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They are going to layer their post-meeting statement with a steaming pile of if, ands & buts. It will exude an abundance of caution and a dearth of clarity.

Having judged that a 25 bps pinprick is warranted, the FOMC will then plant itself firmly in front of the great flickering dashboard in the Eccles Building. There it will repose to a regimen of “watchful waiting”, scouring the entrails of the “incoming data” to divine its next move.

Perhaps the waiting won’t be so watchful as all that, however. What is actually coming down the pike is something that may put the reader, at least those who have already been invited to join AARP, more in mind of that once a year hour-long special broadcast by Saturday morning TV back in the days of yesteryear; it explained how the Lone Ranger got his mask.

Memory fails, but either 12 or 19 Texas Rangers rode high in the saddle into a box canyon, confident they knew what was around the bend. Soon there was a lot of gunfire and then there was just one, and that was only because Tonto’s pony needed to stop for a drink.

Yellen and her posse better pray for a monetary Tonto because they are riding headlong into an ambush in the canyons of Wall Street. To wit, they cannot possibly raise money market interest rates—-even by 75 bps—-without massively draining liquidity from the casino.

Don’t they know what happened to the $3.5 trillion of central bank credit they have digitally printed since September 2008? Do they really think that fully $2.8 trillion of it just recycled right back to the New York Fed as excess bank reserves?

That is, no harm, no foul and no inflation? The monetary equivalent of a tree falling in an empty forest?

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

The Bubble Finance Cycle——What Our Keynesian School Marm Doesn’t Get

November 13, 2015

The Bubble Finance Cycle——What Our Keynesian School Marm Doesn’t Get

The world of Bubble Finance economies created by the Fed and other central banks is fundamentally different than that prevailing under the “Lite Touch” monetary policies which preceded the Greenspan era.

Those essentially reactive and minimally invasive central bank intrusions into the money and capital markets prevailed from the time of the Fed’s 1951 liberation from the US Treasury by the great William McChesney Martin through September 1985. That’s when the US Treasury/White House once again seized control of the Fed’s printing presses and ordered Volcker to trash the dollar via the Plaza Accord. In due course, the White House trashed him, too.

The problem today is that the PhDs running the Fed have an economic model which is a relic of the Lite Touch era. It is not only utterly irrelevant in today’s casino driven system, but is actually tantamount to a blindfold. It causes them to look at a dashboard full of lagging indicators, while ignoring the explosive leading indicators starring them in the face.

The clueless inhabitants of the Eccles Building do not recognize that they have created a world in which Wall Street supersedes main street; and in which the monetary inflation that eventually brings the business cycle to a halt is soaring financial asset prices, not wage rates and new car prices.

During the Light Touch era recessions were triggered by sharp monetary tightening that caused interest rates to surge. This soon garroted business and household borrowing because credit became too expensive. And this interruption in the credit expansion cycle, in turn, caused spending on business fixed assets and household durables to tumble (e.g. auto and appliances), setting in motion a cascade of recessionary adjustments.

But always and everywhere the pre-recession inflection point was marked by a so-called wage and price spiral resulting from an overheated main street economy. Yellen’s Keynesian professors in the 1960s called this “excess demand”, and they should have known.

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

The Latest (and Dumbest) Central Bank Fraud

October 30, 2015

The Latest (and Dumbest) Central Bank Fraud

A Financial Reckoning

You go for a nice picnic on the slopes of Vesuvius… You spread out your tablecloth. You open your picnic hamper. You prepare for a relaxing afternoon in the warm October sun.

And then someone comes running down the mountain, warning that the volcano is going to blow up. You pack up your sausages and put a cork in the wine bottle… and rush to the car and drive away. Better to be safe than sorry. And then? Nothing happens.

Mt.Ontake When these ominous columns of smoke become visible, it may be time to make tracks. Or not. This image shows Mt. Ontake in Japan, which tends to erupt occasionally …
Photo credit: Kyodo / Reuters

Most of the time, you can safely ignore the nervous nellies and prophetic Cassandras. (According to legend, Apollo gave Cassandra the gift of prophecy. When she refused him, he spat into her mouth so she would never be believed.) But sometimes the worrywarts are right…

For the last 16 years, we’ve been writing a daily e-letter – first the Daily Reckoning and now the Diary. We saw the collapse of the dot-com bubble coming and warned readers. Most didn’t want to hear it; they were making good money in the stock market. It was a “new era.” And they didn’t want it to end.

