It takes ignorance on an almost unbelievable level to try to claim that “nothing is happening” in the financial world right now.
What worked in the post-global financial meltdown era of 2008-2014 will not work the same magic in the next seven years.
This system is pure insanity, as are its prices... it wouldn’t bother us if the price of gold went negative, just like propane in Alberta (after all, we're not trading paper currency for gold, just to trade it back for more paper currency if the 'price' goes up). The idea behind buying gold is to swap paper money for something real. Banks can rig its 'price' all they want; gold’s true value comes from its function as a long-term form of savings and a hedge against a broken financial system. And the more ridiculous the system gets, the more valuable it becomes.
When you tell people in self denial the market could drop 40% in a few months, they think you are crazy. They declare this could never happen. They would get out of the market before it would fall vertically. Their memories are conveniently short as their normalcy bias and cognitive dissonance blind them to what happened over three months in 2008/2009. We wonder how many willfully ignorant investors can handle a 50% to 70% haircut in their 401k, especially if they are over 50 years old. We wonder how much angrier the populace will become when the current recession results in more job losses, bankruptcies and revelations of Wall Street malfeasance. Beware of the bear.
The solution is not to let politicians redistribute the wealth from the rich to the poor. Crony capitalism must be replaced by true free market capitalism, practiced with integrity, fairness, principled conduct, intelligence, and high moral standards. Profits generated by corporations are not evil, but seeking profits at any cost to society is reckless, shortsighted and immoral. Capitalism without capital is destined for failure. When corporate CEOs, Wall Street bankers, and shady billionaires exercise undue influence over the financial, political and judicial systems, their short-term quarterly profit mindset and voracious appetite for riches override the best interests of the people and create a sick, warped, repressive society. Today our system is in the grasp of psychopaths whose hubris and myopic focus on enriching themselves will ultimately be their downfall.
- Headline winner: "Read Beyond Massive Job-Cuts Headlines: Labor Market Is Fine" (BBG)
- And speaking of lies: The More Yellen Talks Up Inflation, the Less Traders Believe Her (BBG)
- How Some Investors Get Special Access to Companies (WSJ)
- Victorious Catalan separatists claim mandate to break with Spain (Reuters)
- Russia seizes initiative in Syria (Reuters)
- Former VW boss Winterkorn investigated for fraud (Reuters)
- Investors Pull Back From Junk Bonds (WSJ)
Are some Chinese banks ramping up their exposure to shadow conduits on the way to obscuring massive amounts of credit risk? Moody's says yes...
There is growing turmoil in buybacks that threatens the very fabric of the stock bubble. That was always the primary transmission of the foundation of its current manifestation, corporate debt, into asset prices; especially the huge run following QE3 and QE4. The problem once momentum fades is that investor attention turns toward valuations that were repeatedly ignored before. As long as everything is moving upward and any fundamental downside is completely contained (in perception) as “transitory” then valuations are easily set aside as one form of rationalization. The effect of reversing momentum is for a more honest measurement; particularly by force of change in economic sentiment which is almost always concurrent.
- Stocks slip for fifth straight day, euro holds steady (Reuters)
- VW recall letters in April warned of an emissions glitch (Reuters)
- VW Cheating Scandal Threatens to Ensnare BMW as Probe Widens (BBG)
- Pope Francis set to address fractious U.S. Congress (Reuters)
- Norway Cuts Rates to Record Low to Save Economy From Oil Slump (BBG)
- Taiwan Cuts Rate for First Time Since 2009 as Exports Falter (BBG)
- Janet Yellen to speak at UMass on Thursday (Daily Collegian)
- A Big Bet That China’s Currency Will Devalue Further (NYT)
- Debt Relief for Students Snarls Market for Their Loans (WSJ)
"We are proceeding with caution in several areas of the portfolio: many of our absolute return managers are accumulating increasing amounts of cash; we are being careful about not over-committing into illiquid investments in potentially frothy markets, while still ensuring we will be involved if market dislocations arise. ... An interesting question emerges: could rising interest rates in 2016 have an analogous impact to falling house prices in 2007, where a range of largely unanticipated second-order effects was triggered?"
Home building is a miserable business. First you borrow to buy land, then borrow some more to develop land, then more to build, while paying out exorbitant executive compensation all along. Years later, you finally sell the finished product, maybe for a profit, maybe at a loss. Builders have been buying more land at much higher prices in hope for a continuation of optimal conditions. Lucrative margins can turn into large losses, much like 2006-07. Unless the Yellen Fed comes up with a big surprise, shorting rallies will be the way to go.
From Novotny, Coeure, and Jazbec, the leaks this morning have been clearly angled towards "do not expect any more Q€ anytime soon," so one wonders if, having seen the reaction in EUR weakness still whether Mario Draghi will try and talk these 'hawkish' comments back?
"Mainstream America with their 401Ks are in a similar pickle. Expecting 8-10% to pay for education, healthcare, retirement or simply taking an accustomed vacation, they won’t be doing much of it as long as short term yields are at zero. They are not so much in a pickle barrel as they are on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non-existent inflation."
"It’s like a pig on LSD. You don’t know which way it’s going to run"...
- Pressure builds on Volkswagen CEO as emissions-cheating probe spreads (Reuters)
- Volkswagen Emissions Scandal Relates to 11 Million Cars (WSJ)
- Volkswagen Emissions Investigations Should Widen to Entire Auto Industry, Officials Say (WSJ)
- Germany's Bosch makes VW's U.S. diesel components (Reuters)
- Volkswagen scandal will have personnel consequences - state economy minister (Reuters)
- Glencore Falls to Record as Mining Shares Lead Stock Losses (BBG)
- Despite Slump, China’s Xi Jinping Pledges Economic Reforms (WSJ)