Federal Reserve

With less than two weeks until a possible debt ceiling "accident" and with investors dumping T-Bills at near record pace, Ron Paul rages that any delay in, or opposition to, raising the debt ceiling will inevitably be met with hand-wringing over Congress’ alleged irresponsibility. But the real irresponsible act would be for Congress to raise the debt ceiling.

The current detachment between the financial markets and the real economy continues. The Federal Reserve's continued accommodative stance continues to support asset prices despite a decline in profit margins, an increase in deflationary pressures and a weak economic backdrop. So, while jobless claims and job openings may be touted as signs of an improving job market, the data suggests that we have likely seen the peak for this current economic cycle.

Investors are too complacent (the Minsky-Moment).  Too many are still trying to profit from the Fed subsidy of past stimulus. Investors remain loaded in risk assets, incentivized by the need to beat peers and benchmarks and comforted into complacency by the Fed ‘put’. The true level of risk is being ignored. The pervasive mentality of seeking maximum risk has become a terrible risk/reward trade for two main reasons...

"Instead of processing a net value, the person processed a gross figure. This meant the trade had “too many zeroes”, said one of the people."

And as everyone knows, "too many zeroes", is the technical term for you royally fucked up.

Another day, another "crackdown" by the CFTC on an "evil spoofing mastermind."

"Yellen is doing this with the blessing of the President because he doesn’t want to have a recession - or worse- in his administration. I’m a developer, I’m not complaining from my own standpoint, I’m just saying that at some point, you have to raise interest rates, you pay nothing. They are trying to put the recession - and it could be a beauty - into the next administration."

Capitalism isn’t – wasn’t – the problem. The culprit instead was unsound finance and deeply flawed monetary management. In short, Capitalism cannot function effectively within a backdrop of unfettered cheap finance. Things appear miraculous during the boom, and then the bust discombobulates. Contemporary central bank rate administration essentially abandoned the self-adjusting and regulating market system for determining the price of finance – so fundamental to Capitalism.

There is a war, a currency war, and the war is, ultimately, on Americans. Rather than living under a sound currency, modern Americans live under an economic despotism. There are monopoly men who tightly control the money, and are all the more insidious in their subtlety, and quietness in the shadows. In many respects, Americans have fallen far, and hard, from the liberty they once had.

"... you can bet that whenever an earthquake like this happens, especially when it’s triggered by two invisible tectonic plates like put gamma and call gamma and then cascades through arcane geologies like options expiration dates and ETF pricing software, both the media and self-interested parties will begin a mad rush to find someone or something a tad bit more obvious to blame. So you end up getting every investment process that uses a computer – from high frequency trading to risk parity allocations to derivative hedges – all lumped together in one big shotgun blast"

When we were kids, we used to proudly wear a T-shirt explaining different economic systems using ‘two cows’ as a metaphor... Times have changed...

"Since Washington doesn't understand what went wrong in 2007 and 2008, so the Fed, the White House and Congress are recreating the very same conditions for another financial bubble. If it pops, we could replay the same devastating effects as occurred during the first bubble in 1999 and 2000.”

One year ago we reported that companies were using secured bank debt to repurchase stock: a stunning, foolhardy development. It so unbelievable we promptly forgot this bizarre tangent into "use of loan funds"... Until today when we found that it was, indeed, all a lie and that the banks themselves had become complicit in perpetuating not only the worst possible capital misallocation, but being an accessory to the US stagnation, soon to be replaced with full-blown recession.

Depending on one’s point of view, Bernie Sanders either held his own or boosted his chances against perceived front-runner Hillary Clinton in Tuesday night’s Democratic presidential primary debate. Regardless of whether Sanders ultimately secures the nomination, the size and energy of the Bernie phenomenon should not be underestimated. If anything, libertarians consistently misjudge the degree to which socialist thought is deeply rooted in the American psyche.

One of the main reasons why the BLS has been massively overstimating job creation ever since great financial crisis, is due to the well-known birth-death adjustment, aka the CES Net Birth/Death Model, which quantitatively is shown on the chart below, has resulted in the "addition" of some 5.3 million jobs, that don't actually exist, but are merely modelled by the BLS which continues to assume the same new business creation/destruction dynamics that existed before the crisis. The is a big problem with this fundamental assumption: it is dead wrong. Here's why...

As we have warned numerous times - and any trader old enough to have actually lived through a credit cycle can attest to - there is only so much releveraging shareholder-friendly exuberance firms can do before the company's balance sheet becomes questionable. That inflection point has come for US equities. The deterioration of balance-sheet health is "increasingly alarming" and will only worsen if earnings growth continues to stall amid a global economic slowdown, according to Goldman Sachs and JPMorgan's Eric Beinstein warns "the benefit of lower yields for corporate issuers is fading." The weakness is widespread as BlackRock fears "you’ll continue to see some land mines out there."