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Every Bubble Is In Search Of A Pin

December 8, 2018

Every Bubble Is In Search Of A Pin

The ‘Everything Bubble’ has popped

Now that the world’s central banking cartel is taking a long-overdue pause from printing money and handing it to the wealthy elite, the collection of asset price bubbles nested within the Everything Bubble are starting to burst.

The cartel (especially the ECB and the Fed) is hoping it can gently deflate these bubbles it created, but that’s a fantasy. Bubbles always burst badly; it’s their nature to do so. Economic suffering and misery always accompany their termination.

It’s said that “every bubble is in search of a pin”. History certainly shows they always manage to find one.

History also shows that after the puncturing, pundits obsess over what precise pin triggered it, as if that matters. It doesn’t, because ’cause’ of a bubble’s bursting can be anything. It can be a wayward comment by a finance minister, otherwise innocuous at any other time, that spooks a critical European bond market at exactly the right (wrong?) moment, triggering a runaway cascade.

Or it might be the routine bankruptcy of a small company that unexpectedly exposes an under-hedged counterparty, thereby setting off a chain reaction across the corporate bond market before the contagion quickly spreads into other key elements of the financial system.

Or perhaps it will be the US Justice Department arresting a Chinese technology executive on murky, over-reaching charges to bully an ally into accepting that unilateral US sanctions are to be abided by everyone, regardless of sovereignty.

How was it that the famous Tulip Bulb bubble came to a crashing end back in the 1600’s? No one knows the exact moment or trigger. But we can easily imagine that in some Dutch pub on the fateful night on the Feb 3^rd1637, a bidder on the most-coveted of all bulbs, the Semper Augustus, had an upset stomach and briefly grimaced when hit by a ripping gas pain:

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

The Primacy Of Income

November 17, 2018

The Primacy Of Income

The Era Of Gains is over

Ever since the central banks became serial bubble blowers twenty years ago, household wealth has mostly been driven by asset price inflation:

But this has been a quixotic pursuit. Created by pulling tomorrow’s prosperity into today, these asset price bubbles are unsustainable, and invariably suffer violent corrections at their end.

So far, the central banks have responded to these corrections by simply doing more of the same, just at greater and greater intensity. To keep the current Everything Bubble going, the world’s central banks have not only had to more than quintuple their collective balance sheets, but have recently had to resort to the extreme (desperate?) measure of injecting the greatest amount of liquidity ever in 2016 and 2017.

History has shown us that the height an asset bubble reaches is proportional to the damage it wreaks when it bursts. Applying this logic, the coming pop of the Everything Bubble will be devastating.

So devastating that analysts like John Hussman forecast a 0% (or worse) total market return over the next twelve years:

Moreover, the primary driver and supporter of asset price appreciation over the past seven years, central bank easing, is now gone. For the first time since the GFC, the collective central bank liquidity injection rate (the solid black line in the below chart) is now net zero.

And plans to tighten much further from here have been clearly committed and communicated to the world:

As a consequence, we fully expect yesterday’s capital gains to become tomorrow’s capital losses. What goes up on thin-air money comes down with its removal.

And while this is going on, interest rates are suddenly exploding higher around the world after spending a decade at all-time historic lows:

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

Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

November 14, 2018

Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

Even the US is now ‘swimming naked’

Steen Jacobsen, Chief Economist and Chief Investment Officer of Saxo Bank sees economic slowdown ahead.

Specifically, his “Four Horseman” indicators: the drivers of economic growth, are all flashing red.

Jacobsen believes that the central banks will continue their liquidity tightening efforts for as long as they can get away with (i.e., until the financial markets start toppling over). In his opinion, they eased way too much for way too long; and the malinvestment and zombification that resulted needs to clear the system — and it will likely do so more violently and painful than the central banks will like:

I like to make things simple. Right now we have the Four Horsemen: the four drivers of the global economy. They are the quantity of money, which is falling; the price of money, which is rising; the price of energy,which is a tax on consumers and is rising; and globalization/productivity, which is falling.

So, if you look at the economy as a black box, I really don’t know what happens inside of it. But I can observe what goes into the black box: it’s these four things.

Globalization / productivity, we know that’s all about Trump, trade war and the likes. It’s not exactly improving; it’s actually worsening.

As for the quantity of money, a lot of people argue with me that the Central Banks are still expanding their balance sheets, but the fact of the matter is that the QT in terms of the U.S has been reducing the Federal Reserve balance sheet. And we have a stealth reduction of the balance sheet in terms of the Bank of Japan. The EBC would love to cut and is publicly committed to doing so. The Bank of England is doing its first hike. So the quantity of money is falling.

