Last week ended with the cackling hens on CNBC and the spokesmodels on Bloomberg bloviating about the temporary pothole on the road to riches. They assured their few thousand remaining viewers the 11% plunge in the stock market was caused by China and the communist government’s direct intervention in their stock market, arrest of a brokerage CEO, and threat to prosecute sellers surely cured what ails their market. The Fed and their Plunge Protection Team co-conspirators reversed the free fall, manipulating derivatives and creating a short seller covering rally back to previous week levels. The moneyed interests are desperate to retain the appearance of normality and stability, as their debt saturated system teeters on the verge of collapse.
John Hussman’s weekly letter provides sound advice for anyone looking to avoid a 50% loss in the next 18 months. The market has been overvalued for the last three years and now sits at overvaluation levels on par with 1929 and 2000. The difference is that fear has been overtaking greed in the psyches of traders. The average Joe isn’t in the market. Only the Ivy League MBA High frequency trading computer gurus are playing in this rigged market. The 1,100 point crash last Monday is what happens when arrogant young traders, fear and computer algorithms combine in a perfect storm of mindless selling. Suddenly the pompous risk takers became frightened risk averse lemmings.
The single most important thing for investors to understand here is how current market conditions differ from those that existed through the majority of the market advance of recent years. The difference isn’t valuations. On measures that are best correlated with actual subsequent 10-year S&P 500 total returns, the market has advanced from strenuous, to extreme, to obscene overvaluation, largely without consequence. The difference is that investor risk-preferences have shifted from risk-seeking to risk-aversion.
If there is a single lesson to be learned from the period since 2009, it is not a lesson about the irrelevance of valuations, nor about the omnipotence of the Federal Reserve. Rather, it is a lesson about the importance of investor attitudes toward risk, and the effectiveness of measuring those preferences directly through the broad uniformity or divergence of individual stocks, industries, sectors, and security types. In prior market cycles, the emergence of extremely overvalued, overbought, overbullish conditions was typically accompanied or closely followed by deterioration in market internals. In the face of Fed induced yield-seeking speculation, one needed to wait until market internals deteriorated explicitly. When rich valuations are coupled with deterioration in market internals, overvaluation that previously seemed irrelevant has often transformed into sudden and vertical market losses. Continue reading
With every passing week that money markets rates remain pinned to the zero bound by the Fed, the magnitude of the financial catastrophe hurtling toward main street America intensifies. That’s because 80 months—– and counting—–of zero interest rates are fueling the most stupendous gambling frenzy that Wall Street has ever witnessed or even imagined. Sooner or later, therefore, this mother of all financial bubbles will splatter, bringing untold harm to millions of households which have been lured back into the casino.
The truth is, zero cost in the money market is irrelevant to main street. As we have repeatedly demonstrated the household sector is stranded at “peak debt” and, consequently, there is no interest rate low enough to elicit a spree of pre-crisis style consumer borrowing and spending. Based on the clueless jawing that occurred this weekend at Jackson Hole, the following simple chart that I laid out last week bears repeating:
On the eve of the financial crisis in Q1 2008, total household debt outstanding—including mortgages, credit cards, auto loans, student loans and the rest——– was $13.957 trillion. That compare to $13.568 trillion outstanding at the end of Q1 2015.
That’s right. After 80 months of ZIRP and an unprecedented incentive to borrow and spend, households have actually liquidated nearly $400 billion or 3% of their pre-crisis debt.
Likewise, zero money market rates are irrelevant to legitimate business finance. That’s because no sane executive would finance the life blood of his enterprise—–the working stock of raw, intermediate and finished goods——in the overnight money market; and, self-evidently, free overnight money is beside the point when it comes to funding long-term, illiquid but productive assets such as plant, equipment and software. Continue reading
Judiciary Branch Has Self-Abolished
The US no longer has a judiciary. This former branch of government has transitioned into an enabler of executive branch fascism.
