White House Was Not "Expecting A Stock Rebound" This Morning, "They Were Bracing For A Negative Market Reaction"Submitted by Tyler Durden on 10/14/2013 13:05 -0400
When asked by Tom Keene about the "modest recovery" in stocks earlier this morning (which as of this post are unchanged), Bloomberg TV's Julianna Goldman responds quite simply: "that's not what White House officials were expecting or necessarily wanting this morning. They were all bracing for some negative market reaction that's going to be the fire that's alight under everyone."
Obama "Prepared To Negotiate" (After Government Reopens), Says This Time "Wall Street Should Be Concerned"Submitted by Tyler Durden on 10/02/2013 16:24 -0400
In an interview with CNBC's John Harwood, Obama once again shows why the polarization in Congress is at record levels. In a brief: he said he is "exasperated", and that the shutdown is "entirely unncessary" but adds that he is (finally?) prepared to negotiate, however only after he gets his way namely after the government is reopened. And another important talking point: Obama added that while gridlock in D.C. is nothing new, "this time I think Wall Street should be concerned." It is unclear how that statement makes any sense in light of Obama's right hand senator Chuck Schumer telling the man who is really in charge, Ben Bernanke, to get to work. Unless of course, Obama is now angling for a "concerning" market crash, which sends the Dow down by 20% like in the summer of 2011, and Obama can tell the stunned public "I told you so."
"One day this whole credit bubble will be deflated very badly - you are going to experience a complete implosion of all asset prices and the credit system..."
This is at a time when we have real economic growth barely above 2% and nominal growth of just over 3% (abysmal by any standards) after six years of monetary easing and 5 years of QE1; QE 2; Operation twist; QE “infinity” and huge fiscal deficits. After last week Citi notes it is not clear that this set of policies is going to end anytime soon. It seems far more likely that these policies will be continued as far as the eye can see and even if there are “anecdotal” signs of inflation this Fed (Or the next one) is not a Volcker fed. This Fed does not see inflation as the evil but rather the solution. Gold should also do well as it did from 1977-1980 (while the Fed stays deliberately behind the curve). Unfortunately Citi fears that the backdrop will more closely resemble the late 1970’s/early 1980’s than the “Golden period” of 1995-2000 and that we will have a quite difficult backdrop to manage over the next 2-3 years.
Fingers of Instability
The last time the top 10% of the US income distribution had such a large proportion of the entire nation's income was the 1920s - a period that culminated in the Great Depression and a collapse in that exuberance. As AP reports, the very wealthiest Americans earned more than 19% of the country's household income last year — their biggest share since 1928, the year before the stock market crash. And the top 10% captured a record 48.2% of total earnings last year. Analysis by Emanuael Saez shows that, based on IRS data, in 2012, the incomes of the top 1% rose nearly 20% compared with a 1% increase for the remaining 99%. Economists point to several reasons for widening income inequality including globalization and technology. However, as John Taylor explains in his recent WSJ Op-Ed, using this as a lever for Obama's "middle-out" policies - higher tax rates, more intrusive regulations, more targeted fiscal policies - will not revive the economy. More likely they will perpetuate the weak economy we have and cause real incomes—including for those in the middle—to continue to stagnate.
Who Is Going To Buy The US Debt If This War Causes China, Russia And The Rest Of The World To Turn On Us?Submitted by Tyler Durden on 09/07/2013 15:51 -0400
Yesterday we implied a difficult question when we illustrated the huge size of US Treasury bond holdings that China and Russia have between them - accounting for 25% of all foreign held debt - implicitly funding US standards of living (along with the Federal Reserve). The difficult question is "Can the U.S. really afford to greatly anger the rest of the world when they are the ones that are paying our bills?" What is going to happen if China, Russia and many other large nations stop buying our debt and start rapidly dumping U.S. debt that they already own? If the United States is not very careful, it is going to pay a tremendous economic price for taking military action in Syria.
"When it comes to market events, there have been no impactful black swans - the so-called unexpected 'tail events," Mark Spitznagel notes in his excellent new book, The Dao Of Capital: Austrian Investing in a Distorted World, explaining that, "what were unseen by most, were indeed highly foreseeable" by others. The Fed planted the seeds for the last financial crisis and "when you prevent the natural balancing act, you get growth that shouldn't be happening."
