Archive - Aug 16, 2015

What happens when we roll back into the next official recession, unemployment soars, and consumers really stop spending? What is revealed when you look under the hood of this economic recovery is that it is a complete and utter fraud. The recovery is nothing but smoke and mirrors, buoyed by subprime auto debt, really subprime student loan debt, corporate stock buybacks, and Fed financed bubbles in stocks, real estate, and bonds. The four retailers listed below are nothing but zombies, kept alive by the Fed’s ZIRP and QE, as they stumble towards their ultimate deaths. The coming recession will be the knife through their skulls, putting them out of their misery.

"We are imperial, and we are in decline... People are losing confidence in the Empire."

Asia got off to an inauspicious start this evening with Japan printing a disappointing 1.6% drop in GDP - heading for its fifth recession in 6 years... so much for Abenomics, but, of course, Amari spewed forth some standard propaganda that he expects Japan to recover moderately (and Japanese stocks popped modestly assuming moar QQE). Then Malaysia continued its collapse with the Ringgit down another 1% hitting fresh 17-year lows and stocks dropping further, as the Asian Currency crisis continues. Heading into the China open, offshore Yuan signaled further devaluation but the CNY Fix printed very modestly stronger at 6.3969; and following last week's best gains in 2 months, Chinese stocks are plunging at the open after Chinese farmers extend their streak of margin debt increases. Finally, WTI Crude drifted back to a $41 handle in early futures trading.

"Unfunded pension liabilities have grown substantially. There are several factors behind this, led by lower than expected investment returns and insufficient contributions from state and local governments to the plans. In aggregate this would raise government pension contributions by something like $100bn per year, lowering spending in other areas (or raising taxes) by a similar amount."

There is no doubt that Earth is undergoing the sixth mass extinction in its history – the first since the cataclysm that wiped out the dinosaurs some 65 million years ago. According to one recent study, species are going extinct between ten and several thousand times faster than they did during stable periods in the planet’s history, and populations within species are vanishing hundreds or thousands of times faster than that. By one estimate, Earth has lost half of its wildlife during the past 40 years. There is also no doubt about the cause: We are it.

These are Goldman's four reasons why the bank expects the S&P 500 will end 2015 unchanged from the current level: High starting valuation, negligible earnings growth, outflow from domestic equity mutual funds and ETFs, and modest economic growth. Offsetting these headwinds to a higher market, buybacks remain robust and serve as a pillar of support in the current environment.

"The US is digging itself in deeper and deeper,” warns Doug Casey, adding the telling question: “Then what’s going to happen?” President Obama’s grim warning of “deal or war” seems to provide an answer. Faced with economic implosion on an epic scale, the US may be counting on war as its other option.

Maybe not all publicity is good publicity....

Following Friday's filing by the Duquesne Family Office, we learned that as of the end of Q2, the largest position for Stanley Druckenmiller was none other than gold, following the purchase of 2.9 million shares of the GLD ETF shares. In other words, as of this moment, gold amount to over 20% of Druckenmiller's total holdings.

"We're going to keep the families together, but they have to go. We will work with them. They have to go. Chuck, we either have a country, or we don't have a country."

The infamously untrustworthy Food and Drug Administration (FDA) has furthered its reputation as one of America’s most beloved hypocrites with its latest motion. It was reported on Thursday that the FDA has just approved OxyContin prescriptions for children between the ages of 11 and 16 years-old.

"He’s now saying 'I won’t listen to the laws or constitution.' This is a very dangerous period. He wants to give a legal foundation to this coup he’s carried out. Those who carry out coups always do this: First they carry out the coup, then they give it a legal foundation.'"

If Washington does not cancel its planned military exercises with South Korea, North Korea has issued new nuclear threats and says it is ready to us its latest weapons, which "are unknown to the world." The drills, called Ulchi Freedom Guardian, are due to start Monday are designed to "protect the region and maintain stability on the Korean peninsula." However, as expected Pyongyang is not happy, "If [the] United States wants their mainland to be safe," said state TV, "then the Ulchi Freedom Guardian should stop immediately."

For reasons that will forever remain a mystery to us, mercantilism and protectionism actually hold enormous popular appeal. The best explanation we can come up with for this phenomenon is that the support for such policies is based on a mixture of economic ignorance and relentless propaganda by vested interests over the past, say, four centuries. Still, it is almost comical that people are so vociferously clamoring for policies that can actually cost them a fortune and will definitely lower their standard of living.