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As I see it, cracks are opening in the greatest Bubble of all time. Serious fissures have developed in EM, Europe and China. Meanwhile, the stimulus-driven U.S. economic boom runs unabated. Global fragilities place downward pressure on U.S. market yields, while faltering Bubbles elsewhere stoke (self-reinforcing) outperformance – and speculative excess – within the U.S. equities market. The Fed faces a difficult challenge of weighing buoyant U.S. economic data and inflating asset prices against heightened global market fragilities.

Let’s begin with U.S. data. May non-farm payrolls increased a stronger-than-expected 223,000. The Unemployment Rate declined a tenth to 3.8%, matching the low going all the way back to 1969. Average hourly earnings were up 0.3% in May and 2.7% y-o-y. The ISM Manufacturing Index increased 1.4 points to a stronger-than-expected 58.7. There have been only nine stronger monthly readings looking all the way back to August 2004. Prices Paid rose slightly to 79.5, the high since April 2011. ISM New Orders jumped 2.5 points to 63.7, the high since February. The Employment component rose 2.1 points to a solid 56.3. The Chicago Purchasing Managers index surged 5.1 points to 62.7, the high since January. The Dallas Manufacturing Outlook recovered five points to the high since February. A Friday afternoon CNBC (Jeff Cox) headline: “The US economy suddenly looks like it’s unstoppable.”

April Construction Spending was up a much stronger-than expected 1.8% (strongest since January), led by an 8.7% y-o-y increase in residential construction. This followed stronger-than-expected S&P CoreLogic house price inflation (up 6.79% y-o-y). May Conference Board Consumer Confidence gained 2.4 points to 128, just below February’s 130, the strongest reading going all the way back to November 2000. The Conference Board Present Situation component jumped 4.2 points to 161.7, the high back to March 2001. Also indicative of boom time conditions, Personal Spending jumped 0.6% in April. May auto sales almost across the board surpassed expectations, with sales estimated up 5% from a year ago.
…click on the above link to read the rest of the article…

Market Plummets if Global Central Banks Pull Plug – Nomi Prins

May 7, 2018

Market Plummets if Global Central Banks Pull Plug – Nomi Prins

Two time best-selling book author Nomi Prins says the rescue policies of the 2008 financial crisis are still with us today. Prins is out with a brand new book called “Collusion: How Central Bankers Rigged the World.” The enormity of our current global debt problem is caused by central bankers. Prins explains, “It is huge. The debt is between two and a half to three times global GDP, which is an historical high. Debt to GDP throughout the developed world is higher than it has ever been, and it continues to grow. Why? Because money continues to be conjured up and rendered cheap for the participants at the top of the financial system. The banks, the major corporations, the people who make money out of that, and it hasn’t washed down to the rest of the economy. This is why most people feel this anxiety about another potential financial crisis, but also about what happens every day in their own pocketbooks. So, it is worse. These central banks today, 10 years after the financial crisis occurred, that was supposed to be an emergency situation. They have $21 trillion worth of conjured money in return for debt assets, stocks and corporate bonds around the world. If they pulled that plug, if they were to take down any of the $21 trillion, even a little bit . . . it would begin to create a major rupture in the financial system. This is why I say the central banks are the market. Without them, the markets would be nowhere near these highs. If they pulled their help and subsidies, the market would plummet really quickly.”

Prins admits this has gone on for longer than most believed possible, but says it can’t go on forever. How does it all end?

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

Hot War and Cold Markets

April 13, 2018

Hot War and Cold Markets

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

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

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

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

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

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

The Limits of Free Markets, Both Economic and Intellectual

March 13, 2018

The Limits of Free Markets, Both Economic and Intellectual

Both in economics and speech, the market is a powerful metaphor. Free economic markets are efficient, and produce the greatest good for the greatest number of people by the fair interplay of sellers and buyers. The marketplace of ideas is supposed to produce truth, and maximize free inquiry of ideas through the competition or rival ideas. Both marketplaces are supposed to support contrasting forms of individual freedom. Except the truth is that neither work in practice compared to theory, fixing their externalities and preventing one from corrupting the other is challenge and task of contemporary western politics.

The market is a metaphor of modern western politics. Belief in the efficiency of economic free markets dates at least to Adam Smith’s 1776 The Wealth of Nations. For some economists, free markets maximize individual freedom producing both what is called Pareto efficiency (no one can be made better off without someone being made worse off) and Kaldor-Hicks efficiency (overall greatest net wealth for a society). Government regulation interferes with economic markets, damaging both individual freedom and both forms of efficiency. Market fundamentalism in the guise of contemporary Republican or neo-liberal politics, ascribes to this belief.

