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The Two Janet’s And The Perfect Storm Ahead

The Two Janet’s And The Perfect Storm Ahead

The Bloomberg news crawler this morning is heralding the heart of our thesis: Namely, that “flush with cash from the tax cut”, US companies are heading for a “stock buyback binge of historic proportions”.

This isn’t a “told you so” point. It’s dramatic proof that corporate America has been absolutely corrupted by the Fed’s long-running regime of Bubble Finance. Undoubtedly, the C-suites view the asinine Trump/GOP tax cut not as a green light to invest and build for the long haul, but as manna from heaven to pump their faltering share prices in the here and now.

And we do mean a gift just in the nick of time. The giant Bernanke/Yellen financial bubble is finally springing cracks everywhere, putting corporate share prices and executive stock option packages squarely in harms’ way.

So what could be more timely and efficacious than an enhanced, government debt-financed wave of stock buybacks to rejuvenate the speculative juices on Wall Street and embolden the robo-machines and punters for another round of buy-the-dip?

Indeed, corporate stock buying is now cranking at a $1 trillion annual rate or nearly double the rate of the last several years. That huge inflow of cash and encouragement to Wall Street will undoubtedly break the market’s fall in the short-run; and over the next several quarters, perhaps, enable an extended stop-and-start stepwise decline rather than a sudden sharp plunge as in the fall-winter of 2008-09.

It also underscores why the Paul Ryan school of conservative policy wonks got it so wrong on the corporate rate cut. They still dwell in a pari passu world where higher after-tax rates of return would, in fact, stimulate increased investment, growth, employment and income.

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

Flying Blind, Part 2: The Destruction Of Honest Price Discovery And Its Consequences

Flying Blind, Part 2: The Destruction Of Honest Price Discovery And Its Consequences

In Part 1 we noted that the real evil of Bubble Finance is not merely that it leads to bubble crashes, of which there is surely a doozy just around the bend; or that speculators get the painful deserts they fully deserve, which is coming big time, too; or even that the retail homegamers are always drawn into the slaughter at the very end, as is playing out in spades once again. Daily.

Given enough time, in fact, markets do bounce back because capitalism has a inherent urge to grow, thereby generating higher output, incomes, profits, wealth and stock indices. That means, in turn, investors eventually do recover from bubble crashes—notwithstanding the tendency of homegamers and professional speculators alike to sell at panic lows and jump back in after most of the profits have been made—or even at panic highs like the present.

Instead, the real economic iniquity of central bank driven Bubble Finance is that it destroys all the pricing signals that are essential to financial discipline on both ends of the Acela Corridor. And as quaint at it may sound, discipline is the sine qua non of long-term stability and sustainable gains in productivity, living standards and real wealth.

The pols of the Imperial City should be petrified, therefore, by the prospect of borrowing $1.2 trillion during the upcoming fiscal year (FY 2019) at a rate of 6.o% of GDP during month #111 through month #123 of the business expansion; and doing so at the very time the central bank is pivoting to an unprecedented spell of QT (quantitative tightening), involving the disgorgement of up to $2 trillion of its elephantine balance sheet back into the bond market.

Even as a matter of economics 101, the forthcoming $1.8 trillion of combined bond supply from the sales of the US Treasury ($1.2 trillion) and the QT-disgorgement of the Fed ($600 billion) is self-evidently enough to monkey-hammer the existing supply/demand balances, and thereby send yields soaring.

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

Reagan Adviser: Why Trump Won’t Cut Taxes

The mules of Wall Street were back at it again, buying the dips after the overnight whoosh downward in the futures market. Apparently, it will take an actual two-by-four between the eyes to break a habit that has been working for 96 months now since the March 2009 post-crisis bottom.

We think it is plain as day, however, that we are in a new ball game that the “stimulus-blinded” mules don’t see coming at all. To wit, they have been juiced for eight years running by the Keynesian apparatchiks at the Fed who needed permission from exactly no one to run the printing presses full tilt or to rescue the market with a new round of QE or an extension of ZIRP whenever the indices began to wobble.

But now, even the money printers have made it clear in no uncertain terms that they are done for this cycle, anyway, and that they will be belatedly but consistently raising interest rates for what ought to be a truly scary reason.

