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Contagion!

Contagion!

Contagion!

The world is confronting the effects of the “coronavirus.” It likely originated in Wuhan, China, where it jumped from animals to humans at a local food market. It has since spread to other parts of China and beyond.

So far, there are 2,886 confirmed total cases of the coronavirus. All but 61 of them are in mainland China. The death toll so far is 81.

But cases have also been found in France, the U.S., Canada, Australia, Japan, South Korea and elsewhere. That list includes the world’s three largest economies (the U.S., China and Japan).

For many, it recalls the SARS outbreak of 2003, which also originated in China. It ultimately killed 774 people and infected more than 8,000 in different parts of the world.

Not surprisingly, global markets are on edge over fears of the “coronavirus” contagion spreading. And the U.S. stock market sold off today.

The Dow lost 454 points. The S&P and Nasdaq also had awful days. But gold has a good day, up over $10 to $1,582, as investors looked for safety.

But let’s discuss the word “contagion,” because it applies to both human populations and financial markets — and in more ways than you may expect.

There’s a reason why financial experts and risk managers use the word “contagion” to describe a financial panic.

Obviously, the word contagion refers to an epidemic or pandemic. In the public health field, a disease can be transmitted from human to human through coughing, shared needles, shared food or contact involving bodily fluids.

An initial carrier of a disease (“patient zero”) may have many contacts before the disease even appears.

Some diseases have a latency period of weeks or longer, which means patient zero can infect hundreds before health professionals are even aware of the disease. Then those hundreds can infect thousands or even millions before they are identified as carriers.

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

2000 vs. 2020: The Role Of Monetary And Fiscal Policies In Stock Market Cycles

2000 vs. 2020: The Role Of Monetary And Fiscal Policies In Stock Market Cycles

The equity market of 2020 has some of the lofty valuation features that showed up at the peak of 2000 cycle. Yet, a key difference is the accommodative stance of monetary and fiscal policies nowadays versus the restrictive stance of 2000. So, the key question for investors is how does the monetary and fiscal policy backdrop influence the investment outlook? Do friendly policies create the potential for even more elevated valuations, to last longer, or is it merely a mirage shifting the focus of investors attentions to the upfront benefits and away from the longer term fundamentals of earnings and portfolio risks?

Equity Markets 2020 vs. 2000

There are a number of macro measures that are often used to assess how expensive or cheap the equity markets are at any point in time. None of these are hard barriers that can’t be exceeded – as all records in finance (like in sports) tend to get broken eventually – but they do offer a perspective on the market valuation relative to past cycles.

For example, the S&P 500 price to sales ratio hit a record high of 2.16 at the beginning of 2000 and has now been exceeded for the first time by the current reading of 2.25X.

Similarly, the market valuation of domestic companies to Nominal GDP – a metric that compares equity prices to overall economic growth – stood at a record 1.85X in 2000 and at the start of 2020 it is estimated that this metric has matched or slightly exceeded the highs of 2000.

Both of these measures suggest that the equity market is expensive. But, critics would argue that favorable monetary and fiscal backdrop makes these measures less excessive than they appear at first glance.

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

Will Coronavirus Crater Hopes Of A Global Recovery As World Trade Tumbles?

Will Coronavirus Crater Hopes Of A Global Recovery As World Trade Tumbles?

The global economy is faced with a synchronized slowdown as central bank ammunition to fight the next global recession is limited. 

Monetary authorities across the world have slashed interest rates 80 times over the last 12 months and printed upwards of $1 trillion over four months to counter the slowdown. 

The only apparent solution central bankers have offered is a liquidity-fueled massive stock market melt-up across the world that rivals the end years of the Dot Com bubble (and the liquidity-fueled meltup around Y2K). These unelected officials have also provided forward guidance on how an epic V-shape recovery in the real economy is imminent. 

The only problem today that market watchers like ourselves have noticed – is that traditional monetary policy has had a challenging time stimulating growth in developed and emerging economies. 

Data from Netherlands Bureau for Economic Policy Analysis (CPB) showed Friday that global trade volume continued to contract in November, marking one of the most extended stretches of negative growth since the end of the financial crisis. 

According to CPB, world trade slipped 0.60% in November over the prior quarter and was down 1.1% compared to the same month a year ago. 

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

Why A Flu Outbreak In China Can Spook Global Markets

Why A Flu Outbreak In China Can Spook Global Markets

When people talk about empires of the past, they generally mean Rome and Britain. But the biggest and in some ways most interesting empire was built and run by the Mongols in the 13th and 14th centuries. At it’s peak it stretched from China to Eastern Europe, which is more territory than Rome ever controlled.

