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Why This Market Needs To Crash

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Why This Market Needs To Crash

And likely will 

Like an old vinyl record with a well-worn groove, the needle skipping merrily back to the same track over and over again, we repeat: Today’s markets are dangerously overpriced.

Being market fundamentalists who don’t believe it’s possible to simply print prosperity out of thin air, we’ve been deeply skeptical of the financial markets ever since the central banks began their highly interventionist policies. Since 2009, they have unleashed over $12 Trillion in new money into the world, concentrating wealth into the hands of an elite few, while blowing asset price bubbles everywhere in the process (see our recent report The Mother Of All Financial Bubbles).

Our consistent view is that price bubbles always burst. Which is why we predict the world’s financial markets will implode spectacularly from today’s heights — destroying jobs, dreams, hopes, economies and political careers alike.

When this happens, it will frighten the central bankers enough (or merely embarrass them enough, being the egotists that they are) that they will respond with even more aggressive money printing — and that will then cause the entire money system to blow up.  Ka-Poom!  First inwards in a compressed ball of deflation, then exploding outwards in a final hyperinflationary fireball (see our recent report When This All Blows Up…).

It really cannot end any other way.  Money is not wealth; it is merely a claim on wealth.  Debt is a claim on future money.  The only way to have faith in our current monetary policies is if one believes that we can always grow our debts at roughly twice the rate of GDP — forever.   That is, compound the claims at twice the rate of income year after year from here on out.

…click on the above link to read the rest of the article…

Banks Are Evil

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Banks Are Evil

It’s time to get painfully honest about this 

I don’t talk to my classmates from business school anymore, many of whom went to work in the financial industry.

Why?

Because, through the lens we use here at PeakProsperity.com to look at the world, I’ve increasingly come to see the financial industry — with the big banks at its core — as the root cause of injustice in today’s society. I can no longer separate any personal affections I might have for my fellow alumni from the evil that their companies perpetrate.

And I’m choosing that word deliberately: Evil.

In my opinion, it’s long past time we be brutally honest about the banks. Their influence and reach has metastasized to the point where we now live under a captive system. From our retirement accounts, to our homes, to the laws we live under — the banks control it all. And they run the system for their benefit, not ours.

While the banks spent much of the past century consolidating their power, the repeal of the Glass-Steagall Actin 1999 emboldened them to accelerate their efforts. Since then, the key trends in the financial industry have been to dismantle regulation and defang those responsible for enforcing it, to manipulate market prices (an ambition tremendously helped by the rise of high-frequency trading algorithms), and to push downside risk onto “muppets” and taxpayers.

Oh, and of course, this hasn’t hurt either: having the ability to print up trillions in thin-air money and then get first-at-the-trough access to it. Don’t forget, the Federal Reserve is made up of and run by — drum roll, please — the banks.

…click on the above link to read the rest of the article…

When This All Blows Up…

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When This All Blows Up…

Understanding the how & when of the next economic crash 

This report marks the end of a series of three big trains of thought. The first explained how we’re living through the Mother Of All Financial Bubbles. The next detailed the Great Wealth Transfer that is now underway, siphoning our wealth into the pockets of an elite few.

This concluding report predicts how these deleterious and unsustainable trends will inevitably ‘resolve’ (which is a pleasant way of saying ‘blow up’.)

The Ka-POOM Theory

In terms how this will all end, we favor the scenario put forth by Eric Janszen in 1998 called the Ka-POOM theory.

This theory rests on the belief that the Federal Reserve along with the other world central banks looked at Japan’s several decades of economic stagnation and decided that deflationary recessions are to be avoided at all costs — even if that means blowing asset bubbles and then cleaning up the destruction left behind in their aftermath.

Because the Fed, et al. have a limited playbook (which is: print, and then print some more), the Ka-POOM model calls for limited periods of disinflation, followed by massive money printing sprees that then produce high inflation.

Despite the trillions and trillions in thin-air money printed by the world’s central banks over the past 8 years, a common rebuttal we hear is “But there’s been no inflation so far!”  To which I reply, “Yes, that’s what we’re being told. But that’s not actually true.”

Remember: inflation is simply “too much money chasing too few goods.”  We can detect today’s excess of money in the rising prices in our cost of living — but those higher prices are symptoms, not causes. Inflation is not “higher prices”. Inflation is “too much money”.

