Expecting the state to truly reform the nation's engines of financialization is like asking the cocaine addict married to the wealthy dealer to divorce the dealer.
We know low interest rates and QE hasn`t worked, or they wouldn`t have to be re-initiated in the form of additional QE Programs, and we wouldn`t still be having this entire conversation 7 years after ZIRP began.
The systemic risks underlying the Financial Crisis are in no way resolved.
Most people that discuss the "economic collapse" focus on what is coming in the future. And without a doubt, we are on the verge of some incredibly hard times. But what often gets neglected is the immense permanent damage that has been done to the U.S. economy by the long-term economic collapse that we are already experiencing. But because unprecedented levels of government debt and reckless money printing by the Federal Reserve have bought us a very short window of relative stability, most Americans don't seem too concerned about our long-term problems. They seem to have faith that our "leaders" will be able to find a way to muddle through whatever challenges are ahead. Hopefully the following 12 charts will be a wake up call.
In the pantheon of utter political stupidity in our time, the competition is pretty fierce to see who ranks #1. But I have to imagine that, even with so many rivals, Argentina’s Cristina Fernandez de Kirchner makes a pretty compelling argument to be the champion. Exhibit A: Argentina’s new ‘supply law’, or Ley de Abastecimiento, (as we warned here) due to take effect in December next year.
While Greek leaders are proclaiming victory, intending to exit the bailout plan early and fund themselves in the public marketplace - just as they did in April (despite record poverty, unemployment, and suicides); it appears investors are a little less sanguine about the prospect. Greek bond yields have topped 7% for the first time since March and any gains from the 5Y bonds sold to hedge funds in April have now gone (and Greek stocks are at 13-month lows). The driver of recent weakness appears to be fears over whether Draghi's OMT will ever be real enough to monetize Greek debt and a re-rating based on more standalone risk if Greece were to exit the bailout program early.
Just when you think the selloff couldn’t get any scarier, it did. The last hour of trading took over 1% out of the S&P 500 in rapid fashion, reportedly on fears of an Ebola check at a major U.S. airport. Today we offer up a “Top 10” list of specific markets and indicators to watch for signs of a near term market bottom. They include the CBOE VIX Index (key levels at 26 and 32), the action in small cap stocks and crude oil, and the dollar. Less quantifiable issues – but important nonetheless – are headlines related to Ebola (probably getting worse before better), 10-year Treasury bond yields (2.0% and 1.5% possible here), and European policymakers addressing a host of difficult monetary and fiscal policy issues. Bottom line: this is unlikely to be a dramatic “V-bottom” low given the range of issues of concern to investors. Look for the majority of our “Top 10” to stop going down before calling a bottom.
We believe there is scientific and epidemiologic evidence that Ebola virus has the potential to be transmitted via infectious aerosol particles both near and at a distance from infected patients, which means that healthcare workers should be wearing respirators, not facemasks... To summarize, for the following reasons we believe that Ebola could be an opportunistic aerosol-transmissible disease requiring adequate respiratory protection: i) Patients and procedures generate aerosols, and Ebola virus remains viable in aerosols for up to 90 minutes; ii) All sizes of aerosol particles are easily inhaled both near to and far from the patient; iii) Crowding, limited air exchange, and close interactions with patients all contribute to the probability that healthcare workers will be exposed to high concentrations of very toxic infectious aerosols; iv) Ebola targets immune response cells found in all epithelial tissues, including in the respiratory and gastrointestinal system; v) Experimental data support aerosols as a mode of disease transmission in non-human primates.
While today's market dump was certainly dramatic, it was a function of the scant liquidity in the market (as we warned would be the case first thing) and outsized moves following last week's mauling, not the result of any fundamental (or not so fundamental) news. That could change tomorrow, and change for the worse, because as Barclays reminds us, tomorrow is when the European Court of Justice (ECJ) is scheduled to hear testimony on the ECB’s non-existent Outright Monetary Transactions program (OMT). Recall that the OMT is the imaginary (again: non-existent) byproduct of Draghi's "whatever it takes" speech: a byproduct that was supposed to exist purely in the imaginary realm (as it was merely a verbal bluff, one which was never meant to be actually activated), and never actually take practical shape (hence, why the OMT's legal term sheet still does not exist, over two years later). Sadly for Draghi, and the entire Deus Ex theater that managed to send European peripheral bonds from record wides yields to record low, tomorrow it will attain some much dreaded shape.
A great many will rue the day when they bought into: “Pigs can fly,” “The markets are at these levels based on sound fundamentals,” “The Fed’s got their back,” and “Ebola is contained.” It is astounding just how far behind the curve many are finding themselves. Suddenly, almost everyone we meet is either doe-eyed, or worse, portraying signs of a deer stuck in the headlights. Today, everything is changing because the great masses whom many relate to as “the herd mentality” is now showing signs of great nervousness. And once this group gets spooked, it's over.
If central banks have learned anything since 2008, it's that waiting around for the panic to deepen is not a winning strategy. Put yourself in their shoes. Isn't this what you would do, given the dearth of alternatives and the very real risks of implosion? Anyone in their position with the tools at hand would not have any other real option other than to buy stocks in whatever quantity is needed to reverse the selling and blow the shorts out of the water. If $1 trillion doesn't do the job, make it $3 trillion, or $5 trillion. At this point, it doesn't really matter, does it?
Did the sharp sell-off in crude oil trigger the meltdown in stocks? While there are plenty of potential reasons for the stock market to drop - stretched valuations, the slowdown in Germany, Japan and China, etc. - it is more than possible that the recent sell-off in crude oil might have served as a trigger. Crucially, as we explained in detail here and here, if the manipulation of prices of crude oil lower by the Saudis is indeed a US-friendly anti-Russian move, how much equity market pain (and thus created wealth) is America willing to take for the use of "The Oil Weapon"?
We warned a week ago of the various possibilities surrounding an Ebola outbreak in America, and today we get some degree of confirmation of a medical-based martial-law coming to the US. Governor Dan Malloy has declared a Public Health Emergency in Connecticut, authorizing the "isolation of any individual reasonably believed to have been exposed to the Ebola virus." Simply put, as we noted previously, the State of Public Health Emergency allows bureaucrats to detain and force-vaccinate people without due process - despite not one single case being found in CT. If there is a major Ebola pandemic in America, all of the liberties and the freedoms that you currently enjoy would be gone. The state of public health emergency will remain in effect indefinitely until lifted by the governor.
It's sad to say with such finality, but a universal fact of existence is that most of the people you meet in this life are fundamentally and functionally ignorant. Entire nations have fallen throughout history because of this terrible weakness... By extension, such ignorance is not just an inherent disease but also an easily exploitable disease. The disease of ignorance leaves us vulnerable to many other plagues, including literal plagues like the Ebola virus. When we take the establishment at its word concerning the threat of Ebola outbreak, we make ourselves vulnerable. When people assume that the worst could never happen to them, history shows us that it inevitably does.
Physical gold is being accumulated and used in exchanges but very discretely as of now. The geopolitical and economic environment in the last few months was in my view the calm before the storm. Both the economic and political environments are uncertain and will surprise the complacent markets.