Austrians get some mainstream credibility

Submitted by Alasdair Macleod –

Well, well: who would have believed it. First the Bank for International Settlements comes out with a paper that links credit booms to the boom-bust business cycle[1], then Britain’s Adam Smith Institute publishes a paper by Anthony Evans that recommends the Bank of England should ditch its powers over monetary policy and move towards free banking[2]. Admittedly, the BIS paper hides its argument behind a mixture of statistical and mathematical analysis, and seems unaware of Austrian Business Cycle Theory, there being no mention of it, or even of Hayek. Is this ignorance, or a reluctance to be associated with loony free-marketeers? Not being a conspiracy theorist, I suspect ignorance.

The Adam Smith Institute’s paper is not so shy, and includes both “sound money” and “Austrian” in the title, though the first comment on the web version of the press release says talking about “Austrian” proposals is unhelpful. So prejudice against Austrian economics is still unfortunately alive and well, even though its conclusions are becoming less so. The Adam Smith Institute actually does some very good work debunking the mainstream neo-classical economics prevalent today, and is to be congratulated for publishing Evans’s paper.

The BIS paper will be the more influential of the two in policy circles, and this is not the first time the BIS has questioned the macroeconomic assumptions behind the actions of the major central banks. The BIS is regarded as the central bankers’ central bank, so just as we lesser mortals look up to the Fed, ECB, BoE or BoJ in the hope they know what they are doing, they presumably take note of the BIS. One wonders if the Fed’s new policy of raising interest rates was influenced by the BIS’s view that zero rates are not delivering a Keynesian recovery, and might only intensify the boom-bust syndrome. Continue reading

All That’s Left Is The Cleanup

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The scale of the inventory bloat in the latter half of 2015 was perplexing. By any reasonable standard, it doesn’t make any sense that businesses would be so bold as to almost ignore sales (and this applies at each level of the supply chain). The only way that it could have possibly occurred was businesses setting aside what was happening in coincident time in the belief that it was a temporary deviation from much, much better times just ahead. In other words, a significant portion of the “goods economy” must have been operating on the mainstream, orthodox narrative.

For anyone outside, it seems almost preposterous but such is the operation of complex enterprises. How does one go about forward ordering? The Blue Chip Economic Survey is still present and accessed widely by businesses along with the constant media presence of policymakers and economists (redundant) never deviating from their promises that any sales problem would be “transitory.” The message was to set aside, mostly, the current sales environment and order for that much better future the Establishment Survey and unemployment rate assured was right there. After six years of no recovery, it was too tantalizing a prospect.

That imbalance, however, contained finite limitations. As much as business wanted and needed to believe in the fairy tale, they could only do so for so long on belief and hope alone. Reality had to converge at some point; either the sales would show up as promised, truly strong and not economists’ downgraded and reduced standards of claiming any positive number as strong, or the whole thing would have to be scaled back, retail to wholesale to manufacturing and beyond. Recession.

My instinct has been that the Christmas season would be the final chance for economists to deliver, the last straw for the economy to actually live up to ordered expectations. It didn’t; retail sales published this morning were slightly better in December than November but that was just monthly variation rather than meaningful improvement. Worse, given how bad November really was, slight advance was really none at all. The entire Christmas season (including autos!) was a total washout.

ABOOK Jan 2016 Retail Sales NSA YYABOOK Jan 2016 Retail Sales ex Autos

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Beware… This Tech Darling Is Due a Big Fall

Submitted by William Bonner, Chairman – Bonner & Partners

Bad Stuff Happens


Into each life some rain must fall

But too much is falling in mine

Into each heart some tears must fall

But someday the sun will shine.

– “Into Each Life Some Rain Must Fall,” The Ink Spots


PARIS – Bad stuff happens. There is no getting around it. No denying it. No pretending it isn’t so. The only real question is: Where are you when it happens? It can be fun to sail out far from shore… until you realize you forgot to pack the food hamper.