…click on the above link to read the rest of the article…

It’s What’s Happening Beneath the Surface That Matters: Moral Decay and Rising Inequality

It’s What’s Happening Beneath the Surface That Matters: Moral Decay and Rising Inequality

These disintegrative forces are easy to see but elusive to pin down. Nobody defines themselves as self-serving, greedy and lacking in virtue. Everyone feels trapped in the system.
With the media’s hyperactive three-ring circus blasting 24/7, it’s easy to forget that everything consequential is happening beneath the surface, out of sight and largely out of mind.
What’s going on beneath the surface is structural and systemic–for example, the 4th Industrial Revolution that is transforming the global economy and social order, regardless of political ideologies or our wishes.
Centralization–the “solution” to every problem since 1940–is now the problem.Centralization generates corruption, privilege, rentier skims, institutionalized rackets and pushes one-size-fits all failure down the chain of command.
Another “solution”–issuing more costly credentials–has also failed. An over-abundance of credentials pushes wages down, even for the highly educated, while the credential mill of higher education has become a bloated, ineffective cartel that charges outrageous fees for increasingly valueless credentials.
The structural changes in the economy are visible in these charts:
The civilian participation rate is plummeting, despite the “recovery:”
The civilian participation rate for men is in a multi-decade decline:
As a percentage of GDP, wages have been declining for decades.
The rich have managed to gain wealth and income while the bottom 95% have gotten poorer as the cost of living soars and their wages stagnate.
There is more going on here than changes wrought by technology. Consider how many analysts identify central banks as a key cause of rising inequality and debt burdens. Consider how many people identify “money in politics” as a key factor in the corruption of governance.
…click on the above link to read the rest of the article…

The Central Banks Face Unwelcome Realities: Their Policies Boosted Wealth Inequality and Failed to Generate “Growth”

The Central Banks Face Unwelcome Realities: Their Policies Boosted Wealth Inequality and Failed to Generate “Growth”

Rather than be seen to be further enriching the rich, I think central banks will start closing the “free money for financiers” spigots.
Take a quick glance at these charts of the Federal Reserve balance sheet and bank credit in the U.S. Notice what happened to bank credit after the Fed “tapered” and stopped expanding its balance sheet?
Bank credit exploded higher:
Now look at corporate profits:
Once the Fed ended its $3.7 trillion “experiment” of vastly expanding its money-creation and bond-buying in early 2014, what happened to bank credit? Bank credit had expanded by a bit over $1 trillion in the early years of the Fed’s quantitative easing, but it really took off after QE3 ended, soaring roughly $2 trillion.
This was the policy goal all along: the Fed would do the heavy lifting to keep credit and the financial markets from imploding, and eventually private-sector credit would expand enough to fuel a self-sustaining recovery.
While measures of employment and production have lofted higher, productivity, profits and wages for the bottom 95% have all stagnated. Is it coincidental than corporate profits began weakening once the Fed’s QE3 ended? Perhaps.
How about the stagnation of household median income during the Fed’s expansion and the rise of private bank credit from 2014 to the present? Was that also a coincidence?
If the economy was expanding smartly as the Fed was goosing credit higher, it certainly wasn’t trickling down to households.
What’s happening beneath the happy-happy surface is that the returns on expanding credit are diminishing rapidly. The Fed’s QE “free money for financiers” never did “trickle down” to the bottom 95%, and the enormous expansion of bank credit is no longer driving corporate profits higher.

…click on the above link to read the rest of the article…

Wolf Richter: The Economy Is Cracking Under Too Much Debt

Wolf Richter: The Economy Is Cracking Under Too Much Debt

Housing, restaurants & retail are suffering

Wolf Richter joins the podcast this week to discuss the deterioration of the global macro situation, and how he is seeing growing signs of recession breaking out across the economy:

I think that was one of the biggest mistakes the central banks made during the financial crisis: They stopped the debt from blowing up. So we never had a cleansing.

In a recession, normally companies de-leverage. They go through bankruptcy, they shed their debts, and you have this big wave of debt restructuring. This is painful for bondholders and banks, but it clears out the crap that is clogging up the pipeline. And so these companies reemerge or get bought out and the debt just disappears. The same with consumers: they unload their debts through various methods, and so when the recovery starts, you are not suffocating under this huge load of debt.

