It’s become rather obvious that current stimulus plans are not working. Rather than scrap the madness and start over, our world political and economic leaders insist on a rather bizarre analysis that what they are doing is actually correct. But the reason for its ineffectiveness is that they haven’t done enough of it. In other words, yes the central banks and governments of the world have certainly dug themselves into a pretty deep hole. Yet, instead of trying to climb out or shout for help, they ask for more shovels – dig deeper! Many people have commented that all the world really needs is a little more confidence. Once people and companies become more comfortable they’ll start to spend again. This view is 100% correct – but what’s missing from this analysis is the reason confidence is declining. The reason for the decline is due to the very policy actions of our governments and central banks to help restore confidence. Their actions are actually causing people to have less confidence – talk about irony.
"If you're not concerned, you're not paying attention" say Axel Merk, founder and Chief Investment Officer of Merk Funds (and former President of the Federal Reserve Bank of St Louis and a former FOMC member). Like many, he sees today's excessive high-price, low-volume, zero-volatility markets as an unnatural and dangerous result of misguided intervention by the Federal Reserve... "Now, the capital base and the equity of the Fed is very small. Odds are that the losses would wipe out the equity at the Fed."
"I am definitely concerned. When was [the cyclically adjusted P/E ratio or CAPE] higher than it is now? I can tell you: 1929, 2000 and 2007;" warned Bob Shiller this week, adding that "it's likely to turn down again, just like it did the last two times." As John Hussman reminds us this week, stock valuations now reflect not only the absence of any interest-competitive component of expected returns, but the absence of any expected compensation for the greater risk of stocks, which is not insignificant – as investors might remember from 2000-2002 and 2007-2009 plunges, despite aggressive easing by the Federal Reserve throughout both episodes. Investment decisions driven primarily by the question “What other choice do I have?” are likely to prove regrettable.
One hundred years ago today the world was shook loose of its moorings. Every school boy knows that the assassination of the archduke of Austria at Sarajevo was the trigger that incited the bloody, destructive conflagration of the world’s nations known as the Great War. But this senseless eruption of unprecedented industrial state violence did not end with the armistice four years later. In fact, 1914 is the fulcrum of modern history. It is the year the Fed opened-up for business just as the carnage in northern France closed-down the prior magnificent half-century era of liberal internationalism and honest gold-backed money. So it was the Great War’s terrible aftermath - a century of drift toward statism, militarism and fiat money - that was actually triggered by the events at Sarajevo.
Overview of the price action in the foreign exchange market and a short word on US 10-year Treasuries.
As Barclays Joe Abate warns, delivery fails in the Treasury market have surged recently. Whil enot at the scale of the 2008 crisis, we suspect the spike is what is paniccing the Fed to say "the market is wrong", talk up short-end rates, and implore the public to sell-sell-sell their bonds. The Fed's market domination has meant massive collateral shortages (as we have detailed previously) and now more even that during last year's taper-tantrum, the repo market is trouble. But why do I care about some archaic money-market malarkey? Simple, Without collateral to fund repo, there is no repo; without repo, there is no leveraged positioning in financial markets; without leverage and the constant hypothecation there is nothing to maintain the stock market's exuberance (as we are already seeing in JPY and bonds). Q.E.D.
The domestic energy boom is behind the expansion of Industrial Production. The remarkable untold story: Ex mining and oil and gas extraction, US Industrial Production has been in contraction for most of the period since Peak Oil in 2005-08.
The economy must be doing great, right? The market's at all-time highs... We suspect President Obama will 'brush off' the Q1 GDP collapse and focus his 'remarks on the US economy' on how well America is doing; how exceptional it's growth is'; and how any minute now it's going to the moon alice (and not just the Fed balance sheet). And just a reminder, the last time Obama spoke aggressively on 'fixing' inequality, stocks were not happy. Remember, the greatest irony of it all...
Banks and other lenders issued 3.7 million credit cards to so-called subprime borrowers during the first quarter, a 39% jump. "Even though [those borrowers] could be considered subprime, they're still creditworthy," is the deja-vu all over again message from the Financial Services Roundtable, who proudly crow, they are "starting to see an environment where issuers are feeling more comfortable to extend credit." How great is that? What could go wrong? One credit union exec notes, "lenders in general have really saturated the higher-credit-quality market, so it is only natural that as they look for growth opportunities, they expand downward," and sure enough, as one new borrower exclaimed, "my credit score is probably terrible," adding "I was surprised they'd give so much." Exceptional America is back...
Anyone saying "the Fedeal Reserve Act is bad" in Germany is, according to Lars Maehrholz, looked upon by the mainstream as being a Nazi. The organizer of the widespread "End The Fed" rallies that we discussed previously, explained that he is not only under attack by the main stream media and political system in Germany but also physical threats that resulted in a car he was in getting fire bombed by an anonymous perp.
How in the world does the government expect us to trust the economic numbers that they give us anymore? For a long time, many have suspected that they were being manipulated, and as you will see below it appears we now have proof that this is indeed the case.
The end game of three decades of excess is upon us, and we can't deny the weight of the debt imbalances that are currently in play. The medicine that the current administration is prescribing is a treatment for the common cold; in this case a normal business cycle recession. The problem is that the patient is suffering from a "debt cancer," and until the proper treatment is prescribed and implemented; the patient will most likely continue to suffer.
Isn't it odd that when 'officials' are no longer part of the status-quo-sustainers, how the truthiness flows... As former Fed Governor Kevin Warsh explained this morning, "on the fairness point - if you have access to credit, if you've got a big balance sheet, the Fed has made you richer," concluding rather too honestly for some people's liking, "I would say [Fed policy] has been in some sense Reverse Robin Hood." The bottom line, he chides, "this is a way to make the well to do more well to do because that's all the Federal Reserve can do."
The government now has another measure which under-reports inflation by accounting chicanery...