No, last week’s jobs report was not “strong”. It was just another edition of the “born again” jobs scam that has been fueling the illusion of recovery during the entire post-crisis Bernanke Bubble. In short, the US economy is failing and the welfare state safety net is exploding. And that means that the true headwind in front of the allegedly “cheap” stock market is an insuperable fiscal crisis that will bring steadily higher taxes, lower spending and a gale-force of permanent anti-Keynesian austerity in the GDP accounts. And for that reason, the Fed’s strategy of printing money until the jobs market has returned to effective “full employment” is completely lunatic. The bottom-line is that Bernanke is printing money so that Uncle Sam can keep massively borrowing, and thereby fund a simulacrum of job growth in the HES Complex. Call it the Bed Pan Economy. When it finally crashes, Ben Bernanke will be more reviled than Herbert Hoover. And deservedly so.
China’s biggest private shipbuilder, China Rongsheng Heavy Industries Group, last week filed for a profit warning as it expects a loss in the first half of 2013. That was the good news. The bad news is that Rongsheng appealed for government aid last Friday and said it was cutting staff as it was delaying payments to suppliers to deal with tightened cash flows. It also called on its shareholders for financial help and said it was in talks with banks and other financial institutions to renew existing credit lines. In other words a complete liquidity collapse.
Think the $90 million sale of the penthouse duplex at the still unfinished One57 to an undisclosed buyer is a milestone for New York real estate? Then you haven't looked at the asking price for Steve Cohen's duplex on the 51st story of the Bloomberg building aka One Beacon Court. At $115 million, if sold, this will represent the most expensive New york real estate transaction in history.
Tonight out of Bloomberg: ": "China’s money-market cash squeeze is likely to reduce credit growth this year by 750 billion yuan ($122 billion), an amount equivalent to the size of Vietnam’s economy, according to a Bloomberg News survey. The number is the median estimate of 15 analysts, whose projections last week ranged from cuts of 20 billion yuan to 3 trillion yuan"... Two weeks ago from Zero Hedge: "The country is about to undergo an unprecedented deleveraging that could amount to over CNY1 trillion in order to force reallocate capital in a more efficient basis. That's right: a massive deleveraging coming dead ahead in China just in time to shock the market still reeling from the threat of the Fed's tapering." And here is the reason why.
On June 19, 2013 Ben Bernanke announced that later this year the Federal Reserve would very likely begin to print less money than what they are printing today, in effect resulting in many investors refusing to catch the bouncing ball. This pronouncement was enough to send all financial markets into a tizzy with everything declining, except for the US Dollar. Investors must understand that this is a game changer. Whether the Federal Reserve actually carries through with this plan is open to debate; but, perhaps the most important observation from the “tapering” announcement was the reaction by all financial markets to what was in reality a very small move by the Federal Reserve...
We as a nation had an unparalleled, historic opportunity to set things right in the aftermath of the 2008 financial meltdown. Alas, we blew it. Instead of tearing down what had failed spectacularly, we chose to do more of what failed spectacularly: cartel-crony capitalism, centralized wealth and power and an expansion of our financialized debtocracy.
On the theory that you can milk a cow many times, but you can bleed it only once.
Back in 2002 Warren Buffet famously proclaimed that derivatives were ‘financial weapons of mass destruction’ (FWMDs). Time has proven this view to be correct. As The Amphora Report's John Butler notes, it is difficult to imagine that the US housing and general global credit bubble of 2004-07 could have formed without the widespread use of collateralized debt obligations (CDOs) and various other products of early 21st century financial engineering. But to paraphrase those who oppose gun control, "FWMDs don’t cause crises, people do." But then who, exactly, does? And why? And can so-called 'liquidity regulation' prevent the next crisis? To answer these questions, John takes a closer look at proposed liquidity regulation as a response to the growing use of 'collateral transformation' (a topic often discussed here): the latest, greatest FWMD in the arsenal.
Housing price gains are outpacing fundamentals, as the median new home sale price relative to real disposable income has recent reached all-time high levels (higher than than the admitted bubble of the mid 2000s), and there are several regions around the US that are seeing simply stunning levels of exuberance with regard price changes. That leaves us asking - just which cities are the most bubble-prone? In order to answer that, Bloomberg has quantified the US cities with the most rapid growth in unemployment (not exactly supportive of home price excesses) coupled with the fastest rising prices. The answer - Yuma, Arizona (followed closely by Elmira, NY) is the most housing-bubble-prone city in the US.
"Can central banks now really do “whatever it takes”? As each day goes by, it seems less and less likely... Six years have passed since the eruption of the global financial crisis, yet robust, self-sustaining, well balanced growth still eludes the global economy. If there were an easy path to that goal, we would have found it by now. Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Many large corporations are using cheap bond funding to lengthen the duration of their liabilities instead of investing in new production capacity...Continued low interest rates and unconventional policies have made it easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system... Overindebtedness is one of the major barriers on the path to growth after a financial crisis. Borrowing more year after year is not the cure...in some places it may be difficult to avoid an overall reduction in accommodation because some policies have clearly hit their limits." - Bank of International Settlements
A new meme is spreading in financial markets: The Fed is about to turn off the monetary spigot. US Printmaster General Ben Bernanke announced that he might start reducing the monthly debt monetization program, called ‘quantitative easing’ (QE), as early as the autumn of 2013, and maybe stop it entirely by the middle of next year. He reassured markets that the Fed would keep the key policy rate (the Fed Funds rate) at near zero all the way into 2015. Still, the end of QE is seen as the beginning of the end of super-easy policy and potentially the first towards normalization, as if anybody still had any idea of what ‘normal’ was. Fearing that the flow of nourishing mother milk from the Fed could dry up, a resolutely unweaned Wall Street threw a hissy fit and the dummy out of the pram. So far, so good. There is only one problem: it won’t happen.
The mere mention that tapering was even possible, combined with the Chairman's fairly sunny disposition (perhaps caused by the realization that the real mess will likely be his successor's problem to clean up) was enough to convince the market that the post-QE world was at hand. This conclusion is wrong. Although many haven't yet realized it, the financial markets are stuck in a "Waiting for Godot" era in which the change in policy that all are straining to see, will never in fact arrive. Most fail to grasp the degree to which the "recovery" will stall without the $85 billion per month that the Fed is currently pumping into the economy. Of course, when the Fed is forced to make this concession, it should be obvious to a critical mass that the recovery is a sham.
Four words: financialization, debtocracy, diminishing returns. The entire global economy, developed and developing nations alike, is now dependent on cheap, abundant credit for everything: for "growth," for asset inflation, and ultimately for central state deficit spending, which props up all the cartels, rentier arrangements, fiefdoms and armies of toadies, lackeys, apparatchiks and embezzlers that suck off the Status Quo. The wheels fall off the entire financialized debtocracy wagon once yields rise.There's nothing mysterious about this.
We have warned a number of times that China is a ticking time-bomb (and the PBoC finds itself between a housing-bubble rock and reflationary liquidity injection hard place) but the collapse of trust in the interbank funding markets suggests things are coming to a head quickly. The problem the administration has is re-surging house prices and a clear bubble in credit (as BofAML notes that they suspect that May housing numbers might have under-reported the true momentum in the market since local governments are pressured to control local prices) that they would like to control (as opposed to exaggerate with stimulus). As we noted here, while the PBOC may prefer to be more selective with their liquidity injections (read bank 'saves' like ICBC last night) due to the preference to control the housing bubble, when they finally fold and enter the liquidity market wholesale, the wave of reflation will rapidly follow (and so will the prices of precious metals and commodities).
This piece is timely as markets spit up the punch from Bernanke's bowl