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

The Fourth Turning & War of the Worlds

November 5, 2018

THE FOURTH TURNING & WAR OF THE WORLDS

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – The Fourth Turning – Strauss & Howe

The paragraph above captures everything that has happened, is happening, and will happen during this Fourth Turning. It was written over two decades ago, but no one can deny its accuracy regarding our present situation. The spark was a financial crash. The response to the financial crash by the financial and governmental entities, along with their Deep State co-conspirators who created the financial collapse due to their greed and malfeasance, led to the incomprehensible election of Donald Trump, as the deplorables in flyover country evoked revenge upon the corrupt establishment.

The chain reaction of unyielding responses by the left and the right accelerates at a breakneck pace, with absolutely no possibility of compromise. A new emergency or winner take all battle seems to be occurring on a weekly basis, with the mid-term elections as the likely trigger for the next phase of this Fourth Turning.

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

Wolf Richter: Making Sense Of The Recent Market Gyrations

October 15, 2018

PODCAST

Wolf Richter: Making Sense Of The Recent Market Gyrations

Which triggers are driving the action? What’s next?

Every week at PeakProsperity.com, we record a podcast exclusive for our premium subscribers titled Off The Cuff, where Chris and a weekly expert discuss the notable developments of the week. Every once in a while, we’ll share one of these episodes with the general public, which we’re doing this week. Here’s Chris Martenson in discussion with Wolf Richter, evaluating the causes and repercussions of last week’s violent drop across the stock and bond markets.

Recorded last week as the market was in full melt-down mode, Chris and Wolf Richter decode the underlying drivers of the sudden reversal, and peer into the future to predict what is most likely to happen next. Both agree that, whether stocks are briefly ‘rescued’ in the ensuing days, the long-awaited downward re-pricing of the ‘Everything Bubble’ is nigh.

As Wolf puts it:

The emerging market stock index is down 22% from January. So they have gotten hit pretty hard. There’s this trend from the outside toward the core. So when something deteriorates, it starts at the outside and moves toward the core, the core being the higher quality US financial instruments. So that’s probably a dynamic that has already started. And I agree with you. The central banks removing liquidity is a big thing, and it has a big impact.

And people have said, for years, well, QE didn’t cause stocks to go up. So when that goes away, it’s not going to cause stocks to go down. But that’s just not true. The purpose of QE, as Bernanke himself explained it in a Washington Post editorial in 2010, is to create the wealth effect, to bring asset prices up so that the wealthy feel wealthier and spend more money and then this someone trickles down.

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

Has “It” Finally Arrived?

October 13, 2018

Shutterstock

Has “It” Finally Arrived?

Is this week’s 6% market drop the start of the Big One?

With the recent plunge in the S&P 500 of over 5%, has the long-anticipated (and long-overdue) market correction finally begun?

It’s hard to say for certain. But the systemic cracks we’ve been closely monitoring definitely got an awful lot wider this week.

After nearly a decade of endless market boosting, manipulation and regulatory neglect, all of the trading professionals I personally know are watching with held breath at this stage. The central banks have distorted the processes of price discovery and market structure for so many years now, that it’s difficult to know yet whether their grip on the markets has indeed failed.

But what we know for certain is that bubbles always burst. Inevitably. Each is built upon a fallacy; and when that finally becomes apparent to enough people, the mania ends.

And today, there are currently massive bubbles in stocks, bonds and real estate. Every one courtesy of the central banks (as we have written about in great detail here at PeakProsperity.com over the years).

And with no Plan B in place to gracefully exit the corner they have painted themselves — and thereby the global economy — into, the only option available to them is to double-down on the pretense that we’d all be screwed without their stewardship. They have to do this I suppose. To admit the truth would throw the world into panic and themselves out of a job.

Who knows what they think privately? But in public, they give us real gems like these:

Williams Says Fed Rate Hikes Helping Curb Financial Risk-Taking

U.S. interest-rate increases will help reduce risk-taking in financial markets, Federal Reserve Bank of New York President John Williams said.

