Another “Subprime” Waiting to Blow

Submitted by William Bonner, Chairman – Bonner & Partners

Bull or Bear?

GUALFIN, Argentina – Dow down 239 points on Wednesday – or 1.5% – after Japan posted its biggest one-day gain in seven years. This is getting interesting again.

If it is just “volatility,” as Wall Street’s shills in the press maintain, it will probably pass soon. Everything will be okay. Back to routine imbecility before the end of the month.

A mold attacked peach surrounded by good ones.Peaches stricken by mold, a.k.a. too late to eat.

Photo credit: Sorin Alb

But if these whipsaw movements are heralding a bear market, U.S. stock prices could be cut in half… or more. And they may not recover for 10 to 20 years. (Catch up on the details of our bear market forecast here.)

Which is it? Bull or Bear? No one knows, of course. But it looks to us as though the whole shebang is getting ready to collapse. So far, the correction has trimmed $12.5 trillion off the value ofglobal stock markets.

1-DJIA-dailyDJIA, daily – building a triangle – where have we seen this before? Right, in the Shanghai Composite Index. Triangles tend to be continuation formations – click to enlarge. Continue reading

Why Don’t You Explain this to Me Like I’m Five….

Submitted by Thad Beversdorf  –  The First Rebuttal Blog

Soc Gen’s global head of research, Patrick Legland, has gone on record, according to aMarketWatch article yesterday as saying that the selloff in developed equity markets has gone too far, and he provides reasons to support his claim.  First, he suggests the Chinese market rout has further to go but believes the fallout will be limited to EM and commodities.  Second, Legland believes that the US and other developed nations are protected by “well-armed central banks” evident by the 3.7% economic growth and the 5.1% unemployment rate and the Eurozone’s 3 year low unemployment.  Lastly, he suggests that due to central banks having created a bond market bubble bonds are no longer a safe haven and thus no longer a viable alternative to equities.  I will point out that Leon Cooperman also discussed on CNBC yesterday morning the fact that there are no viable alternatives to equities anymore and so equities remain in the secular bull.

While I admire Legland’s optimism I simply do  not accept his claims.  They are full of tragic flaws.  Allow me to colour code this for all those market ‘pros’ and PhD ‘economists’ who haven’t been able to follow the premise over the past several months.

Screen Shot 2015-09-10 at 6.35.46 AM

The chart depicts that this rout has just begun.  As EPS rolled over in the first half of this year, it signaled that ‘The Tide has Finally Turned‘ as I explained in a recent piece published Aug 2nd (just weeks before the selloff began).  In that research piece I told readers to “prepare for an imminent equity valuation reset” and explained why it would occur.  The above chart provides an explanation as if we are a 5 year old.  You see a correction is not a one week market selloff that then allows for the algos to push markets to new all time highs.  A correction implies there was a mistake that required fixing.  The correction is market valuations coming into this year with unsustainable EPS growth projections. Continue reading

“That is real gold. The alternative is paper gold…other people’s promises.”

Submitted by Mark O’Byrne  –  GoldCore

One of the best interviews we have seen about gold in recent weeks took place last week. It was a Bloomberg interview which involved Peter Hambro being interviewed by Francine Lacqua and Manus Cranny on Bloomberg Television’s “The Pulse.”

GoldCore: Hambro Wealth Insurance

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A Worrying Development for Stock Market Bulls

Submitted by William Bonner, Chairman – Bonner & Partners

Setting Other People’s Wages

GUALFIN, Argentina – We are delighted with all the back talk we got from our Diary on the “Absurdity of the “Living Wage.” The responses were lively… and entertaining. We laughed. We cried. Many people thought that we had given priests too much money… and prostitutes not enough. We could go either way on that.

Still, we got no complaints from prostitutes, but many from doctors. They wrote in to tell us how hard they worked and how outraged they would be if they earned less than nurses. (Scroll down to today’s Mailbag for more.) They may not have noticed how far our tongue had reached into our cheek. But what fun it is setting other people’s wages!

