On December 28 we laid out the reason why the Wall Street casino should be avoided at all hazards in a post entitled “Safe On the Sidelines—-405 Days And Counting.” We referred to the fact that the S&P 500 had first crossed that day’s close at 2052 in November 2014, and had vibrated sideways ever since.
We are still counting. After today’s carnage the number has risen to 475 days, but our belief that the stock market casino has just begun its descent has only been further reinforced.
^SPX data by YCharts
We are now witnessing the collision of a lifetime. The Fed and the other central banks are out of dry powder—-stranded on the zero bound and impaled upon a $19 trillion/10X eruption of their collective balance sheets. At the same time, after two decades of runaway credit expansion and bubble finance speculation the inexorable global deflation is now gathering visible steam.
On top of that the fundamental mechanic of the Fed’s phony bull market is rapidly breaking down. That is, the buy-the-dip run of more than six years is over and done.
The remaining Cool-Aid drinkers are getting punished time after time as they buy the short lived spasms of a dying bull——-33 false starts since the market stopped rising at the end of QE a year ago October. Presently the flagellations will stop, however, as the fast money pivots like it always does and stampedes to the sell side of the market.
Today the stock market had is worst annual open in decades, and for good reason. Overnight there was one more indication that the great Red Ponzi of China is heading for a crash landing.
Yet the $30 trillion debt mountain of China—standing 60X taller than it did only two decades ago—-is the lynch bin of the entire credit-bloated and malinvestment-ridden GDP of the planet. As China succumbs to the end of its credit bubble, the economic shock waves cascade across the global economy. It is no accident, for example, that South Korea’s exports are now down 15% on a Y/Y basis or that Brazil is plunging into a near depression. Continue reading
Marion Post Wolcott Natchez, Mississippi, grocery window 1940
The Chinese stock markets broke through 2 circuit breakers today, breakers that were introduced only a few months ago in response to the market selloff, triggered by a surprise yuan devaluation, in August. The first breaker, at -5%, forced a 15-minute trading halt. The second one, at -7%, halted trading for the rest of the day.
For many people, today’s bust can’t have been a huge surprise, because it’s been known for some time that a ban on stock sales by parties holding a 5% or larger stake in a company, is set to expire on Friday. Beijing may panic again before that date, but it can’t force stakeholders to hold on to large portfolios forever either.
Xi and his crew should have stayed out of the markets from the start, but that’s not how they see the world. They still think like apparatchicks, and don’t understand that markets are opposed, at a 180º angle, to top down control. You can either have a market, or you can have central control.
They pumped up the housing market for all they could, and when that bubble blew they tricked their people into buying stocks. And now that one’s fixing to die too, and that didn’t take nearly as long as the housing bubble. The central control team is frantically looking for the next carnival attraction, but it won’t be easy. Continue reading
In the manufacturing sector we find the most supreme test of economic credentials. Despite what is clearly taking place, the mainstream, orthodox outlook and assessment continues to dominate. There isn’t any doubt anymore about the manufacturing sector, as recession not only is broad enough there on its own it continues to deepen and darken. Yet, because Janet Yellen declared the US economy close to “overheating” by initiating a rate increase, there remains all sorts of confusion about how this contradiction could occur.
It stands to no reason that an overheating economy would be so incredibly weak in the one segment that should be most visibly revivifying. If American economic fortunes were so bright, there is no reason to suggest that Americans would not be buying as much as “stuff” as they possibly could. Frugality is not a current consumer trait, and the fact that the savings rate may be closer to 5.5% rather than 10.5% as it once was suggests that hasn’t been instituted out of anything more than necessity.
So the December ISM is reported today at a worse rate than any other since the Great Recession, with a clear downward trend extending all the way back into 2014. But for the media and economists, it has to be “something else” because there is no way, apparently, Janet Yellen would claim “overheating” where there clearly is none. Continue reading
We are in the time of year when most sensible animals living in northerly climates are hibernating in burrows and hollow tree trunks, while the somewhat less sensible pundits make their predictions for the coming year. My prediction is always the same—things will go on more or less same as before, until something major breaks, while the probability of something major breaking goes up with each passing year. I have called this event “collapse,” and have predicted, year after year, that it will eventually happen. And so, instead of repeating this less than useful prediction, this year I will instead provide a prescription.
Not too many people, I expect, will want to follow my prescription; not too many of my family members, or friends, or acquaintances, or you who are reading this. And that’s fine because, as I have learned over and over again, there is no strength in numbers. Quite the opposite: the probability of any given trick working is in inverse proportion to the number of times it is tried, or the number of people who try it. And so, if you are reading along and think “I can’t possibly do this because of [insert lame excuse]!” then—good! Fine with me. Fewer people equals more oxygen.
