This page has been archived and commenting is disabled.
Today Will Be A Watershed Moment For Financial Markets
Submitted by David Stockman via Contra Corner blog,
I believe the world is at the greatest financial market inflection point since 1929. One that calls for a basic truism:
You can make a profit in a rising market if you are long. And you can profit in falling market if you are short.
The $64 million question is: How can you know the market’s direction?
There are all kinds of financial advisors, market seers, chart readers and fancy investment formulas. Each purports to answer that question. But all of these assume some kind of steady state world in which the future unfolds in a grand cycle based on past history.
“Just get some good pattern recognition software” a financial TV advertisement might tell you, and “you’re all set to make a killing.”
I don’t believe that for a second. We are in uncharted waters after nearly 20 years of madcap money printing by the Fed and other central banks.
Everything has been wildly inflated - stocks, bonds, real estate - and also the entire real economy as measured by global GDP. That includes trade volumes, capital spending, commodity prices, energy and mining capacity, manufacturing investment, bulk carriers and containerships. Also, warehouse and distribution facilities, brick and mortar retail space and much, much more.
But before we get to some of the facts about this great financial deformation, let me get right to the investment thesis. The world’s central banks are finally out of dry powder. They no longer have the means to inflate the global credit and financial bubble.
That’s why I’m calling today’s FOMC meeting the most crucial inflection point since 1929.
We have reached the apogee of history’s greatest credit inflation. Now we’re hurtling into a prolonged worldwide deflation. You can already see this deflation in the plunge of oil, iron ore, copper and other commodity prices.
The Bloomberg Commodity index has fallen 70% since its 2008 peak. And it has now reverted to levels not seen since 1999 — while falling lower by the day.
For a while Wall Street trumpeted all of this as the “commodity supercycle.” They insisted that $120/barrel oil and $200 per ton iron ore were a sign of unprecedented growth and prosperity.
But that’s nonsense. It was the manifestation of an orgy of credit expansion that was unsustainable, and destined to end in a fiery crash. The one happening now.
Central banks are pushing on a string. They can’t generate more credit no matter how hard they try because most of the world is at what I call “peak debt.” That’s the point where households, companies, governments and even countries are tapped out. They’re stuck with such monumental debt burdens that they can’t service any additional debt no matter what the interest rate — even zero or below.
Case in point: The European Central Bank (ECB) has pushed deposit rates in Europe to negative 0.3%. Yet, private credit to households and business remains flat. That’s because they are already swamped with more debt than they can handle in an economic context of virtually no real growth.
Likewise, Japan is off the charts with public and private debt equal to 450% of GDP. But despite years of zero interest rates and massive money printing by the Bank of Japan (BOJ), credit stopped growing long ago. Japan is now in its fifth recession in seven years.
And now the Fed is pinned between that kind of rock and hard place, too. It has kept the money market interest rate pinned at zero for 84 months running. It has been truly lunatic.
You can’t have free short-term money forever. It would allow financial gamblers to fund their speculations — so-called carry trades –with zero cost money indefinitely. You don’t need to know much about human nature to know that’s a recipe for a speculative mania and a subsequent bust.
At the same time, this so-called business expansion is getting long in the tooth. It’s been 78 months since the June 2009 bottom. The average post-war economic expansion lasted only 60 months. And only one lasted appreciably more than the present cycle. That was in the 1990s, before we had $19 trillion of public debt and nearly $60 trillion of total credit outstanding including households, business, finance and government.
The Fed has dithered and equivocated itself right into an impossible corner. When it raises interest rates — even by 25 basis points — tomorrow, it will begin tightening right in the teeth of the next recession. The economic downturn is already gathering force throughout the world. And, in my judgment, it will hit American shores next year or shortly thereafter.
Of course, our clueless Keynesian money printers at the Fed think the U.S. economy is looking just peachy. That’s because they track the wrong indicators. Especially the heavily manipulated, seasonally maladjusted and constantly revised jobs numbers published by the Bureau of Labor Statistics (BLS).