Bad stuff happens-aBad stuff happens so often, they’re writing books about it….


How much better it would be to have understood your girlfriend’s meth addiction – before you married her. And what a thrill you get from watching your go-go stocks rise like rockets… but you don’t want to be standing beneath them when they start to fall on your head.


The River of No Returns

The Dow shed another 365 points on Wednesday – for a more than 2% fall.

“Stocks take a beating as alarm grows,” announced a Wall Street Journal headline. Between just two companies – Amazon and Google (now called Alphabet) – $100 billion of fantasy capital has been lost since the beginning of the year.

Fifteen years ago, we tagged Amazon as the “river of no returns.” Since then, the share price has soared. The company has flourished… and we have looked like an idiot.


AMZNEvery AMZN bear has been made to look like an idiot – but that may soon change. As David Stockman recently pointed out, those who actually take the time to properly analyze its slippery accounting and business model (not the dead fish employed by the sell-side, obviously) cannot help but conclude that it is a giant Ponzi scheme – and the danger that this realization will penetrate the “market mind” is increasing. It remains a “river of no returns” – although consumers have every reason to love it. Investors buying it today pay 830 times net earnings for the stock – and said net earnings actually look somewhat dubious upon closer inspection – click to enlarge. Continue reading

Amazon And The Fantastic FANGs—A Bubblicious Breakfast Of Unicorns And Slippery Accounting

At year end we posted a rant about the “Brobdingnagian” bubble embedded in Amazon’s market cap. On December 29th it was valued at $325 billion and had gained $180 billion or 55% of that towering figure in just the previous 12 months.

Self-evidently this was a flashing red warning signal that the end of the third great central bank fueled financial bubble of his century was near. AMZN and its three other FANG amigos had accounted for a $530 billion gain in market cap while the other 496 stocks in the S&P 500 had declined by an even larger amount.

That is, the apparently flat S&P 500 index of 2015 was hiding an incipient bear—–owing to a market narrowing action like none before. Compared to the Fabulous FANGs (Facebook, Amazon, Netflix and Google), the early 1970s Nifty Fifty of stock market lore paled into insignificance.

After the worst start to a year in history, some of the air has now been let out of the bubble. Amazon’s market cap is now down by $53 billion or 16% and the story has been roughly the same for the rest of the FANGs.

After Wednesday’s plunge, Goggle is now also down by $52 billion or 10%; Facebook is lower by $33 billion or 10%; and Netflix is off by $6 billion or 11%. In all, the FANGs have given back in eight trading days about $144 billion or 28% of their madcap gains during 2015.
AMZN Market Cap Chart

AMZN Market Cap data by YCharts

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The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• US Stocks Post Worst 10-Day Start To A Year In History (MW)
• What Goes Up, Comes Down Considerably Faster (ZH)
• Wall Street Hemorrhages As Oil Tumbles And China Fears Deepen (Reuters)
• Weak US Data Deluge Points To Sharply Slower Growth (Reuters)
• A Recession Worse Than 2008 Is Coming (Michael Pento)
• Looming Recession Shifts Fed Support From Equities To Dollar, Banks (Brodsky)
• Global Earnings Downgrades Haven’t Been This Bad in Seven Years (BBG)
• Retail Sales in U.S. Decrease to End Weakest Year Since 2009 (BBG)
• Wal-Mart to Shut Hundreds of Stores (BBG)
• A New Year Of Turmoil For China (WaPo)
• Currency War Revival Seen After Yen, Euro Rally (BBG)
• One Year On, ‘Franckenschock’ Still Hurts Swiss (CNBC)
• America’s Student-Debt Crisis Is Only Getting Worse (MW)
• MH-17’s Unnecessary Mystery (Robert Parry)
• Toxic Chemicals In Scottish Waters Wiping Out Killer Whales (Scotsman)
• Baby Found Dead On Greece Migrant Boat (AP)