The pool of greater fools willing and able to buy assets at higher prices with leveraged free money has been drained by six years of credit/risk expansion. Those who believe the stock market can continue rising despite the end of the Fed's "free money for financiers" programs are implicitly claiming that the pool of greater fools is still filled to the brim. Simply put, speculating with leveraged free money and extending credit to marginal borrowers is not sustainable or productive, and the stock market seems poised to reflect these three dynamics...
When America's social security, health care, and entitlement systems were first conceived, the country had a very different age distribution. There were roughly 7 active workers per retiree, and the ability to transfer some of that employee wealth to support older citizens was supportable. However, by 2030, just 15 short years away, there will be less than 3. Our national demographic architecture no longer can afford the entitlement system we have. And that's even assuming entitlements were currently sufficiently funded. Simp0ly put, America's demographic situation is a ticking time bomb.
Which brings us to Clinkle, which is a firm founded by a 22 year old with no business successes behind him (which at least Color.com's founder could claim, as he sold his firm to Apple for a fortune). Clinkle initially received $25 million (fun fact: the same amount used to fund Google, which went on to bigger successes than building a single app) and has been ostensibly hard at work on this thing for years.
The essence of the Oil Head-Fake Dynamic is the inevitable drop in oil price resulting from a sharp decline in demand (i.e. global recession) will trigger disruption of the global oil supply chain that will eventually push prices higher than most currently think possible.
With the revelations of systemic, widespread corporate criminality of banking institutions in recent years, it is clear that global Bank CEOs are becoming the new Drug Lords.
As most readers are aware, the false left/right paradigm has been the primary control mechanism used against the American people for decades. The idea being that in order for establishment elites to maintain control of a population with a heritage of independence, a facade of choice must be created to placate the dim-witted masses while the system itself is dominated from behind the scenes. The people of a republic must be conned into participating in the process of their own enslavement, at least until the oligarchs are ready to unleash full-blown totalitarianism.
Self-evidently, all the major economies are saturated with debt. Accordingly, central bank balance sheet expansion has lost its Keynesian magic entirely. Now the great sea of freshly minted liquidity simply fuels the carry trades as gamblers everywhere load up with any asset that generates a yield or short-run capital gain, and fund these bloated positions with cheap options and repo style finance. But here’s the obvious thing. Central banks can’t normalize interest rates - that is, allow the money markets to rise off the zero-bound - without triggering a violent unwind of the carry trades on which today’s massive asset inflation is built. On the other hand, they can no longer stimulate GDP growth, either, because the credit expansion channel to the main street economy of households and business is blocked by the reality of peak debt. Yes, the era of Keynesian money printing is over and done. But don’t wait for the small lady at the Fed to sing, either.
First it was the foreign exchange markets, then commodities, followed by fixed income markets. Now it’s the equity markets. Wherever we look, volatility has been creeping higher. To some extent, this is not surprising. At the end of the US Federal Reserve’s first round of quantitative easing, and at the end of QE2, the markets wobbled. So with QE3 now winding to a close (and with the European Central Bank (ECB) still behind the curve), a period of uncertainty and frazzled nerves should probably have been expected.
If you want to pinpoint the one dynamic pushing the global economy into not just a prolonged recession but a parallel period of massive social instability, look no farther than the social and financial stagnation that results from optimizing the system to benefit the Elites and the entrenched incumbents who protect them from competition and the dispossessed debt-serf classes below. The incestuous embrace of privilege and power by entrenched, socially isolated Elites characterizes failed states and brittle, doomed regimes throughout history.
In the current GDP-based way we measure "prosperity" (i.e. "growth"), healthy living, low-cost lifestyles and capital accumulation are catastrophes for the economy rather than tremendous benefits. Clearly, we need an entirely new set of metrics and ways of measuring them. This will instantly create an entirely new set of agendas, priorities and incentives that change day-to-day choices without any central-state coercion, bureaucracies or top-down Central Planning.
New Home Sales rose a magnificent (seasonally-adjusted annualized rate) 18% in August - the biggest monthly rise since January 1992 albeit with a 16.3 90% confidence interval, meaning the final number may well be +1.7%. At 504k, new home sales are back at May 2008 levels (though obviously massively below the 1.4 million homes sold at the peak in 2005). As a reminder, May's 504K new home sales print was later revieed later to 458K. But even more stunning, new home sales in The West rose a mind-numbing 50% in August (and up 84.4% YoY - nearly double). And just to confuse matters, the average new home sale price rose to a new record high of $347,900. So as existing home sales are sliding (and prices dropping), new home sales are surging (to new record highs) - makes perfect sense. We await the extrapolations for how great this move is. (or the realization that it is entirely seasonal-adjustment-biased and unsustainable given the realities of mortgage applications).
The Fed, by raising its rates and relinquishing its downward pressure on the US dollar, is about to kill off most of the emerging markets. That’s a whole lot of misery in one pen stroke. That’s a whole lot of millions of people who will see their dreams of better lives shattered, just as they were beginning to think they had a chance. It’s how the game is played. The weak must be sacrificed so the strong be stronger.
Any system that has no way to measure, much less prioritize opportunity costs (i.e. what else could have been done the capital, labor and resources) and maximization of utility is not just flawed - it is terribly misguided and structurally destructive.
When The New Normal Fails: The "Problem With Traditional Economics" In A Bizarro, Centrally-Planned WorldSubmitted by Tyler Durden on 09/23/2014 15:45 -0400