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The fast money and robo-machines keep trying to ignite stock rallies, but they all fizzle because bad karma is beginning to infect the casino. That is, apprehension is growing among whatever adults are left on Wall Street that 84 months of ZIRP and $3.5 trillion of Fed balance sheet expansion, aka money printing, didn’t do the trick.

Not only is the specter of recession growing more visible, but it is also attached to a truth that cannot be gainsaid. Namely, having stranded itself at the zero bound for an entire business cycle, the Fed is bereft of dry powder. Its only available tools are a massive new round of QE and negative interest rates.

But these are absolutely non-starters. The former would provoke riots in the financial markets because it would be an admission of total failure; and the latter would provoke a riot in the American body politic because the Fed’s seven year war on savers and retirees has already generated electoral revulsion. Bernie and The Donald are not expressions of public confidence in the economic status quo.

So the dip buying brigades have been reduced to reading the tea leaves for signs that the Fed’s four in store for 2016 are no more. Yet even if the prospect of delayed rate hikes is good for a 50-handle face ripping rally on the S&P 500 index from time to time, here’s what it can’t do. The Fed’s last card—-deferring one or more of the tiny interest rate increases scheduled for this year——cannot stop the on-coming recession.

And it is surely coming. We got one more powerful indicator on that score in this morning’s data on core capital goods orders (i.e. nondefense excluding aircraft).

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

Red Ponzi Ticking

January 28, 2016

Red Ponzi Ticking

There is something rotten in the state of Denmark. And we are not talking just about the hapless socialist utopia on the Jutland Peninsula——even if it does strip assets from homeless refugees, charge savers 75 basis points for the deposit privilege and allocate nearly 60% of its GDP to the Welfare State and its untoward ministrations.

In fact, the rot is planetary. There is unaccountable, implausible, whacko-world stuff going on everywhere, but the frightful part is that most of it goes unremarked or is viewed as par for the course by the mainstream narrative.

The topic at hand is the looming implosion of China’s Red Ponzi; and, more specifically, the preposterous Wall Street/Washington presumption that it’s just another really big economy that overdid the “growth” thing and is now looking to Beijing’s firm hand to effect a smooth transition. That is, an orderly migration from a manufacturing, export and fixed investment boom-land to a pleasant new regime of shopping, motoring, and mass consumption.

Would that it could. But China is not a $10 trillion growth miracle with transition challenges; it is a quasi-totalitarian nation gone mad digging, building, borrowing, spending and speculating in a magnitude that has no historical parallel.

So doing, It has fashioned itself into an incendiary volcano of unpayable debt and wasteful, crazy-ass overinvestment in everything. It cannot be slowed, stabilized or transitioned by edicts and new plans from the comrades in Beijing. It is the greatest economic trainwreck in human history barreling toward a bridgeless chasm.

And that proposition makes all the difference in the world. If China goes down hard the global economy cannot avoid a thundering financial and macroeconomic dislocation. And not just because China accounts for 17% of the world’s $80 trillion of GDP or that it has been the planet’s growth engine most of this century.

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

Chart Of The Day: 155 Years Of Real ($2015) Oil Prices——-Average=$47

January 27, 2016

Chart Of The Day: 155 Years Of Real ($2015) Oil Prices——-Average=$47

Why Dip Buyers Will Get Clobbered: The US Economy Isn’t Doing “Just Fine”

January 26, 2016

Why Dip Buyers Will Get Clobbered: The US Economy Isn’t Doing “Just Fine”

As of June 2008 no Wall Street banking house was predicting a recession, yet by then the Great Recession—–the worst economic downturn since the 1930s—– was already six months old, as per the NBER’s subsequent official reckoning.

Actually, it was already several years old if you concede that the phony housing boom of 2005-2007 was generating merely transient “statistical” GDP, not permanent gains in main street wealth. Even the movie houses now showing “The Big Short” have some pretty palpable reminders on that point——not the least being the strip club dancer who owned 5 residential properties, with two adjustable rate mortgages on each.

