Rate of Change

Hint: Take a look at the latest COT reports!

The belief that the market economy requires “steering” by altruistic central bankers, who make decisions influencing the entire economy based on their personal epiphanies, has rarely been more pronounced than today... Whether this is seen as good or bad by the average citizen is not even up for debate: it is simply what the political and bureaucratic elites have long ago decided is good for the citizenry, since they think they know best.

Four months ago, in another failed attempt to boost confidence in the Eurozone and stimulate lending (failed because three months later the ECB finally launched its own QE), the ECB conducted its latest stress test, which as we explicitly pointed out was an utter joke as even its "worst-case" scenario did not simulate a deflationary scenario. Two months later Europe was in outright deflation.  It was initially unclear just how comparably laughable the Fed's own stress test assumptions were, but refuting rumors that Deutsche and Santander would fail the Fed's stress test (perhaps because former FDIC head and current Santander head Sheila Bair wasn't too happy about her bank being one of the failed ones), moments ago the Fed released the results of the 2015 Fed stress test, and.... it seems there was no need to provide a sacrificial lamb as with stocks at record highs. In fact everything is awesome! FED STRESS TEST SHOWS ALL 31 BANKS EXCEED MINIMUM REQUIREMENTS

Forget what you think you know about credit and debit cards, PayPal, bitcoin, Apple Pay and any other modern conveniences meant to displace physical currency. The truth is that transactional currency ($1 through $20 bills) in circulation per capita today in America is essentially where it was, inflation adjusted, in 1994: $661 then and $649 today. Simply put, despite the mainstream media buzz, the “Cashless economy” is myth.

Financial markets and investing reflect the same characteristics as my attempt at keeping fit

It’s important that we all, European or not, grasp how lacking in morality the entire system prevalent in the west, including the EU, has become. This shows in East Ukraine, where sheer propaganda has shaped opinions for at least a full year now. It’s not about what is real, it’s about what ‘leaders’ would like you to think and believe. And this same immorality has conquered Greece too; there may be no guns, but there are plenty victims. The EU is a disgrace, a predatory beast unleashed upon all corners of Europe that resist central control and, well, debt slavery really, if you live on the wrong side of the tracks. SYRIZA may be the last chance Europe has to right its wrongs, before fighting in the streets becomes an everyday reality.

"...if Greece’s rebellion was to occur in a coherent way,...it would be only a matter of time before it was replicated in other parts of the continent." But don't think 'they' will let it happen peacefully. They'll organize huge social unrest, inject violence, and then try to use it to clamp down on the population and reinforce their grip on power. This won't remain confined to Greece.

There is no reason to assume that this time will be different. These boom-bust sequences will continue until the economy is structurally undermined to such an extent that monetary intervention cannot even create the illusory prosperity of a capital-consuming boom anymore. The bankers applauding Draghi’s actions today will come to rue them tomorrow.

From "whatever it takes" to OMT to "discussing" bond purchases, with European interest rates at record (incomprehensible) lows (apart from Greece) and EURUSD at 11-year lows (down 25 handles in the last 8 months), Mario Draghi looks set to unleash interventionist 'hell' on the investing public in Europe with EUR50 billion (plus plus) of ECB QE per month for as long as it takes...

It is that time of the year when the President of the United States delivers his annual "State Of The Union" address. Despite the nation's voting choice in November, President Obama's retooled message is, "The American resurgence is real... Don't let anybody tell you otherwise." The question is whether the majority of the voting public will agree with the President's new message? Before he takes to the podium with his bullish optimism, he might want to consider the following charts...

We will readily admit that one cannot know with certainty whether the bubble in risk assets will become bigger. However, it seems to us that avoiding a big drawdown may actually be more important than gunning for whatever gains remain. We don’t think it is a good idea to simply “take the blue pill” and rely on the idea that the effects of the money illusion will last a lot longer. It is possible, but it becomes less and less likely the higher asset prices go and the more money supply growth slows down. If no-one can say when, then the “blue pill” strategy has a major weakness. It means that things could just as easily go haywire next week as next year.

The simple message: Quantitative Easing has failed to generate inflation. Stated alternatively: QE has not been able to overcome still extant deflationary pressures. Global central banker actions in printing over $13 trillion of new money over the last 6 years have been insufficient to surmount still existing deflationary forces.  It tells us the probability of further global deflationary impulses are very real.  This has direct implications for any sector of the economy or financial markets whose fundamentals are negatively leveraged to deflationary pressures (think banks, real estate, etc.)  Be assured the central bankers are more than fully aware of this.

The decline in oil prices is a clear message that "something is awry" globally and investors should take heed that risks of a market decline have risen markedly. While I am not saying that the economy is about to slide off into a recession, previous declines in oil prices of the current magnitude have been associated with poor outcomes for investors. Caution is advised.

While the argument that declines in energy and gasoline prices should lead to stronger consumption sounds logical, the data suggests that this is not actually the case.

At the end of the day, it is overwhelming clear that the headline jobs number is thoroughly and dangerously misleading because there has been a systematic and relentless deterioration in the quality and value added of the jobs mix beneath the headline. It has no value whatsoever as an index of labor market conditions, labor market slack or even implied GDP growth. The truth is, in an open global economy the quantity of labor utilized by the US economy is a function of its price - not the level of interest rates or the S&P 500. Currently, wage rates on the margin are too high, but the Fed’s ZIRP and money printing campaigns only compound the problem. They permit the government to fund with ultra low-cost bonds and notes a massive transfer payment system that keeps potential productive labor out of the economy, and thereby props up bloated wages rates; and it enables households to carry more debt than would be feasible with honest interest rates and competitively priced wage rates, thereby further inhibiting the labor market adjustments that would be required to actually achieve full employment and sustainable growth.