But the Nasdaq collapsed in 2000… and didn’t recover until 15 years later. We believed at the time that the U.S. economy would follow Japan into a long, slow slump. With Addison Wiggin, we wrote a book about it, Financial Reckoning Day: Surviving the Soft Depression of the 21st Century.

The Nasdaq’s bubble round-trip between the late 1990s and early 2000ds. No-one wanted to hear any warnings at the top (we still remember people buying profit-less wonder stocks for 100ds of dollars that don’t even exist anymore today) – click to enlarge.

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

Two Outs in the Bottom of the Ninth

September 26, 2015

Two Outs in the Bottom of the Ninth

The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.

The millions in upfront fees, along with their lack of conscience in bribing Moody’s and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child’s play compared to the last six years).

Greenspan created the atmosphere for the greatest mal-investment in world history. As he raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled “exotic” mortgages to dupes who weren’t capable of making the first payment. This is what happens at the end of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial losses.

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

Gold – Follow the Yellow Brick Road?

September 12, 2015

Gold – Follow the Yellow Brick Road?

The following is a veritable tour de force by Nicole Foss on the value of gold in a crashing economy, for different people in different circumstances.

Nicole Foss: In light of the rapidly-propagating loss of confidence, and consequent shift to deflation, with falling prices across the board as a result, it is appropriate to review our stance on gold. The yellow metal is often perceived as a panacea – a safe haven guarding against all manner of potential financial disruption. It has long been our stance at the Automatic Earth that this is far too simplistic a position to take. We live in a complex world for which there are no simple one-dimensional solutions. It is important to distinguish between the markets for paper gold and for physical gold, and to understand the risks inherent in gold ownership in order to manage them. As we wrote back in 2009:

Firstly, the goldbugs are right that physical gold is real money (unlike paper gold, which is just another Ponzi scheme). It has held its value for thousands of years and will continue to do so over the long term. However, that does not mean that gold prices cannot fall or that purchasing gold now is the right way for everyone to preserve capital….People’s circumstances are different. Those circumstances determine their freedom of action, both now and in the future.

Bubble Dynamics

It is our view that (paper) gold has been in a bubble which peaked in 2011, along with the rest of the commodity complex. It has been subjected to the same dynamic as other commodities, which have collectively lost touch with their own fundamentals as they have become increasingly over-financialized. Financialization moves the dynamics into the virtual world, while simultaneously subjecting them to perverse incentives. Substantial price movements having at best a tenuous connection with actual supply and demand are the result.

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

Fed Admits Economy Can’t Function Without Bubbles

August 3, 2015

Fed Admits Economy Can’t Function Without Bubbles

In short, the dot-com bust was the last chance for the Fed to pivot and liberate the American economy from the corrosive financialization it had fostered. A determined policy of higher interest rates and renunciation of the Greenspan Put would have paved the way for a return to current account balance, sharply increased domestic savings, the elevation of investment over consumption, and a restoration of financial discipline in both public and private life. Needless to say, the Fed never even considered this historic opportunity. Instead, it chose to double-down on the colossal failure it had already produced, driving interest rates into the sub-basement of historic experience. This inexorably triggered the next and most destructive bubble ever. – David Stockman, The Great Deformation

Over the course of the roughly twelve and a half years from Black Monday to the beginning of the end for the dot-com bubble, the Fed effectively engineered a mania by facilitating the explosion of bank loans, GSE debt, and the shadow banking complex, which together grew from under $5 trillion in 1987 to $17 trillion by the beginning of 2000.

For evidence that this expansion was indeed the work of monetary authorities and was not funded by an increase in America’s savings, look no further than the following chart which shows an accommodative Fed and an increasingly savings averse American public:

When the Nasdaq collapsed, the Fed was given an opportunity to restore some semblance of order and discipline to a market that had learned to rely on the Greenspan put. Instead, it chose to inflate a still larger bubble and now, courtesy of Janet Yellen’s friends at the San Francisco Fed, we know precisely why.

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

Pop goes the Bubble

June 23, 2015

Pop goes the Bubble

Running a fundraiser (which, by the way, has been a great success—thank you all very much!) has prompted me to think about money more deeply than I normally do. I am no financial expert, and I certainly can’t give you investment advice, but when I figure something out for myself, it makes me want to share my insights. I know that many people see national finances as an impenetrable fog of numbers and acronyms, which they feel is best left up to financial specialists to interpret for them. But try to see national finances as a henhouse, yourself as a hen, and financial specialists as foxes. Perhaps you should pay a little bit of attention—perhaps a bit more than one would expect from a chicken?