We even got a letter from a former resident of Communist Yugoslavia who had participated on a government board charged with setting salaries for different job classifications. He was so disgusted by it he emigrated to the U.S.

Finally, one reader probably spoke for thousands: “This is the most idiotic article in the history of articles.” We are too modest to believe it. But if it is so, it is certainly an achievement!

After all, Larry Summers and Paul Krugman write articles too. So do doctors! It is hard to believe that we could top them all. But enough of this. We have to turn to other things… Such as the collapse of the whole world economy!

protest-15-hour-McDsEager to be replaced by automatons: assorted McDonalds personnel

Photo credit: Steve Rhodes / flickr Continue reading

On German Moral Leadership – English version of op-ed in Sunday’s FAZ

Submitted by Yanis Varoufakis  –  The Yanis Varoufakis Blog

For the published version in Sunday’s Frankfurter Allgemeine Zeitung click here. For my original English text read on…

Economists err when they think that human rationality is all about applying one’s means efficiently in order to achieve one’s ends. That the efficient application of available resources in the pursuit of given objectives is an important dimension of our Reason, there is no doubt. The error however sips in when economists, and those influenced by them, assume that this is all rationality is about.

This type of instrumental approach to the meaning of Reason massively underestimates perhaps the one ingredient of human reasoning that makes us exceptional animals: the capacity to subject our ends, our objectives, to rational scrutiny. To ask ourselves not just questions such as “Should I invest in bonds or shares?” but also questions of the type: “I like X but should I like it?”

This summer we, Europeans, faced major challenges to our integrity and soul. The inflow of refugees tested our humanity and our rationality felt the strain of needing to make hard choices. Most European nations, and their governments, failed the test of history spectacularly. Closing borders down, stopping trains on their tracks, treating people in need as an existentialist threat, indulging in bickering at the level of the European Union as to who will bear a lesser part of the burden – all in all, Europe behaved abominably leading the Italian Prime Minister to utter in desperation: “If this is Europe, I do not want to be part of it.” Continue reading

The Parties Crawl Off to Die

Submitted by James Howard Kunstler  –  www.kunstler.com

I‘ve alluded to being a registered Democrat now and again, a disclosure that makes some readers go feral with wrath. For years I could only justify it as formal opposition to the cretinous brand of Republicanism that washed over the country like a septic wave with the reign of that sainted pompadour-in-search-of-a-brain, Ronald Reagan, whose “morning in America” bromide was among the biggest whoppers of my lifetime. With Reagan, we got the officially-sanctioned marriage of right wing politics and the most moronic strains of Southland evangelical religiosity. (Ronnie stated more than once his belief that Biblical “end times” were close at hand, which should have raised the question of his actual concern for the nation’s future — did he think it had one? — but nobody ever asked him about it.) George H. W. Bush expressed a similar view, perhaps merely pandering to the dolts of Dixie.

So, who in his right mind could have subscribed to that load of bullshit?

Meanwhile, the youthful and magnetic Clintons came on in 1992. They put on a good show of national stewardship in the early going. Bill could speak English fluently, unlike his two predecessors. Hillary’s committee to tackle health care reform came to grief, but the effort at least implied a recognition that medicine was turning into a shameless racket (now fully metastasized). Bill managed to shove through a species of welfare reform — remarkable for a Democrat — that has since deliquesced back into a swamp of disability fraud. But the Clinton turning point was the repeal of the Glass-Steagall Act, which opened the door to an orgy of financial mischief so arrant and awful, and to a plague of corruption so broad and deep, that American life is now pitching into a long emergency. Continue reading