Yet there are limits to this economic market fundamentalism. The same Adam Smith who wrote The Wealth of Nations also penned The Theory of Moral Sentiments and argued how economic markets are circumscribed by ethical values and virtues. The Wealth of Nations in book five recognizes an important role for the government investing in infrastructure. Later on, other economists have described unregulated markets as producing externalities such as pollution or monopolies. Others see externalities to include the mal-distributions of wealth and income in the world or racial and gender discrimination. Economic markets are also plagued by problems such as free riders or collective goods. These problems necessitate government action. Even Milton Friedman recognized the need of the government to enforce the rules of the marketplace against force and fraud so that it would work properly.

The point is markets are not architectonic. Markets are not inherently self-regulating or natural. Karl Polany’s 1944 The Great Transformation made this point. It took enormous state power to construct and maintain market capitalism. The logic of both capitalism and human nature is often against free markets, wanting to produce collusion, monopolies, or engage in rent-seeking behavior or political action to favor oneself. Pure self-interest left on its own, as Nobel Prize economist Kenneth Arrow pointed out, cannot be aggregated to produce collective goods for a society.

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

Fourth Turning’s Neil Howe: “Today’s Demographics Defy Conventional Wisdom”

March 10, 2018

Fourth Turning’s Neil Howe: “Today’s Demographics Defy Conventional Wisdom”

John Mauldin interviewed Fourth Turning best-selling author and demographics expert, Neil Howe about generational changes and their effect on the markets, during a session at the Strategic Investment Conference 2018. Howe said that demographics and generational factors have a huge impact on equity prices in the long run. Not only that, he thinks that there’s now a generational shift in wealth distribution that could spark major political and economic disruption.

Today’s Demographics Defies Conventional Wisdom

The main example Howe shared is that people in the 75+ age bracket still dominate stock ownership by far. This defies conventional wisdom that people reduce risk as they retire and leave the workforce. Meanwhile, Millennials have lower income and stock ownership levels than previous generations did at the same age.

This is a key change as senior adults once had the highest poverty rates. Younger people are now challenging that once-safe assumption.

Howe also pointed out striking differences between early and late Baby Boomers. Those born in the mid/late 1940s inherited some of the Silent Generation’s wealth and good fortune. Late-stage Boomers born in the early 1960s score lower in all kinds of metrics.

Major Political and Financial Disruption Is Ahead

Neil Howe ended with an update on his Fourth Turning generational theory. He thinks we are about midway through it. From an economic standpoint, he foresees inflation fear and Fed tightening, which will be followed by a painful recession.

Politically, Millennials desperately want civic re-engagement. They are seeking to completely restructure institutions. The right wing is a brick wall on this subject and numbers have let them hold off the pressure so far. This will change as Millennials grow older and Boomers die.

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

The End of (Artificial) Stability

February 21, 2018

The End of (Artificial) Stability

The central banks’/states’ power to maintain a permanent bull market in stocks and bonds is eroding.

There is nothing natural about the stability of the past 9 years. The bullish trends in risk assets are artificial constructs of central bank/state policies. As these policies are reduced or lose their effectiveness, the era of artificial stability is coming to a close.

The 9-year run of Bull-trend stability is ending as a result of a confluence of macro dynamics:

1. Central banks are under pressure to reduce, end or reverse their unprecedented monetary stimulus, and the consequences are unpredictable, given the market’s reliance on the certainty that “central banks have our back” is ending.

2. Interest rates / bond yields may well plummet in a global recession, but if we look at a 50-year chart of interest rates, we see a saucer-shaped bottoming in play. Technician Louise Yamada has been discussing the tendency of interest rates/bond yields to trace out a multi-year saucer bottom for over a decade, and we can now discern this.

Even if yields plummet in a recession, as many analysts predict, this doesn’t necessarily negate the longer term trend of higher yields and rates.

3. The global economy is overdue for a business-cycle recession, which is characterized by a retrenchment of credit and the default of marginal debt. The “recovery” is the weakest recovery in the past 60 years, and now it’s the longest expansion.

4. The mainstream financial media is telling us that everything is going great in the global economy, but this sort of complacent (or even euphoric) “it’s all good news” typically marks the top of stocks, just as universal negativity marks secular lows.

5. What happens to markets characterized by uncertainty? Once certainty is replaced by uncertainty, markets become fragile and thus exposed to sudden shifts of sentiment. This destabilization is expressed as volatility, but it’s far deeper than volatility as measured by VIX or sentiment indicators.