That is, the denizens of the Eccles Building have finally realized that they have not outlawed the business cycle after all and need to raise rates toward 2-3% so that they have headroom to “cut” the next time the economy slides into the ditch.

In effect, the Fed is saying to Wall Street: “Price in” a recession because we are!

After all, our monetary central planners are not reluctantly allowing interest rates to lift off the zero bound because they have become converts to the cause of honest price discovery—-nor are they fixing to liberate money rates, debt yields, and the prices of stocks and other financial assets to clear on the free market.

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

It Won’t Be Long Now—-The End Game Of Central Banking Is Nigh

It Won’t Be Long Now—-The End Game Of Central Banking Is Nigh

My new book will be published next Tuesday. Preorders for the e-Book version will be available in this space beginning later this week.

As I previously indicated, the book is an exploration of how 30 years of Bubble Finance policies at the Fed, feckless interventions abroad and mushrooming Big government and debt at home have brought America to its current ruinous condition.

In this context, it delves into the good and bad of the Trump campaign and platform, while, to use a spoiler alert, praising it with faint damn!

As Contra Corner readers recognize the only consistent way forward for America at this late stage of the game is a return to free markets, fiscal rectitude, sound money, constitutional liberty, non-intervention abroad, minimalist government at home and decentralized political rule.

Unfortunately, that is not about to happen any time soon—–even if by some miracle Donald Trump is elected President.

But what the book does claim is that the tide is turning against the failed Wall Street/Washington bipartisan consensus. I call this insurrection the “revolt of the rubes” in Flyover America.

This uprising against the rule of the financial and political elites has counterparts abroad among those who voted for Brexit in the UK, against Merkel in the recent German elections in her home state, and among the growing tide of anti-Brussels sentiment reflected in polls throughout the EC.

Needless to say, the political upheaval now underway is largely an inchoate reaction to the policy failures and arrogant pretensions of the establishment rulers. Like Donald Trump himself, it does not reflect a coherent programmatic alternative.

But my contention is that liberation from our current ruinous policy regime has to start somewhere—and that’s why the Trump candidacy is so important. He represents a raw insurgency of attack, derision, impertinence and repudiation.

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

The Myth Of ‘Morning In America’—–How The Public Debt Went From $1 Trillion to $35 Trillion in Four Decades, Part 1

The Myth Of ‘Morning In America’—–How The Public Debt Went From $1 Trillion to $35 Trillion in Four Decades, Part 1

It also delves into the good and bad of the Trump campaign and platform and outlines a more consistent way forward based on free markets, fiscal rectitude, sound money, constitutional liberty, non-intervention abroad, minimalist government at home and decentralized political rule.

In order to complete the manuscript on a timely basis, I will not be doing daily posts for the next week or two. Instead, I will post excerpts from the book that crystalize its key themes and which also relate to the on-going gong show in the presidential campaigns and in the financial and economic arenas. Another of these is included below.

I am also working with my partners at Agora Financial on a new version of Contra Corner. More information on that will be coming soon.

Trumped Final

………One of the great virtues of the Trump candidacy is The Donald’s propensity to lob wild pitches—knowingly or not—at the sacred cows of Imperial Washington, thereby exposing the tissue of hypocrisy and can’t, which surrounds them.

But within the herd of revered ruminants none is slathered in more hypocrisy than the federal budget and official Washington’s unctuous professions of devotion to safeguarding the “full faith and credit of the United States.”

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

Slouching Toward The Dark Side

Slouching Toward The Dark Side

Last Wednesday we noted there is something rotten in the state of Denmark, meaning that the world’s great potemkin village of Bubble Finance is unraveling. The evidence piles up by the day.

To wit, now comes still another story about the Red Paddy Wagons rolling out in China. This time they are rounding-up the proprietors of a $7.6 billion peer-to-peer (P2P) lending Ponzi called Ezubao Ltd.

Ezubo investors lined up outside a government office in Beijing last month; having shut down the online peer-to-peer investing platform in December, authorities were reported Monday to have declared Ezubo a Ponzi scheme and arrested 21 suspects linked to it and its parent. Ezubo investors lined up outside a government office in Beijing last month; having shut down the online peer-to-peer investing.

The particulars of this story are worth more than a week of bloviating by the Wall Street economists, strategists and other shills who visit bubblevision the whole day long. That’s because it exposes the rotten foundation on which the entire Red Ponzi and the related world central bank regime of Bubble Finance is based.