Across that expanse there was free trade and unrestricted movement of people via the original “Silk Road” network. For a while there was a single currency which was accepted everywhere. 

Genghis Khan — think of him as the Mongols’ (gleefully bloodthirsty) George Washington — organized his army along what we today would call colorblind lines. Instead of units based on clans and tribes, he mixed and matched soldiers of varied backgrounds and trained them to be loyal to one another regardless of origin. He also ordered his men to marry women from conquered cities, and to integrate into local cultures.

And he loved technology, collecting engineers and other people with useful skills from conquered lands and putting them to work developing new weapons and better agricultural practices.

“Pax Mongolica,” in short, had all the makings of a nascent modern system, hundreds of years before the Industrial Revolution. 

Then came the Black Death. 

Free movement of people allowed the disease to move quickly and uncontrollably. Local populations panicked and closed themselves off, frequently slaughtering their Mongol governors in the process. Trade collapsed, the Silk Road went dark and the Mongol empire expired. 

Now fast forward to today’s world, where virtually anyone can fly or drive to virtually any other country — and millions each year do so. Trade is a huge part of most major national economies. A handful of currencies are accepted pretty much everywhere, while locals mix with visitors in melting pot mega-cities of 20 million-plus inhabitants, all breathing the same air. 

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

Is This “The Top”?

Is This “The Top”?

Parabolic moves end when the confidence that the parabolic move can’t end becomes the consensus.

The consensus seems to be that the stock market is on its way to much higher levels, and soon. The near-term targets for the S&P 500 (SPX, currently around 3,235) range from 3,500 to 4,000, with longer-term targets reaching “the sky’s the limit.”

The consensus reasoning goes like this:— Central banks can print a lot more money– Stocks rise when central banks print more money.

The history of the 2009-2019 era strongly supports this simple cause-effect, and so just about everyone is on the same side of the boat, the “don’t fight the Fed” side of ever-higher stock multiples and ever-higher prices.

Simply put: sales and profits no longer matter, the only thing that matters is whether central banks are printing more money. And since we all know they’ll have to print more money to keep the flying pig (the stock market) aloft, then it follows as night follows day that stocks will rise essentially forever.

As soon as the consensus has settled complacently on one side of the boat, contrarians take notice as history has a perverse habit of foiling any overwhelmingly complacent consensus.

The contrarian asks: what if this is “The Top”? Not just the top of the current rally, but The Top of the Bull Market that ignited in March 2009? Impossible, say the Bulls; there’s cash on the sidelines, Uber/Lyft drivers aren’t yet touting obscure stocks, i.e. “everybody” is not yet in the market, central banks haven’t even warmed up their digital printing presses, corporations are flush with cash/credit to continue their decade-long gorging on stock buy-backs and the global economy is back on track for another decade or three of tepid “growth.”

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

Global Markets commentary and outlook

Global Markets commentary and outlook

…..’Cause I’ve had the time of my life..and I owe it all to you..

The original song from Dirty Dancing is one of my all time favourites and somehow reminds me of the Global Markets performance this year.Every conceivable asset class (except cash) posted positive returns ,thanks to the LIQUIDITY provided by global central banks.The Fed is my view moved to implement the “ high pressure economy” regime outlined in former chair Janet Yellen’s 2014 speech at the Boston Fed Reserve bank       https://www.federalreserve.gov/newsevents/speech/yellen20161014a.htm

Indirecly this document suggest the US central Bank has returned to the Greenspan approach to bubbles- they will deal with the consequences once it pops.

The chart below explains the LIQUIDITY story.

Gone are the good old days when Earnings used to be tailwind for market valuations.

The polarising performance of US markets.

The two stocks, Apple and Microsoft, each having a market cap of USD 1 trillion have contributed the most to 2019’s total stock-market returns and also hold that position for the entire decade.

The number of Zombie companies continue to rise along with their market caps.

The above charts were examples of distortion created by excess pumping of money.

Jerome Powell raised the bar  for raising rates significantly whereas the bar for lowering rates has gone down. More evidence that Central Bankers will tolerate higher inflation and low or negative real rates.

BOFA has a crystal ball and they see the endgame approaching .

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

A Major Bank Admits QE4 Has Started, And That Stocks Are Rising Because Of The Fed’s Soaring Balance Sheet

A Major Bank Admits QE4 Has Started, And That Stocks Are Rising Because Of The Fed’s Soaring Balance Sheet

There was a period of about two months when some of the more confused, Fed sycophantic elements, would parrot everything Powell would say regarding the recently launched $60 billion in monthly purchases of T-Bills, and which according to this rather vocal, if always wrong, subsegment of financial experts, did not constitute QE. Perhaps one can’t really blame them: after all, unable to think for themselves, they merely repeated what Powell said, namely that  “growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis. Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy. In no sense, is this QE.

