Based on the headline from the latest Jobs Friday report you wouldn’t know that we are still mired in an economic emergency—–one apparently so extreme that it might entail moving to the 81st straight month of zero interest rates at next week’s FOMC meeting. After all, the unemployment rate came in smack-dab on the Fed’s full-employment target at 5.1%.
But that’s not the half of it. The August unemployment rate was also in the lowest quintile of modern history.
That’s right. There have been 535 monthly jobs reports since 1970, yet in only 98 months or 18% of the time did the unemployment rate post at 5.1% or lower.
In a word, the official unemployment rate is now in what has been the macroeconomic end zone for the past 45 years. Might this suggest that the emergency is over and done?
Not at all. The talking heads have been out in force insisting on yet another deferral of “lift-off” on the grounds that the economy is allegedly still fragile and that the establishment survey number at 173,000 jobs came in on the light side. Even the so-called centrists on the Fed—–Stanley Fischer and John Williams—–have gone to full-bore, open-mouth, two-armed economist mode, jabbering incoherently while they await more “in-coming” economic data.
Self-evidently, the only “incoming” information that can matter between now and next Wednesday is the stock market averages. To wit, if last October’s Bullard Rip low on the S&P 500 holds at 1867, the FOMC will declare “one and done”, at least for the year; and if the market succumbs to another spot of vertigo, the Fed will concoct yet another lame excuse for delay.
Indeed, the Fed’s true Humphrey-Hawkins target is transparent. Namely, avoidance of a “risk-off” hissy fit at all hazards.
So let’s just call the whole thing a cosmic farce and dispense with the macroeconomic hair-splitting. Ordinary people everywhere on the planet are in grave danger because governments and their central banking branches have put the gamblers in charge of the economic show. Continue reading
The Walking Dead
Now that Europe’s fractionally reserved banking system has been regulated into complete inertia, it is a good time to assess the current bottom line, so to speak. We should mention here that there are essentially two ways of dealing with the banking system. One is to introduce an unhampered free market banking system based on strong property rights and nothing else. Such a system would work best if it were based on sound money, i.e., a market-chosen medium of exchange. The regulations governing such a system would fit on a napkin.
Image credit: Warner Bros, processing fmh
The Euro-Stoxx bank index, weekly, over the past 10 years. Recently the index has been unable to overcome resistance in the 160-162 area. The bust and the reaction of the authorities to the bust has made zombies out of Europe’s big banks – click to enlarge. Continue reading
In a world saturated by derivatives, the concept of a bellwether of a bellwether might actually make sense. If China is one for the global economy then perhaps South Korea might be it for China. Unlike Japan, South Korea hasn’t had the yawning chasm of QQE to alter its balances, therefore the level of shipments particularly to China offer perhaps a purer view of activity inside that country from a useful external perspective. Unfortunately for those expecting to see the Chinese miracle reassert itself, Korean data for August (released September 1) was just ghastly.
South Korea said exports posted their sharpest fall in six years in August as shipments slumped to China, the country’s largest export destination, amid concerns about a slowdown in the world’s second-largest economy.
The South Korean data provide the first picture of trade for the full month of August in the region after a currency devaluation in China on Aug. 11, which was followed by wild financial market gyrations and jitters about sputtering Chinese growth.
South Korean exports shrank 14.7% from a year earlier in August to $39.33 billion, according to provisional data from the Ministry of Trade, Industries and Energy. The August reading missed a market expectation for a decline of 10%. Exports have been in decline for eight months in a row.
Given China’s economic malignancy, the state of Asian trade and thus the Asian portion of the global economy has been thrown further into turmoil. In that sense, the “dollar” once more acts as catalyst and signal for the crosscurrents of finance and actual activity. It may give off appearances like that of 1997, but the downfall of China suggests far more than that; where Korea suggests more for China. Continue reading
Last week’s volatility to the downside was entirely predictable, as the first leg down during this ongoing market crash reached the correction stage of 11%. The technical bounce was a given, as the 30 year old HFT MBAs on Wall Street have been trained like rats to BTFD. In their lemming like minds, it has worked for the last six years of this Federal Reserve created “bull market”, so why wouldn’t it work now. Last week was their first lesson in why it doesn’t work during bear markets, and we’ve entered a bear market. John Hussman seems amused at the shallowness of the arguments by Wall Street shills and CNBC cheerleaders about the future of the stock market in his weekly letter. After this modest pullback from all-time highs, the S&P 500 is still overvalued by 92%:
Following the market decline of recent weeks, the most reliable valuation measures we identify now project average annual nominal returns for the S&P 500 of about 0.5% in the next 10 years. On a broad range of historically reliable valuation measures (see Ockham’s Razor and the Market Cycle) the May peak in the S&P 500 reached valuations averaging about 114% above run-of-the-mill historical norms – more than double the valuation levels that have historically been associated with the 10% average expected market returns that investors have enjoyed over the long-term. At present, those measures have retreated to about 92% above historical norms.
Keep in mind that low interest rates don’t raise the estimated 10-year expected return on stocks from the current 0.5% level. Low interest rates only make the low expected return on stocks somewhat more “acceptable” because the alternatives are similarly dismal. The Federal Reserve’s policies of zero interest rates and quantitative easing have done nothing but to encourage yield-seeking speculation, bringing valuations to extreme levels, and leaving prospective future investment returns equally depressed.
