First sign of disorderly market: widening bid-offer spreads
Second sign: gapping
In extreme cases, dealers stop answering their phones
If you think all this is a solid foundation for ever-higher profits, by all means go buy stocks with all four feet. But don't be surprised if the rest of the market disagrees at some point - for example, when even flim-flam accounting can't hide the fact that profits are in a free-fall back to "normal" levels 60% below current levels.
Recently, for example, the markets took a tumble when the Fed moved to normalize monetary policy. The US central bank responded by delaying the normalization process, which stabilized the markets, but eventually fears of falling behind the curve on inflation will force it to resume the process. That will lead to renewed market turmoil in a cycle that has the potential to repeat itself endlessly.
In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates – one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis.
It appears that a main preoccupation of economists – the self declared “behavioral economists” prominent among them – is to show how dumb people are as consumers and in assessing risks. Drawn to logical conclusion, this implies that economists, advising benevolent dictators are the solution. In ancient Greece people flocked to oracles and sought guidance.; today, Councils of Economic Advisers, IMF, OECD, Nobel prizes sustain perceptions that "macro- strology" and much else of what economists do is "science."
Now that the AIIB and the BRICS bank have officially launched and are expected to begin operations soon, it appears that not only will the yuan play a key role for both institutions, but in fact, the two development banks will collaborate on their lending activities.
"The AIIB may come to play an important role in keeping America honest. It is difficult to say at this point whether the AIIB will have a negative or a positive impact on the global economy. At the very least, however, the emergence of an international institution with a viewpoint different from that of western creditors will help enhance the quality of debate over emerging economies’ debt problems."
"What Europe Wants" - to use global issues as excuses to extend its power:
- environmental issues: increase control over member countries; advance idea of global governance
- terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
- global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
- EMU: create a crisis to force introduction of “European economic government”
There is no mystery anywhere to be found in the fact that US retail sales don’t follow the jobs trend. Not if you look at what kind of jobs they are, let alone at all the other made up and manipulated numbers that are being thrown around about the US economy. The only mystery is why everyone persists in talking about a recovery. That recovery will never come, simply because all 90% of Americans do is pay for the other 10% to get richer. There are many other factors, but that all by itself makes a recovery a mathematical mirage.
Late on Friday afternoon, desparate to relive his mid-October 'world-saving' heroics, The Fed's Jim Bullard unleashed some more Fedspeak aimed at the promise of moar money to save the world (i.e. stocks) if things don't work out. But it is his concluding comment that sparked the most 'keyboard-smashing-angst' for those not buying the spoon-fed omnipotence of the central planners. Bullard stated unequivocally that "the lesson of QE is that it works fairly well." While we are not exactly sure what his definition of 'works' is, as the chart below and Richard Koo's QE-dream-crushing commentary shows, by reflating assets by their hand, the central planners are putting the cart before the horse... and Japan is a perfect example of the vicious economic spiral that leads to...
Martin Armstrong, Max Keiser and High-Level Economists Weigh In
Despite the apparent economic and profit news improvements recently, JPMorgan CIO Michael Cembalest notes there are a few instances where people are still flipping out. It’s worth reviewing them, he suggests, as they're indicative of risks and opportunities in financial markets heading into 2015, and of the continued presence of central banks affecting asset prices.
“If [They're] Right, Everything The Fed Has Been Doing To Try To Stimulate The Economy Isn’t Just Useless — It’s Backward”
Abenomics Creates "Potential For Economic Collapse Triggered By Bond Market Crash", Warns Richard KooSubmitted by Tyler Durden on 11/11/2014 16:10 -0400
"Overseas views on the BOJ’s surprise easing announcement can be broken down into two camps: the reflationists, who commend the BOJ for its bold actions, and those critical of the policy, who say it is a symptom of the final stages of Japan’s economic decline. The critics can further be divided into two groups: those who believe that continuing the current policy of “Banzainomics” will lead to a collapse of the Japanese economy and government finance triggered by a crash in the JGB market, and those who worry that the ongoing devaluation of the yen under this policy will hurt their own countries’ industries.... The first group’s scenario, in which the BOJ’s reckless attempts to achieve a 2% inflation target trigger a bond market crash and an eventual collapse of the Japanese economy, is of greater concern. After all, it is the same scenario the world’s QE pioneers—the US and the UK—are desperately trying to avert at this very moment."
"Balance-sheet wealth is sustainable only when it comes from earned success, not government fiat," is the ugly truth that former Fed governor Kevin Warsh (amazing what truths come out after their terms are up) and hedge fund billionaire Stan Druckenmiller deliver in the following WSJ Op-Ed. The aggregate wealth of U.S. households, including stocks and real-estate holdings, just hit a new high of $81.8 trillion. No wonder most on Wall Street applaud the Fed's unrelenting balance-sheet recovery strategy.The Fed's extraordinary tools are far more potent in goosing balance-sheet wealth than spurring real income growth. Corporate chieftains rationally choose financial engineering - debt-financed share buybacks, for example - over capital investment in property, plants and equipment. The country needs an exit from the 2% growth trap. There are no short-cuts through Fed-engineered balance-sheet wealth creation. The sooner and more predictably the Fed exits its extraordinary monetary accommodation, the sooner businesses can get back to business and labor can get back to work.