China Hardens Peg and Brazil Goes to Junk

Submitted by Doug Noland – Credit Bubble Bulletin 

Let’s this week begin with a cursory glance at the world through the eyes of the bulls. First, the global backdrop provides the Fed convenient cover to delay “liftoff” at next week’s widely anticipated FOMC meeting. Even if they do move, it’s likely “one and done.” While on a downward trajectory, China’s $3.5 TN international reserve hoard is ample to stabilize the renminbi. Chinese officials clearly subscribe to their own commanding version of do “whatever it takes” to control finance and the economy. One way or another, they will sufficiently stabilize growth – for now. The U.S. economy enjoys general isolation from China and EM travails. Investment grade bond issuance – the lifeblood of share buybacks and M&A – has already bounced back robustly. The U.S. currency, economy and securities markets remain the envy of the world. “Money” fleeing faltering EM will continue to support U.S. asset markets along with the real economy.

September 10 – Financial Times (Netty Idayu Ismail): “The European Central Bank will ensure its policy stance remains as accommodative as needed amid financial-market turbulence, according to Executive Board member Peter Praet. ‘The Governing Council will remain vigilant that recent volatility does not materially affect the broad array of financial conditions and therefore lead to an unwarranted tightening of the monetary-policy stance,’ Praet said… ‘It has emphasized its willingness and ability to act, if warranted, by using all the instruments available within its mandate.’”

The ECB’s “unwarranted tightening of the monetary-policy stance” comes from the same playbook as Bernanke’s (the Fed’s) “push back against a tightening of financial conditions.” In a world where financial markets dictate general Credit Availability as never before, central bankers have essentially signaled open-ended commitment to liquidity injections as necessary to counteract risk aversion. Such extraordinary market exploitation underpins the fundamental bullish view that global policymakers have things under control. Continue reading

Oblivious to Risk – Investors in LaLa-Land

Submitted by Pater Tenebrarum  –  The Acting Man Blog

Complacency Still Reigns

Given current market volatility and the increasing amount of evidence showing that the global central bank money printing orgy of recent years has utterly failed to produce a so-called “self-sustaining” recovery, it is quite odd how nonchalant investors remain about the outlook for “risk assets” such as stocks.

leadership_cce6_640x390Image via glennllopis.com

In this context, we wanted to show our readers a chart a friend has recently sent us. This chart depicts the MSCI Global Index and contrasts it with a “macro confidence” indicator (“global risk sentiment”). This indicator does not take sentiment surveys into account – instead it is purely based on a variety of market prices and positioning data that are held to reflect investor sentiment. Not surprisingly, this indicator often has contrarian implications. It is quite stunning to what extent it is currently diverging from stock prices. Apparently, investor confidence not only hasn’t suffered, it has actually soared to a new high for the year:

1-MSCI World vs Sentiment 150908Global risk sentiment (red) vs. global stock prices (black) – a huge gap has opened up between reality and perceptions Continue reading

Goldman Sachs – Perpetrator Of The Fed’s Jihad Against Savers

You can’t blame Janet Yellen entirely for the growing prospect that the Fed will take a powder on Wednesday and opt for the 81st straight month of ZIRP. After all, she’s basically a fuddy duddy school marm caught in a 1970s labor economics time warp—–a branch of the “home” economics theory taught by John Maynard Keynes after he turned protectionist in 1930.

Accordingly, she does apparently believe that the US economy resembles a giant bathtub, and that it is the Fed’s job to see that employment and output rise full to the brim. Nor does that mission take much special doing——-at least according to the primitive macroeconomic plumbing theories of Keynes’ disciples like her PhD supervisor, Professor James Tobin of Yale. Just crank the interest rate valve lower until the economic ether thereby released——–called aggregate demand——works its magic.

