Home » Posts tagged 'pater tenebrarum' (Page 5)

Tag Archives: pater tenebrarum

Economic Conditions Continue to Worsen

It must be China. Or the weather, which is usually either too cold or to warm – somehow the weather is just neverright for economic growth. Surely it cannot be another Fed policy-induced boom that is on the verge of going bust? Sorry, we completely forgot – the Fed is never at fault when the economy suffers a boom-bust cycle. That only happens because we have “too few regulations” (that’s what Mr. Bernanke said after the 2008 bust – no kidding).

forgotten-heritage

Photo credit: Matthew Emmett

No matter what economic data releases one looks at lately, one seems more horrendous than the next. This is apart from payrolls of course, which are not only a lagging indicator, but are apparently a number that is occasionally made up out of whole cloth – such as in December, when 281,000 of the reported 292,000 in non-farm payroll gains were the result of “seasonal adjustment”, which is bureaucrat-speak for “didn’t actually happen”.

Today the markets were inundated with data that strongly suggest that the negative trends observed over much of 2015 continue to accelerate. In what is by now a well-worn tradition, Fed district surveys of the manufacturing sector continued their decline with today’s release of the Empire State survey. One no longer risks being accused of hyperbole by calling its recent trend a “collapse”:

Empire State Survey, general business conditions index. Such readings are usually not seen during economic expansions – click to enlarge.

As is often the case, not a single economist came even remotely close to correctly forecasting this meltdown. As Mish noted earlier today, it was quite a big miss:

“The Econoday Consensus estimate was for a slight improvement to -4 from a November reading of -4.59. The actual result was -19.37 with the lowest economic estimate -7.50.”

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

Switzerland’s Referendum on Fractional Reserve Banking

January 13, 2016

Switzerland’s Referendum on Fractional Reserve Banking

A Warmed-Up “Chicago Plan”

Many of our readers may be aware by now that a Swiss initiative against fractional reserve banking has gathered the required 100,000 signatures to force a referendum on the matter. Is is called the “Vollgeld Initiative”, whereby “Vollgeld” could be loosely translated as “fully covered money”.

logo_vollgeld-initiative_mit_Titel_hoch_2014_05 Swiss initiative against fractional reserve banking

Austrian School proponents will at first glance probably think that it sounds like a good idea: After all, it is the creation of uncovered money substitutes ex nihilo that leads to the suppression of market interest rates below the natural rate and consequently to a distortion of relative prices, the falsification of economic calculation and the boom-bust cycle.

However, a second glance reveals that the initiative has a substantial flaw. One may for instance wonder why the Swiss National Bank hasn’t yet let loose with a propaganda blitz against it, as it has done on occasion of the gold referendum. The answer is simple: the “Vollgeld” plan only wants to prohibit the creation of fiduciary media by commercial banks.

The power to create additional money from thin air is to be reserved solely to the central bank, which would vastly increase its power and leave credit and money creation in the hands of a few unelected central planning bureaucrats. In other words, it is a warmed-up version of the “Chicago Plan” of the 1930’s, which Chicago economists led by Irving Fisher and Frank H. Knight presented in the wake of the Great Depression (the debate over the plan led to the establishment of the FDIC and the Glass-Steagall Act, but its central demand obviously remained unfulfilled).

Irving and Knight Irving Fisher and Frank H. Knight, the lead authors of the original Chicago plan

As Hans Hermann Hoppe has pointed out, the Chicago School (F. H. Knight is today regarded as one of its most important founders), was seen as “left fringe” in the 1940s.

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

Stock Market Suffers Worst Start to the Year Ever – What Does it Mean?

January 12, 2016

Stock Market Suffers Worst Start to the Year Ever – What Does it Mean?

From December 30 to the end of the first week trading week of January, the DJIA has declined by roughly 7.7% (approx. 1,370 points) and the SPX by roughly 7.6% (approx. 160 points). This was nothing compared to the mini-crash suffered by China’s stock market early this year, which continued this morning with the Shanghai Composite (SSEC) declining by another 5.33%. The SSEC has put in an interim peak at approx. 3684 on December 23 and has since then fallen by slightly less than 670 points, or about 18%. Most of the decline occurred in the first week of January.