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

Trump Is Right: The Federal Reserve Is Crazy And Here Are 101 Reasons Why It Should Be Shut Down

October 12, 2018

Trump Is Right: The Federal Reserve Is Crazy And Here Are 101 Reasons Why It Should Be Shut Down

Donald Trump just made one of the most brilliant moves of his entire presidency. By accusing the Federal Reserve of “going loco”, he is placing the blame for the coming stock market crash and horrifying economic downturn squarely where it belongs, and he is firing up millions of true conservatives among his base at the same time. For many, many years, a lot of us have been trying to educate the American people about the deeply insidious Federal Reserve system. As Ron Paul once so astutely observed, it is actually about as “federal” as Federal Express is. The Federal Reserve is an unelected cabal of central bankers that is running our economy into the ground, and the only way we are going to fix our long-term economic and financial problems is if we abolish it. So for those of us that understand these things, it is extremely exciting to hear President Trump use language such as this…

President Donald Trump knocked the Federal Reserve for continuing to raise interest rates despite some recent market turbulence.

“I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy,” the president said after walking off Air Force One in Erie, Pennsylvania for a rally.

That may be one of the greatest things that Donald Trump has ever said.

And if Trump feels like his base is really responding to this sort of rhetoric, he may start using it as a campaign tactic.

Could you imagine thousands upon thousands of supporters chanting “End the Fed” at Trump rallies leading up to the 2020 election?

That would definitely be a beautiful thing.

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

Heroes & Whores

September 20, 2018

HEROES & WHORES

“Certainly one of the most important things I learned is that numbers can be deceiving. There is a logic to mathematics, but there is also the underlying human element that must be considered. Numbers can’t lie, but the people who create those numbers can and do. As so many people have learned, forgetting to include human nature in an equation can be devastating.” ― Harry Markopolos, No One Would Listen

Image result for harry markopolos

The quote I used from Harry Markopolos’ No One Would Listen book about the Bernie Madoff ponzi scheme in my last article triggered a bittersweet recollection. For me, the experience captured the true nature of our warped financial markets, a culture glorifying wealthy arrogant criminal assholes, while ignoring or ridiculing honest, hard working, highly intelligent truth tellers.

The picture of Markopolos above shows an average looking middle aged guy, with a five o’clock shadow, bad haircut, and wearing a modestly priced suit and tie. Since reading about his fruitless effort to expose Madoff’s Ponzi Scheme and his fifteen minutes of fame in 2009, I have felt an affinity towards him. We both have a brother and sister. We were both brought up in Catholic households and went to Catholic schools. We both have degrees in finance. We have both had financial careers. We are both married with three sons. And we both believe facts and an accurate assessment of the numbers always reveals the truth.

Through his job as a portfolio manager with a small investment firm Bernie Madoff’s investing record was brought to his attention. As a numbers guy, he immediately began assessing the returns. Markopolos said he knew within five minutes Madoff’s numbers didn’t add up. It took him another four hours to mathematically prove that they could have only been obtained by fraud.

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

Bad Money

September 15, 2018

Dreamstime

Bad Money

Our debt-based fiat money system poses an existential threat

We’re all going to have to be a lot more resilient in the future.

The “long emergency“, as James Howard Kunstler puts it, is now upon us.

If ever there was a wake-up call from Mother Nature, it’s been the weather events over the past 12 months.

Last year, the triplet Hurricanes Harvey, Maria, and Irma resulted in thousands of deaths (mainly in Puerto Rico) and tens of $billions in destruction.

This year has seen a rash of 120° F (50° C) summer days, droughts, current monster storms like Typhoon Mangkhut and Hurricane Florence — as well as numerous 100/500/1,000-year floods spread across the globe.

And that’s just so far.

It remains nearly impossible to connect climate change directly to any particular weather event. But taken together, it’s becoming increasingly difficult to dismiss the scientific claim that the quantity of heat trapped in the earth’s weather systems impacts the amount of water that now falls (or refuses to fall) from the sky and the high-temperature heat waves that now shatter records with such regularity that once-rare extreme conditions are now becoming routine.

Our “new normal” is quickly diverging from the natural conditions most of us have grown up with. Permafrost isn’t “permanent ” anymore — it melts. The Arctic now can be ice-free. In a growing number of regions in the US, you can leave a screenless window open on an August evening (with the lights on!), and remain unmolested by the swarms of insects that used to prowl the night.

All of these symptoms are connected by a root cause: our society’s relentless addiction to growth. And while we do our best here at PeakProsperity.com to continually raise awareness of this existential threat, the rest of the media completely ignores it.

meltdown? That’s splashed everwhere…

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

The End Of Cheap Debt: The Fall & Rise Of Interest Rates

September 8, 2018

Creativa Images/Shutterstock

The End Of Cheap Debt: The Fall & Rise Of Interest Rates

Perhaps the greatest single trend impacting the next decade

Total debt (public + private) in America is currently at a staggering $67 trillion.