Indeed, the good professor did help ignite a rip-roaring inflationary boom in one country during the Kennedy-Johnson years. Back then the world economy was still segmented and unmonetized enough to at last partially encompass a closed economy model of state managed pump-priming. That was especially possible because more than a billion potential workers were trapped in the economic Gulag of Mao’s China and the post-Stalinist Soviet bloc. Continue reading

Not China’s Alone

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

There is no bottom in sight yet for China. Despite five interest rate cuts and traditional interpretations of monetary “stimulus”, the economy continues to decelerate beyond mainline understanding. Industrial production was just 6.1% in August, marking the thirteenth consecutive month (counting January, which is combined with February due to China’s New Year) below 8%, while retail sales rose 10.8%. Fixed Asset Investment, perhaps the key economic figure for China as it includes the real estate bubble, was the lowest growth rate since December 2000.

Growing evidence that the world’s economic powerhouse is slowing down has caused major investment market falls.
Other indications that the economy is weakening can be seen in falling car sales and lower imports and inflation.
Chinese manufacturers cut prices at their fastest pace in six years, largely on the back of a drop in commodity prices, which have dropped sharply over the past year as demand from China faltered.

Earlier this month, The National Bureau of Statistics reported a PPI of -5.9%. That is nearly as bad as the worst months during the Great Recession and already appreciably worse than the whole of the dot-com recession (which was likewise global). In fact, as noted last month, China’s producer price “deflation” lines up a little too closely with global recessions. In that respect, even the grudging acknowledgement in the mainstream of what all this means understates the nature of both its severity and, worst of all, how this continues to linger month after month.

“The economy is showing no sign of recovery,” said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. “From the perspective of monetary policy, the government has done what it can, but demand from the real economy needs to pick up to really make use of that.”
“Demand for industrial products from domestic and overseas markets is still on the weak side,” Jiang Yuan, senior statistician at NBS, wrote in a statement issued with the report. “Downward pressure on industries is still relatively big.”

While the first part, “no sign of recovery”, is “unexpected” for orthodox economists it is the second, “weak side” “from domestic and overseas markets” that make this truly dangerous. In other words, there isn’t just a regional or specific nationality within a “transitory” slump but rather a global, unified deceleration that looks suspiciously recessionary except for its distinct lack of foreseeable rebound. As viewed from Brazil, the global economy continues grind slower and slower beyond the bounds of what used to be considered plain awful.

ABOOK Sept China Econ PPI

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The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• China Stocks Sink Again: Shanghai Down 3.52% (Bloomberg) 
• China Sells Record FX In August, Shows Pressure After Devaluation (Reuters) 
• China Spending Surge Means Debts Will Only Get Larger (WSJ) 
• China Grabs Unused Funds To Spend On New Projects As Growth Slows (Reuters) 
• Brazil Downgrade Leaves Firms With $270 Billion Debt Hangover (Bloomberg) 
• Pimco, Fidelity Stung by Collapse of Petrobras’s 100-Year Bond (Bloomberg) 
• Deutsche Bank To Cut 23,000 Jobs, A Quarter Of Its Workforce (Reuters)
• UniCredit, Italy’s Biggest Bank, Plans To Cut Around 10,000 Jobs (Reuters) 
• ‘Syria Is Emptying’ (WaPo) 
• Refugees Confounded By Merkel’s Decision To Close German Borders (Guardian) 
• Thousands Of Refugees To Lose Right Of Asylum Under EU Plans (Guardian) 
• EU Plan To Share 120,000 Refugees Has Fallen Apart (FT) 
• Border-Free Europe Unravels As Migrant Crisis Hits Record Day (Reuters) 
• Europe Fortifies Borders as Germany Predicts 1 Million Refugees (Bloomberg) 
• EU Governments Set To Back New Internment Measures (Guardian)
• Hungary Transports Refugees To Austria Before Border Clampdown (Guardian) 
• Cameron Invents The Humanitarian Offside Rule (Frankie Boyle) 
• US Officials Cover Up Housing Bubble’s Scummy Residue (David Dayen) 
• Defining Neoliberalism (Jeremy Smith) 
• One In Six Americans Go Hungry. We Can’t Succeed On An Empty Stomach (Guardian)