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

Do Financial Markets Still Exist?

February 15, 2018

Do Financial Markets Still Exist?

For many decades the Federal Reserve has rigged the bond market by its purchases. And for about a century, central banks have set interest rates (mainly to stabilize their currency’s exchange rate) with collateral effects on securities prices. It appears that in May 2010, August 2015, January/February 2016, and currently in February 2018 the Fed is rigging the stock market by purchasing S&P equity index futures in order to arrest stock market declines driven by fundamentals, and to push prices back up in keeping with a decade of money creation.

No one should find this a surprising suggestion. The Bank of Japan has a long tradition of propping up the Japanese equity market with large purchases of equities. The European Central Bank purchases corporate as well as government bonds. In 1989 Fed governor Robert Heller said that as the Fed already rigs the bond market with purchases, the Fed can also rig the stock market to stop price declines. That is the reason the Plunge Protection Team (PPT) was created in 1987.

Looking at the chart of futures activity on the E-mini S&P 500, we see an uptick in activity on February 2 when the market dropped, with higher increases in future activity last Monday and Tuesday placing Tuesday’s futures activity at about four times the daily average of the previous month. Futures activity last Wednesday and Thursday remained above the average daily activity of the previous month, and Friday’s activity was about three times the previous month’s daily average. The result of this futures activity was to send the market up, because the futures activity was purchases, not sales. http://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_quotes_volume_voi.html

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

Swan Song Of The Central Bankers, Part 1: Last Week Wasn’t An Error

February 13, 2018

Swan Song Of The Central Bankers, Part 1: Last Week Wasn’t An Error

Last week’s twin 1,000 point plunges on the Dow were not errors. Instead, these close-coupled massacres, which wiped out $4 trillion of global market cap in two days, marked the beginning of a bear market that will be generational, not a temporary cyclical downleg.

What hit the casino wasn’t an air pocket; it was a fundamental change of direction, signaling that the three decade long central bank experiment with Bubble Finance has now run its course.

Moreover, this epochal pivot is not tentative or reversible in any near-term time frame that matters. That’s because the arrogant but clueless Keynesian academics and apparatchiks who run the Fed think they have succeeded splendidly and that the US economy is on the cusp of full-employment.

So they’re now hell-bent on positioning the central bank for the next downturn. That is, they are reloading their recession-fighting “dry powder” thru interest rate normalization and a second giant experiment—-this time in shrinking their balance sheet by huge annual amounts under a regime called quantitative tightening (QT).

Needless to say, both the magnitude and the automaticity of this impending monetary shock are being completely ignored by Wall Street in favor of bromides like “the market knows” QT is coming because the Fed has been transparent in its forward guidance.

So what? Knowing the steamroller is coming doesn’t stop you from getting crushed if you remain in its path. In fact, the $600 billion annualized bond dumping rate incepting in October is a fearsome number; it’s larger than the entire $500 billion Fed balance sheet as recently as the year 2000.

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

Blain: “Here’s Why This Gets Worse Before It Gets Better”

February 9, 2018

Blain: “Here’s Why This Gets Worse Before It Gets Better”

Wobble continues. Does a Correction morph into a Crash?

“They would never evolve. They shouldn’t have survived.…. Evolution was something that happened to other species..”

Not looking like a positive morning out there. Stocks are down 10% – so officially it’s a correction! Markets are still wobbling. Folk who thought they’d survived Monday’s carnage intact are new beginning to wonder if they should press the panic-button, or pull the dump-lever just in case this gets worse and liquidity dries up. The US has managed to shut itself down again. Our best hope at the Winter Olympics has broken her heel. If this all feels sickeningly familiar – Welcome to 2008 Part 2. Market wobbles, you heave a sigh of relief, and then it pukes massively all over you.

Early this morning it was raining. A storm is coming. And I must have dropped my wallet after paying for a Taxi early this morning.

My gut feel – based on active participation in every single market Donnybrook/Stamash since 1987 – is this gets worse before it gets better. And that’s a good thing – because this is when the great opportunities present themselves!! Cry Havoc and unleash the brokers…

But first we need to talk about my wallet. I appreciate most of you are more concerned with markets than my wallet, but does Life care? Losing my wallet is probably far less worse than will happen to most folk. Yet, its illustrative of something: I called my Amex card to cancel. Lots of help, new card with me early next week. Called my bank. Lots of unhelpful questions and the impression I was the 10 thousandth idiot to a lost my wallet this morning. Sympathy? Look for it in a dictionary is the best advice. New card after 6 business days? Perhaps.

