James Howard Kunstler is concerned. But beyond our decaying fundamentals, he's distressed by society's unwillingness to be honest with itself about the issue's it's facing. Instead, we are embracing a narrative based in "magical thinking" (e.g., prosperity through the printing press, energy independence through domestic shale) that assures us everything is fine. "It’s characteristic of the time that we’re living in that there simply is no sense of consequence. And that’s exactly what you get when you have a Federal Reserve that’s out of control and a public that is filled with technological narcissistic visions of Santa Claus delivering rescue remedies on demand. And so there’s no general sense that when you do things, bad things can happen."
Hard assets are gaining momentum once again as market participants digest the potential impact of central bank printing initiatives. After last year's record level of central bank intervention, 2013 is gearing up to be an even more prolific year on the money-printing front. Japanese Prime Minister Shinzo Abe recently unveiled Japan's tenth Quantitative Easing program to follow the country's current $224 billion stimulus announced on January 11th. The US Federal Reserve is steadily printing US$85 billion a month under its QE3 & QE4 programs, and reports indicate that the European Central Bank is close to launching its much-awaited Open Market Transaction (OMT) program to purchase European sovereign debt. It's a money-printing party and everyone's invited. Even the new Bank of England head, Mark Carney, has hinted of plans to launch more monetary stimulus. Professional investors have noticed and are expressing concern over the consequences of concerted currency devaluation and the continuation of zero-percent interest rates. Despite being long-time precious metals enthusiasts and active investors in gold and silver, we did not focus on "the other precious metals", platinum or palladium, until very recently.
The ongoing message from the mainstream media, analysts and most economists is that the economy has turned the corner and we are set for substantially stronger growth in the coming year. While that sounds great on the surface the economic data has yet to hint at such a robust recovery. What is worrisome is that CNBC has started using the term "Goldilocks economy" again which is what we were hearing as we approached the peak of the market in early 2008. As David Rosenberg pointed out in his morning missive: "Maybe, it's just this: so long as there is a positive sign in front of any economic metric, no matter how microscopic, all is good. After all, you can't be 'sort of in recession' - it's like being pregnant... either you are or you are not." The bottom line is that ex-artificial stimulus, and other fiscal supports, there is little in the way of an economic recovery currently going on. In order for the economy to reach "escape velocity" it will be on the back of sharply rising employment and wages which are needed to prime consumer spending. This is not happening as the the gap between wages and rising cost of living continues to drive the consumer to shore up that shortfall with more debt.
Latest from my friend David Kotok. I think both he and Meredith Whitney are too bullish on the banks
How GETCO Went From HFT Trading Giant To Dwarf, And Raked Up Over $50 Million In T&E Expenses Along The WaySubmitted by Tyler Durden on 02/13/2013 18:57 -0400
There was a time back in 2009 when GETCO was the absolute titan of the high frequency trading arena, printing money with the reckless abandon of a Federal Reserve on full tilt. It even got its own profile piece in the WSJ in the summer of 2009: "Meet Getco, High-Frequency Trade KingMeet Getco, High-Frequency Trade King." However, the good days were not to last as shortly thereafter we got a flash crash, then we got three + years of Ben Bernanke's (and every other bank's) central planning and some $10 trillion in combined exogenous liquidity to prop up the market, both of which resulted in the complete loss of faith in a standalone stock market by the retail investor (and once the current unwind of the December rotation from stocks into savings accounts over capital gains tax fears ends, the outflows will resume especially as latest ICI data shows with the smallest inflow into domestic equities to date in 2013). And since retail orders no longer would feed the frontrunning, sub-pennying, quote churning, flash crashing juggernaut that is HFT, that meant less revenue and profit for algo master GETCO. How much less? A whopping 82% less in the nine months ended September 30, 2012 compared to a year prior, and 92% less when annualizing 2012 results compared to the firm's heyday in 2008, the year in which it made a record $430 million in net income. Getco's net income as of September 30, 2012: a tiny $25 million.
At some point, absorbing more information about the unsustainability of modern society yields diminishing returns. It becomes emotionally draining and thus counterproductive. Part of this exhaustion results from recognizing our powerlessness within the Status Quo, where independent thinking and structural innovation are intentionally winnowed out as threats to existing institutions and industries. Another part arises from the burden of knowing that the supposedly permanent Status Quo is far more vulnerable than generally believed. This is the psychology of knowing what lies ahead in The Burden of Knowing. These 'burdens of knowing' can diminish the small but real joys of the present - anti-thesised by an attitude such as “don’t worry; be happy.” And it certainly makes sense when life is still comfortable and enjoyable. But the philosophy of “thinking about the future is a downer, so I live in the present” ultimately rests on a false confidence that the future will take care of itself. Though Keynesian economists argue that nations are not like households, in truth debt/financial fragility is scale-invariant, meaning that rising debt, a high cost basis, and zero savings/investment lead to fragility in households, enterprises, communities, and nations alike.
