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"The Lunatics Have Taken Over The Madhouse…..Yet Again!"
With an ever decreasing supply of bearish realism, the massively unlevered ETF tracking the Rosenberg, Janjuah and Edwards trio is constantly increasing in value. And today SocGen's Albert Edwards goes for the 52 week high with the following pearl: "It’s almost as if the biggest credit bubble in history never occurred. Investors are increasingly convinced that a sustainable global recovery is emerging out of the wreckage. All praise to the central bankers (and Gordon Brown) for saving the world! I’m waiting till someone writes about the return of The Great Moderation and suggests Ben Bernanke is the new Maestro. Then I’ll know the lunatics have taken over the madhouse…..yet again!"
Indeed, the man, just like State Street, is recalling all the shorts:
When you look at the ever shrinking rate of bank lending to the private sector around the world it is clear as the nose on my face that the global economy is still very, very sick. As we have repeatedly highlighted, one key lesson from Japanese boom and bust is that banks are not the problem. Bankers? bonuses are not even the problem. The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion in a pathetic attempt to deflect blame from their own gross and unforgivable incompetence. It is the monetary and regulatory authorities that are responsible for this mess. It is not obvious in retrospect. It was obvious from the very start.
Of course, where would a realist be without some harsh words for the Maestro v2.0
The problem is that after the boom there will be a bust. The issue now is one of deleveraging and the deflation that is starting to unfold. The problem is that Bernanke is a slave to Milton Friedman?s view of the Great Depression (at Friedman?s 90th birthday Bernanke promised that the Fed would never allow another Great Depression to occur). The Australian economist Steve Keen?s observation that "Bernanke?s dilemma is that he is living in a Minskian world while perceiving it though Friedmanite eyes?" explains his actions to date. It also explains why he will fail.
And unless you have been living in a cave, deflation is precisely what keeps Meastro v2.0 up at night, and explains why a quadrillion in 3 Years is the new dot.com bubble. Yet aside from the commodity inflation which is driven purely by speculative forces (read China and Optiver), it appears that deflation is precisely what the US economy has in store for us, meaning that the excess liquidity so generously provided by our very own Federal Reserve will never end up making its way into consumer pockets but will likely buoy markets well on their way to a 2,000 S&P 500. Hopefully that last decile of US consumer ranks, which is the only one truly benefiting from this market move, will be able to resist the collapse of the middle class. Alas, if Edwards is right, don't hold your breath:
But it is collapsing core inflation that poses the greatest risk to the global economy going forward. We highlighted last week that core CPI inflation descends rapidly, with a lag, after the recession ends. If core US CPI inflation falls by around the 3% shown in the chart below over the next year, that will take the yoy rate to minus 1.5%! Hence the growth in nominal quantities (e.g. corporate revenues) is set to see disappointing ?lower highs? in this upturn after lower lows. And that, in our view, is just a prelude to a 2010 collapse into outright deflation.
And lest anyone reminds the equity rally that heaps momentum upon momentum every single day compliments of the Maestro v2.0's printing press, that bonds are now either massively gamed beyond recognition or are simply accounting for just this phenomenon, computers will be happy to keep running up on ever decreasing volume until just one share of SPY trades so high that the NYSE will have to come up with an infinity symbol for price just to keep track.
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smells like 1907.
all printed cash liquidity has gone into the markets and there will be zero liquidity when the chinese firedrill for the exit doors begin. The efforts to make bad assets liquid will end with deflation of the equities that have been filled by printing presses.
Very astute.... yes, this crash has many comparisons to the 1907 crash, many that are more fundamental than 1929...
Copy of the entire Edwards piece?
At a loss for words. "Fantastic" is not nearly good enough of an adjective.
http://www.hulu.com/watch/10308/saturday-night-live-oops-i-crapped-my-pants
Oh, we will get worse than deflation. Can you have a hyperinflationary deflation?
Shit, I don't know what to call it, just that our weak dollars will buy less and less of global commodities (so their price will appear to rise) while our incomes and assets will stagnate or drop.
It's happening already, but it will soon start to accelerate.
hyperindeflation?
bad?
Depends on wether or not Ben can pull his head and ego out of his ass in time to figure out WTF is going on. I don't like our chances...
Hyperinflationary Great Depression.
My thinking exactly... looking for an exit strategy out of $ and into hyperinflationary assets.
In a nutshell, what you (and many others) are trying to describe is "A MUCH LOWER STANDARD OF LIVING" for the overwhelming, vast majority of Americans.
Regardless of what kind of, or combination of inflation/deflation gets us there, the train has already left the station and that is the destination.
I think the gist of what you (and many others) are trying to describe boils down to "A MUCH LOWER STANDARD OF LIVING" for the overwhelming, vast majority of Americans.
Irrespective of whether it is inflation, deflation, or some combination of the two that gets us there, the train has already left the station.
The buying of PMs will precede in time the inflation down the road. It is slowly being gathered all around the world and salted away.