By now many people, even the ones who don’t continuously watch the financial markets, have probably heard that the stock market in the US is in a bubble. Indeed, the price to earnings ratio of stocks is once again scaling the heights previously achieved just twice before: once right before the Black Tuesday event that augured in the Great Depression, and again right around Y2K, when the dot-com bubble burst. On Black Tuesday it was at 30; now it’s at 27.22. Just another 10% is all we need to bring on the next Great Depression! Come on, Americans, you can do it!

These nosebleed-worthy heights are being scaled with an extremely shaky economic environment as a backdrop. If you compensate for the distortions introduced by the US government’s dodgy methodology for measuring inflation, it turns out that the US economy hasn’t grown at all so far this century, but has been shrinking to the tune of 2% a year.

And if you ignore the laughable way the US government computes the unemployment rate, it turns out that the real unemployment rate has grown from 10% at the beginning of the century to around 23% today.

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

Something Smells Fishy

May 30, 2015

SOMETHING SMELLS FISHY

It’s always interesting to see a long term chart that reflects your real life experiences. I bought my first home in 1990. It was a small townhouse and I paid $100k, put 10% down, and obtained a 9.875% mortgage. I was thrilled to get under 10%. Those were different times, when you bought a home as a place to live. We had our first kid in 1993 and started looking for a single family home. We stopped because our townhouse had declined in value to $85k, so I couldn’t afford to sell. In 1995 I convinced my employer to rent my townhouse, as they were already renting multiple townhouses for all the foreigners doing short term assignments in the U.S. We bought a single family home in 1995 with the sole purpose of having a decent place to raise a family that was within 20 minutes of my job.

Considering home prices on an inflation adjusted basis were lower than they were in 1980, I was certainly not looking at it as some sort of investment vehicle. But, as you can see from the chart, nationally prices soared by about 55% between 1995 and 2005. My home supposedly doubled in value over 10 years. I was ecstatic when I was eventually able to sell my townhouse in 2004 for $134k. I felt so smart, until I saw a notice in the paper one year later showing my old townhouse had been sold again for $176k. Who knew there were so many greater fools.

This was utterly ridiculous, as home prices over the last 100 years have gone up at the rate of inflation. Robert Shiller and a few other rational thinking people called it a bubble. They were scorned and ridiculed by the whores at the NAR and the bimbo cheerleaders on CNBC. Something smelled rotten in the state of housing.

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

Why wobbly world markets are more worrying than oil: Don Pittis

April 16, 2015

Why wobbly world markets are more worrying than oil: Don Pittis

Central bankers are out of bullets if 1929-level markets go bust again

Bank of Canada governor Stephen Poloz says the “wobble” in the Canadian economy caused by the shocking fall in the price of oil is just about over.

But according to some analysts, a more dangerous wobble may be connected to an entirely different mineral: mercury.

And if so, central bankers will find themselves helpless to deal with the fallout.

In his news conference Wednesday, it seemed the bank governor’s biggest international concern was that the U.S. economy would grow even more quickly than he expected, forcing him to raise interest rates sooner.

Considering how everyone pounced on the his recent description of the Canadian economy as “atrocious,” there is little wonder he did not warn of an impending market crash.

‘Atrocious’ growth

With growth at zero, using the term “atrocious” was no exaggeration.

However, it just shows that if a staid but influential character like Poloz reminded us that markets — especially at current elevated levels — are mercurial, it could cause some serious fallout. Others are not so shy.

A report out of the U.S. last month titled “Quicksilver Markets,” (quicksilver being an older, less frightening word for mercury), contained a far more worrying warning: that global stock markets are now hitting levels seen just before the bursting of previous major market bubbles.

“The highest market peaks (1929, 1999 and 2007) either surpassed or approached this two-sigma level,” says the report. “Each of these peaks was followed by a sharp decline in stock prices and adverse consequences for the real economy.”