That has not happened in the United States, particularly, but in other countries, too. That debt never got fully blown out. And then the recovery started with 0% interest rates and monetary stimulus, which only encouraged companies and individuals and governments to take on even more debt. So now we’re burdened with such an enormous amount of debt that I think it is very hard to even breathe for the economy. A lot of people out there are worried about this, which is why you hear now voices saying we need a serious reflation. They need to come up with a lot of inflation to wipe out that debt. And of course, that will be a fiasco for our economy because if you have any uptick inflation without an equivalent uptick in wages — which we have not been getting — then you will destroy the consumer. And so this is not a great solution either.

…click on the above link to read the rest of the article…

Hell To Pay

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Hell To Pay

The final condition for a market crash is falling into place 

Sometimes I wonder if I’m ever going to run out of new things to say about the economy. Nothing interesting has happened in a long time.

Our liquidity-drunk “markets” remain over-priced due to the chronic intervention of the global central banking cartel, which has demonstrated over and over again that it won’t tolerate even the slightest drop in asset prices.

Those familiar with my writing know I put the word “markets” in quotes because we no longer have a financial system where legitimate price discovery is a regular — or even recognizable — feature.

It’s destined to fail. What more can be said about such a flawed system?

Well, a lot as it turns out.

And failure to pay attention at this stage of economic and ecological history will prove to be exceptionally painful.

The Beginning of the End

It’s been a long 7 years for those of us who believe fundamentals matter.  For quite some time they have not.

So we reality-based fundamentalists have largely been reduced to pointing at the parade of policy failures and ham-fisted market manipulations and saying, essentially, That’s just dumb.

But ‘dumb’ mistakes have become ‘stupid’, and ‘stupid’ became ‘idiotic’, and now ‘idiotic’ mistakes are piling up, accumulating into a mountain of stored potential energy that will someday topple destructively across the global markets.  We’ve all known, deep down, that money printing is not the same as capital formation, and that prosperity never truly results from redistributing wealth from one group to another. And yet, far too many have been willing to play along and place their trust in the central banks.

Well, we’ve finally reached the beginning of the end.

…click on the above link to read the rest of the article…

With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict

With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict

Friday’s unprecedented surge to all time highs in both stock and treasury prices, has got analysts everywhere scratching their heads: which is causing which, and what happens if there is a violent snapback in yields like for example the infamous bund tantrum of May 2015.

But first, the question is what exactly will pause what the WSJ calls the “Black Hole of Negative Rates” which is dragging down yields everywhere.  Here is how the WSJ puts it:

The free fall in yields on developed-world government debt is dragging down rates on global bonds broadly, from sovereign debt in Taiwan and Lithuania to corporate bonds in the U.S., as investors fan out further in search of income. Yields in the U.S., Europe and Japan have been plummeting as investors pile into government debt in the face of tepid growth, low inflation and high uncertainty, and as central banks cut rates into negative territory in many countries. Even Friday, despite a strong U.S. jobs report that helped send the S&P 500 to a near-record high, yields on the 10-year Treasury note ultimately declined to a record close of 1.366% as investors took advantage of a brief rise in yields on the report’s headlines to buy more bonds.

As yields keep falling in these haven markets, investors are looking for income elsewhere, creating a black hole that is sucking down rates in ever longer maturities, emerging markets and riskier corporate debt.

“What we are seeing is a mechanical yield grab taking place in global bonds,” said Jack Kelly, an investment director at Standard Life Investments. ” The pace of that yield grab accelerates as more bond markets move into negative yields and investors search for a smaller pool of substitutes.”

…click on the above link to read the rest of the article…

Charting The Epic Collapse Of The World’s Most Systemically Dangerous Bank

Charting The Epic Collapse Of The World’s Most Systemically Dangerous Bank

It’s been almost 10 years in the making, but the fate of one of Europe’s most important financial institutions appears to be sealed.

After a hard-hitting sequence of scandals, poor decisions, and unfortunate events,Visual Capitalist’s Jeff Desjardins notes that Frankfurt-based Deutsche Bank shares are now down -48% on the year to $12.60, which is a record-setting low.

Even more stunning is the long-term view of the German institution’s downward spiral.

With a modest $15.8 billion in market capitalization, shares of the 147-year-old company now trade for a paltry 8% of its peak price in May 2007.

