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How To Spot A Bubble
How To Spot A Bubble
We’ve been entertaining ourselves to no end the past couple days with a ‘vast array’ of articles that purport to provide us with ‘expert’ opinion on the question of whether we are witnessing a bubble or not. Got the views of Goldman’s David Kostin, Robert Shiller, Jeremy Grantham, Jeremy Siegel, Howard Marks.
But although these things can be quite amusing because while they’re at it, of course, the ‘experts’ say the darndest things (check Bloomberg ‘Intelligence’s Carl Riccadonna: “You had equity markets benefit from QE, but eventually QE also jump-started the broader recovery..Ultimately everyone’s benefiting.”), we can’t get rid of this one other nagging question: who needs an expert to tell them that today’s markets are riddled with bubbles, given that they are the size of obese gigantosauruses about to pump out quadruplets?
Moreover, when inviting the opinions of these ‘authorities’, you inevitably also invite denial and contradiction (re: Siegel). And before you know what hit you, it turns into something like the climate change ‘debate’: just because a handful of ‘experts’ deny what’s right in front of their faces as tens of thousands of scientists do not, doesn’t mean there’s a valid discussion there. It’s just noise with an agenda.
And though the global climate system is infinitely more complex than the very vast majority of people acknowledge, fact remains that a plethora of machine-driven and assisted human activities emit greenhouse gases, greenhouse gases trap heat and higher concentrations of greenhouse gases trap more heat. In very similar ways, central banks’ stimuli (love that word) play havoc, and blow bubbles, with and within the economic system. Ain’t no denying the obvious child.
But even more than the climate ‘debate’, the bubble expert articles made us think of a Jerry Seinfeld episode called The Opera, which ends with Jerry doing a stand-up shtick that goes like this:
…click on the above link to read the rest of the article…
“It’s A Coup D’Etat,” David Stockman Warns “Central Banks Are Out Of Control”
“It’s A Coup D’Etat,” David Stockman Warns “Central Banks Are Out Of Control”
We’re all about to be taken to the woodshed, warns David Stockman in this excellent interview. The huge wealth disparity is “not because of some flaw in capitalism, or Reagan tax cuts, or even the greed of Wall Street; the problem is central banks that are out of control.” Simply put, they have “syphoned financial resources into pure gambling” and the people that own the stocks and bonds get the huge financial windfall. “The 10% at the top own 85% of the financial assets,” and thus, thanks to the unleashing of almost limitless money-printing, which has created a massive worldwide financial inflation, “the central banks have created and exaggerated the wealth gap.” Stockman concludes, rather ominously, “it’s a coup d’etat, the central banks have taken over – unconstitutional domination of the entire economy.”
“Everywhere, misleading distorted signals are being given to both public and private sector players about financial values… the prices have been falsified by The Fed.We can’t print our way to prosperity… The Fed is now petrified that Wall Street will have a hissy-fit when they tighten.”
…click on the above link to view the video…
Is the Fed Going to Raise Mortgage Interest Rates?
Is the Fed Going to Raise Mortgage Interest Rates?
The Interest Rate Guessing Game
Seldom does a day go by without some guru offering his or her prediction on when the Fed is going to raise rates. They all come with scholarly theories supporting their prediction. It sounds like a fun game. I want to play, but I’m not sure what the object of the game is.
By “interest rate”, I assume the gurus are talking about the Federal Funds rate or the discount rate. The chart below from the St Louis Fed shows that the Federal Funds rate has been practically at zero since 2008. This rate has never been so low for so long, rendering it an inconsequential monetary policy tool for years. Aside from representing a symbolic gesture, does it really matter whether the Fed Funds rate is at zero or at zero plus 25 basis points? Is there any chance that the FOMC will ever raise the rate to, say, 3%?
Effective federal funds rate since the 1950s
The following chart, also from the St Louis Fed, shows the asset side of the Fed’s balance sheet. While the Federal Funds rate was kept at zero, the Fed went hog wild and increased its balance sheet from less than $1 trillion in the beginning of 2008 to about $4.5 trillion today.
Total assets held by the Federal Reserve
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The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace
The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace
Back in November we chronicled the (quiet) death of the Petrodollar, the system that has buttressed USD hegemony for decades by ensuring that oil producers recycled their dollar proceeds into still more USD assets creating a very convenient (if your printing press mints dollars) self-fulfilling prophecy that has effectively underwritten the dollar’s reserve status in the post WWII era. Here’s what we said last year:
Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop…Few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico’ed both itself, and its closest Petrodollar trading partner, the US of A.
As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year.
…click on the above link to read the rest of the article…
The Six Too Big To Fail Banks In The U.S. Have 278 TRILLION Dollars Of Exposure To Derivatives
The Six Too Big To Fail Banks In The U.S. Have 278 TRILLION Dollars Of Exposure To Derivatives
The very same people that caused the last economic crisis have created a 278 TRILLION dollar derivatives time bomb that could go off at any moment. When this absolutely colossal bubble does implode, we are going to be faced with the worst economic crash in the history of the United States. During the last financial crisis, our politicians promised us that they would make sure that “too big to fail” would never be a problem again. Instead, as you will see below, those banks have actually gotten far larger since then. So now we really can’t afford for them to fail. The six banks that I am talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo. When you add up all of their exposure to derivatives, it comes to a grand total of more than 278 trillion dollars. But when you add up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars. In other words, these “too big to fail” banks have exposure to derivatives that is more than 28 times greater than their total assets. This is complete and utter insanity, and yet nobody seems too alarmed about it. For the moment, those banks are still making lots of money and funding the campaigns of our most prominent politicians. Right now there is no incentive for them to stop their incredibly reckless gambling so they are just going to keep on doing it.