That number has been rising fast over the past 47 years, following the US dollar’s transformation into a fully-fiat currency in August of 1971.

Perhaps this wouldn’t be such a big concern were America’s income, measured by GDP, growing at a similar rate. But it’s not.

Growth in debt has far outpaced GDP, as evidenced by this chart:

In 1971, the US debt-to-GDP ratio was 1.48x. That’s roughly the same multiple it had averaged over the prior century.

But today? That ratio has spiked to to 3.47x, more than doubling over just 4 decades.

There are many troubling conclusions to draw from this, but here’s a simple way to look at it: It’s taking more and more debt to eke out a unit of GDP growth.

Put in other words: the US economic engine is seizing up, requiring increasingly more effort to function.

At some point — quite possibly some point soon — the economy will no longer be able to grow because all of its output must be used to service the ballooning debt load rather than future investment.

Accelerating this point of reckoning are two major recent trends: rising interest rates and the end of global QE.

Why? Because much of the recent explosion in debt has been fueled by central bank policy:

Interest rates have been on a steady decline since the 1980s, making debt increasingly cheaper to issue and to service.
Since 2008, central banks have been voracious buyers of debt. Countries/companies have been able to borrow $trillions, enabled (both directly and indirectly) by these “buyers of last resort”.

But both of those trends are ending, fast.

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

Michael Pento: When The Yield Curve Inverts Soon, The Next Recession Will Start

June 28, 2018

Michael Pento: When The Yield Curve Inverts Soon, The Next Recession Will Start

Expected timing: this Fall

Collectively, the world’s major central banks have pumped $1.1 trillion into the markets over the past year.

The result of all this money printing is now well known: massively inflated real estate, stock and bond asset price bubbles, as well as extraordinary wealth and income gaps across society.

Some day all of this insanity will end. But how? Will it unwind in an orderly and polite way, as the world’s central planners hope? Or will be disorderly, resulting in painful portfolio losses and mass layoffs?

Michael Pento, fund manager and author of The Coming Bond Bubble Collapse returns to the podcast this week to offer his prediction that events will most likely take the latter route. In fact, he sees the developing inversion of the yield curve as a dependable precursor to the US economy entering recession as soon as this Fall:

The Fed is now raising rates. They raised rates from 0% up to 2%. They’re supposed to do it again in September/October. And again in December. That will be four hikes this year.

They are also selling assets, aka ‘draining their balance sheet’. I say ‘selling’ because that’s exactly what they have to do. Let’s say the Fed is holding a 10-year note that’s due: if they want to destroy that money, they say “OK, Treasury, give me the principal”. The Treasury doesn’t have any money so it has to go the public and raise money. Well, the Treasury will have to do that to the tune of $50 billion per month come October. Right now it’s $30, it has to go in July to $40 billion a month then it goes to $50 billion. That’s $600 billion a year added to the public supply of Treasurys they have to actually finance at a market rate. That’s on top of the $1.2 trillion debt we’re going to have in fiscal 2019.

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

A Hard Rain’s a-Gonna Fall

June 16, 2018

A Hard Rain’s a-Gonna Fall

The prospects for the rest of the year are awful

Après moi, le déluge

~ King Louis XV of France

A hard rain’s a-gonna fall

~ Bob Dylan (the first)

As the Federal Reserve kicked off its second round of quantitative easing in the aftermath of the Great Financial Crisis, hedge fund manager David Tepper predicted that nearly all assets would rise tremendously in response.

“The Fed just announced: We want economic growth, and we don’t care if there’s inflation… have they ever said that before?”

He then famously uttered the line “You gotta love a put”, referring to the Fed’s declared willingness to print $trillions to backstop the economy and financial makets.

Nine years later we see that Tepper was right, likely even more so than he realized at the time.

The other world central banks followed the Fed’s lead. Mario Draghi of the ECB declared a similar “whatever it takes” policy and has printed nearly $3.5 trillion in just the past three years alone. The Bank of Japan has intervened so much that it now owns over 40% of its country’s entire bond market. And no central bank has printed more than the People’s Bank of China.

It has been an unprecedented forcefeeding of stimulus into the global system. And, contrary to what most people realize, it hasn’t diminished over the years since the Great Recession. In fact, the most recent wave from 2015-2018 has seen the highest amount of injected ‘thin-air’ money ever:

Total Assets Of Majro Central Banks

In response, equities have long since rocketed past their pre-crisis highs, bonds continued rising as interest rates stayed at historic lows, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon.

