revindicate those securities in a bankruptcy. Of course, secured creditors have a higher priority to the assets of the bankruptcy estate than you do. So you’re left with an inferior claim to what you thought was your own property.”
“But it gets worse. All of the securities are pooled – there is no specific identification of who owns what. By law, in a bankruptcy, the losses must be shared pro rata across the client pool. So even if a client somehow manages to get a legal assurance that their securities are not being hypothecated, they are still in a pool where other clients have margin accounts and their securities are being hypothecated. Hypothecation is when a firm pledges a clients’ assets as collateral to another party. The securities firm is allowed to use the client assets as collateral for its own proprietary trading. In my book, that’s fraud. But it is perfectly legal. So the securities firm borrows the security on the assumption that it will return like securities to the pool. But, of course, when an insolvency occurs, the music stops and those securities are not returned. The firm that received those securities as collateral is a secured creditor, and if there is a bankruptcy, they take those assets – the assets you thought you owned – and immediately sell them. They are gone. And you’re left as an unsecured creditor, which means you get what’s left over at the end, if anything. Further, in 2005, the Bush administration rewrote the bankruptcy law. There used to be a concept of “fraudulent conveyance,” which meant that if a firm transferred assets to a secured creditor within six months before its bankruptcy filing, the receiver was required by law to give those assets back. It’s called a clawback. But this revision of the bankruptcy law changed that. The law now specifically says that the receiver is not to claw back the assets. So what was considered a fraudulent conveyance prior to 2005 is now legal. This is very similar to what happened with MF Global and their transfer of client assets to JPMorgan. But it was not considered fraud. Everything was done according to the law.”
“One set of assets can be used as collateral multiple times, which is called rehypothecation. So a securities firm gives client assets to a secured creditor as collateral for proprietary trading. The secured creditor can then turn around and use those same assets as collateral for their own proprietary trading. So those assets are passed on to another firm as collateral, and so on. This is the chain of hypothecation and rehypothecation; the same assets are used as collateral over and over again. I can’t stress this next part enough – it’s very, very important. There are about $700 trillion of derivatives worldwide in a $70 trillion economy. It’s pretty easy to see that there cannot possibly be enough collateral backing. The entire financial asset base of the public is being used as collateral. This is a huge risk that everyone bears, whether they know it or not. If we have a major failure anywhere in that collateral chain, the collateral is pulled out and cannot be returned to the pool.”
When the collapse ensues, they will take your money. Laws won’t matter. Justice won’t matter. Fairness won’t matter. You won’t matter. They want it all.