…click on the above link to read the rest of the article…
It’s Just a Question of Whose Capital Will Be Destroyed
It’s Just a Question of Whose Capital Will Be Destroyed
The amount of money investors have plowed into startups has reached record highs. In 2014, investors of all kinds, from angels and VCs to big asset managers, invested $48.35 billion in startups, “only” the third highest year on record, but the highest since the crazy bubble years 1999 and 2000 when investors blew $55 billion and $105 billion respectively, even as the dot-com bubble was already imploding. Investors at the time were just a little slow in giving up hope.
But the “valuations” are getting crazy. The price at which new investors buy into a startup during a round of funding determines the “valuation.” As investors have become more eager with other people’s money, and as hedge funds and big asset managers have jumped into the fray in late-stage rounds, they have sent valuations on vertigo-inducing trajectories.
Slack, one of the innumerable startups that over the years have claimed to have found the successor to corporate email, just inked a new deal with investors for $160 million in funding that jacks up its valuation to $2.76 billion. The round is expected to close over the next few weeks. “People familiar with the matter” purposefully leaked this to the Wall Street Journal as part of the mega-hype that the startup scene needs in order to attract ever more money.
Slack launched its app only about a year ago. At the time, it wasn’t even in the Billion Dollar Startup Club, that ever growing group of startups with valuations over $1 billion. But in October, it raised some money at a valuation of $1.12 billion. And five months later, its valuation jumped 146%.
…click on the above link to read the rest of the article…
Short Term Gains And Long Term Disaster
Short Term Gains And Long Term Disaster
About a month ago, Japan’s giant GPIF pension fund announced it had started doing in Q4 2014, what PM Abe had long asked it to: shift a large(r) portion of its investment portfolio from bonds to stocks. No more safe assets for the world’s largest pension fund, or a lot less at least, but risky ones. For Abe this promises the advantage of an economy that looks healthier than it actually is, while for the fund it means that the returns on its investments could be higher than if it stuck to safe assets. Not a word about the dangers, not a word about why pensions funds were, for about as long as they’ve been in existence, obliged by law to only hold AAA assets. This is from February 27:
Japan’s GPIF Buys More Stocks Than Expected In Q4; Slashes JGBs
Japan’s trillion-dollar public pension fund bought nearly $15 billion worth of domestic shares in the fourth quarter, more than expected, while slashing its Japanese government bond holdings as Prime Minister Shinzo Abe prods the nation to take more risks to spur economic growth. The bullishness toward Japanese equities by the Government Pension Investment Fund, the world’s biggest pension fund, boosted hopes in the Tokyo market that stocks have momentum to add to their 15-year highs.
GPIF said on Friday its holdings of domestic shares rose to 19.8% of its portfolio by the end of December from 17.79% at the end of September. Yen bonds fell to 43.13% from 48.39%. Adjusting for factors such as the Tokyo stock market’s rise of roughly 8% during the quarter, GPIF bought a net 1.7 trillion yen ($14 billion) of stocks in the period, reckons strategist Shingo Kumazawa at Daiwa Securities. GPIF’s investment changes are closely watched by markets, as a 1 percentage-point shift in the 137 trillion yen ($1.15 trillion) fund means a transfer of about $10 billion.
…click on the above link to read the rest of the article…
“They Just Want The Money!” The IRS Can Now Seize Accounts On Suspicion Alone | Zero Hedge
“They Just Want The Money!” The IRS Can Now Seize Accounts On Suspicion Alone | Zero Hedge.
How can this happen?” Ms. Hinders said in a recent interview. “Who takes your money before they prove that you’ve done anything wrong with it?”
The federal government does.
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The topic of civil asset forfeiture has been high on our agenda recently as federal ‘agents’ discover how to steal Americans’ hard-earned cash with zero repurcussions , and decide unilaterally how much cash a ‘common man’ is allowed to carry; but as The NY Times reports, the escalation to The IRS brings a whole new world of possibilities with regard asset confiscation based on no actual crime being proved…
For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away – until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.
The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.
Her money was seized under an increasingly controversial area of law known as civil asset forfeiture, which allows law enforcement agents to take property they suspect of being tied to crime even if no criminal charges are filed. Law enforcement agencies get to keep a share of whatever is forfeited.
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Don’t Be Distracted by the Pass Rate in ECB’s Bank Exams – Bloomberg
Don’t Be Distracted by the Pass Rate in ECB’s Bank Exams – Bloomberg.
For investors, the European Central Bank’s yearlong evaluation of the region’s banks isn’t just about who passes and who fails.
The bigger question will be how much the ECB marks down lenders’ capital during its balance sheet inspection known as the asset quality review. The central bank and national regulators will publish their findings on Oct. 26.
“The focus will be on how the asset quality review influences the development of capital ratios and non-performing loans,” said Michael Huenseler, who helps manage about 13 billion euros ($16.5 billion), including European banking shares and bonds, at Assenagon Asset Management SA in Munich.
…click on the above link to read the rest of the article…