As it turned out, it was QE from the perspective of the market, which saw the Fed boosting its balance sheet by $60BN per month, and together with another $20BN or so in TSY and MBS maturity reinvestments, as well as tens of billions in overnight and term repos, and soared roughly around the time the Fed announced “not QE.”

And so, as the Fed’s balance sheet exploded by over $400 billion in under four months, a rate of balance sheet expansion that surpassed QE1, QE2 and Qe3…

… stocks blasted off higher roughly at the same time as the Fed’s QE returned, and are now up every single week since the start of the Fed’s QE4 announcement when the Fed’s balance sheet rose, and are down just one week since then: the week when the Fed’s balance sheet shrank.

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

It’s Beginning to Look a lot Like…

IT’S BEGINNING TO LOOK A LOT LIKE…

A BUBBLE! 

As the markets grind higher into the year-end the look of what is happening is becoming clear. The Fed is inflating a bubble. Valuation on the S&P is approaching 19x which is up from ~14-15x a year ago. Valuation isn’t a great tool for timing however when multiple expansion is accepted by the market it should be respected. Sentiment a year ago was 4% on the Daily Sentiment Charts and 3% on the CNN Fear and Greed Index and today both are extreme. They have been elevated to an extreme for the last few months and as I’ve said: “sentiment is a condition and one must have a trigger to turn after an extreme reading.” A year ago in December, I counted 240 downside DeMark buy Countdown 13’s within the S&P and there are only upside sell Countdowns triggering daily. I couldn’t be more cautious at this point just as I couldn’t have been more bullish exactly a year ago.

I’ve recently written about how sellers are unmotivated (as they always sell lower), and how the US-China trade watered-down deal is a sell the news event, and then how this market reminds me of a musical chairs market. I recently spoke at a wealth management conference and the overwhelming thing I heard was how they wanted to get into 2020 to sell. We might start to sell a little selling starting with $41bn of 5-yr notes being issued on 12/24 and $32bn 7yr notes on 12/26. This will take away some of the Fed’s liquidity that has caused this bubble. At the end of the month, there will also be pension rebalancing with a rotation out of stocks into bonds. Considering the lack of liquidity it could spook some people headed into the new year.

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

Four Banks & Three Tech Companies Blow $56 Billion in Q3 to Prop up Their Own Shares

Four Banks & Three Tech Companies Blow $56 Billion in Q3 to Prop up Their Own Shares

The Biggest Share-Buyback Queens: When Will They Run Out of Juice?

Companies in the S&P 500 index bought back $176 billion of their own shares in the third quarter, down 13.7% from the third quarter last year, and down 21.1% from the record share-buyback mania in Q4 2018, according to the S&P Dow Jones Indices. But hey, since the beginning of 2012, these companies have bought back $4.37 trillion of their own shares, exceeding the magnitude of Germany’s annual GDP.

Think of what else these companies could have done with this money, instead of blowing it on share buybacks. They could have invested more in productive activities in the US and they could have raised the pay for their employees and gig workers so that they could recirculate this money in the economy.

And the biggest banks – we’ll get to them in a moment – could have used those funds to shore up their capital to get ready for the moment when the bubbles in corporate debt and commercial real estate, that the Fed is so worried about, come apart.

For the 12-month period through September, share buybacks rose to $770 billion, from $720 billion for the 12-month period a year ago. The chart below shows share buybacks for the 12-month periods through Q3 each year:

The 12-month total through Q3 was down 6.4% from $828 billion for the 12 months through Q1 2019 that had been heavily inspired by the corporate tax-law changes, which continue to heavily inspire these share buybacks.

What will the future bring? According to the report: “For Q4, the market is looking for another increase in buybacks, in the mid-single digit range, staying near the $190 billion level, well shy of the Q4 2018 record-setting $223 billion.”

The scheme is increasingly top-heavy.

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

Why “This Sucker Is Going Down”

Why “This Sucker Is Going Down”

Once the contagion starts spreading, loose money won’t put the fires out.

As the nation’s political and economic leaders struggled to contain the 2008 financial meltdown, President George W. Bush famously summed the situation up: “If money doesn’t loosen up, this sucker will go down.

Eleven years into the loose money recovery, this sucker is finally going down for reasons that have little to do with tight money and everything to do with the inconvenient fact that none of the structural problems have been addressed, much less actually fixed.

