This long-term weakening of the economy is the direct result of financialization and the Federal Reserve's policy of propping up impaired debt with more debt and constantly bringing demand forward with zero interest rates. The U.S. economy is slowing to stall speed--the point when gravity overcomes the lift provided by central bank free money. This deceleration is evident in a number of indicators such as gross domestic product (GDP), which is now at 0% according to the Federal Reserve Bank of Atlanta's GDPNow model.
Now we can see the real tragedy of negative interest rates: they not only have the perverse effect of reversing the flow of time, but they demonstrate that borrowers are not acting with the good faith incentives normally associated with someone who needs money. Rather than paying forward, borrowers are paying backwards because they are effectively trying to return something they don’t want. Such an arrangement renders it impossible for an economy to grow. By destroying the temporal and moral structure of money, negative interest rates destroy the economy. When tomorrow cannot be paid, the current regime must fail. The only question to be determined is the form that failure will assume. This may sound like philosophy but it is cold, hard reality.
Crude oil prices continue to push higher. Following the earlier drop in US crude production this week and PEMEX oil rig fire, we now have more substantive headlines from Switzerland:
*IRAN TAKES PAUSE IN TALKS, NO DOCUMENT SEEN TODAY: TASS CITES UNIDENTIFIED EUROPEAN DIPLOMAT
Of course, one wonders who really wants a deal now... with over-supply already a problem, any sanctions-lifting would boomerang back to US Shale firms and further destabilize the illusion of recovery in America.
* Silver surges 6.5% in dollars and 19% and 12% in euros and pounds *Oil and most commodities declined on economic concerns in the quarter (see table) *U.S. stocks eked out minor gains to new record highs and look toppy *Gold performance impressive given strength of dollar and equities, oil collapse and negative sentiment
- Oil holds around $55 as Iran nuclear talks drag on (Reuters)
- Bob Diamond’s African Banking Venture Runs Into Problems (WSJ)
- Iran Nuclear Talks Resume With Lavrov Saying Deal at Hand (BBG)
- Wal-Mart Ratchets Up Pressure on Suppliers to Cut Prices (WSJ)
- Renegades of Junk: The Rise and Fall of the Drexel Empire (BBG)
- Explosion at Yemen factory kills at least 25: residents, medics (Reuters)
- Macerich Rejects Simon Property’s $16.8 Billion Takeover Bid (WSJ)
- Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze (BBG)
It has been another whiplash, rollercoaster, illiquid session which saw US equity futures tumble early overnight driven by a bout of USDJPY and Nikkei selling, only to regain all losses as European, and BIS, traders walked in, and promptly BTFD. In fact at last check, it was as if all the fireworks that took place just a few short hours ago and sent the ES as low as 2037, and below what has become the key support level, the 50-DMA never happened.
After Japan's Tankan disappointed greatly and various talking heads from Japan came out to deliver the credibility-destroying-phrase of the day: that "the economic recovery is progressing smoothly" despite all evidence to the contrary... USDJPY took a dive. And when USDJPY takes a dive, all its risk-on, carry-trade-imbibed friends take a dive. Dow futures cratered 230 points in minutes only to bounce back modestly when some enterprising sell-side analyst reminded the machines that "bad news is good news." But that didn't last and US equity futures are sliding rapidly in the overnight session...
And the answer is...
While we doubt that the ECB will, of its own volition, elect to scale back PSPP out of a highly uncharacteristic respect for sanity and prudence, there are a variety of factors which could lead to a forced taper. Some market participants are already betting that the ECB scales back purchases by the end of the calendar year.
There is only one way to end the financial tyranny of the Federal Reserve--abolish it, and put an end to the predatory pathologies of its policies...
Did stocks window dressing come one day early in this volatile, bipolar, stop-hunting, HFT-infested market? Looking at futures this morning, which are down about 12 points already on yet another surge in the USD which has sent the EURUSD just above 1.07, the lowest since March 20 , and the USDJPY back under 120 now that the "strong dollar is bad for stocks after all" algo seems to be back from vacation, all those hedge funds who chased risk higher yesterday because their peers did the same, may find they are all selling on the way down. It will be oddly ironic if all of yesterday's widely touted gains evaporate comparably in the first 10 minutes of trading today, and lead to an end in the longest streak of quarterly increases in two decades.
Back in September 2013 we wrote "Coming Soon To A Theater Near You: MBIA's $1 Billion World War Z" in which we explained why MBIA will soon have a substantial problem (amounting to just about around $600 million) with several CLOs which we dubbed "Zombie CLOs" or as they were actually known, Zohar, on which it had written insurance, and which would become evident sooner or later once someone took a long, hard look at the collateral manager of the CLOs, namely Lynn Tilton's Patriarch Partners. Well, finally someone did take a long, hard look and today, our warning comes full circle following a shocker out of the SEC accusing Lynn Tilton of fraud and of "hiding the poor performance of loan assets in three collateralized loan obligation (CLO) funds they manage."
Put simply, corporate profits are at a record high relative to the economy… and they just began to roll over.
Regarding the major problem of the more domestic issue of economic recovery, unless we would agree, which we really shouldn’t, that making a small group of the population richer while the much larger rest is made poorer, is how we define ‘recovery’, we have no recovery. But it is still accepted and proclaimed like a gospel: our economies are in recovery. If you take a step back and watch things from a distance, it’s truly too silly to be true, but endless repetition of the same lines, be they true or not, has them accepted as being cast in stone. It’s like selling detergent. Of course it doesn’t hurt that people very much want to believe a recovery is here. The stories we are bombarded with 24/7 under the quite hilarious misnomer ‘News’ have been prepared, pre-cooked and pre-chewed for our smooth and painless digestion, and as such they contain only tiny little flakes of reality. They are designed to make us feel good, not understand the world around us. And, as Scott Minerd says, the economic future for your entire families will look utterly bleak. Because that recovery they talk about? It’s not for you.
"If the RMB wants to achieve international status, it must have popular acceptance and a stable value. To this end, other than having assurance from the issuing nation, it is very important to have enough gold as the foundation, raising the ‘gold content’ of the RMB. Therefore, to China, the meaning and mission of gold is to support the RMB to become an internationally accepted currency and make China an economic powerhouse. That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US."
- Song Xin, Party Secretary and President of the China Gold Association