Most of the jobs they keep reporting are what I call “born again” jobs that were lost in two recessions so far this century and then temporarily recovered again. Or they are part-time jobs in bars, restaurants, retail stores and temp agencies that pay less than $20,000 at an annualized rate.
By contrast, if you look at full-time, full pay jobs in manufacturing, energy, mining, white collar professions, information technology, business management and services or finance and real estate, there are currently 70.5 million of these breadwinner jobs. That’s 3% less than 16 years ago when Bill Clinton was still in the White House.
The Fed is looking at the illusion of recovery, not the real thing. If it were real, we would not have 102 million adult Americans without jobs. Or a real median household income of only $54,000 — a level originally reached way back in 1989.
And we would not still have 46 million citizens on foods stamps compared to 18 million at the turn of the century. Or 35% of the population receiving some form of public assistance.
We can cut to the chase: The Fed’s drastic spree of so-called extraordinary policies - zero interest rates (ZIRP) and quantitative easing (QE) - have backfired. They inflated the Wall Street casino and crushed honest savers and retirees. They’ve also left the Main Street economy stranded in the weakest recovery since World War II.
That’s not hyperbole. Other than on a very short run basis due to the plunge of oil and commodity prices, consumer inflation has been running about 2% per year. Based on historic patterns and the principles of sound money, nominal interest rates should be in the 4-5% range to allow for a real return for risk, illiquidity and deferral of consumption by savers.
The difference between that and current zero rates is astonishing when viewed at the macro level.
Since there are upwards of $10 trillion of bank deposits and like savings in the US economy, the Fed’s ZIRP or zero interest policy results in the arbitrary and unjust transfer of some $400 billion per year of interest from savers to borrowers, banks and Wall Street speculators.
Consider a working American who spent 40 years at the median wage, lived frugally, and managed to accumulate a nest egg of $250,000. If he is now retired and needs to stay liquid for health or family reasons or out of prudence and therefore has his money invested in CDs or treasury bills, here’s what he gets: $750 annually. That’s less than one Starbucks cappuccino per day! That’s right. One cappuccino for a lifetime of thrift.
The point here is not to harp about the injustice of it all. The point is that this very same injustice has massively distorted the financial system and created the set-up for the next stock market crash.
But another stock market meltdown does not mean that you need take it on the chin again… maybe for the third time in the century.
The markets are not remotely prepared for the deflationary recession that is now engulfing the world economy. That’s why today’s action by the Fed is going to be such a shock. While there may at first be a dead cat bounce or an effort by the robo-traders and hedge fund speculators to spark a relief rally, it will be short lived.
Then the morning after will set in. As the signs of global deflation and recession become increasingly frequent and obvious, the casino gamblers will come to realize that the Fed is out of dry powder. It will be powerless in the face of the coming downturn.
That’s where my event recording and brand-new project will make all the difference. Its purpose is to help you spot the most compelling opportunities to profit from a falling market. Please view both the video and my special invitation now by clicking here.
- 19 reads
- Printer-friendly version
- Send to friend
- advertisements -


FUCK THEM IN THE ASSets!!!!!! BASTARDS!!!!!!!!!!!!!
PLEAZ MR. YELLEN
NIRP + QE
December 16, 2015 B-day Banker-day
Day of infamy? Or just another Wednesday?
Chart of how correlated the bull market of the past 7 years has been with QE programs. Its staggering.
Just like someone who posted on another thread. The DOW is going to rally +400 points today following the FEDERAL RESERVES interest rate hike. You heard it hear second. I actually hope it goes the other direction and then some. And while they are at it, I hope it fucks up housing and it drops 30%. Thats when I will know the shit is getting real.
… more like a
Water-closet moment for financial markets.
The FED will raise the rate tommorrow....84% chance. The PPT will be standing by to make it look like it was a good idea by turning the indexs green by end of day.
deflation will only happen if the FED stays out of the market. That is not the Keynesian way. Watch all the talking heads approve of the prudent action, while the FED expands the balance sheet some more.
Shit show doesn't start till the Dollar becomes the least trustworthy currency.