We are far enough and deep enough into the most heroic monetary and fiscal efforts ever undertaken to finally ask, why aren't these measures working? Or at least we should be. Oddly, many in DC, on Wall Street, and the Federal Reserve continue to steadfastly refuse to include anything in their approaches and frameworks other than "more of the same." So we are treated to an endless parade of news items that seek to convince us that a bottom is in and that we've 'turned the corner' – often on the flimsy basis that in the past things have always gotten better by now. Oil is the primary lubricant of economic growth and that it is not just the amount of oil one has to burn but also the quality, or net energy, of the oil that matters. If we want to understand why all of the tried-and-true monetary and fiscal efforts have failed, we have to appreciate the headwinds that are offered by both a condition of too-much-debt and expensive energy. Neither alone can account for the economic malaise that stalks the world.
- Obama Paints Wider Role for Government in Middle Class Revival (BBG)
- Obama to Seek a New Trade Deal With EU (WSJ)... or this is strawman why 2016 GDP will be higher
- Mobile phone sales fall for the first time since 2009 (Telegraph)
- Sequester Looms, No Deal in Sight (WSJ)
- Neither US party swallows a compromise (FT)
- Embattled Economies Cling to Euro (WSJ)
- For China, Spending Is Harder Than It Looks (WSJ)
- Bank of England's Sir Mervyn King says recovery in sight (BBC) - just a little more inflation first
- G7 fails to defuse currency tensions (FT)
- Japanese Leader Urges Firms to Boost Wages (WSJ) - so does the US one
- Fed Bank Chiefs Back Money-Fund Overhaul (WSJ), or force everyone out of MMFs and into stocks
Those who traded credit in the frothy days of 2007 will recall that virtually every piece of new paper, including LBO debt, would come to market with the skimpiest of creditor protections, i.e., "covenant lite" which to many was an indication that money was literally being thrown without any discrimination in the last epic chase for yield, just as many were preparing for the imminent market backlash. Which they got shortly thereafter. Judging by the amount of covenant lite loans issued in 2012 as a percentage of total and compiled by Brandywine Management, which just surpassed the credit bubble frenzy of 2007 at more than 30% of total issuance, the bubble in credit is now well and truly back - a job well done Federal Reserve, just 5 years after the last credit bubble.
Just under a year ago, when JPMorgan's London Whale trading fiasco was exposed as much more than just the proverbial "tempest in a teapot", Morgan watchers were left scratching their heads over another very curious development: the dramatic surge in the company's reported VaR, which as we showed last June nearly doubled, rising by some 93% year over year. Specifically we said that "in the 10-Q filing, the bank reported a VaR of $170 million for the three months ending March 31, 2012. This compared to a tiny $88 million for the previous year." JPM, which was desperate to cover up this modelling snafu, kept mum and shed as little light on the issue as possible. In its own words from the Q1 2012 10-Q filing: "the increase in average VaR was primarily driven by an increase in CIO VaR and a decrease in diversification benefit across the Firm." And furthermore: "CIO VaR averaged $129 million for the three months ended March 31, 2012, compared with $60 million for the comparable 2011 period. The increase in CIO average VaR was due to changes in the synthetic credit portfolio held by CIO as part of its management of structural and other risks arising from the Firm's on-going business activities." Keep the bolded sentence in mind, because as it turns out it is nothing but a euphemism for, drumroll, epic, amateur Excel error!
The problem with “too-big-to-fail” is first and foremost the behavior of our beloved political leaders in Washington
Why has the Fed paid some $6 billion in interest to foreign banks, in the process subsidizing and keeping insolvent European and other foreign banks, in business and explicitly to the detriment of countless US-based banks who have to compete with Fed-funded foreign banks and who have to fire countless workers courtesy of this Fed subsidy to foreign workers? And, perhaps more importantly, why will the Fed pay about $5 billion or much more in interest to foreign banks each year starting in 2014?
The economic collapse is not a single event. The economic collapse has been happening, it is is happening right now, and it will continue to happen. Yes, there will be times when our decline will be punctuated by moments of great crisis, but that will be the exception rather than the rule. A lot of people that write about "the economic collapse" hype it up as if it will be some huge "event" that will happen very rapidly and then once it is all over we will rebuild. Unfortunately, that is not how the real world works. We are living in the greatest debt bubble in the history of the world, and once it completely bursts there will be no going back to how things were before. But other than that, everything is rainbows and lollipops, right?
Did Executives, who’re dumping their stock, get actionable information from the Fed?