S&P 500 Index, daily. The year has begun with a big sell-off in stock markets around the world – click to enlarge.

Although the sell-off in the US stock market was comparatively mild, it still ended up as the worst first trading week of January in history. Had January started out on a positive note, the mainstream financial media would have been full of reminders of how bullish a strong showing in the first week of January was, and what a good omen it represented for the rest of the year. Instead they felt compelled to tell us why a weak start to the year should be ignored.

The contortions went as far as one analyst informing us last week that the sell-off was actually happening “in a parallel universe”. As our friend Michael Pollaro has pointed out to us, central planning worshiper Steve Liesman told CNBC viewers last week that the terrible trade numbers (both imports and exports kept declining) were actually a positive, because they would “subtract less from GDP” – as imports have declined at an even faster pace than exports. Such unvarnished nonsense can only spring from the fevered minds of Keynesians and Mercantilists.

2-US exports and imports …click on the above link to read the rest of the article…

The EU Bail-In Directive: Dark Clouds are Gathering

January 10, 2016

The EU Bail-In Directive: Dark Clouds are Gathering

Portugal’s Rickety Banking System

After the unseemly bankruptcy of the Espirito Santo Group and the associated bank, then Portugal’s second biggest (likely a result of not praying enough, see: “Big Portuguese Bank Gets Into Trouble” and “Fears Over Banco Espirito Santo Escalate” for the gory details), Portugal’s state-run deposit insurance fund basically ran out of money.

It turns out that Europe’s new Bank Recovery and Resolution Directive (BRRD for short) came just in time for Portugal. At the end of 2015, another Portuguese bank bit the dust, the country’s seventh largest lender by assets, Banif. Portugal’s government once again decided to bail the bank out, but with strings attached. Subordinated bondholders and shareholders were essentially wiped out, which is as it should be.

Banif SA, weekly. Although this is hard to see on this linear chart, the stock rose by 40% today, to €0.002. Shareholders are allegedly planning to throw a wild party in Lisbon over the weekend (we were unable to confirm this rumor) – click to enlarge.

Senior bondholders and depositors were spared however, with Portugal’s overburdened taxpayers once again footing the bill. According to the FT:

Portugal has agreed a €2.2bn state rescue for Banco International do Funchal (Banif), splitting the Madeira-based lender into “good” and “bad” banks and selling its healthy assets to Spain’s Santander for €150m in the country’s second bank bailout in less than 18 months.

António Costa, Portugal’s new socialist prime minister, said the bailout would involve “a high cost for taxpayers” but had the advantage of being “a definitive solution”. Branches would open normally on Monday, he said. The rescue, which “bails in” shareholders and subordinated creditors, follows the €4.9bn bailout in August last year of Banco Espírito Santo, once Portugal’s largest listed bank, whose healthy assets, split off into Novo Banco, remain unsold.

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

How Big is the Bust in Commodities Really?

January 8, 2016

How Big is the Bust in Commodities Really?

We have frequently come across articles lately that are purporting to show that commodity prices have in the meantime declined below the lows that obtained at the start of the last bull market. Yesterday Zerohedge e.g. posted a chart from Sean Corrigan’s True Sinews Report, which depicts the GSCI Excess Return Index. The following remark accompanied the chart:

“Returns from being long the commodity super-cycle have evaporated in the last 18 months – to 42 year lows.”

So are commodities as a group really at 42 year lows? Here is a little test: can you name even a single listed commodity that currently trades at a lower price than at any time since January 1974?

Image credit: Ian Berry / CNN

There is actually no need to check, because there isn’t one. So how can an entire commodity index, which presumably includes a whole range of commodities, have fallen to a 42 year low? Below is a chart that provides us with a hint. It shows the performance of the crude oil ETF USO since its introduction and compares it to the performance of WTIC crude.

Performance of WTIC (red line) vs. the crude oil ETF USO (black line) since mid 2006. USO has declined by nearly 31% more than the commodity the price of which it purports to reflect – click to enlarge.