Quite a chart. The thing is, it's not like they've got any choice. Kick in the afterburners and you shoot the moon, right up until you run out of fuel.
At this point the Fed, the banksters, and the politicos have just about looted all the collateral worth looting. Which is exactly why the nose is tipping downward on that chart.
What Mr Stockman? Sign up right now for your extra special financial information and I recieve a completary Cap Snaffler?
Say it isn't so.
Quick we must bring in all kinds of experts to tell us what to think, eat, drink, bathe with, hair products, cars to drive, how scared we have to be, who will save us, what boogie man to fear, what vacation to take, who has the biggest cock (Michelle)
so forth and so on until all you can do is hide under the desk with scissors.
I guess I will start looking for the nearest cliff.
Humans-don't you just l;love em.
France wound up with a revolution and Robespierre from this kind of monetary stupidity and we'll be damned lucky if we only get that.....
Robespierre ... and Napoleon and war for years and the winter in Russia and Waterloo (and others I am sure).
The idea that all this will have zero consequences is just rubbish. Hope for the best but prepare for the worst.
sschu
Maybe we have some tiny bit of self preservation left . It's not that people are just too burdened with dedbth . They know that something is wrong in every area politics, economic. Etc and uncertainty does not generate confidence in the future so who would load up on borrowings in this environment
Haven't bought popcorn in months, last night i bought a box.
Think he's correct about how it will play out. Dip, which gets robotraded away, then the rumblings begin to reverberate thru the economy and markets.
Mr. Yellen: "What's my name?"
Go long complacency.
Palin: Rubio ‘robotic’, Hillary is ‘Nyquil’http://tinyurl.com/jhllw8f
Oh Please, this article insinuates that the market is not 100% rigged and controlled.
FVK OFF Stockman
"$64 million question"
Please upgrade to 2015 edition: $64 Billion question.
$64 Trillion might actually be more accurate.
I raise your 64 trillion to 64 quintillion, 64 YELLEN vigintillion or 64 x 10^63
SO ZH's doom and gloom about the CB market QE/ZIRP comes now to its moment of truth.
Well lets see if Krugmanomic's reversal is what the people say it will be.
Moment ot truth? Come on. We're talking a lousy .25 move.
This hype is bullshit, much like your post.
Nice podcast on gold ;-) https://www.youtube.com/watch?v=mREGokhrInk
We are exactly where some people want us to be if they had wanted something different they'd have done it.
The solution to 2008 was to nullify derivitives and take them down, fail big banks and sell them off for parts, create a bad bank, return to sane monetary policy and wash it all down a drain and start over but we didn't do that did we?
No we didn't instead they blew the biggest credit bubble in history which is FREAKING WHAT THEY DO!
They are debt merchants, the solution to all problems is ALWAYS moar DEBT!
It's freaking OBVIOUS....ARRRRRRRRRRRRRRRRRRRRRRRRRRRGH :)
They will never deviate from the playbook. That way, there is always an excuse.
And " they" will never put into a position of power, an individual who goes against popular culture and theory, to do the right thing. They would rather see everything crash and burn , and parrot the excuse they " just did what anyone else would do"
There is no "master plan". Just average people, ( idiots), in positions of power, covering their individual asses. Period.
Stockman makes me chuckle. When you strip away his obsequious prose, he sounds like the Fed cares for the masses or the country.
LOL, good one. The Fed's true mission is to make their hidden Shareholder owners richer. All else is PR, or a circle-jerk. Not in the market for either.
Milton Friedman is rolling over in his grave right now. He believed that the giant Mega-Corporations grew because the Tax Code was changed to allow Shareholders to be bypassed if profits of a Corp were reinvested into the company plant. I don't disagree with you Kirk. It's just that rather than letting the Market place Shareholders based on possible Profit Decisions, we now have to placate Shareholders who would not have been screwed over if the Tax Code had not been changed.