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

Steve Keen: “Why Did It Take So Long For This Crash To Happen?”

February 7, 2018

Steve Keen: “Why Did It Take So Long For This Crash To Happen?”

As originally written at RT, outspoken Aussie economist Steve Keen points out that everyone who’s asking “why did the stock market crash Monday?” is asking the wrong question; the real question, Keen exclaims, is “why did it take so long for this crash to happen?”

The crash itself was significant – Donald Trump’s favorite index, the Dow Jones Industrial (DJIA) fell 4.6 percent in one day. This is about four times the standard range of the index – and so according to conventional economics, it should almost never happen.

Of course, mainstream economists are wildly wrong about this, as they have been about almost everything else for some time now. In fact, a four percent fall in the market is unusual, but far from rare: there are well over 100 days in the last century that the Dow Jones tumbled by this much.

Crashes this big tend to happen when the market is massively overvalued, and on that front this crash is no different.

It’s like a long-overdue earthquake. Though everyone from Donald Trump down (or should that be “up”?) had regarded Monday’s level and the previous day’s tranquillity as normal, these were in fact the truly unprecedented events. In particular, the ratio of stock prices to corporate earnings is almost higher than it has ever been.

More To Come?

There is only one time that it’s been higher: during the DotCom Bubble, when Robert Shiller’s “cyclically adjusted price to earnings” ratio hit the all-time record of 44 to one. That means that the average price of a share on the S&P500 was 44 times the average earnings per share over the previous 10 years (Shiller uses this long time-lag to minimize the effect of Ponzi Scheme firms like Enron).

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

Is the 9-Year Long Dead Cat Bounce Finally Ending?

February 6, 2018

Is the 9-Year Long Dead Cat Bounce Finally Ending?

Ignoring or downplaying these fundamental forces has greatly increased the fragility of the status quo.

The term dead cat bounce is market lingo for a “recovery” after markets decline due to fundamental reversals. Markets tend to bounce back after sharp declines as participants (human and digital) who have been trained to “buy the dips” once again buy the decline, and the financial media rushes to reassure everyone that nothing has actually changed, everything is still peachy-keen wonderfulness.

I submit that the past 9 years of market “recovery” is nothing but an oversized dead cat bounce that is finally ending. Here is a chart that depicts the final blow-off top phase of the over-extended dead cat bounce:

Why are the past 9 years nothing but an extended dead cat bounce? Nothing that’s fundamentally broken has been fixed, and none of the dynamics that are undermining the status quo have been addressed.

The past 9 years have been one long dead cat bounce of extend and pretend, i.e. do more of what’s failed because to even admit the status quo is being undermined by fundamental forces would panic those gorging at the trough of the status quo’s lopsided rewards.

This 9-year dead cat bounce was pure speculation driven by cheap central bank credit and liquidity. Demographics, environmental degradation, the decline of middle class security, the erosion of paid work, the bankruptcy of public and private pension plans, the global debt bubble, soaring wealth and income inequality, the corruption of democracy into a pay-to-play bidding war, the destruction of price discovery via market manipulation by those who have turned markets into signaling devices that all is well, the laughable distortion of statistics to mask the real world decline in our purchasing power (inflation is near-zero–really really really), the perverse incentives to leverage up bets in financial instruments that have no connection to the real-world economy–none of these have been addressed in the market melt-up.

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

It’s Looking A Lot Like 2008 Now…

February 3, 2018

It’s Looking A Lot Like 2008 Now…

Did today’s market plunge mark the start of the next crash?

Economic and market conditions are eerily like they were in late 2007/early 2008.

Remember back then? Everything was going great.

Home prices were soaring. Jobs were plentiful.

The great cultural marketing machine was busy proclaiming that a new era of permanent prosperity had dawned, thanks to the steady leadership of Alan Greenspan and later Ben Bernanke.

And only a small cadre of cranks, like me, was singing a different tune; warning instead that a painful reckoning in our financial system was approaching fast.

It’s fitting that I’m writing this on Groundhog Day, as to these veteran eyes, it sure has been looking a lot like late 2007/early 2008 lately…

The Fed’s ‘Reign Of Error’

Of course, the Great Financial Crisis arrived in late 2008, proving that the public’s faith in central bankers had been badly misplaced.

In reality, all Ben Bernanke did was to drop interest rates to 1%. This provided an unprecedented incentive for investors and institutions to borrow, igniting a massive housing bubble as well as outsized equity and bond gains.