And that applies to the few people who will actually bother to read this. Lots more people will not want to read this, because—what collapse? Gasoline prices are low, Obama has shut down most of the wars, the economy is strong enough for the Fed to have started hiking rates, and once Bernie Trump gets into the White House, everything else will be set right too. To the people who think that, someone like me, who predicted collapse a while back, was clearly wrong, and needs to be psychoanalyzed, not followed. Again, fine with me, so long and thanks for all the bullshit. Continue reading
Submitted by James Howard Kunstler – www.kunstler.com
There’s really one supreme element of this story that you must keep in view at all times: a society (i.e. an economy + a polity = a political economy) based on debt that will never be paid back is certain to crack up. Its institutions will stop functioning. Its business activities will seize up. Its leaders will be demoralized. Its denizens will act up and act out. Its wealth will evaporate.
Given where we are in human history — the moment of techno-industrial over-reach — this crackup will not be easy to recover from; not like, say, the rapid recoveries of Japan and Germany after the brutal fiasco of World War Two. Things have gone too far in too many ways. The coming crackup will re-set the terms of civilized life to levels largely pre-techno-industrial. How far backward remains to be seen.
Those terms might be somewhat negotiable if we could accept the reality of this re-set and prepare for it. But, alas, most of the people capable of thought these days prefer wishful techno-narcissistic woolgathering to a reality-based assessment of where things stand — passively awaiting technological rescue remedies (“they” will “come up with something”) that will enable all the current rackets to continue. Thus, electric cars will allow suburban sprawl to function as the preferred everyday environment; molecular medicine will eliminate the role of death in human affairs; as-yet-undiscovered energy modalities will keep all the familiar comforts and conveniences running; and financial legerdemain will marshal the capital to make it all happen.
Oh, by the way, here’s a second element of the story to stay alert to: that most of the activities on-going in the USA today have taken on the qualities of rackets, that is, dishonest schemes for money-grubbing. This is most vividly and nauseatingly on display lately in the fields of medicine and education — two realms of action that formerly embodied in their basic operating systems the most sacred virtues developed in the fairly short history of civilized human endeavor: duty, diligence, etc.
I’ve offered predictions for many a year that this consortium of rackets would enter failure mode, and so far that has seemed to not have happened, at least not to the catastrophic degree, yet. I’ve also maintained that of all the complex systems we depend on for contemporary life, finance is the most abstracted from reality and therefore the one most likely to show the earliest strains of crackup. The outstanding feature of recent times has been the ability of the banking hierarchies to employ accounting fraud to forestall any reckoning over the majestic sums of unpayable debt. The lesson for those who cheerlead the triumph of fraud is that lying works and that it can continue indefinitely — or at least until they are clear of culpability for it, either retired, dead, or safe beyond the statute of limitations for their particular crime. Continue reading
Major Window Dressing Exercises and a Dead Federal Funds Market
Many of our readers are probably aware of the quarterly spike in reverse repos, which has previously been amply documented and discussed elsewhere. The Fed has introduced these overnight reverse repos two years ago, and has made them accessible to a wide range of counterparties (altogether 163 at last count), including banks, primary dealers, mutual funds, brokers and GSEs. In these transactions the counterparties are essentially depositing cash with the Fed overnight in exchange for treasury securities.
Photo via izismile.com
The Fed’s counterparties receive interest rather than having to pay interest (currently 25 basis points) when borrowing treasuries in these transactions. By setting the rate it pays at a higher level than the rate on short term t-bills, the Fed encourages participation. The reason for introducing the facility was that the Fed wanted to test various “exit” procedures from its extraordinary monetary accommodation.
The flow of money and securities in repo markets, from a 2013 IMF working paper by Manmohan Singh Continue reading
Submitted by Mark O’Byrne – GoldCore
Adam Hamilton of Zeal Intelligence has looked at gold’s prospects in 2016 and he thinks the worst may be over for the yellow metal.
He is a newsletter writer and consultant and is an expert on precious metals, commodities and stock markets. He believes gold is undervalued on a host of different metrics and will move higher in 2016 – likely sharply.
Gold certainly had a rough year in 2015, grinding inexorably lower on Fed-rate-hike fears and investor abandonment. But gold bullion is poised to rebound dramatically in this new year, mean reverting out of its recent deep secular lows. The drivers of gold’s weakness have soared to such extremes that they have to reverse hard. The resulting heavy buying from dominant groups of traders will fuel gold’s mighty 2016 upleg.
Hamilton’s research note can be accessed here