"Secret Shareholders" indeed...
what if,what if...
say,around 2:45ish or 3
sumptin happens...that long sought after Black Swan Event finally kicks in
a sudden release of a bomb...and not just some itty bitty bomb
Putin rains on Janet's paradre
just a passing thought...move on
Is this what life is like when you live in the handle of the hockey stick?
The exponential function. Math's a bitch.
Seven Americans. One of them is on food stamps. One in seven. That's crazy.
recovery
There an't no money but government money, an all government money comes from the government.
How do you get that government money? work, barrow, buy or steal.
The FED is our national brand of banking cartel it's a brand name in the truest sense.
It is not there to help the average person it is what every cartel is. It is organized to exert COMPLETE control in this country of money and credit the HIGHEST control their is because with that you can buy or control EVERYTHING else.
On top of that at the moment as the reserve currency our brand is THE brand of the world. Since the looting has hollowed us out the rest of the ACTUAl cartel has to create a new host soon.
That host they are aiming for is the entire planet.
If the cartel doesn't want something to happen it just shuts off money. Their is no higher form of control possible because without money the nation will starve to death in short order and do whatever you want for you to TURN IT BACK ON.
All the other metrics and junk they do is just temple theatre where the high priests come out and mumble something and everyone goes oooooo and ahhhhhh they must know what they are doing right?
HELL YES THEY KNOW THEY ARE FUCKING YOU RIGHT UP THE ASS AND MAKING YOU LIKE IT.
Retirees have to plan on spending principal rather than interest. The guy with $250,000 is either going to have to gamble on stocks, get hoodwinked by an annuity salesman, or spend down $10K to $15K per year and hope he dies before he runs out of money.
And he better have some physical gold in case the dollar goes into the toilet.
You are absolutely right.
If I were retired with only $250,000 in savings, I would absolutely consider the expat route.
Find a country with a very favorable exchange rate which is relatively safe and which allows people to move there through a legal process and then pack my bags and get the fuck out. No way I'd try my luck with that little amount of money in the United States in my golden years.
Fuck all that noise.
Offset by the pittance they receive from Social Security -- which if they hadn't had to pay the FICA their entire careers, their net worth would be more like half a million.
Stockman is truly yesterday's man. He doesn't seem to understand why the Fed is doing what it does. He doesn't seem to understand why the West is so fully engageed in MENA. It's really quite simple, unless you purposely ignore the basic fundamentals: you cannot have infinite growth on a finite planet.
The PTB understood this dynamic not back in 2008, not back in 2000, but way back around 1980. Thus, the substitution of debt for capital (ie economic surplus) generated from productive earnings. The MIC was charged with supporting the dollar standard, and so we find ourselves here today.
Not only will the Fed not raise interest rates (or, if they do as a short-term head fake), they won't even necessarily engage in standard QE. (That is, a pseudo offsetting asset aka Federal note.) No, the time has come to execute Ben's vision: de-valuation - straight up printing & distribution to the masses. De-valuation will require in turn price controls which will in turn require rationing in the wake of massive supply shortages. This is our future; long delayed, but reality is truly calling.
Welcome back
… but it WAS nice while it lasted.
Second that. Always thoughtful posts from B9K9. Long time no see.
So what you are saying is "there is a chance"?
Y E S !!
I hear that a lot.
Nature doesn't provide many finished products, but provides infinite unfinished ones.
Sure. I hear people saying, "We're using up the oil! We're using up the air! We're using up the water!"
And I respond,
"I challenge you to 'use up' one cup of water."
Before we go on a crusade to stop 'using up' everything on the planet, you first have to show that it is possible to 'use up' one tiny thing.
So...please use up one cup of water.
Don't drink it...you'll just pee it out later.
Don't evaporate it. The water will just turn to vapor and rain back to the ground later.
Don't dirty it...it will be cleaned by evaporating it.
Don't split it into hydrogen and oxygen. As soon as that hydrogen hits the air BAM! (literally) it will re-combine with the oxygen there to re-form the water.
So, please, before you talk about how finite the world is, please 'use up' even one tiny cup of it to make your point...because if you can't use such a simple thing up, no matter how hard you try, then while the world is finite in measurement, it cannot be said to be finite in utility.
