David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...
What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...
He calls this condition "Sundown in America".
The standard wisdom on gold is that it does well in times of economic bad news such as in the 1970s, a period of stagflation and recessions, when the yellow metal rose from $35/oz to peak at $850/oz in 1980. But this time, Don Coxe, a portfolio adviser to BMO Asset Management, believes, things are different. In this interview with The Gold Report, Coxe explains why gold will rise when the economy improves.
Billionaires and political lackeys alike have been falling all over themselves in the rush to praise the Federal Reserve's unprecedented monetary intervention since 2008. That billionaires and political hacks, apparatchiks and toadies cannot laud the Fed's Cargo Cult enough is no surprise: the billionaires and the government that feeds them both gained handsomely from the Fed's policies. As the Fed-induced asset bubbles in stocks, bonds and real estate follow the inevitable Supernova track to implosion, that we've reached Peak Federal Reserve will be obvious - in hindsight.
- Troops Forage for Food While Golfers Play On in Shutdown (BBG)
- Police suspect dental hygienist Miriam Carey was behind the wheel of Capitol chase (WaPo)
- Italian Senate committee starts Berlusconi expulsion process (Reuters)
- Swiss Regulator Probing Banks Over Foreign-Exchange Manipulation (WSJ)
- GOP Begins Search for Broad Deal on Budget (WSJ)
- No Jobs Report Means Economists Chew on Football Instead of Data (BBG)
- U.S. default seems unthinkable but investors have options (Reuters)
- Citigroup fined $30 million after analyst sent report to SAC, others (Reuters)
- FBI Snags Silk Road Boss With Own Methods (BBG)
- Recession Warnings Found in Asset Price Falls (BBG)
- Bank of Japan warns of severe global impact from U.S. fiscal standoff (Reuters)
"We may well have had a big, big rally in the U.S. stock market, but it's not based on reality.
I would encourage investors to know you're in a fool's paradise, be careful, and when people start singing praises, say, 'I've been to this party before, and I know know it's time to leave.'"
While the recent Federal Reserve inaction is bullish for stocks in the short term there are plenty of reasons to remain somewhat cautious. Stocks are overvalued, rates are rising, earnings are deteriorating and despite signs of short term economic improvements the data trends remain within negative downtrends. Investors, however, have disregarded fundamentals as irrelevant as long as the Federal Reserve remains committed to its accommodative policies. The problem is that no one really knows how this will turn out and the current assumptions are based upon past performance. Complacency is not an option; it is critically important to understand that market reversions do not occur without a catalyst. Whether it is the onset of an economic recession, a natural disaster or a financial crisis - there is always something that sparks the initial selloff that leads to a full blown market panic. With this idea in mind here are 3 rising risks that investors should be paying attention to.
The President warned yesterday that "this time is different," and now the Treasury has weighed in with an even more ominous warning. In their statement, they note:
*TREASURY OFFICIAL: CONGRESS ACTION ONLY WAY TO AVOID DEFAULT
*TREASURY SEES `TENTATIVE' SIGNS IMPASSE AFFECTING MARKETS
*TREASURY SAYS BILL YIELDS MAY REFLECT `NASCENT CONCERNS'
*TREASURY: DEFAULT IMPACT COULD BE PROFOUND, LAST A GENERATION
And so it seems not only are they looking at the same indicators as the smart money in the markets but it is clear that the rhetoric will be increased until the equity market cracks and the politicians get their catalyst to act.
"It seems to me that if you went to college and took on student debt, there used to be greater assurance that you could pay it off with a good job," sums up one "millennial", adding - sadly - "but now, for people living in this economy and in our age group, it's a rough deal." As WSJ reports, only about a third of adults in their early 20s works full-time - the lowest rate in 40 years - as the combination of structural changes and this recession "is devastating for millennial." Despite think-tanks demanding more of employers in terms of workplace rules and minimum wages, the reality is workers are expected to do more for less and be grateful - "this is a huge problem when think of where demand is going."
Not a segment goes by on today's business media when we have not heard that "Bill Miller says AAPL is a no brainer." Of course, it is no surprise that markets have no memories but to heed the vehement advice of an almost self-proclaimed dip-buyer who told the New York Times that "not understanding the systemic nature" of the market "was his biggest mistake," in the new normal of too-bigger-to-fail banks and ever-longer collateral chains seems risible. As to his confidence, we remind those who care, that on Dec 3rd 2008, Miller said the "bottom has been made" in U.S. equities. Trade accordingly...
The financial crisis of 2008 killed a lot of things. It killed the line of credit, it killed the finances of millions of people around the world, it ousted governments and relegated leaders to the back offices and it was the kiss of death to a failed system and brought down entire states.
Trust Goldman to have keen, cutting-edge advice after the fact. Like now, a day after the collapse of the Italian government, when in a note, Goldman's Francesco Garzarelli who had been quite bullish on Italy, both in absolute and relative terms, flip-flops, and is now saying to no longer buy (i.e., sell) Italian bonds. To wit: 'The resignation of the PdL ministers will clearly increase volatility in the government bond market, similar to what happened between February and April, before the current government was formed. The spread between 10-year BTPs and German Bunds closed at around 260bp on Friday. At the end of April, we recommended going long Italian 10-yr BTPs against their French counterparts at spread of 221bp. We would be looking to close this position at Monday's levels."
There may be temporary 'benefits in terms of employment gains' if the Fed creates an even more gigantic echo bubble than it has already done. We are willing to grant that much. The Fed apparently believes these days that there should be no limits whatsoever to the Fed's monetary pumping. 'Inflation' targets? Forget about it! Asset bubbles? Who cares! It is as if the past 20 years had not happened – as if they had simply erased the whole period from his memory. Do they really believe that pumping up another giant bubble will have more benefits than drawbacks? Where does it all end? However, there is no such thing as a free lunch, and there cannot be an 'eternal boom' by simply continuing to print, as once envisaged by Keynes. All that will happen is that the ultimate disaster will be even greater. In fact, is seems ever more likely that the next disaster will be the last one of the current monetary system.
While bubbling assets are a major part of the history of the Greenspan/Bernanke economy, so too is unsustainable borrowing. It seems wise to keep an eye out for another borrowing binge, especially as policymakers are encouraging all forms of financial risk-taking. And one place to check is the Fed’s quarterly “Flow of Funds” report, which recently took the fancy new title, “Financial Accounts of the United States,” but still goes by the nickname “Z1.” There’s a cautionary note in comparisons of today’s leverage ratio to the last three expansions. The last three times the ratio jumped above the current reading of 7.2 were Q1 1990, Q1 1999 and Q2 2007. And from these points in time, the economy fell into recession about a year later, or less, in each case. (The respective times to recession were two, four and two quarters.)
Following yesterday's unexpected (if not shocking) news that ministers from Berlusconi's PDL have resigned en masse in order to push for new elections, leading to the latest Italian government crisis (in a long and distinguished series), Italy's premier Letta and president Napolitano are scrambling to preserve some stability, and not only they but moments ago Ansa reported that the management and supervisory boards of Italian megabank Intesa are set to meet at 6 pm, as not even the most optimistic see an easy way out of the political dead end Italy has found itself in now.
With a government's October 1 shut down - temporary of course - now seemingly inevitable, and more importantly with the peak debt ceiling negotiations due in just about a week after which point the Treasury will run out of money, many wonder what comes next. That this is happening just two short years after the dramatic August 2011 debt ceiling impasse, when the market tumbled 20% and likely slowed economic growth is still fresh in everyone's mind, is hardly helping matters. Add a potential political crisis in Greece and Italy, and suddenly a whole lot of unexpected variables have to be "priced in."