Privacy is a civil liberty protected by the US Constitution. The Constitution relies on courts to enforce its prohibitions against intrusive government, but if the executive branch claims (no proof required) “national security,” courts kiss the Constitution good-bye.
Federal judges are chosen by the executive branch. The senate can refuse to confirm, but that is rare. The executive branch chooses judges who are friendly to executive power. This is especially the case for the appeals courts and the Supreme Court. The Justice (sic) Department keeps tabs on district court judges who rule against the government, and these judges don’t make it to the higher courts. The result over time is to erode civil liberty.
Recently a three-judge panel of the US Appeals Court for the District of Columbia ruled that the National Security Agency can continue its mass surveillance of the US population without showing cause. The panel avoided the constitutional question by ruling on procedural terms that NSA had a right to withhold the information that would prove the plaintiffs’ case.
By refusing to extend the section of the USA PATRIOT Act—a name that puts a patriotic sheen on Orwellian totalitarianism—that gave carte blanche to the NSA and by passing the USA Freedom Act, Congress attempted to give NSA’s spying a constitutional patina. The USA Freedom Act allows the telecom companies to spy on us and collect all of our communications data and for NSA to access the data by obtaining a warrant from the Foreign Intelligence Surveillance Act (FISA) Court. The Freedom Act protects constitutional procedures by requiring NSA to go through the motions, but it does not prevent telecom companies from invading our privacy in behalf of NSA. Continue reading
The Jackson Hole gathering may end up providing at least some clarification, but not even close to the manner in which everyone seems intent on inferring. With Janet Yellen’s notable absence, there isn’t the same sort of celebrity about what would have been the media hanging upon every word; that is, after all, what the Federal Reserve has become, not an organ of stability or even expertise but a public relations effort aimed squarely at trying to convince everyone possible that it is. Given the unique circumstances at the moment, the real issue is not whether they might raise rates but just how much systemic misdirection has already been revealed even to the least attentive of people.
The retreat at Jackson Hole goes back more than thirty years to the early 1980’s and Paul Volcker’s apparent affinity for fly fishing. It had started more as a very quiet and exclusive affair but for the first time this year there were outside and competing conferences held at the same time in the same place. That configuration, I think, speaks volumes about finally understanding the broad, general terms of what monetary policy actually is.
Apparently, right next to the main central banker conclave, a left-wing group was meeting ostensibly not to target the Fed and its Wall Street bias, perceived or not, but rather to urge it against ending ZIRP.
“The economy has not fully recovered and interest rates should not be raised when racial disparities exist,” said Shawn Sebastian, a policy advocate for the Fed Up Coalition of the Center for Popular Democracy, pointing to continued higher-than-average unemployment rates for black Americans…
As Fed officials hear from central bankers from Switzerland and Chile Friday, they are doing so practically next door to a workshop called “Do Black Lives Matter to the Fed?” sponsored by Sebastian’s group, which wants rates to stay low until wage growth and unemployment improve, especially for minorities.
Submitted by James Howard Kunstler – www.kunstler.com
The tremors rattling markets are not exactly what they seem to be. A meme prevails that these movements represent a kind of financial peristalsis — regular wavelike workings of eternal progress toward an epic more of everything, especially profits! You can forget the supposedly “normal” cycles of the techno-industrial arrangement, which means, in particular, the business cycle of the standard economics textbooks. Those cycle are dying.
They’re dying because there really are Limits to Growth and we are now solidly in grips of those limits. Only we can’t recognize the way it is expressing itself, especially in political terms. What’s afoot is a not “recession” but a permanent contraction of what has been normal for a little over two hundred years. There is not going to be more of everything, especially profits, and the stock buyback orgy that has animated the corporate executive suites will be recognized shortly for what it is: an assest-stripping operation.
