US Money Supply Growth Finally Begins to Crack

Submitted by Pater Tenebrarum  –  The Acting Man Blog

Breaking Below the Shelf

In our recent missive on junk bonds, we inter alia discussed the fact that the growth rate of the narrow money supply aggregate M1 had declined rather noticeably from its peak in 2011. Here is a link to the chart.

As we wrote:

 

“We also have confirmation of a tightening monetary backdrop from the narrow money supply aggregate M1, the annualized growth rate of which has been immersed in a relentless downtrend since peaking at nearly 25% in 2011. We expect that this trend will turn out to be a a leading indicator for the recently stagnant (but still high at around 8.3% y/y) growth rate in the broad true money supply TMS-2.”

 

Photo credit: Bari Goodman

 

In the meantime the data for TMS-2 have been updated to the end of October, and low and behold, its year-on-year growth rate has declined to the lowest level since November of 2008. At the time Bernankenstein had just begun to print like crazy, via all sorts of acronym-decorated programs (they could have just as well called them “print 1, print 2, print 3”, etc.). So we’re now back to the broad true money supply growth rate recorded at “echo bubble take-off time”.

 

Annual growth rate of US money TMS-2, breaking below the lower end of the range it has inhabited since late 2013 – click to enlarge.

Wall Street Remains Clueless – Even As The Brown Stuff Heads Straight Into The Fan

Submitted by David Stockman – The Contra Corner Blog

The Dow should have been down 500 points Tuesday. And that’s to say nothing of the fact that the market’s current lofty valuation makes no sense in the first place.

The fact is, the brown stuff is now heading straight for the fan.

Didn’t the odds of a major geo-political calamity just take a huge turn for the worse in the airspace over the Syria-Turkey border?

At the same time, wasn’t today’s GDP update just one more reminder that the global economy is sinking into a deflationary contraction? And that our so-called domestic recovery cycle is getting very long in the tooth and is essentially running on the fumes of inventory accumulation?

Yet the Wall Street gamblers and robo-traders seem to think that pricing this global accident waiting to happen at 22X reported S&P 500 earnings is no big deal. And that comes on top of the fact that the long-running corporate earnings expansion cycle is over, as attested to by both the GDP report and the Q3 SEC filings.

At $94 per share S&P reported earnings came in 11% below last year’s $106 per share and that was before the most recent headwinds became evident.

To wit, Syria is rapidly taking on the complexion of the Balkans in June 1914. The resulting backwash of Islamic State terrorism and millions of refugees streaming deep into the interior of Europe threatens to elicit a political and economic lockdown and a potential Thermidorian Reaction.

The rise of rightwing nationalism, in fact, would end the European Union as we know it.

And this is occurring even as Asian exports to Europe plunge, dragging Japan into its 5th recession in seven years and China ever closer to a thumping hard landing.

Turkey Has Destroyed Russia’s Hope Of Western Cooperation

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

UPDATE: A friend, George Abert, suggested a reason why the Turks shot down the Russian fighter-bomber over Syria. The Russians have a technology that they recently demonstrated against the newest US missile cruiser and Israel’s US jet fighters. The technology shuts down the communication systems of hostile forces, leaving them blind. He wonders if the Russian aircraft was shot down in order to encourage the Russians to use its unknown technology whenever Russian aircraft are in the vicinity of NATO and Israeli aircraft. He bets that the US has sent every Raven and ELINT specialist to the area in hopes that Russia’s use of the technology will allow them to learn enough about the system to duplicate it or learn how to block it.

Turkey’s unprovoked shoot-down of a Russian military aircraft over Syria raises interesting questions. It seems unlikely that the Turkish government would commit an act of war against a much more powerful neighbor unless Washington had cleared the attack. Turkey’s government is not very competent, but even the incompetent know better than to put themselves into a position of facing Russia alone.

If the attack was cleared with Washington, was Obama bypassed by the neocons who control his government, or is Obama himself complicit? Clearly the neoconservatives are disturbed by the French president’s call for unity with Russia against ISIL and easily could have used their connections to Turkey to stage an event that Washington can use to prevent cooperation with Russia.

The Economic Impact of Evil

Submitted by John Mauldin – Mauldin Economics

“Political leaders still think things can be done through force, but that cannot solve terrorism. Backwardness is the breeding ground of terror, and that is what we have to fight.”

– Mikhail Gorbachev

“… Europe exemplifies a situation unfavorable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe.”

– Professor Milton Friedman, The Times, 19 November 1997

“There is no example in history of a lasting monetary union that was not linked to one State.”

– Otmar Issing, chief economist of the German Bundesbank in 1991

The world can change quickly, and last week it did. The most immediate and heartbreaking impacts of the Paris attacks were suffered by the victims themselves and their families, but from there the ripples of terror spread outward around the world.