In fact, by then main street America was crawling with strippers. That is, equity strippers who were repeatedly doing “cash out” refinancings in order to generate between $20,000 and $100,000 or more of mortgage proceeds to spend on vacations, cars, man caves, aspirational leather goods, shoes and apparel, among much else.

At the peak in 2006-2007, upwards of 10% of personal consumption expenditures were accounted for by MEW (mortgage equity withdrawal). The utter unsustainability of that kind of Potemkin prosperity goes without saying, but the point here is that it was no deep dark secret buried in the economic entrails.

In fact, Chairman Greenspan went to great lengths to publicize the facts of MEW on an up-to-date basis. But he wasn’t trying to warn that the end was near. Unaccountably, he and his Wall Street acolytes concluded that the US economy had become virtually recession proof because of the extra firepower being accorded to household consumption by MEW!

In short, the economic booby trap of MEW was hiding in plain sight and so was the Great Recession. Yet there was nothing at all unusual about the 2008 recession call miss.

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

The Sleepwalkers Awaken

January 21, 2016

The Sleepwalkers Awaken

A host on bubblevision this afternoon noted that the S&P 500 is now down $2 trillion for the year and wondered if his panel could explain “what’s happened since January 1st?”

The implication, of course, was that since no new recessions have started—- nor have any new wars been declared, polar glaciers melted or Wall Street banks gone down for the count——that the market’s worst ever start of the year was surely overdone. Maybe it was even BTFD time again.

Then again, maybe the outlook is just as bad as it was before January 1st, but that the outlookers have acquired a new outlook. Stated more baldly, perhaps the sleepwalkers have finally awakened.

That would certainly seem to be the case with the market’s high flyers. Most of this year’s spectacular flameouts have reported nothing new nor issued any disturbing 8-Ks. Amazon apparently had a swell Christmas, for example, but its share price is now down 19% from the bubblevision man’s line of demarcation.

Indeed, Amazon and its fellow FANGs (Facebook, Amazon, Netflix and Google) succinctly explain the pivot. They have actually been the canary in the coal mine all along; it just now that their warnings signals are being noticed.

As we have previously pointed out, the FANGs were the “beard” that hid the market’s initial breakdown during 2015. They gained $485 billion of market cap (+66%) while the other 496 companies in the S&P 500 actually deflated by more than half a trillion dollars.

Needless to say, that happened before the calendar year turned. Yet when the stock market’s advance drastically narrows to just a handful of ultra-momentum stocks, the bull’s days are numbered, and always have been.

That truth goes back to the Four Horsemen of the tech bubble, the Nifty Fifty of the early 1970s and even the pyramided investment trusts of 1929.

Just call this the Last Stocks Standing (LSS) syndrome.

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

Soon Comes The Deluge

January 20, 2016

Soon Comes The Deluge

The robo-machines are now having a grand old time hazing the August lows at 1870 on the S&P, and may succeed in ginning up another dead-cat bounce or two. But this market is going down for the count owing to a perfect storm.

To wit, the global and US economies are heading into an extended deflationary recession; S&P earnings peaked at $106 per share more than a year ago and are already at $90, heading much lower; and the central banks of the world are out of dry powder after a 20-year binge of balance sheet expansion.

Global Central Bank Balance Sheet Explosion

The latter is surely the most important of the three. It means there will be no printing press driven reflation of the financial markets this time around. And without more monetary juice it’s just a matter of time before a whole generation of punters and front-runners abandon the casino and head for the hills.

Even with today’s ragged bounce, the broad market has now gone sideways for nearly 700 days. The BTFD meme is loosing its mojo because it only worked so long as the Fed-following herd could point to more printing press cash flowing into the market or promises of “accommodation” that were credible. But that will soon be ancient history.