Those who assert that high equity valuations are “justified” by low interest rates are actually (and probably unknowingly) saying that 0.5% expected returns on equities over the coming decade are a-okay with them. But it’s critically important to understand that while low interest may help to explain why current market valuations have been driven to obscene levels, low rates do not change the relationship – the correspondence – between elevated valuation levels and dismal subsequent long-term market returns. Continue reading
On September 10, the United Nations General Assembly will vote on nine principles concerning the restructuring of sovereign debts. Abiding by such principles would have avoided the pitfalls of the Greek crisis, in which political representatives gave in to creditor demands despite their lack of economic sense and their disastrous social impact. This public interest resolution must be supported by all European states and brought into the public debate.
The Greek crisis has made clear that individual states acting alone cannot negotiate reasonable conditions for the restructuring of their debt within the current political framework, even though these debts are often unsustainable over the long term. Throughout its negotiations with creditor institutions, Greece faced a stubborn refusal to consider any debt restructuring, even though this refusal stood in contradiction to the IMF’s own recommendations.
At the UN in New York exactly one year ago, Argentina, with the support of the 134 countries of the G77, proposed creating a committee aimed at establishing an international legal framework for the restructuring of sovereign debts. This committee, backed up by experts of the UNCTAD, today submits to vote nine principles that should be respected when restructuring sovereign debt: sovereignty, good faith, transparency, impartiality, equitable treatment, sovereign immunity, legitimacy, sustainability and majority restructuring. Continue reading
Gold is down again today but the yen up past 119 toward 118.5; and the real crashing under 3.8 now. In other words, as yesterday, the “dollar” market is somewhat mixed. That view, however, is somewhat deceptive as the absence of further “dollar” pressure does not equate to renewed optimism and a serious move back near funding normalcy. A stroll through the corporate debt bubble confirms that risk is not anywhere close to “on” and that raw concern remains even if there isn’t urgency right now.
Typically, after heavy liquidations there is an almost immediate resurgence; the point of bargain hunters seeking capitulation points. There can be no doubt that from early to late August the “dollar” was causing all manner of liquidations almost everywhere, but quite acute in the junk bubble. In the almost two weeks since August 24/25, there has been a notable lack of enthusiasm to repurchase or acquire bargains despite the liquidation easing. For all the diminishment in forced selling there is no massive wave of buying either; a relevant stalemate that suggests that something other than capitulation.
Instead, the price histories of corporate junk and leveraged loans are showing that the major disruptions of August might have only been the latest ratcheting as risk perceptions continue to align (or be forced to align) with the “dollar” view.
Retail junk bond prices continue to be desperately offered, while companion proxies for liquidity (particularly, with REM, in MBS liquidity which I believe has been an important pressure point as noted in MBS repo) aren’t much changed at all from the August 24 liquidation surge. Continue reading
It’s Nice to Wine and Dine on the Taxpayer’s Dime …
There is only one good thing about G20 (and similar) meetings: almost nothing ever comes of them. That makes them intrinsically cheap, although the tax serfs of the host countries usually must expect that they will have to fork over 100ds of millions in expenses. The costs of providing security for the assembled bigwigs alone are absolutely staggering. Apparently these people are so well liked that they need to be defended against everything short of an asteroid strike regardless of where they show up.
Illustration by Eric Lobbecke
Maybe they could all be pensioned off? Just an idea …
Photo credit: Umit Bektas / Reuters
Luckily the most recent G 20 meeting promises to be just as productive as the ones preceding it. To be fair, one statement was issued at its conclusion that we would support, namely a pledge not to engage in protectionism. One needs to keep in mind though that the current trade regime is a “managed” one, not a truly free one (free trade doesn’t require agreements the length of telephone directories – just rescind all tariffs and uphold the property rights of foreign investors and be done with it). Still, in this case we will take what we can get. Continue reading
Submitted by Mark O’Byrne – GoldCore
Ron Paul On How To Solve The Refugee Crisis – Ron Paul
Here is the real solution to the refugee problem: stop meddling in the affairs of other countries. Embrace the prosperity that comes with a peaceful foreign policy, not the poverty that goes with running an empire. End the Empire!
Real Refugee Problem – And How To Solve It – Ron Paul Institute
Today’s Gold Prices: USD 1120.85, EUR 1003.49 and GBP 728.27 per ounce.
Yesterday’s Gold Prices: USD 1121.00, EUR 1004.03 and GBP 734.75 per ounce.
Gold was marginally lower in gold trading in Singapore and this slight weakness continued to European trading with gold tethered to a remarkably tight $3 range between $1,123.70/oz and $1,120.50/oz.
Gold in EUR – 1 Week
Gold Inches up in Asia Trade – The Wall Street Journal
Gold stable, net long position up for fifth consecutive week – The Bullion Desk
Perth Mint Gold and Silver Sales Solid in August – CoinNews.net
China FX reserves fall record $93.9 bln in Aug as central bank supports yuan – Yahoo Finance
Hollande Readies Syria Air Strikes as Response to Refugee Crisis – Bloomberg