The Paris events didn’t happen in isolation. Recent bombings in Lebanon, Iraq, Mali, and Nigeria, plus the Russian airline disaster, showed us how far evil can reach. It isn’t just ISIS: al-Qaeda is getting stronger in some places; Boko Haram continues to strengthen in West Africa; there is a resurgent Taliban in Afghanistan; and the list goes on…

In addition to the catastrophic human cost it exacts, terrorism has economic impacts. It misallocates resources, distorts prices, and prompts adverse government policies. We all feel these effects, even if we live far from the terror zones.

Terrorism is global. So is the economy. We can’t separate them. I’m sure you have spent time reading about the reaction to the terrorist attacks in Paris. I have been reading and thinking a great deal about the effects of recent events on the European Union. Much of what I’ve read seems to miss what I think is the larger context and what may be the real longer-term economic and geopolitical implications of these attacks. It should make for an interesting, and somewhat sobering, letter.

Still More Inventory

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The only piece of the GDP revision to note is that the BEA is still having great difficulty estimating inventory. That isn’t surprising since businesses in this area are behaving far different than any expectation, even factoring the difficulty of the “recovery” environment. That leaves instead only Janet Yellen’s continuous pleading about the surge in consumer spending that never seems to arrive; and now consumers are flushing even this weak consumption environment with revolving credit in a sign of further exhaustion.

In the preliminary release for Q3 GDP, the BEA estimated that businesses added another $62.2 billion in material, goods and finished products compared to an increase (repeatedly revised) of $127.5 billion in Q2 and $127.3 billion in Q1. Given the mechanics of GDP accounting, a smaller increase actually subtracts from the quarterly GDP rate, thus going from +$127.5 billion to +$62.2 billion amounted to a noticeable drag on the statistical view of the economy.

Gold Market Goes Quiet – Do We Hear The Echo Of The Bottom?

Submitted by Mark O’Byrne  –  GoldCore

Demand for gold is soaring according to the World Gold council’s latest report. The report shows that overall worldwide demand for gold rose by a very significant 33% with the US, Europe, China and Russia all stocking up and pushing demand. Central bankers, lead by Russia, are stocking up aggressively.

With fundamentals like these, why are gold prices not soaring? Crowd psychology might be one reason. Sol Palha of Technical Investor explains.

Year-on-Year Changes in Gold Demand, By Category (Source: WGC)

“Fundamentals do not drive the market; they just provide you with a picture to somewhat justify your biased views. What drives the market is emotions, and some technical indicators have the ability to pick up on these emotional changes. Crowd psychology is probably one of the best and least utilized tools when it comes to spotting topping and bottoming action”.

“From the Technical analysis perspective, gold has one more leg down, but the last leg might or might not be too steep. It will serve to bolster the foolish notion that the Gold bull is dead. Every bull market undergoes a back-breaking correction, and Gold is no exception. We believe the next leg up will yield even larger profits”.

“To indicate that a bottom is in place, Gold cannot close below 1050 on a weekly basis; failure to hold above this level should lead to a test of the 1000 ranges, with a possible overshoot to $950”.

“From the mass psychology perspective, Gold is very close to putting in a bottom. Sentiment investors, contrarian investors and investors who are familiar with the concept of mass psychology should consider taking a closer look at the precious metal’s sector now”.

Read Palha’s full analysis: “Is Gold on the verge of a breakout?”

Other sources:
– Gold Bullion Demand Surges 27% In Q3 – New Chinese “Buying Spree
– The Gold Bull is Dead – Tactical Investor

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• European Banks Sitting On €1 Trillion Mountain Of Bad Debt (Guardian)

• If China Killed Commodities Super Cycle, Fed Is About to Bury It (Bloomberg)

• US, German Manufacturers Can’t Shake The Slowdown In China (Forbes)

• China’s Latest Economic Indicators Make For Gloomy Reading (Bloomberg)

• Iron Ore Rout Deepens as Rising Supply, Weaker Demand Feed Glut (Bloomberg)

• Presenting SocGen’s 5 Black Swans For 2016 (Zero Hedge)

• Elite Funds Prepare For Reflation And A Bloodbath For Bonds (AEP)

• Russia: Ankara Defends ISIS, Financial Interest In Oil Trade With Group (RT)

• Russia Ready For Joint Command Against Islamic State: Paris Envoy (Reuters)

• VW Faces Fresh Probe Over Tax Violation Claims in Germany

• This is The Day We Say Farewell To All That Was Good About Britain (Murphy)

• UK Consumer Borrowing Binge Troubles Bank Of England (Guardian)

• Consume More, Conserve More: Sorry, But We Just Can’t Do Both (Monbiot)

• EU Countries Diverting Overseas Aid To Cover Refugee Bills (Guardian)

• EU Refugee Numbers Drop for First Time This Year as Winter Nears (Bloomberg)

• Rate Of Refugee Arrivals in Greece Picking Up (Kath.)

• Greece Spends €800,000 On Migrant Healthcare With EU Funding Absent (Kath.)