Needless to say, these dangerous, unstable and incendiary deformations are not even visible to the Keynesian commentariat and policy apparatchiks. They blithely assume that what makes modern economies go is the deft monetary, fiscal and regulatory interventions of the state. By their lights, not much else matters——and most certainly not the condition of household, business and public balance sheets or the level of speculation and leveraged gambling prevalent in financial markets and corporate C-suites.

As that pompous fool and #2 apparatchik at the Fed, Stanley Fischer, is wont to say—–such putative bubbles are just second order foot faults. These prosaic nuisances are not the fault of monetary policy in any event, and can be readily minimized through a risible scheme called “macro-prudential” regulation.

After all, if the Keynesians had any inkling that debt was a problem they wouldn’t have attempted to radically subsidize it with 84 straight months of ZIRP.

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

 

The End of the Bubble Finance Era

We are nearing a crucial inflection point in the worldwide bubble finance cycle that has been underway for more than two decades. To wit, the world’s central banks have finally run out of dry powder. They will be unable to stop the credit implosion which must inexorably follow the false boom.

We will get to the Fed’s upcoming once in a lifetime shift to raising rates below, but first it is crucial to sketch the global macroeconomic context.

In a word, we are now entering an epic deflation. Its leading edge is manifested in the renewed carnage in the commodity pits.

This week the Bloomberg commodity index, which encompasses everything from crude oil to soybeans, copper, nickel, cotton and livestock, plunged below 80 for the first time since 1999. It is now down nearly 70% from its all-time high on the eve of the financial crisis, and 55% from its 2011 recovery high.

BloombergCommodityIndex

Wall Street bulls and Keynesian apologists for the Fed want you to believe that there isn’t much to see here. They claim it’s just a temporary oil glut and some CapEx over-exuberance in the metals and mining industry.

But their assurances that in a year or so current excess supplies of copper, crude, iron ore and other commodities will be absorbed by an expanding global economy couldn’t be farther from the truth. In fact, this error is at the heart of my investment viewpoint.

We believe the global economy is vastly bloated with debt-based spending that can’t be sustained. And that this distortion is compounded on the supply side by an incredible surplus of excess production capacity. As well as wasteful malinvestments that were enabled by dirt cheap central bank credit.

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

 

December 16, 2015—–When The End Of The Bubble Begins

December 16, 2015—–When The End Of The Bubble Begins

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, Part 2

The Bubble Finance Cycle: What Our Keynesian School Marm Doesn’t Get, Part 2

In Part 1 of The Bubble Finance Cycle we demonstrated that a main street based wage and price spiral always proceeded recessions during the era of Lite Touch monetary policy (1951 to 1985). That happened because the Fed was perennially “behind the curve” and was therefore forced to hit the monetary brakes hard in order to rein in an overheated economy.

So doing, it drained reserves from the banking system, causing an abrupt interruption of household and business credit formation. The resulting sharp drop in business CapEx, household durables and especially mortgage-based spending on new housing construction caused a brief recessionary setback in aggregate economic activity.

To be sure, that discontinuity and the related unemployment and loss of output was wholly unnecessary and by no means a natural outcome on the free market.

Under a regime of free market interest rates, in fact, the pricing mechanism for credit would have operated far more smoothly and continuously, meaning that credit-fueled booms would be nipped in the bud. Flexible, continuously adjusting money market rates and yield curves would choke off unsustainable borrowing and induce an uptake in private savings due to higher rewards for the deferral of  current period spending.

Accordingly, the recessions of the Lite Touch monetary era were mainly a “payback” phenomenon that reflected the displacement of economic activity in time caused by monetary intervention. That is, the artificial “stop and go” economy lamented by proponents of sound money was a function of central bank intrusion in the pricing of money and the ebb and flow of credit.

During bank credit fueled inflationary booms, businesses tended to over-invest in fixed assets and inventory and to over-hire in anticipation that the good times would just keep rolling along. But when the central bank was forced to correct for its too heavy foot on the monetary accelerator (i.e. the provision of fiat credit reserves to the banking system) and slam on the credit expansion brakes, businesses dutifully went about reeling-in the prior excesses.

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

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

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

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…

Olduvai IV: Courage
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Olduvai II: Exodus
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