In one sense, the remark accompanying the GSCI excess return index chart is entirely correct: Had one invested in commodities via this index, the nominal value of the investment would now be at a 42 year low. However, the same is not true of the commodities the index is composed of (although buying them directly wouldn’t have helped much, as we will explain below). The cause of the GSCI’s dismal performance is also the reason why USO has so vastly underperformed crude oil.

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

US Economy – on the Verge of Recession?

January 6, 2016

US Economy – on the Verge of Recession?

US Manufacturing Sector Weakens Further – Alea Iacta Est?

On the first trading day of the year, China’s stock market crumbled, seemingly waylaid by yet another weak manufacturing PMI report and a further slide in the yuan. On the same day, a few Fed members came out affirming that several more rate hikes would be seen in the US this year (such as SF Fed president Williams and Cleveland Fed president Loretta Mester).

dice

Image vie pixabay.com

Meanwhile here is the latest update of the Atlanta Fed’s GDP Now indicator:

A-gdpnow-forecast-evolution The GDP Now model declines to just 0.7%, once again way below the consensus range

When we last mentioned this indicator in passing, it still stood at 1.7% – and that was on December 18! Not long after that, we posted a year-end overview of US manufacturing data with updated charts from our friend Michael Pollaro. This was on December 23, but in the meantime a wealth of additional data has been released, primarily in the form of district surveys and finally the manufacturing ISM release on January 4.

Michael has provided us with a fresh set of charts, showing the evolution of the most important data points of the district surveys as an average and comparing them to the respective National ISM data. In previous updates on manufacturing data, we have mentioned that we see little reason why the trends that have been in motion since early 2015 should reverse. And indeed, they haven’t – on the contrary, they seem to be accelerating.

The most upsetting releases of late have been the Chicago ISM (which contains services as well) and the national ISM released on January 4. Both came in way below already subdued expectations, with the Chicago number falling totally out of bed, posting a headline reading of just 42.9 – well in contraction territory.

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

The FOMC Decision, US Money Supply and the Economy

December 19, 2015

The FOMC Decision, US Money Supply and the Economy

Giving the Kremlinologists Something to Do

As is well known by now, on Wednesday the US central monetary planning bureau finally went through with its threat to hike the target range for overnight bank lending rates from nothing to almost nothing.

2-nauticalmodernboatinterior

Photo credit: Luca Brenta

The very next day, the effective federal funds rate had increased from 15 to 37 basis points – moreover, as illustrated by the trend in short term rates prior to the FOMC meeting, the markets had already fully anticipated the rate hike:

US 3-month t-bill discount rate and the one year t-note yield: between the October and December FOMC meetings, the markets fully discounted the impending rate hike. Once again we can see that there is actually a feedback loop between the Fed and the markets, and that it is not true that the Fed has absolutely no control over interest rates (even though the degree of its control is limited) – click to enlarge.

Of course, some markets still managed to act surprised (and/or confused), most prominently the US stock market, which is traditionally the very last market to get the memo, regardless of what is at issue. This is why asset bubbles so often end in crashes – market participants tend to very “suddenly” realize that something is amiss.

This time, the trusty WSJ FOMC statement tracker reveals that the planners have given us Kremlinologists something to do, by changing the statement’s content quite a bit. By contrast to the previous carbon copy approach, it tells a completely new story. Well, almost.

Between the October and the December meetings, the minds of the committee members have evidently experienced a great epiphany. Suddenly they have realized that the economy is indeed just awesome.

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

The Poison of Central Planning

December 9, 2015

The Poison of Central Planning

As is well known, central banks around the world have deployed a range of “unconventional policies” in recent years, ranging from imposing zero to negative interest rates, to outright money printing (QE).

Silvana Comugnero

Photo via americanpatriotdaily.com

We have seen a number of people argue that “QE” does not really involve “money printing”, but as we have explained at length, these arguments are misguided (see e.g. our in-depth discussion of the modus operandi of the Fed here: “Can the Fed Print Money?”).

Additional money created in the US economy since January of 2008 (inside the blue rectangle). The Fed created most of it – click to enlarge.