And everyone learned to love the ‘Fed put’ and stop worrying.

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

Making Sense of The Federal Reserve

June 4, 2018

Making Sense of The Federal Reserve

I was given a lecture in Toronto to our institutional clients years ago and the central bank of Canada came with ten people. It was an interesting session because the audience began to ask me questions about what the central banks were looking at to make their decisions. I would answer and then the audience would immediately turn to see their response. It was a really fascinating session that turned me into this quasi-spokesperson for the central banks. I would respond and usually swat down these absurd theories one after another. The head of the Bank of Canada I knew well and the whole table was unbelievable poker-players. They never flinched nor did you get any read from any body language. When it was over, I went up to them and apologized saying I hoped I did not insult them in any way. They reply was astounding: “Marty, I only wish I could tell these fools we do not look at this stuff!”

People attribute the central banks will also sort of theories you would think they were the all-powerful demigods of finance. Decoding what a central bank says is very important. Yet I find all the commentary to be so off the mark it is laughable. The new word the Fed likes to use is its increasing reliance on “transitory” factors to explain the past six-year problem of being unable to reach the Fed’s 2% inflation target. They explain the failure with “transitory price changes” in some components such as health care and financial services. That was in their minutes from the May 1-2, 2018 meeting. When you look closely, price changes become “transitory” on the downside as well as “transitory”when they move on the upside. Indeed, they love to explain trends as “transitory” for that avoids any permanent trend forecast.

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

Beware of the Coming Economic Debt Bomb

May 11, 2018

“There is a sword of Damocles hanging over the head of every American. Sadly, it is about to drop.”

Sorry for the drama, but I need to get your attention.

We know that the Fed has kept interest rates low for many years until recently. Why did it do so? Here are some of the reasons we have been told:

The Fed wanted to stimulate the economy.
The Fed wanted to make it easier for Americans to borrow.
The Fed wanted to create a “wealth effect” to encourage spending.

Which of these statements do you think explains the primary reason for the Fed’s decision to keep interest rates low? Don’t bother. It is none of the above.

The primary reason the Fed kept interest rates low was to avert an economic catastrophe. Today, that catastrophe can no longer be avoided. The trigger for the economic explosion is the rising interest payments on the federal debt.

Let’s go through the numbers.

During the eight years of the Obama administration, our total national debt rose from $12.3 trillion to $20 trillion while interest rates sank to a new all-time low. (The national debt figure includes money owed by the government to itself. The debt held by the public is what interests us since the government must pay out the interest to those bond holders.)

In 2009, the year President Obama took office, the national debt held by the public was $7.27 trillion. At the end of fiscal 2016, that had soared to approximately $14 trillion. Given that our marketable debt doubled from 2009 to 2016, it’s remarkable that the annual cost of the interest on the debt rose far less, from $185 billion to $223 billion.

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

Nomi Prins: Collusion!

May 10, 2018

Nomi Prins: Collusion!

How central bankers rigged the world

Nomi Prins, Wall Street veteran turned financial industry reformist returns to the podcast this week to explain the findings within her new book Collusion: How Central Bankers Rigged The World.

Nomi has put together a timeline of exactly when and how the central banks have plundered the wealth of the masses since 2008, either directly or indirectly through the loss of purchasing power of the currencies they control:

The relationship between the Central Banks, the major ones — the Fed, Europe Central Bank, Bank of Japan — all the larger Central Banks in the world and their private banks was effectively, and is effectively, kept secret. The relationships they have with each other, a lot of it is secret; so you have to really dig in to it to find out what’s really going on.

What I did was dig into the documents that I could find and create a timeline. That’s why each chapter in each region starts in 2008. It works with Mexico, Brazil, Japan, China and Europe and juxtaposes that with what the Fed was doing at that time to see how that collusive behavior wound up happening. The secret-ness is in the relationships of the banks, where that money that was fabricated by these institutions actually went, and when — or if — it’s coming back.

The ‘cheat and deceiving’ part of that definition is also apparent: people have been cheated out of their futures from the standpoint of the central banks’ strategies. So when the Feds creates cheap money, companies and banks and countries borrow more from the future because it is so cheap and easy. This deceives many people into thinking that the economy is somehow therefore being helped by this strategy, which is in acutality an emergency strategy. It’s an emergency that’s gone on now for ten years.

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

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