Unlike paper which always seems to have an ample supply for the buy/sell/short crowd, PMs will become increasingly harder to get until such time as there is only a trickle of supply.
Prepare well in advance or take your chances with currency.
The world is awake now and it is going to refuse to invest or deposit or take part in the "game". They're going to gold, when that supply is gone, the true paper chase and paper crash begins in earnest.
Gold is the only liquidity device that will survive; it is the only one compact enough to suffice as storage.
How can we see a nasty bout with deflation and still see an S&P 500 at 2k?
1200 SPY today, get over it.
you have just redefined optimism.
.
because prices of financial assets like commodities will be rising due to dollar crushing--yet there will be no demand for most everything. Until prices crash.
Looks like R2-D2 is flipping the bank stocks today.
This market does have the feel of a stretched rubber band.
This is textbook bubble mania.
Trannies are leading for now.....
Richard Russell still bullish on the market...
Of course, Russell doesn't really care, he's too busy clipping coupons in LaJolla while fiddling in his garden....
For those who missed the oldest bank in Switzerland (and opinion leader among super wealth management types) telling their clients to completely exit all US holdings, first for tax/control reasons but also because the US is a pretty bad deal anyway, their commentary marking the moment is really something else:
http://www.wegelin.ch/download/medien/presse/kom_265en.pdf
"The financial crisis has given momentum to anti-capitalist, and thus anti-market forces in the USA (and elsewhere). That promises little good for this part of the world, but it makes it somewhat easier for investors to take their leave."
Great find.
This is the sort of stuff you find in archives going back to the earlier days of the last century when nations acted sovereign and declared themselves independent.
The Swiss bank is on target with their summary for their clients. They should know, they have experienced the startings of similar bullcrap a few times first hand.
Swiss are acting prudent and very sophisticated in my opinion. They know what is going on behind the scenes in Washington and on Wall Street and they realize the game is up.
Brace yourselves for more of the same.
Great post. Hyperstagdeinflation.
Hyperstagdeinflation sounds like a winner.
Wow! Note that ECRI leading indicators are rising at an incredible growth rate. Maybe the surprise will be much stronger GDP growth rates over the next quarters.
Anyone know what the lag time for the ECRI leading indicators are?
We'll jump the deflationary shark if we can take a year or so 'off'.
Time to go sailing ...
Tyler- I deeply respect your work. That having been said, as much as I think we're both set in our curmudgeonly ways, and I tend to agree with your fundamental outlook, you've been fighting this move for almost 200-250 SP pts. At what point do you concede there was *some* real money to be made from March to today? '...When they pry my cold, lifeless hand from the sell/short button?..." Some kinda balance is important in trading as in life or are we just going back to SP 100 level guaranteed and you'll be vindicated completely?
Just a question: Does this brave new market ever actually go down? Sure, it goes red for a few minutes during the day sometimes, but does it ever close in the red? Daily? Weekly? Decade-ly? Just curious. It kinda takes the suspense out of it.
Lol. It is interesting that today the indices haven't yet fallen into their "lockstep" formation...a little strange.
Hmm.. that is strange.
Maybe they were applying an emergency patch to the OS on the bots and they ran a little late. Then again, even the Matrix wasn't perfect so it could be a small bug in the "sync all markets" subroutine. Hopefully the "gun the fucker to the moon in the last 1/2 hour" codebase has been tested more thoroughly.
LOL
"bonds are now either massively gamed beyond recognition or are simply accounting for just this phenomenon"
MASSIVELY gamed. BTW, both stock and bond markets would crash without the Fed's shenanigans.
They are just converting the magic money creation into real asset stealing. It's just identifying what is being hijacked other than everyone ability to see through scam.
Specifically the multi-hundred trillion OTC IRS market.
Bingo.
Oh shit...
From my experience, from I have read (and also been told by my parents) hyper-inflation seems to always be preceded by a relatively short period of deflation. Don't fall for it. It is a horrible experience.
Well, when your broke it doesn't matter if a loaf of bread is $2 or $20 does it?
Broke is broke, food stamps are food stamps.
Suppose the CPI/M2/MZM trend continues, and the QE/zirp continues. How does that play out?
It will make a new normal for asset yields. When assets appreciate and cash flows stay as is, valuation ratios have to change.
. P/E grows off the chart and div yld goes toward 0
. real estate price/rent ratio grows off the chart
. bond yields approach zero
The big mystery is how come the FRB and BOJ have not ignited CPI? My belief in Friedman is shaken..
November 25, 2008
Remember the movie, 'It's a mad,mad,mad, mad, mad world'?
At the end of the movie that generation's inglorious bastards were all gripping a fire ladder as the motor blew up and the ladder lurched viciously throwing them 'akimbo'.
The vicious movements from left (inflation) to right (deflation) best mirror our market action.
We are at the cusp of being at the most volatile period (per volatility indexes) ever. As in ever since we've had a stock market.