I respectfully bet you can't manage it.
But don't feel bad at the failure.
No one else in history has ever managed it either.
In fact, it is one of the most fundamental laws of physics - The First Law of Thermodynamics.
So if you do.. You will be famous and rich.
Everyone should try.
The world would be a better, and more knowledgeable place.
Yes, we cannot have infinite growth on a finite planet. That's a given. A truism. It was a truism during the Stone Age too, and also irrelevant.
Giving credit where credit is due, the greenies and peakers made decent cases that we were reaching the end of the planet's carrying capacity. But sitting there filling up my car yesterday for $1.60 a gallon, their scenarios are not working out to put it nicely.
Nobody knows where the planet's carrying capacity is, or whether or not population will naturally level out as it reaches it with no apocalypse needed. Anybody who tells you any differently is pulling your leg.
The fact is, what is lining up to be the main historical event during the remaining lifetimes of every swinging dick and walking taco processing oxygen on this rock today, is exactly what Old Man Stockman is pointing towards. A coordinated worldwide deflationary depression, the likes of which history has never before seen.
https://youtu.be/_vUrAMxmO_A
This economic situation equates to entrenched government bueorocracy.
We all know, beyond a doubt, it can't be " fixed" .
It needs to be crashed, scrapped and restarted from new. It's like a crappy patchwork computer software program. A point comes, when the fixes, patches and layers cause more problems. Best to start over.
But too many are making a nice life with the old. And they will defend shit with their life.
How many government agencies filled with 30 year veterans who are obsolete in their ways, but collect Top Dollar by virtue of their longevity?
One quibble with your post.
They won't defend jack shit with their lives, they're too dependent upon the standing army here at home, from the DHS and FBI on down, and a corrupt judicial system. They'd rather have military people they're far removed from, and the standing army in our midst, do the dirty work required to keep the status-quo going.
These are the same people who think the two party system works, that 'law enforcement' and the judicial system are on their side, and that the U.S. government will protect them.
The U.S. has been a ship of fools for over 40 years.
panem et circuses
Stockman's central premise, that there is no material ability to expand the monetary base, is an assertion he does not prove or support here.
Our monetary system has a policy bias towards inflation...and a natural bias towards deflation.
Stockman, here, is saying that there's a tidal wave of deflation coming, which was created by the previous tidal wave of credit expansion and its attendant tidal wave of wealth redistribution away from producers.
I will not contend with that.
But then Stockman concludes that the Fed, and the world's other Central Banks, will capitulate because, says he, they are out of powder, which I take to mean they have no means of artificially expanding credit.
And there he and I part.
They can always expand credit. When the current accepted norms of collateral make credit expansion impossible, capitulation is not the logical assumption, not when the worldwide finance industry, and all the governments of the world depend on the lack of a capitulation.
The logical assumption is that they will change the rules to enable a further credit expansion.
This will still end in deflation. Again, I won't contend with Stockman on that point.
But there is always the possiblity to expand credit while the currency is retained. Doing so will not help, and in fact will hurt, the real economy. But it will tremendously help Zombie corporations, Governments, and the financial sector - meaning those who make the rules.
All of the above must lose credibility and be ostracised, and the currencies they produce reviled, before we can get to the eventual deflation.
Until then you'll get whiplashes of ever-sharper inflation and deflation, until the economy collapses into something post-apocalyptic (less likely)...
...or until everyone completely loses confidence in today's Giant (zombie) corporations, banks, governments, central banks, and the currencies they produce and promote (more likely).
We're one step closer to a final end game...but not there yet.
What are we to EXPECT when the Fed raises the rates a lousy 0.25%????????????????
I think after 2 oclock its going to be a great ride..up...down....big moves as the computers kick it all around....and tomorrow will be fun too....
Too much drama my fellow bitchez! I have a word for you....JAPAN.
Don't swallow the hype. Markets will roil a bit whatever the decision (my bet is not hike) then they will paper it over even more.