We live in a bizarre world dominated by magical-thinking, a world in which the Federal Reserve creating more dollars out of thin air is supposedly the solution to everything, while all the knotty structural problems–unsupportable pensions and entitlements, unsustainable dependence on debt to fund everything from infrastructure to a new iPhone, a sickcare system that is bankrupting the nation, a higher education system that is looting an entire generation for diplomas with marginal market value, a runaway National Security State that burns trillions on unwinnable wars and lies about it–are left untouched because they’re, well, difficult, and it’s so much easier to say that looser money will solve everything.

Alas, loose money has created a new set of metastasizing problems that will bring this sucker down: widening wealth-income inequality, the only possible result of our system of creating and distributing new money to banks, financiers and corporations; soaring systemic leverage that few see, much less understand; and perhaps most perverse, yet equally unnoticed, loose money has widened the gap between the real economy and the top layer of arcane finance to the point there is literally no connection at all.

The happy story about debt-dependent capitalism is that thriving companies borrow money from our wunnerful banks to invest in new factories, research, software development, etc., hiring millions of top-notch people–top-notch!–at generous salaries to boost productivity and make the entire nation wealthier.

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

Trade Wars Just Getting Started

Trade Wars Just Getting Started

Trade Wars Just Getting Started

Markets are eagerly awaiting the conclusion of the so-called “phase one” trade deal between the U.S. and China.

Both parties are trying to reach a mini-deal involving simple tariff reductions and a truce on new tariffs along with Chinese purchases of pork and soybeans from the U.S.

The likely success or failure of the mini-deal has been a main driver of stock market action for the past year. When the deal looks likely, markets rally. When the deal looks shaky, markets fall.

A deal is still possible. But investors should be prepared for a shocking fall in stock market valuations if it does not. Markets have fully discounted a successful phase one, so there’s not much upside if it happens.

On the other hand, if phase one falls apart stock markets will hit an air pocket and fall 5% or more in a matter of days.

But even if the phase one deal goes through, it does not end the trade wars. Unresolved issues include tariffs, subsidies, theft of intellectual property, forced transfer of technology, closed markets, unfair competition, cyber-espionage and more.

Most of the issues will not be resolved quickly, if ever.

Resolution involves intrusion into internal Chinese affairs both in the form of legal changes and enforcement mechanisms to ensure China lives up to its commitments.

These legal and enforcement mechanisms are needed because China has lied about and reneged on its trade commitments for the past 25 years. There’s no reason to believe China will be any more honest this time around without verification and enforcement. But China refuses to allow this kind of intrusion into their sovereignty.

For the Chinese, the U.S. approach recalls the Opium Wars (1839–1860) and the “Unequal Treaty” (1848–1950) whereby foreign powers (the U.K., the U.S., Japan, France, Germany and Russia) forced China into humiliating concessions of land, port access, tariffs and extraterritorial immunity.

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

The Masses Are Being Conditioned to Ignore the Economic Bubble

The Masses Are Being Conditioned to Ignore the Economic Bubble

economic crash trade war

In the second week of October, after the “partial” U.S.-China trade deal was announced to much fanfare, I made this prediction:

US and Chinese officials rarely waste an opportunity to use trade talk headlines to head-fake markets with false hope. Rumors of a “partial” or tentative trade deal are circulating today, with MORE trade talks in a month or two. In other words, “more trade talks” means there is no deal of any substance and there’s plenty of time for the whole thing to fall apart once again. I give it less than a month. In the meantime, there will be plenty of other distractions for the general public, including the impeachment circus, tariffs against Europe, tensions in Syria, the Brexit mess, etc, etc.

My estimate was incorrect; it took a little over one month for the whole thing to fall apart. That said, I think the primary point remains the same. The trade war is not going to end anytime soon and there is a very good reason why this is the case: It serves the globalist agenda as a perfect distraction for the collapse of the “Everything Bubble” and the launch of the global economic reset into a what the elites call a “new world order”.

But let’s go back for a moment to understand what just happened. A month ago, the trade deal was treated as essentially done. China had partially folded on most of Trump’s demands and Trump was going to pull off a major economic victory just in time for the 2020 election season. The Dow was going to rocket past 30,000 and Trump’s second term was now assured. This was the narrative in the majority of the alternative media, and I have to say, it is sad to see so many otherwise intelligent analysts make such a huge blunder.

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

Central Bankers Panic Over Exuberant Financial Market “Fragility”, Warn Risks Are “Underestimated”

Central Bankers Panic Over Exuberant Financial Market “Fragility”, Warn Risks Are “Underestimated”

You know it’s bad when… even the central bankers are warning that the monster they’ve created is out of control.