This volatility is mostly driven by shifting perceptions of inflation and deflation.
The compression of time frames within which this inflation/deflation switch gets flipped on and off can only result in one name for our current economic malaise : Indeflation.
http://anonymousmonetarist.blogspot.com/2009/08/ask-your-doctor-about-indeflation.html
Whoever is basing their analyses on CPI numbers peddled by the government, "core" or otherwise, is an idiot. They are fudged at best, outright lies at worst.
I cannot take credit for the term, but last year I saw a commentator use "Bi-flationary Depression" to encompass the decline in the value of what we own, the increase in price of what we need, and the resulting significant decline in the quality of life. Seems about right.
Pump the market! Kill the dollar!
DXY at 76.8 right now...wtf.
Why bother calling it a stock market?
...sock market?
Sadly, a very apt name. It can't pass the sniff test, is full of holes, and people are always looking for that perfect sock. We even have a sock puppet gallery on TV these days.
We are living in a very severe deflationary credit crunch. In the US and here in Europe. The money supply (monetary mass of dollar and euro) is contracting strongly.
Amidst a general economy that is deleveraging strongly and destructively ("secretly" defaulting the debt through mark to fantasy in fairy tale balances), there is limited areas (minibubbles) of strong growth in monetary mass: the most liquid "hot markets". This always happens in all massive deleveraging events.
Banks and other financial operators concentrate in in the forms of safer credit issuance: ultra fast leveraging credit of very liquid 24H traded hot especulative assets. (These credits are very safe because they are backed in a second by second basis by ultra-liquid assets) (japanese zombi bank, yen credit, yen-euro transformation, eurex ultralevered derivative buy, eurex derivative sell, euro-yen tranformation etc. All of this in a fraction of a second if needed )
This ultra fast leverage of hot liquid assets (commodities or currencies) and other synthetic and suicide forms of leverage (such as using high-beta junk stocks or other garbage) are typical of these terminal stages before the deflationary tsunami.
TD , When you catch your breath, maybe you should rethink your conclusions.
And lest anyone reminds the equity rally that heaps momentum upon momentum every single day compliments of the Maestro v2.0's printing press,
Wrong: The money from the printing press is not going into equities, its going into commodities , EMs and Bonds.
that bonds are now either massively gamed beyond recognition (NOT) or are simply accounting for just this phenomenon, (correct: You want to be long bonds in a deflationary environment)
computers will be happy to keep running up on ever decreasing volume until just one share of SPY trades so high that the NYSE will have to come up with an infinity symbol for price just to keep track.
If there's no volume then none of the new money is going into stocks. The effect of the HFT guys increasing the marginal price of the S&P is to inflate the value of equity derivaties and also artificially inflate the value of equity funds holdings. If there is no increase in margin lending ( of which there is not), and there's no money flowing into the equities markets, then an equities crash will be a psychological event, not a financial one since no one has really bought, or borrowed to buy in at these low volume/high prices. Other than the HFT guys, but they're usually flat at the end of the day, so there's not a lot of ON leverage there either.
Its extremely helpful for you to continue to broadcast the fact that most of the current equities trading is between HFT players. Its also helpful that you remind us all that they're inflating the indexes. But it would be much more useful if you clarified why the marginal price increases are so significant.
"banks are not the problem."
What?
Res ipsa loquitur
Fiat currency
You turds must be losing your minds in this rally. Bawhahahahahahaha
Avaritia facit Bardus
Translation: "Greed makes you stupid."
Let's say I know this 'guy'. Guy has zero savings (other than maybe $15k in a 401k), $80k in student loans, $35k in credit card debt, $62k left on a mortgage for a house with a real value of around $95k (Texas), maybe $15k in hard assets, a $58k/yr job plus benefits, three children aged 10, 13 & 14 and a divorce that is about a year old with no hope of ever seeing child support. Guy is forty-four, has a BS from a major Texas University and is three hours shy of a MA from another major Texas Univerity that the divorce torpedoed. Guy has been approached about starting a new business financed by the cash of a silent partner. The long term plan is to perfect one location, open a second, then expand significantly. It will pay him about the same salary in the short term but with upside potential for additional future profits as a partner. Of course the downside involves living in a cardboard box beneath what's left of an underpass.
What the hell should Guy do in the current economy?
duff...this is no environment to be taking that kind risk, but I guess it depends on what kind of business you are talking about. Foreclosure business, repossession business...something like that, then you may have a real opportunity there. However, if the business has anything to do with consumers buying your product...you better be able to compete with Family Dollar, Wal-mart, and McDonald' s prices b/c that is all that anyone will be able to afford soon.
Guy should reconcile with the ex and put the kids on the right path before screwing up more.
uh ... infinite zero cost liquidity ... guess prices should go up based on that alone ... not value
Civilization! - *Some Restrictions Apply
http://www.youtube.com/watch?v=1wiRhVzsXFM