Why Dip Buyers Will Get Clobbered: The US Economy Isn’t Doing “Just Fine”

As of June 2008 no Wall Street banking house was predicting a recession, yet by then the Great Recession—–the worst economic downturn since the 1930s—– was already six months old, as per the NBER’s subsequent official reckoning.

Actually, it was already several years old if you concede that the phony housing boom of 2005-2007 was generating merely transient “statistical” GDP, not permanent gains in main street wealth. Even the movie houses now showing “The Big Short” have some pretty palpable reminders on that point——not the least being the strip club dancer who owned 5 residential properties, with two adjustable rate mortgages on each.

In fact, by then main street America was crawling with strippers. That is, equity strippers who were repeatedly doing “cash out” refinancings in order to generate between $20,000 and $100,000 or more of mortgage proceeds to spend on vacations, cars, man caves, aspirational leather goods, shoes and apparel, among much else.

At the peak in 2006-2007, upwards of 10% of personal consumption expenditures were accounted for by MEW (mortgage equity withdrawal). The utter unsustainability of that kind of Potemkin prosperity goes without saying, but the point here is that it was no deep dark secret buried in the economic entrails.

In fact, Chairman Greenspan went to great lengths to publicize the facts of MEW on an up-to-date basis. But he wasn’t trying to warn that the end was near. Unaccountably, he and his Wall Street acolytes concluded that the US economy had become virtually recession proof because of the extra firepower being accorded to household consumption by MEW!

MEWQ42014

In short, the economic booby trap of MEW was hiding in plain sight and so was the Great Recession. Yet there was nothing at all unusual about the 2008 recession call miss. Continue reading

The Agonies of Sensible People

Submitted by James Howard Kunstler  –  www.kunstler.com

Much as many people-who-ought-to-know-better have been enjoying the disruptive antics of Donald Trump, surely other cohorts and coteries have endured dark nights of the soul as they witness the 2016 election spin into a perfect storm of rebellion, corruption, and idiocy. Imagine the scenes in Michael Bloomberg’s drawing room the past eight months, the agonies of sensible people! And so after the close of business Friday comes news that the former three-time mayor of New York City is laying concrete plans to run for president on a third-party ticket. Extreme times call for extreme moves by non-extremists.

The Trump phenomenon is pretty well-understood: a politically paralyzed nation hostage to malign forces, mired in racketeering, captive to PC witch-hunters, and pitching into bankruptcy, turns to a TV clown with no filter on his angry brain and he acts out all the discontents of our time. Does anybody doubt that the perfidies of the day beg to be opposed? But those shadowy figures in Bloomberg’s drawing room must be saying, “is this the best we can do?” And so an honorable man steps forward. Someone had to.

Couple of gigantic problems. First, what about Bloomberg being Wall Street’s pet politician? To many, I suppose, Bloomberg is exactly that. I’m not so sure. While he made his multi-billion dollar fortune building a computerized information service for Wall Street, with a news service and some other apps pinned on, he was not a bankster. He consorted with them all the livelong day, day in and day out, for decades. Maybe that was bad enough. Maybe it also puts him at a very special advantage, since other public figures can only pretend to understand the esoteric rackets lately engineered in lower Manhattan.

For instance, Bloomberg must know what a CDO is, and how outfits like JP Morgan and Goldman Sachs used them to swindle the taxpayers. I’m not convinced that Donald Trump could explain that to an audience if given an hour of airtime. He rarely speaks in two consecutive coherent sentences, for all his entertainment value. The next president will be on duty during the gravest and most powerful financial unwind in history, and it might be a good thing if he understood how it worked. He will probably be blamed for it in any case, but at least he will be a true mariner in a storm, not just a bigmouth passenger on the ship. Anyway, the salient question is whether the voters could ever accept him as something besides a tool of the banks? Continue reading

Democracy Is No Better Than a Monarchy… or a Dictatorship

Submitted by William Bonner, Chairman – Bonner & Partners

“Flaming Lunatic”

MUMBAI, India – The Dow managed a small bounce late last week. The bounce came as crude oil gushed higher, back above $30 a barrel. What next? We wait to find out…

We had dinner in London last night, before boarding a plane for India.

“A large part of the U.S. population must feel threatened by any kind of intelligence,” said a voice at a nearby table. A group of Englishmen were discussing U.S. politics. We eavesdropped.

“Can you imagine? That Trump… he seems like a flaming lunatic. His campaign is nothing but telling voters that he’s a good negotiator. He thinks it’s all just making deals with people. All that matters is getting a good deal.