The financial crisis of 2008 could have been the wake-up tall that, like the Yellowstone fires of 1988, alerted so-called managers to the dangers of trying to override the natural governors of the system. Instead, the Federal Reserve, with its head "ranger," Ben Bernanke, has deluded itself into thinldng ft has tamped down every little smolder from becoming a destructive blaze, but instead all it has done is poured the unnatural fertilizer of liquidity onto a morass of overgrown malinvestment making a even more highly flammable. One day - likely sooner than later, it will burn, and when that happens, the Fed will be sorely lackng in buckets and shovels and must succumb to the flames.
Let’s see. Consumers are carrying more debt than they did in 2007. Corporations are carrying more debt than they did in 2007. The Federal government is carrying 60% more debt than it did in 2007. Cities and States are carrying more debt than they did in 2007. Interest rates have jumped by 80% in the last three months. The economy is clearly in recession, as retailer after retailer reports horrific results. Stocks are as overvalued as they were in 1929, 2000, and 2007. China is experiencing a real estate collapse. Japan is experiencing a cultural/economic/societal collapse. The Middle East is awash in blood. The European Union is held together by lies, delusion and false promises. What could possibly go wrong?
One of the most published academics on gold in the world is Dr Brian Lucey of Trinity College Dublin (TCD) and he and another academic who has frequently covered the gold market, Dr Constantin Gurdgiev have just this week had an excellent research paper on gold published.
They have researched the gold market, along with Dr Cetin Ciner of the University of North Carolina and their paper, ‘Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates’ finds that gold is a hedge against US dollar and British pound risk due to “its monetary asset role.”
Luckily, the average American is so bad at math they can’t read this chart and understand the implications.
If you want to track how close we are to the next financial collapse, there is one number that you need to be watching above all others. The number that we are talking about is the yield on 10 year U.S. Treasuries, because it affects thousands of other interest rates in our financial system. When the yield on 10 year U.S. Treasuries goes up, that is bad for the U.S. economy because it pushes long-term interest rates up. When interest rates rise, it constricts the flow of credit, and a healthy flow of credit is absolutely essential to the debt-based system that we live in.
John Adams famously described the American government as being “of laws and not men.” The managerial state has wiped clean that wisdom in favor of countless and arbitrary dictates enforced by worthless bodies. The narcolepsy-inducing USA Today recently reported the Federal Bureau of Investigation granted informants immunity to break government law in certain circumstances. Newly disclosed documents reveal that thousands of so-dubbed “crimes” were committed in 2011 by the FBI’s pet players. The misdeeds include drug trafficking, plotting robberies, and bribery. Last year, the New York Times published a damning report on how the good-natured agents of Washington’s infamous law investigator work tirelessly at foiling terrorist plots they go to great lengths at concocting. These faux plots of destruction are used to beef up the reputation of the agency so as to solidify its monopoly of police power. The selective enforcement of law negates the very purpose of social order. How can there be a universally recognized limits to mankind’s behavior if a minority are permitted to disregard governing laws? The result is a contradiction – either the law applies everywhere or it does not.
A recent survey of asset managers globally, managing USD 27.4 trillion between them, found that 78% of defined-benefit plans would need annual returns of at least 5% per year to meet their commitments, while 19% required more than 8%, "a target of 5% per year can be reached but only by using leverage, shorting, and derivavtives." And sure enough, as Deutsche Bank (DB) reports, in short, investors have rarely been more levered than today! According to DB, a MoM change in NYSE margin debt >10% has to be taken as a critical warning signal as there are astonishing similarities in the sequence of events among all crises. As the S&P 500 just hit a new all-time high, investors might want to ask themselves when it is a good time to become more cautious – yesterday, in our view. Simply put, the higher margin debt levels rise, the more fragile the underlying basis on which prices trade; with even a less severe sell-off in equities capable of triggering a collapse.
Traders and investors do not respond to sea changes instantly. The smart ones take note and begin adjusting their portfolios and hedging their bets. This doesn’t result in massive market moves as these investors are sophisticated enough to move out of old positions and into new ones without drawing too much attention