^SPX data by YCharts

Indeed, it is already evident that “escape velocity” has again escaped. Q4 GDP growth is now running at barely 0.5%, and the current quarter could actually be negative for reasons we will analyze in the days ahead.

But the real economic situation is actually worse than the apparent flatling trend of recent months. As we have long insisted, the GDP does not measure true gains in national wealth or main street living standards.

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

Amazon And The Fantastic FANGs——A Bubblicious Breakfast Of Unicorns And Slippery Accounting

January 16, 2016

Amazon And The Fantastic FANGs——A Bubblicious Breakfast Of Unicorns And Slippery Accounting

At year end we posted a rant about the “Brobdingnagian” bubble embedded in Amazon’s market cap. On December 29th it was valued at $325 billion and had gained $180 billion or 55% of that towering figure in just the previous 12 months.

Self-evidently this was a flashing red warning signal that the end of the third great central bank fueled financial bubble of his century was near. AMZN and its three other FANG amigos had accounted for a $530 billion gain in market cap while the other 496 stocks in the S&P 500 had declined by an even larger amount.

That is, the apparently flat S&P 500 index of 2015 was hiding an incipient bear—–owing to a market narrowing action like none before. Compared to the Fabulous FANGs (Facebook, Amazon, Netflix and Google), the early 1970s Nifty Fifty of stock market lore paled into insignificance.

After the worst start to a year in history, some of the air has now been let out of the bubble. Amazon’s market cap is now down by $53 billion or 16% and the story has been roughly the same for the rest of the FANGs.

After Wednesday’s plunge, Goggle is now also down by $52 billion or 10%; Facebook is lower by $33 billion or 10%; and Netflix is off by $6 billion or 11%. In all, the FANGs have given back in eight trading days about $144 billion or 28% of their madcap gains during 2015.

AMZN Market Cap data by YCharts

Call that a start, but in the great scheme of things it doesn’t amount to much. Consider the case of Amazon. Its PE multiple on LTM net income of $328 million has dropped from 985X all the way to…….well, 829X!

Likewise, it’s now valued at 97X its $2.8 billion of LTM free cash flow compared to 117X at year end.

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

Hey, Wall Street——-This Bud’s For You!

January 15, 2016

Hey, Wall Street——-This Bud’s For You!

The hordes of Washington politicians promising to boost the nation’s economic growth rate and the posse of monetary central planners and their Keynesian economists (excuse the redundancy) lamenting that “escape velocity” appears to have gone MIA have one thing in common. To wit, they have never looked at the chart below, or don’t get it if they have.

Plain and simple, the sum of Washington policy is to induce the business economy to eat it seed corn and bury itself in debt. Capitol Hill does its part with a tax code which provides a giant incentive for debt finance, and the Fed completes the job through massive intrusion in the money and capital markets. The result of systemic financial repression is deeply artificial, subsidized interest rates and free money for carry trade gamblers—–distortions which have turned the C-suites of corporate America into stock trading rooms.

As a case in point, the $46 billion of bonds sold by the owners of Budweiser last night where priced at a ten-year yield of 3.67%, which means that after taxes and inflation, the company’s borrowing cost was hardly 1%. Yet, as explained more fully below, the only point of this massive offering was to fund with nearly free long-term capital the huge payday for speculators in SABMiller stock that will result from the $120 billion Anheuser-Busch InBev (BUD) takeover transaction.

But consider the economic context. As astounding as it may seem, US net business investment in fixed assets last year was 10% below its turn of the century level. And that’s in nominal dollars—-in real terms its down by nearly one-fifth.

Moreover, net investment is the right measure, and its not at all comparable to the what Wall Street stock peddlers, who claim to be economists, are always bloviating about.