 

palin-endorses-trump-cartoon-luckovichImplanting a thought…

 

“Now he thinks people will vote for him because he got an endorsement from that total idiot Palin. What is the matter with Americans? How did they get to be so stupid?”

We almost got up from our chair. It was time to straighten these Brits out. But what would we say? Besides, it is a fair question: How did Americans come to be so stupid?

Of course, the same question could be asked of almost any nation. And it being Friday as we write this, and we being laid low by an epizootic and airline travel, we dug into our archives for an answer… Continue reading

Worse Shape Than I Thought

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

If the Wall Street Journal meant to reach for reassuring comfort, they fell far short. After spending late summer last year and into the fall proclaiming that manufacturing didn’t matter (12%), the newest round of talking points are “false positives.” In other words, manufacturing and industry does matter, after all, but just “not enough” to tip into full recession. That would seem to suggest some kind of balance on the plus side, but what they give us is actually the opposite.

The case for a downside is quite compelling, a point very grudgingly accepted in the article. In the truly forward-looking case, there are industrial production, corporate profits and the stock market (that latter is and has been dubious, but this is the Wall Street Journal). On those three counts there is nothing but growing concern rather than “transitory” irrelevance.

Industrial production has declined in 10 of the past 12 months, and is now off nearly 2% from its peak in December 2014. Corporate profits peaked around the summer of 2014 and were off by nearly 5% as of the third quarter of last year, according to the Commerce Department. Stocks have fallen viciously so far this year, with the Dow Jones Industrial Average down 7.6%, despite a rally late last week.

The economy is in much worse shape than just those, however, as the Journal makes no mention of the supply chain at any level other than production. That matters greatly because industrial production has already declined significantly (enough to suggest recession) without making the slightest difference in inventory. Retail sales just experienced the worst holiday season outside of 2008 and 2009 – and that includes auto sales. Wholesale sales continue to slump and inventory across the economy remains, despite production cuts to this point, elevated in the extreme. Continue reading

Revaluation of Gold Coming – Gold Price To $22,000 Per Ounce?

Submitted by Mark O’Byrne  –  GoldCore

Hugo Salinas Price,  Mexican business magnate, investor, and philanthropist and the president of the Mexican Civic Association for Silver, writes today that gold will soon return to its traditional role in the international monetary system.

The current melt-down of the world’s debt bubble is likely to continue in the course of the next months and Salinas believes that the salvaging all debt and derivatives might require a gold price as high as between $22,000 and $50,000 per ounce.

gold_reserves_2016

He believes that gold will soon help balance international trade, discipline government budgets, and reliquefy debt that is becoming unpayable.

The secular trend to expansion of credit has morphed into contraction and liquidation. It is my opinion that the new trend is now established and no action by any of the Central Banks (CB) that issue reserve currencies will do anything at all to reverse that trend.

Salinas Price’s commentary is headlined “The Coming Revaluation of Gold” and it’s posted at the civic association’s website, Plata.com.mx, here:

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• China Stocks Plunge to 13-Month Low Amid Capital Outflow Concern (BBG)
• China Shares Drop Sharply, as Region Suffers Rout (WSJ)
• Offshore Yuan Resumes Drop as Oil Reignites Global Risk Aversion (BBG)
• US Stocks Slump as Oil Resumes Rout (BBG)
• Oil And Stocks Dance The Bear Market Tango (WSJ)
• So Yes, the Oil Crash Looks a Lot Like Subprime (Alloway)
• Capital Controls May Be China’s Only Real Option (FT)
• Yuan’s Fall Is Just ‘Noise’ Amid Deeper China Woes (WSJ)
• China Capital Outflows Rise to Estimated $1 Trillion in 2015 (BBG)
• China Business Confidence, Recruitment Hit Record Lows In January (Reuters)
• Americans Are Trapped In A ‘Cycle Of Financial Insecurity’ (MW)
• US National Debt Set To Top $27 Trillion (Tanner)
• Global Real Estate Value Hits $217 Trillion In 2015 (VW)
• First-Time Homebuyers Are Finally Jumping Into The US Property Market (BBG)
• Wal-Mart: It Came, It Conquered, Now It’s Packing Up and Leaving (BBG)
• How the Oil Bust Wiped Out One North Dakota Oil Refiner (BBG)
• Congress is Writing the President a Blank Check for War (Ron Paul)
• Childhood Obesity ‘An Exploding Nightmare’ (Guardian)
• 15 Of The 16 Hottest Years On Record Have Been This Century (UNFCCC)
• ‘Running Out Of Time’, EU Puts Greece, Schengen On Notice (Reuters)
• Athens Hits Back At EU Plan To Ringfence Greece (FT)