As far as we understand it, the first error is the belief that only bank reserves are created, when in reality, bothbank reserves and deposit money are created in QE operations (the latter is clearly “money”, as it can be used for the final payment of goods and services in the economy). The second error is to argue that because new money isn’t just dropped from helicopters (not yet, anyway), but involves asset purchases, it somehow doesn’t qualify as “printing”. However, it is important to keep in mind that the money used for these purchases is still created ex nihilo, at the push of a button.

As an aside, it has by now become clear that the ECB also creates both reserves and deposit money to the extent of its securities purchases, whereas Japan’s case still requires some digging on our part which we haven’t gotten around to yet (Japan e.g. excludes deposits held by securities companies from its money supply data; in some ways this is sensible, as it allows for a more fine-grained analysis of money and its potential uses, but it may also disguise how much money the BoJ is really creating).

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

US Stock Market – An Accident Waiting to Happen

December 1, 2015

US Stock Market – An Accident Waiting to Happen

Monetary Inflation Becomes Less Supportive of Asset Prices

We have recently discussed the sorry state of the junk bond market, as well as the noteworthy decline in the annual growth rate of US money supply aggregates. The latter has finally manifested itself not only in terms of narrow monetary aggregates like M1 (see chart) and AMS (“Austrian money supply”, a.k.a. TMS-1, the narrow true money supply), but also in the broader true money supply aggregate TMS-2.

awh Photo credit: Keith Maniac

As a reminder, here is the most recent chart of the year-on-year growth rate of TMS-2 :

Year-on-year growth in money TMS-2 has declined to its slowest pace since November of 2008, shortly after Ben Bernanke’s money printing orgy had been unleashed – click to enlarge.

Below is a chart of the annual growth rate of narrow money AMS from the transcript of the October advisory board meeting of the Incrementum Fund. US money AMS is calculated by Dr. Frank Shostak. The chart shown below originally appeared in his AAS Economics Weekly Report of October 5, 2015.

As you can see, the growth rate of the narrow true money supply has fallen off the proverbial cliff recently. It is fair to assume that it will continue to be a leading indicator for the growth rate of TMS-2. Steven Saville of the Speculative Investor has recently mentioned that the sharp growth in euro area money supply (a chart of the growth differential between US and euro area AMS can be seen here) could well help to keep asset prices up longer, by offsetting the slowdown in US money supply growth to some extent.

This idea certainly has merit, as there exists empirical evidence to this effect. However, the US stock market will likely continue to be the leading international stock market. Should leveraged positions in the US market run into trouble, it will affect “risk asset” prices nearly everywhere. The danger that this could soon happen is clearly growing:

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

Europe’s Banks Are Still Drowning in Bad Loans

November 28, 2015

Europe’s Banks Are Still Drowning in Bad Loans

A “Major Concern”

The European Banking Authority EBA, which (we guess) is fighting for its survival after the ECB has become the sole supervisor of Europe’s “systemically relevant” banks, has recently issued a comprehensive report on the European banking system (this included the unintended revelation that its employees have yet to master the intricacies of Exel).

As an aside, we have little doubt that this bureaucracy will survive. Has there ever been a case of an EU bureaucracy not surviving and thriving? We don’t recall one off the cuff, but perhaps we are mistaken. We’re sure some reason will be found to preserve this particular zombie sinecure as well.

eba_2 Hey guys! We’re still issuing reports! See how important it is to keep us well-funded?

Among the things the EBA’s report apprises us of, is that European banks continue to be submerged in bad loans, in spite of all the bailouts and extend & pretend schemes that have been implemented in recent years. As Reuters reports:

“The scale of bad loans held by banks in the European Union is “a major concern” and more than double the level in the United States, despite an improvement in recent years, the EU’s banking regulator said on Tuesday.

Non-performing loans (NPL) across Europe’s major banks averaged 5.6 percent at the end of June, down from 6.1 percent at the start of the year. But that compares with an average of less than 3 percent in the United States and even lower in Asia, according to the European Banking Authority (EBA).

The total of NPLs across Europe is about 1 trillion euros ($1.1 trillion), equivalent to the size of Spain’s annual gross domestic product (GDP) and 7.3 percent of the EU’s GDP.