Courtesy of: Visual Capitalist

 

THE BEGINNING OF THE END

If the deaths of Lehman Brothers and Bear Stearns were quick and painless, the coming demise of Deutsche Bank has been long, drawn out, and painful.

In recent times, Deutsche Bank’s investment banking division has been among the largest in the world, comparable in size to Goldman Sachs, JP Morgan, Bank of America, and Citigroup. However, unlike those other names, Deutsche Bank has been walking wounded since the Financial Crisis, and the German bank has never been able to fully recover.

It’s ironic, because in 2009, the company’s CEO Josef Ackermann boldly proclaimed that Deutsche Bank had plenty of capital, and that it was weathering the crisis better than its competitors.

It turned out, however, that the bank was actually hiding $12 billion in losses to avoid a government bailout. Meanwhile, much of the money the bank did make during this turbulent time in the markets stemmed from the manipulation of Libor rates. Those “wins” were short-lived, since the eventual fine to end the Libor probe would be a record-setting $2.5 billion.

The bank finally had to admit that it actually needed more capital.

In 2013, it raised €3 billion with a rights issue, claiming that no additional funds would be needed. Then in 2014 the bank head-scratchingly proceeded to raise €1.5 billion, and after that, another €8 billion.

…click on the above link to read the rest of the article…

This Is The End: Venezuela Runs Out Of Money To Print New Money

This Is The End: Venezuela Runs Out Of Money To Print New Money

Back in February, when we commented on the unprecedented hyperinflation about the be unleashed in the Latin American country whose president just announced that he would expand the “weekend” for public workers to 5 days

… we joked that it is unclear just where the country will find all the paper banknotes it needs for all its new physical currency. After all, central-bank data shows Venezuela more than doubled the supply of 100-, 50- and 2-bolivar notes in 2015 as it doubled monetary liquidity including bank deposits. Supply has grown even as Venezuela has fewer U.S. dollars to support new bolivars, a result of falling oil prices.

This question, as morbidly amusing as it may have been to us if not the local population, became particularly poignant recently when for the first time, one US Dollar could purchase more than 1000 Venezuela Bolivars on the black market (to be exact, it buys 1,127 as of today).

And then, as if on cue the WSJ responded: “millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar.

The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals.

More planes were coming: in December, the central bank began secret negotiations to order 10 billion more bills which would effectively double the amount of cash in circulation. That order alone is well above the eight billion notes the U.S. Federal Reserve and the European Central Bank each print annually—dollars and euros that unlike bolivars are used world-wide.

…click on the above link to read the rest of the article…

Eric Hunsader: The Financial System is ‘Absolutely, Positively Rigged’

Eric Hunsader: The Financial System is ‘Absolutely, Positively Rigged’

And the abuses are getting worse, not better

Eric Hunsader, founder of Nanex, has been at the vanguard of warning about the dangers and the rampant fraud that the rise of high-frequency trading (HFT) algorithims have let loose in today’s financial markets.

While he usually feels like a lone voice in a world happy to deceive itself, he was shocked to receive a $750,000 whistleblower award from the SEC for his efforts. He’s been sadly less shocked to see that since the award was publicly announced, the abuses he reported have only become more extreme and frequent.

Of the situation that led to his award, he says:

The folks at the NYSE were selling their direct feed for north of $30,000 a month versus the SIP which is under a thousand dollars a month. Their customers are not buying it because it has that much more rich data. The thing that makes it worth $29,000 more is that it is faster, but that is illegal. Up until this point they deny that that is the case. And somehow it works. So the exchanges make all their money from their highest paying customers which are the high frequency traders. And the high frequency traders pay the exchanges exorbitant amounts of money to have a slight advantage.

That’s how the whole system works. It is absolutely, positively rigged. There is no question about it. It is rigged on many different levels in many different ways — for example, no retail order ever gets to see the light of day of the stock exchange. That’s one of the many eye openers. People who aren’t pros in the market don’t realize that it’s all a rigged game.

…click on the above link to read the rest of the article…

Former Fed Advisor Asks “Has The Fed Bankrupted The Nation”

Former Fed Advisor Asks “Has The Fed Bankrupted The Nation”

Volcker, Greenspan, Bernanke and Yellen.

Which one does not belong? Logic dictates that Volcker should have been odd man out. After all, there is no legendary “Volcker Put.”