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

Billary Buddy Marc Lasry’s Last Rodeo——The Jig Is Up On 25 Years Of Bottom Fisher Bailouts

January 13, 2016

Billary Buddy Marc Lasry’s Last Rodeo——The Jig Is Up On 25 Years Of Bottom Fisher Bailouts

As the Fed’s third and last bubble of this century heads for its splatter spot, the stench of desperate crony capitalism fills the air. You can count hedge fund mogul and Billary Buddy, Marc Lasry, among the upchucking financiers.

A few months back I heard him say on bubble vision that energy debt was a “once in a lifetime opportunity”. My thought was good luck with that, but even better luck to your investors—–who will need to get out of Dodge fast.

The truth is, Lasry had it upsidedown. Energy prices over the last 15 years were carried skyward by a once in a lifetime central bank driven credit explosion. The latter fueled a surge of phony demand and a tidal wave of malinvestment——not only in oil and gas, but practically everything else in the material and manufacturing economy of the world.

The reason that 2016 will prove to be a great historical inflection point is that the central banks of the world have finally run out of dry powder. After a 20 year spree in which their balance sheets exploded by nearly 11X—–from $2 trillion to $21 trillion—-they are being forced to shutdown their printing presses.

China has been obliged to stop because it has been slammed with a $1 trillion capital flight in the last year, and it’s accelerating. The BOJ and the ECB have already shot their wad and it’s done no good at all. The Fed spent 84 months dithering on the zero bound and now it has no dry powder left as the US economy slides into recession.

Accordingly, the great global credit bubble has finally run out of new central bank fuel. It has now surely reached its apogee at about $225 trillion compared to only $40 trillion back in 1994 when oil prices were still well under $20 per barrel.

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

Newsflash From The December ‘Jobs’ Report—–The US Economy Is Dead In The Water

January 10, 2016

Newsflash From The December ‘Jobs’ Report—–The US Economy Is Dead In The Water

Here’s a newsflash that CNBC didn’t mention. According to the BLS, the US economy generated a miniscule 11,000 jobs in the month of December.

Yet notwithstanding the fact that almost nobody works outdoors any more, the BLS fiction writers added 281,000 to their headline number to cover the “seasonal adjustment.” This is done on the apparent truism that December is generally colder than November and that workers get holiday vacations.

Of course, this December was much warmer, not colder, than average. And that’s not the only deviation from normal seasonal trends.

The Christmas selling season this year, for example, was absolutely not comparable to the ghosts of Christmas past. Bricks and mortar retail is in turmoil and in secular decline due to Amazon and its e-commerce ilk, and this trend is accelerating by the year.

So too, energy and export based sectors have been thrown for a loop in the last few months by a surging dollar and collapsing commodity prices. Likewise, construction activity has been so weak in this cycle—-and for the good reason that both commercial and residential stock is vastly overbuilt owing to two decades of cheap credit—–that its not remotely comparable to historic patterns.

Never mind. The BLS always adds the same big dollop of jobs to the December establishment survey come hell or high water. In fact, the seasonal adjustment has averaged 320,000 for the last 12 years!

For crying out loud, folks, every December is different—–and not just because of the vagaries of the weather. Capitalism is about incessant change and reallocation of economic activity and resources. And now the globalized ebbs and flows of economic activity have only accentuated the rate and intensity of these adjustments.

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

Chart Of The Day: Canadian Heavy Crude Falls To $19.81—–Down From $100 In 2011

January 8, 2016

Chart Of The Day: Canadian Heavy Crude Falls To $19.81—–Down From $100 In 2011

Enough Already! It’s Time To Send The Despicable House Of Saud To The Dustbin Of History

January 6, 2016

Enough Already! It’s Time To Send The Despicable House Of Saud To The Dustbin Of History

The attached column by Pat Buchanan could not be more spot on. It slices through the misbegotten assumption that Saudi Arabia is our ally and that the safety and security of the citizens of Lincoln NE, Spokane WA and Springfield MA have anything to do with the religious and political machinations of Riyadh and its conflicts with Iran and the rest of the Shiite world.