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

US Money Supply Growth Finally Begins to Crack

November 24, 2015

US Money Supply Growth Finally Begins to Crack

Breaking Below the Shelf

In our recent missive on junk bonds, we inter alia discussed the fact that the growth rate of the narrow money supply aggregate M1 had declined rather noticeably from its peak in 2011. Here is a link to the chart.

As we wrote:

“We also have confirmation of a tightening monetary backdrop from the narrow money supply aggregate M1, the annualized growth rate of which has been immersed in a relentless downtrend since peaking at nearly 25% in 2011. We expect that this trend will turn out to be a a leading indicator for the recently stagnant (but still high at around 8.3% y/y) growth rate in the broad true money supply TMS-2.”

BN-GO061_WAJ_Mo_J_20150121165559

Photo credit: Bari Goodman

In the meantime the data for TMS-2 have been updated to the end of October, and low and behold, its year-on-year growth rate has declined to the lowest level since November of 2008. At the time Bernankenstein had just begun to print like crazy, via all sorts of acronym-decorated programs (they could have just as well called them “print 1, print 2, print 3”, etc.). So we’re now back to the broad true money supply growth rate recorded at “echo bubble take-off time”.

Annual growth rate of US money TMS-2, breaking below the lower end of the range it has inhabited since late 2013 – click to enlarge.

This is the final piece of the puzzle if it keeps up (and why wouldn’t it keep up?). Stock market internals have become ever more atrocious in the course of this year, which we have regarded as a sign that not enough new money was being printed to keep all the pieces of the bubble in the air at once. Now there is even less support.

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

Junk Bonds Under Pressure

November 18, 2015

Junk Bonds Under Pressure

While the Stock Market is Partying …

There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Readers may recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007.

Photo credit: Getty Images

At first it was assumed that the most highly rated tranches of complex structured products would be immune, as the riskier equity tranches would serve as a sufficient buffer for credit losses. When that turned out to be wishful thinking, it was argued that the problem would remain “well contained” anyway. After all, sub-prime only represented a small part of the overall mortgage credit market. It could not possibly affect the entire market. This is precisely the attitude in evidence with respect to corporate debt at the moment.

A weekly chart of high yield ETF HYG (unadjusted price only chart) – click to enlarge.

The argument as far as we’re aware goes something like this: there are only problems with high yield debt in the energy and commodity sectors. This cannot possibly affect the entire corporate credit market. We should perhaps point out that in spite of this sectoral concentration, problems have recently begun to emerge in other industries as well (a list of recent victims can be found at Wolfstreet).

The argument also ignores the interconnectedness of the credit markets. Once investors begin to lose sufficiently large amounts of money in one sector, the more exposed ones among them (i.e., those using leverage, a practice that gains in popularity the lower yields go, as otherwise no decent returns can be achieved), will start selling what they can, regardless of its relative merits. This will in turn eventually make refinancing conditions more difficult for all sorts of industries.

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

The Next Level of John Law Type Central Planning Madness

November 7, 2015

The Next Level of John Law Type Central Planning Madness

Cries for Going Totally Crazy are Intensifying

What are the basic requirements for becoming the chief economist of the IMF? Judging from what we have seen so far, the person concerned has to be a died-in-the-wool statist and fully agree with the (neo-) Keynesian faith, i.e., he or she has to support more of the same hoary inflationism that has never worked in recorded history anywhere. In other words, to qualify for that fat 100% tax-free salary (ironically paid for by assorted tax serfs), one has to be in favor of central economic planning and support policies fully in line with today’s economically illiterate orthodoxy. Meet Maurice Obstfeld, who has just taken the mantle.

For all we know the man is merely misguided and otherwise a nice person (in fact, he’s laughing a lot in photographs and seems a personable enough fellow). But his proposals could eventually affect the lives of countless people in the whole world, so he is fair game for robust criticism. We personally believe that he and other members of our “enlightened” technocratic ruling class should resign without delay and start looking for productive work instead of parasitizing and hampering the ever shrinking class of genuine wealth producers, but it seems unlikely that they will be interested in our opinion.