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

BIS Slams The Fed: The Solution To Bubbles Is Not More Bubbles, It Is Avoiding Bubbles In The First Place

March 23, 2015

BIS Slams The Fed: The Solution To Bubbles Is Not More Bubbles, It Is Avoiding Bubbles In The First Place

On one hand there are hard-core Keynesians who will wave the flag of inflation as the only cure to a world drowning in debt, even after the mushroom cloud results of their policies going off around the globe “assure” GDP hits +? once every window in the world is shattered and has to be replaced…

… on the other, you have the BIS which with every passing day is becoming the citadel of Austrian thought, the latest example thanks to the BIS’ most recent quarterly review in which we read that not only is deflation not the “monster” the Bank of Japan and other Keynesian acolytes would like to make it appear…

The evidence from our long historical data set sheds new light on the costs of deflations.It raises questions about the prevailing view that goods and services price deflations, even if persistent, are always pernicious. It suggests that asset price deflations, and particularly house price deflations in the postwar era, have been more damaging. And it cautions against presuming that the interaction between debt and goods and services price deflation, as opposed to debt’s interaction with property price deflations, has played a significant role in past episodes of economic weakness.

… but more importantly and as Zero Hedge has said from day one, the BIS now says the solution to an asset bubble is not some incomprehensible jibberish of “macroprudential regulation” or a “bubble-busting” SWAT team at the Fed, not another asset bubble (especially not one which leads to house price deflation, the same that is slamming the Chinese economy at this moment), which by now has become clear to all is the only “tool” in a central banker’s aresnal, and the remedy to debt isnot even more debt.

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

Oil and Real Estate Bubbles in Canada: What Goes up Won’t so Smoothly Come Down

January 29, 2015

Oil and Real Estate Bubbles in Canada: What Goes up Won’t so Smoothly Come Down

Five years ago, I noted how unsustainable Canadian economic growth is fuelled by debt, which is leveraged to increase the prices–and ‘profitability’–of assets like oil holdings and real estate. It might as well be called “phantom growth,” because it’s bound to disappear in due course. When prices are high, the debt-based Ponzi scheme functions; when prices sustain lows, the scheme unravels. With Canada’s oil and real estate sectors both apparently slowing down, will it lead to a ‘Minsky moment?’

Economist Hyman Minsky studied financial instability as a result of debt accumulation, and his work was largely ignored by mainstream economists. He noted that debt-heavy capitalist economies exhibit inflations and deflations that tend to spin out of control–inflation feeds inflation and deflation feeds deflation. The ‘Minsky moment’ is the moment where our financial system begins to experience deflationary stress due to price shifts. Historically, government interventions to contain debt spirals were not terribly competent, and–other factors notwithstanding–the sheer volume of debt that has been leveraged makes the global economy poised for contraction. Canada’s recent dependence upon asset inflation makes it particularly vulnerable.

Where has all the Money Come From?

Debt has been leveraged in several investment streams, including derivatives, securities, and ordinary debt. After 2008, international quantitative easing–essentially the creation of money from nothing–has partly facilitated further investment in unconventional and costly oil production methods. As long as international prices and investment levels remain high, it is feasible for unconventional oil to achieve a return on the huge amounts of money and energy required to get it out of the ground. But the longer oil prices remain low, the longer investors will be exposed to defaults.

Investors include ordinary folks by virtue of our holdings in pension funds and RRSPs. Laricina Energyhas defaulted on financing extended by Canada’s largest pension fund, the public Canadian Pension Plan Investment Board. We can likely expect defaults to international investors as well, which should create upward pressure on interest rates as investors try to cover exposure to losses.

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

The Truth About The Monetary Stimulus Illusion

January 23, 2015

The Truth About The Monetary Stimulus Illusion

Perhaps economic policymakers, including Federal Reserve Chair Janet Yellen and the Bank for International Settlements, should take a closer look at Japan, China, and yes, the United States, when debating the limits of monetary stimulus and the dangerous nature of financial bubbles. The discussion is happening too late to be anything more than an intellectual exercise.

Since its inception in 2008, easy monetary policy has created very few positive effects for the real economy—and has created considerable (and in some cases unforeseen) negative effects as well. The BIS warns of financial bubbles. Quantitative easing has already created asset price bubbles in the United States and elsewhere, and an investment bubble (this includes capital expenditure and real estate) in China and other emerging markets.

Meanwhile, this policy has failed to have a positive impact on the real economy partly because central banks have adopted very aggressive monetary easing at a macro level while restricting banks from increasing the size of their balance sheets at a micro level (macro-prudential policy). As a result, easy money has flowed into asset markets through shadow banks and overseas through carry trades.