It’s worth taking a moment to understand the mechanism the Federal Reserve used back then to lower interest rates (it’s different today). It did so by flooding the banking system with enough “liquidity” (i.e. electronically printed digital currency units) until all the banks felt comfortable lending or borrowing from each other at an average rate of 1%.

The knock-on effect of flooding the US banking system (and, really, the entire world) in this way created an echo bubble to replace the one created earlier during Alan Greenspan’s tenure (known as the Dot-Com Bubble, though ‘Sweep Account’ Bubble is more accurate in my opinion):

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

The Nature of Panics

February 3, 2018

The Nature of Panics

I have been asked my “opinion” with respect to the existence of a Collective unconscious in terms of the Carl Gustav Jung (1875 – 1961), who disagreed with Freud and believed his personal development was influenced by factors he felt were unrelated to sexuality. Nevertheless, Jung’s work has led to many considering it to be a form of collective unconsciousness that exists whereby we are all connected somehow and respond in a herd manner.

I really have no opinion on Jung’s work. Nevertheless, there is clearly a sort of collective unconsciousness that comes into play creating panics. I tend to see it more as a herd of zebra. They are all clustered together and one on the fringe of the herd sees a lion approaching. He starts to run and the others all panic and run as well without knowing why nor did they see the lion. They run because everyone else is running. This is the same thing that dominates a panic in markets. At the end of the day, everyone sells because everyone else is selling. There is usually no solid reason that can be asserted as a fundamental.

WARNING: Markets Reaching Extreme Leverage

January 20, 2018

WARNING: Markets Reaching Extreme Leverage

As investors’ bullish sentiment moves up to euphoric levels, the markets are reaching extreme leverage. This is terrible news because a lot of people are going to lose one heck of a lot of money. According to CNN Money’s Fear & Greed Index, the market is now at the “extreme greed” level and if we go by Yardeni Research on “Investor Intelligence Bull-Bear Ratio,” it’s also is the highest ratio in 30 years.

But, of course… this time is different. I continue to receive emails and comments on my blog that the Fed will continue to prop up the markets. Unfortunately, there is only so much the Fed can do to rig the markets. Furthermore, the Fed can’t do much to mitigate investor insanity in record NYSE margin debt or the massive $2 trillion in the global short volatility trade.

The record NYSE margin debt suggests traders have racked up a record amount of margin debt (33% more since 2007) and the largest short volatility trade in history. By shorting volatility, investors are betting that it will continue to move lower. A falling volatility index suggests more calm and complacency in the markets.

So, the market will likely continue higher and higher, until it finally POPS. And when it does, watch out.

I’ve put together some charts showing the extreme amount of leverage in the markets. While this leverage may increase for a while, at some point the insanity will end in one hell of a market correction-crash.

The Commercial Banks Are Betting On Much Lower Oil Prices

As I mentioned in previous articles and my Youtube video, Coming Big Oil Price Drop & Market Crash, the Commercial banks have the highest net short positions in the oil market in over 20 years. In the video, I explained how the Commercial net short position in oil increased from 648,000 to 678,000 contracts in just one week.

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

The day I found out it was all rigged

January 8, 2018

The day I found out it was all rigged

May 6, 2010 started off as a pretty boring day.

The most exciting stories from the morning’s newspapers were reviews of the upcoming Iron Man 2 film.

But all that changed at around 2:45pm when, without warning, the stock market crashed, and the Dow Jones Industrial Average dropped 1,000 points within minutes.

It was unprecedented… especially because there was absolutely no reason why stocks should have fallen so much.

It’s not like Apple had declared bankruptcy, or the Central Bank had jacked interest rates up to 50%. Up until that point it had been pretty quiet in the markets.

As it turned out, the reason behind the crash was that the investment banks’ fancy trading algorithms had gone completely haywire.

Several of the largest banks had developed autonomous software that was capable of trading billions of dollars without the need for human beings.

And at 2:45PM that day, their software started to fail… inexplicably selling stocks to the point that prices collapsed nearly 10% in minutes.

They called it the Flash Crash, and, even though stocks had largely recovered by the end of the day, the banks lost an enormous amount of money.

Then something interesting happened. Within a few days, the major exchanges announced that they would CANCEL many of the trades that took place during the Flash Crash window.

In other words, they were handing the banks their money back.

I never forgot that moment… because I received an email from my broker informing me of the news.

They were canceling a profitable trade that I had placed during the Flash Crash window, effectively giving it back to the banks.

When the banks’ trading algorithms performed well and they all made money, the profit was theirs to keep.

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

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