There once was a time when monetary cranks of the sort in charge nearly everywhere today were laughed out of the room. Today they are perfectly free to drive what is left of the market economy over the cliff. Mr. Obstfeld turns out to be yet another in a long list of luminaries belly-aching about (non-existing) “deflation” – this is to say, the alleged danger that the purchasing power of consumer incomes and savings might increase at some point. Allegedly, this remote eventuality has to be guarded against at all costs.

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

Haruhiko Kuroda – The Pressure to “Do More” Rises

November 1, 2015

Haruhiko Kuroda – The Pressure to “Do More” Rises

BoJ Leaves Policy Unchanged, but What Comes Next?

The Bank of Japan has employed QE programs since March of 2001 (in February of 2001, it still claimed that “QE will be ineffective” – it was right then, for the last time). These have had no effect apart from making a Keynesian government spending orgy possible that is unique in terms of its size in the post WW2 developed world. It is also unique insofar as it hasn’t yet blown up.

QE was briefly interrupted in 2006, when the BoJ reduced the monetary base by 25% within a few weeks (this barely affected the money supply, although we have to add the caveat that Japanese money supply data are not directly comparable to Western ones).

2 percent kuroda Kuroda demonstrating the loony-tunes 2% fetish of modern central bankers to journalists
Photo credit: Haruyoshi Yamaguchi / Bloomberg

After the GFC, governor Masaaki Shirakawa (白川方明) reluctantly restarted QE; he was essentially convinced that monetary policy flim-flam of this sort would be useless, but a lot of pressure was exerted and he ultimately gave in. Following Shinzo Abe’s election, it was clear that a more pliant BoJ leadership would be appointed, and not surprisingly, under governor Haruhiko Kuroda (黒田東彦), the BoJ has essentially decided to “go all in”.

The earlier QE programs that began in 2001 were considered “radical” at the time. We’re not sure what kind of adjective would be most fitting to describe the current exercise. “Completely lunatic” will probably do – click to enlarge.

Yesterday, the BoJ decided not to add to its existing monetary pumping program, but voted once again to maintain the parabolic pace in asset purchases already underway. The entire exercise is based on the widely accepted, unproven, and utterly absurd neo-Keynesian shibboleth that the purchasing power of money must decline by 2% per year, as anything less is not considered “price stability”.

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

Waiting to be SKEWered?

October 15, 2015

Waiting to be SKEWered?

SKEW Goes Pear-Shaped

Back in 1998, at the height of the Russian crisis, the CBOE SKEW Index reached its all time high of 146.88. Previously very high values were seen on the eve of the 1990 recession, and in March 2006 it spiked again when sudden worries about the housing bubble surfaced.

Black-Swan lr “There are no black swans” they said …

Over the past two years, SKEW has begun to act totally crazy, regularly rising to rarely before seen levels. In late 2014 and again in September this year, moves to around the 140 level have become quite frequent. On Tuesday it broke its Russian crisis all time high, spiking briefly to 148.91.

SKEW spikes to a new all time high on Monday – click to enlarge.

“What the hell is SKEW?” we hear you ask. Here is the explanation from the CBOE, where SKEW lives (or rather, where the options that are used in its calculation live):

“The CBOE Skew Index – referred to as “SKEW” – is an option-based indicator that measures the perceived tail risk of the distribution of S&P 500 log returns at a 30- day horizon. Tail risk is the risk associated with an increase in the probability of outlier returns, returns two or more standard deviations below the mean. Think stock market crash, or black swan. This probability is negligible for a normal distribution, but can be significant for distributions which are skewed and have fat tails. As illustrated in the chart below, the distribution of S&P 500 log returns has a sizable left tail. This makes it riskier than a normal distribution with the same mean and the same volatility. SKEW quantifies the additional risk.

SKEW is derived from the price of S&P 500 skewness. That price is calculated from the prices of S&P 500 options using the same type of algorithm as for the CBOE Volatility Index (VIX). The details of the SKEW algorithm and a sample calculation are presented in the SKEW White Paper http://www.cboe.com/SKEW .

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

Tag Archives: pater tenebrarum

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Post navigation

Latest Posts