What’s happening now is a permanent contraction. Well, of course, nothing lasts forever, and the contraction is one phase of a greater transition. The cornucopians and techno-narcissists would like to think that we are transitioning into an even more lavish era of techno-wonderama — life in a padded recliner tapping on a tablet for everything! I don’t think so. Rather, we’re going medieval, and we’re doing it the hard way because there’s just not enough to go around and the swollen populations of the world are going to be fighting over what’s left. Continue reading
Submitted by Mark O’Byrne – GoldCore
Today’s Gold Prices: Bank Holiday in UK today
Friday’s Gold Prices: USD 1,125.50, EUR 998.23 and GBP 730.99 per ounce.
Last week gold and silver prices fell and gave up some of the gains from the previous week. Gold was 2% lower on Friday and indeed 2% lower for the week and closed at $1134.40 per ounce. Silver was 4.5% lower for the week and closed at $14.59 per ounce but is just 1.8% lower for the month of August.
August has been a tumultuous month with stocks seeing sharp losses and gold has again protected investors from sharp losses. Gold has had a 3.36% gain for the month so far (see table below).
Gold is on track for the best monthly advance since January after most market participants were surprised by the devaluation of China’s currency. This has fueled concerns about further currency wars and about the world’s second-largest economy and indeed the global economy may be vulnerable to a recession – potentially a severe one.
Gold exchange-traded fund holdings rose to a one-month high last week on safe haven demand. The MSCI All-Country World Index of equities is headed for the worst monthly performance since May 2012 and a gauge of 22 raw materials was set to decline for a second month.
Monthly Asset Performance – Finviz.com
Gold Set for Best Month Since January as Rout Lifts Haven Assets – Bloomberg
Asian stocks set for worst monthly drop in three years on global rout – Reuters
Stocks Set for Worst Month Since 2012 as Fed, China Woes Collide – Bloomberg
Polish Government Confirms Discovery Of Nazi “Gold Train”, Warns It May Be Booby-Trapped – Zero Hedge
App for that? BitGold looks to take gold savings mainstream – CTV News
South Africa to promote platinum as central bank reserve asset – Reuters
Submitted by William Bonner, Chairman – Bonner & Partners
A Decline in Excess of 50%
DELRAY BEACH, Florida – It’s hot in Florida. Steamy hot. Hair curls and bodies go limp. The “relief rally” continued on Thursday. All over the world, stocks gained. So did oil and commodities. The Dow was up 369 points – a 2.3% move. Chinese stocks were up by about 5%. Why?
U.S. GDP numbers for the second quarter came out higher than expected. The economy grew by an annual rate of 3.7%. And influential New York Fed chief William Dudley said the argument for a rate increase in September was “less compelling.”
NY Fed president William Dudley, indicating the height of the Federal Funds rate between thumb and forefinger, now and forever.
Photo via sincomillas.com
Oh, ye of little faith… fear not! Things are happening just as they should. It is the end of summer. Markets are giving strong hints of things to come in the fall. Like Vesuvius, a plume of smoke rises… and a cloud of dust hangs over the markets. The economic earth rumbles… and animals take flight.
But in come the cronies to tell us not to worry about it. And who knows what happens next? Your editor is a fairly good plumber. He can put the pipes together and unclog the toilet.
Alas, his record as a market soothsayer is spotty. He is rarely wrong, but often so early that by the time the event occurs even he has forgotten he ever predicted it.
We wouldn’t argue with Mr. Bohr (and all the other people this quote has been attributed to) Continue reading
Godfrey Bloom was UKIP’s party whip for a long time, and for many years served as a member of the European parliament for UKIP. Ironically, although the party has solid electoral support in the UK, it has yet to make an inroad into Westminster due to the “first past the post” electoral system. It has always had a much greater representation in Strasbourg – at an institution it would prefer to abolish.