As stocks have exploded higher in the face of declining earnings…

Source: Bloomberg

And collapsing macro-economic data…

Source: Bloomberg

Policy makers from the world’s central banks are suddenly raising cautionary flags at the potentially unsafe investing environment stoked by their efforts to flood economies with ultra-cheap money.

  • “While vulnerabilities related to low interest rates have the potential to grow, thus calling for caution and continued monitoring, so far, the financial system appears resilient” — Federal Reserve, Nov. 15.
  • “Very low interest rates, coupled with the large number of investors which have gradually increased the duration of their fixed income portfolios, could exacerbate potential losses if an abrupt repricing were to materialize” — ECB, Nov. 20.
  • “This type of environment can lead to an increase in risk‐taking, to assets being overvalued and to indebtedness increasing in an unsustainable manner” — Riksbank, Nov. 20.
  • “Many investors are focused on the search for yield and could be tempted to take on greater risk” — Bundesbank, Nov. 21.

Most notably, Bloomberg reports that the spate of recent financial stability assessments began Nov. 15 with the Fed, which warned that low rates could encourage riskier behavior such as eroding lending standards.

A prolonged period of low rates could also “spur reach-for-yield behavior, thereby increasing the vulnerability of the financial sector to subsequent shocks,” it said.

However, as Bloomberg notes, despite central banks’ qualms about side effects, there’s little sign that they’ll do any more than issue warnings. 

“The Fed since September, the ECB as well, the BOJ, even the central bank of China is starting to provide some more easing,” Kevin Thozet, an investment strategist at Carmignac Gestion, told Bloomberg TV on Wednesday.

That’s contributed to “a bull market of everything in 2019.”

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

Rabobank: “Global Central-Bankery Continues To Go Where No-One Has Gone Before”

Rabobank: “Global Central-Bankery Continues To Go Where No-One Has Gone Before”

Stocks at new recorder record highs; bonds up (yields down); CNY up; broad USD DXY up; China issuing USD6bn of sovereign debt at a narrow spread over USTs….it’s all up, up, and away. And why not? Trump tells us the US is “in the final throes” of a phase one trade deal with China. Usually that language is used to imply something is dying, but hey ho, decimate is used to mean annihilation rather than killing one in ten of the enemy, and quantum leap is used to imply something big when it actually means something amazingly small. Suffice to say markets loved it. So much so in fact that it is a song we should keep singing over and over, like another ‘final’- “The Final Countdown”.

Three decades after Europe’s pop-metal kitsch classic first hit the charts, they are still out there playing it, and whenever anyone hears the keyboard intro “Deedle deedle….deedle dee”, everyone knows the song and joins in enthusiastically: how can you not? As such, I suggest that from now on, every time the White House talks about the impending phase one trade deal coming soon, to save time they just play the track for the press. Or just the keyboard intro. And rallying markets can continue to trade off the deep wisdom of the lyrics:

“We’re leaving together; But still it’s farewell; And maybe we’ll come back; To earth, who can tell?

I guess there is no one to blame; We’re leaving ground (leaving ground); Will things ever be the same again?

It’s the final countdown; The final countdown”

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

Peter Schiff: There Are Bubbles Everywhere and They’re All Going to Pop

Peter Schiff: There Are Bubbles Everywhere and They’re All Going to Pop

The Dow pushed above 28,000 on Friday. The Nasdaq also closed on a record high above 8,500, and the S&P 500 made a new record high of 3,120. This despite some more gloomy economic data that came out during the day. Industrial production dropped more than expected, falling by 0.8 in October. Inventory numbers were also revised down. All of this led the Atlanta Fed to revise its Q4 GDP estimate down to 0.3.

In his most recent podcast, Peter Schiff said that it’s QE and Federal Reserve policy that is driving the stock market, not a great economy. In fact, the Fed is creating all kinds of bubbles. And like all bubbles, they will eventually pop.

Despite the weakening economy, the stock market continues to roar and Donald Trump continues to claim credit for the rising stock market and holding the stock market out as evidence of the success of his presidency.”

Ironically, a rising stock market and unemployment were the same two things Barack Obama pointed to as evidence of his success. Peter said this is really all about the Fed.

When Obama was president, we had a rising stock market and a falling unemployment rate and basically for the same reasons we have a rising stock market and a falling unemployment rate now. The stock market was going up because of the Fed, because of artificially low interest rates and quantitative easing. Well, that’s exactly why it’s going up now — artificially low interest rates and quantitative easing.”

Peter said today we have one more thing driving stock markets — talk of a trade deal.

 …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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