Nor is this only a recent development. In fact, for more than four decades Washington’s middle eastern policy has been dead wrong and increasingly counter-productive and destructive. The crisis provoked this past weekend by the 30-year old hot-headed Saudi prince, who is son of the King and heir to the throne, only clarified what has long been true.

That is, Washington’s Mideast policy is predicated on the assumption that the answer to high oil prices and energy security is deployment of the Fifth Fleet to the Persian Gulf. And that an associated alliance with one of the most corrupt, despotic, avaricious and benighted tyrannies in the modern world is the lynch pin to regional stability and US national security.

Nothing could be further from the truth. The House of Saud is a scourge on mankind that would have been eliminated decades ago, save for Imperial Washington’s deplorable coddling and massive transfer of arms and political support.

At the same time, the answer to high oil prices is high oil prices. Could anything not be more obvious than today when crude oil is hovering around $35 per barrel notwithstanding a near state of war in the Persian Gulf?

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

Central Bank Money Printing—-The Rotten Philosophy Beneath

January 5, 2016

Central Bank Money Printing—-The Rotten Philosophy Beneath

If advocates of freedom were to make up a list of New Year’s resolutions for 2016, one of the most important items should be ending government’s monopoly control over money. In a free society, people in the marketplace should decide what they wish to use as money, not the government.

For more than two hundred years, practically all of even the most free market advocates have assumed that money and banking were different from other types of goods and markets. From Adam Smith to Milton Friedman, the presumption has been that competitive markets and free consumer choice are far better than government control and planning – except in the realm of money and financial intermediation.

This belief has been taken to the extreme over the last one hundred years, during which governments have claimed virtually absolute and unlimited authority over national monetary systems through the institution of paper money.

At least before the First World War (1914-1918) the general consensus among economists, many political leaders, and the vast majority of the citizenry was that governments could not be completely trusted with management of the monetary system. Abuse of the monetary printing press would always be too tempting for demagogues, special interest groups, and shortsighted politicians looking for easy ways to fund their way to power, privilege, and political advantage.

The Gold Standard and the Monetary “Rules of the Game”

Thus, before 1914 the national currencies of practically all the major countries of what used to be called the “civilized world” were anchored to market-based commodities, either gold or silver. This was meant to place money outside the immediate and arbitrary manipulation of governments.

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

Chart Of The Day: A World Awash In Debt

January 2, 2016

Chart Of The Day: A World Awash In Debt

Now Comes The Great Unwind—-How Evaporating Commodity Wealth Will Slam The Casino

January 1, 2016

Now Comes The Great Unwind—-How Evaporating Commodity Wealth Will Slam The Casino

The giant credit fueled boom of the last 20 years has deformed the global economy in ways that are both visible and less visible. As to the former, it only needs be pointed out that an economy based on actual savings from real production and income and a modicum of financial market discipline would not build 65 million empty apartment units based on the theory that their price will rise forever as long as they remain unoccupied!

That’s the Red Ponzi at work in China and its replicated all across the land in similar wasteful investments in unused or under-used shopping malls, factories, coal mines, airports, highways, bridges and much, much more.

But the point here is that China is not some kind of one-off aberration. In fact, the less visible aspects of the credit ponzi exist throughout the global economy and they are becoming more visible by the day as the Great Deflation gathers force.

As we have regularly insisted, there is nothing in previous financial history like the $185 trillion of worldwide credit expansion over the last two decades. When this central bank fueled credit bubble finally reached its apogee in the past year or so, global credit had expanded by nearly 4X the gain in worldwide GDP.

Moreover, no small part of the latter was simply the pass-through into the Keynesian-style GDP accounting ledgers of fixed asset investment (spending) that is destined to become a write-off or public sector white elephant (wealth destruction) in the years ahead.

The credit bubble, in turn, led to booming demand for commodities and CapEx. And in these unsustainable eruptions layers and layers of distortion and inefficiency cascaded into the world economy and financial system.

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

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