Godfrey Bloom: “The State is an institution of theft”
Photo credit: Frederick Florin / AFP / Getty Images
Similar to UKIP boss Nigel Farage, Bloom has always been quite outspoken. If you think Donald Trump is non-PC, you probably haven’t heard Bloom yet. He is an anti-politician in a way – in fact, he doesn’t believe “politician” should even be a job, and we can only agree wholeheartedly. Bloom lost his party whip status at UKIP and later left the party, after he slapped a journalist with a brochure, called women “sluts” (actually, this incident has to be contextualized as you will see – he told a joke – but it certainly was an impolitic “foot-in-mouth” moment) and objected to the UK government borrowing huge amounts of money and then sending aid to “Bongo-Bongo Land”. He was perfectly right of course. No aid should be sent to bongo-bongo land (further below we are letting him explain why).
Michael Crick gets slapped by Godfrey Bloom – in all likelihood, it was well-deserved
Photo credit: Channel 4
Enemy of the State
Anyway, we are sure Bloom is not without his faults, but the following excerpt of his work in Strasbourg is surely enough to forgive him a great many trespasses (both real and imagined ones). You will immediately see why the establishment at the EUSSR and elsewhere has always hated him with a passion. Enjoy:
Godfrey Bloom on who the biggest tax avoiders in Europe really are
The moment you add the yen to any larger financial discussion it inevitably brings out passionate response. I think that is derived partially from its status as unbelievably durable; if there is one currency in the world that “deserves”, so to speak, ultimate execution it is that of the Japanese. The Bank of Japan has done more than any other central bank for far longer to kill it, but like any horror movie villain it seems immune to any reckoning or even the laws of financial sense.
In the bigger picture, that is as much a damning indictment as a tale of orthodox resilience. It shows that monetary redistribution is nothing but a trap, an incredibly narrow and locked economic existence that can and will be permitted by any sustained apathy. It is a cautionary tale that “markets” can become comfortable with perpetual dysfunction and disaster over time; distract investors enough with monetary magic and they will apparently forget all about more basic functions like impoverishment and general, sustained degeneration.
To the more immediate effect, the yen as related to financial markets elsewhere is always going to be tangled by the “carry trade.” The idea has become legend, as to whenever the yen moves starkly in one direction or the other the first commentary will usually “inform” of the carry trade potential. I have no doubt that it exists and even that it forms the great basis of yen involvement in so many spheres, but I think it more a means than an end.
What was notable about Japan during the past few weeks was the yen’s strengthening. Almost in lockstep with gold, it was quite clear that fear was driving both as the “dollar” was being run. Under less pressured condition, a tightening in wholesale “dollars” would typically find both the yen and gold in the reverse; the fact that they (and the franc) had become the opposite was a telling cue.
Submitted by William Bonner, Chairman – Bonner & Partners
DELRAY BEACH, Florida – “The Donald” breathed a sigh of relief yesterday. He and other rich people got a break from the beating they’ve been taking: Stocks bounced, with the Dow ending yesterday’s session up more than 600 points.
The gears have been stripped, and they look rusty…
Photo credit: Jonathon Cianfrani
But is the bounce to be trusted? And are there better, more tangible, alternatives to investing in stocks? We’ll try to answer both questions in today’s update… We’ll also respond to a reader’s feedback on Mr. Trump in today’s Mailbag.
Yesterday’s bump confirms the mainstream view: There is nothing to worry about. The recent sell-off is just a case of nerves, not a sign of an epizootic.
DJIA: don’t worry, be happy? – click to enlarge.
Here is U.S. Trust, a private bank for the ultra-wealthy, reassuring its customers:
“The action in the past few days has been based on fears that we will revisit the market environment from 1997 to 1998, in which the Asian currency crisis led to a sizable correction in world equity markets. A second breakdown in energy, a continued fall to record‐low prices in many commodities, and a deep drop in emerging market currencies and equities are sparking fears that a global growth recession is coming our way. And add to that the fact that investors are worried that the Federal Reserve may tighten into a large-scale slowdown is increasing the flight to safety.”
U.S. Trust, like Donald Trump and much of the media, blames the Chinese for the recent sell-off. Emerging market economies are slowing, they say, as the U.S. and developed economies are moving into “higher gear.” Higher gear? As near as we can determine, the gears have been stripped. Continue reading