The towering monetarist made no bones about never being bound by the financial markets. The same can certainly not be said of his three successors. And yet, history contrarily suggests it is to Volcker above all others that the financial markets will forever be beholden.

Many of you will be familiar with Michael Lewis’ memoir, Liar’s Poker. Yours truly first read the book in a Wall Street training program much like the one Lewis survived to describe in his autobiographical work. The take-away then, in late 1996, was that Gordon Gekko was right — greed was good.

Recently, a second reading of Liar’s Poker, following nearly a decade inside the Federal Reserve, delivered a much different message than did that first youthful reading and was nothing short of an epiphany: Paul Volcker, albeit certainly inadvertently, created the bond market.

On Saturday, October 6, 1979. Volcker held a press conference and announced that interest rates would no longer be fixed and that further the Fed would begin to target the money supply in order to curb inflation and “speculative excesses in financial, foreign exchange and commodity markets.”

Alas, this new regime was not meant to be. In trying to introduce an alternative to interest rate targeting, the Fed replaced one guessing game with another. Predicting the demand for reserves and then buying or selling securities based on that demand proved to be just as dicey as a similar exercise to target a given level of interest rates had been.

…click on the above link to read the rest of the article…

Federal Regulators Accuse Banks Of Not Having Credible Crisis Plans, Would Need Another Bailout

Federal Regulators Accuse Banks Of Not Having Credible Crisis Plans, Would Need Another Bailout

Perhaps the biggest farce to result from the Dodd-Frank legislation designed to “rein in” banks was the ridiculous notion of “living wills” –  a concept that makes zero sense in an environment where the failure of even one bank assures a systemic crisis and could – as the Lehman financial crisis showed – lead to the collapse of all other interlinked financial institutions.

Which is why we were not surprised to read this morning that federal regulators announced that five out of eight of the biggest U.S. banks do not have credible plans for winding down operations during a crisis without the help of public money.

Which is precisely the point: now that the precedent has been set and banks know they can rely on the generosity of taxpayers (with the blessing of legislators) why should they even bother planning; they know very well that if just one bank fails, all would face collapse, and the only recourse would be trillions more in taxpayer aid.

As Reuters writes, the “living wills” that the Federal Reserve and Federal Deposit Insurance Corporation jointly agreed were not credible came from Bank of America, Bank of New York Mellon, J.P. Morgan Chase, State Street, Wells Fargo. What is more impressive is that the Fed and FDIC found any living will to be credible.

Also amusing: it was only the FDIC which alone determined that the plan submitted by Goldman Sachs was not credible while the Goldman-dominated Fed gave its blessing; alternatively, the Federal Reserve Board on its own found that the plan of Morgan Stanley – Goldman’s arch rival in investment banking – not credible. Citigroup’s living will did pass, but the regulators noted it had “shortcomings.”

…click on the above link to read the rest of the article…

Bernanke’s Former Advisor: “People Would Be Stunned To Know The Extent To Which The Fed Is Privately Owned”

Bernanke’s Former Advisor: “People Would Be Stunned To Know The Extent To Which The Fed Is Privately Owned”

With every passing day, the Fed is slowly but surely losing the game.

Only it is not just former (and in some cases current) Fed presidents admitting central banks are increasingly powerless to boost the global economy, even if they still have sway over capital markets. What is far more insidious to the Fed’s waning credibility is when former economists affiliated with the Fed start repeating mantras that until recently were only a prominent feature in the so-called fringe media.

This is precisely what happened today when former central bank staffer and Dartmouth College economics professor Andrew Levin, special adviser to then Fed Chairman Ben Bernanke between 2010 to 2012, joined with an activist group to argue for overhauls at the central bank that they say would distance it from Wall Street and make its activities more transparent and accountable to the public.

Levin is pressing for the overhaul with Fed Up coalition activists. Many of the proposed changes target the 12 regional Federal Reserve Banks, which are quasi-private and technically owned by commercial banks in their respective districts.

All of that is not surprising. What he said to justify his new found cause, however, is.

“A lot of people would be stunned to know” the extent to which the Federal Reserve is privately owned, Mr. Levin said. The Fed “should be a fully public institution just like every other central bank” in the developed world, he said in a conference call announcing the plan. He described his proposals as “sensible, pragmatic and nonpartisan.”

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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