China has been the main recipient of this bounty. Yet unlike global asset market bubbles, China’s expanding bubble is less well understood. China’s economy has grown at a rapid clip this century. Industrial production, based on the value of the dollar in 2005, increased five-fold from $800 billion in 2000 to $4 trillion in 2013. China averaged an annual growth rate of 33 percent during this period while global production grew 3.1 percent and the United States barely grew at all (averaging 0.5 percent). Not surprisingly, China’s share of global production increased from 4.5 percent to 22 percent between 2000 and 2013.

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

Bubbles Always Pop—–And This One Will Be A Doozy

January 12, 2015

Bubbles Always Pop—–And This One Will Be A Doozy

Pumping All Out

The Dow rose 323 points on Thursday, or 1.8%. People come to think what they must think when they must think it. But what do they think now? Why do they think stocks are so valuable?

Apparently, they believe that Janet Yellen, Mario Draghi and Haruhiko Kuroda – the powers that be – will continue to make stocks go up.

The Fed has stopped active liquidity pumping. But it still has its hand on the pump handle, just in case.

The European Central Bank is promising and preparing to pump as soon as it can get the Germans out of the way. And the Japanese – the world leaders in modern state finance – are pumping with both hands.

763px-Crossroads_baker_explosion_

Photo credit: US Library of Congress

Gaming the System

Since 2009, the Fed has put more than $3.5 trillion to work on investors’ behalf. This – along with the help of the ECB, the Bank of Japan, the Bank of England, the People’s Bank of China, etc. – has helped lift stock markets by $18 trillion.

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

11 Predictions Of Economic Disaster In 2015 From Top Experts All Over The Globe

January 6, 2015

11 Predictions Of Economic Disaster In 2015 From Top Experts All Over The Globe

Will 2015 be a year of financial crashes, economic chaos and the start of the next great worldwide depression? Over the past couple of years, we have all watched as global financial bubbles have gotten larger and larger. Despite predictions that they could burst at any time, they have just continued to expand. But just like we witnessed in 2001 and 2008, all financial bubbles come to an end at some point, and when they do implode the pain can be extreme. Personally, I am entirely convinced that the financial markets are more primed for a financial collapse now than they have been at any other time since the last crisis happened nearly seven years ago. And I am certainly not alone. At this point, the warning cries have become a deafening roar as a whole host of prominent voices have stepped forward to sound the alarm. The following are 11 predictions of economic disaster in 2015 from top experts all over the globe…

#1 Bill Fleckenstein: “They are trying to make the stock market go up and drag the economy along with it. It’s not going to work. There’s going to be a big accident. When people realize that it’s all a charade, the dollar will tank, the stock market will tank, and hopefully bond markets will tank. Gold will rally in that period of time because it’s done what it’s done because people have assumed complete infallibility on the part of the central bankers.”

#2 John Ficenec: “In the US, Professor Robert Shiller’s cyclically adjusted price earnings ratio – or Shiller CAPE – for the S&P 500 is currently at 27.2, some 64pc above the historic average of 16.6. On only three occasions since 1882 has it been higher – in 1929, 2000 and 2007.”

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

The Archdruid Report: The Cold Wet Mackerel of Reality

January 2, 2015

The Archdruid Report: The Cold Wet Mackerel of Reality.

To misuse a bit of prose from Charles Dickens, it was neither the best of times nor the worst of times, but I know very few people who will object when, a few hours from now, 2014 gets dragged off to the glue factory. This has not been a good year for most people in the United States. By all accounts, this year’s holiday season was an economic flop of considerable scale—the US media, which normally treats cheery corporate press releases with the same enforced credulity that Pravdaused to give to pronouncements from the Politburo in the Soviet era, has had to admit that Black Friday sales were down hard this year, even counting the internet—and plenty of Americans outside the echo chambers of the media have very good reasons to worry about what 2015 will bring.

Mind you, cheerleading of a distinctly Pravda-esque variety can still be heard from those pundits and politicians who are still convinced thatpeople can be talked into ignoring their own experience if they can only be force-fed enough spin-doctored malarkey. That sort of enthusiasm for the glorious capitalist banker’s paradise has plenty of company just now; I’m thinking in particular of the steady drumbeat of articles and essays in the US mass media wondering aloud why so many Americans haven’t noticed the economic recovery of the last four years, and are still behaving as though there’s a recession on.

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

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