Life goes on as is until supply chains are significantly impaired. As long as we can chug along in the status quo, we will slowly poison ourselves to death with lead and gas in the water, processed foods filled with GMO corn and corn syrup, bad television, and inactivity. We will swill in our plastics, hormonal stews, and waste products and yell "America, fuck yeah!" the whole time.
You left out the glowing sushi.
Rome didn't collapse in a day.
Don't I know it. I'm slogging through Gibbon's " Decline and Fall " right now and I'm starting to wish someone would just appear with a nuke and get it over with. God that guy is a wordy bastard.
But it does show you even the biggest shit show can last a long long time
https://pbs.twimg.com/media/CWTIyz5XAAAgCUu.png:large
No rate hike.
DOW up 400 points shortly.
Gold up another $20.
Crash in second week of January.
The FED is foolish in its approach to the interest rate problem.
The first step to returning to reality is to increase the equity requirement of any new borrowing.
This is particularly important when it comes to speculative plays. If the big boys want to speculate on the direction of oil, interest rates etc then make them put down more capital at the outset. This will surely limit the madness.
Once this is done, the false asset price increases can be weened out of the system and hopefully brought to an end.
In the end what they should be hoping for is the reversal of the mad financialization of the system we have seen where banks and real estate were swallowing up more and more of the real economy's efforts.
He is probably right....but if we enter a down turn....when we enter THE down turn...the Fed will act.
Great article BUT...
"That’s where my event recording and brand-new project will make all the difference. Its purpose is to help you spot the most compelling opportunities to profit from a falling market. Please view both the video and my special invitation now by clicking here."...
... for a free access to my advice. My advice is "pay only $1,500 to know my others advices". ahahah
That's why people never listen to the smart explanations coming from realistic guys, they always ask money to let you know their holly truth! I guess we could call that "use the system to beat it" but it's in fact a very sad reality. Even people who understand what's going on here, want their precious cash.
The world is full of gollums now craving for dollars. Cash won't save you this time, understanding, sharing, transparency, humanity could thought.
Wait... humanity, sharing, understanding...GET THE HELL OUT FUCKING COMMUNIST! I HAVE MY SUPER HEAVY DUTY AND MY BEAUTIFUL COLT TO ESCORT YOU!
Fuckin moron
The least destructive path forward is to return to a hard, physics-based, non-expandable commodity as a monetary numeraire...and then shut down the central banks and allow the bad credit to default.
The world could be back to a solid expansionary basis in less than five years.
"We are in uncharted waters after nearly 20 years of madcap money printing by the Fed and other central banks."
Yes and no. Specifics may be different, but inflation and deflation still complete a cycle.
Bernanke said a determined central banker could prevent deflation, but after all that Bernanke did, everyone is currently talking deflation. Math wins, not central bankers.
Nothing will happen. Something big can only happen when people least expect it to happen. I wouldnt be suprised markets will rally after Fed raises rates.
"The more violently capital uses militarism ... at home and abroad, and to worsen living standards for all strata of workers, the more .... it is transformed into a continuous series of political and social catastrophes,.... which together with economic cataclysms in the form of crises will make it impossible to continue and will turn the rebellion... into a necessity..." R. Luxemburg "Accumulation of capital"
BS BS BS read all about it BS BS BS do the opposite of what wall st puppets say................
The Fed isn't stupid, they can see that the economy is circling the drain, that stocks are poised on the edge, and there isn't much they can do to stop it. If they raise rates it won't be because they misread the tea leaves, it will be because they have to raise them. They have to have an escape goat when things go in the crapper.
Their greatest fear is that things turn sour and their corrupt monitory policy gets shown up for the bailout to the ruling Borg that it is. If they raise rates and things collapse, as they inevitably will, they can blame it on their mistaken rate increase and go back to QE. It's just another scam.
Geez, Hacksaw! Now I've this mental image of an 'escape goat'- all saddled up and ready to ride. 'Preciate it!
They inflated the Wall Street casino and crushed honest savers and retirees.
Fucking Fed cunt!
Watershed moment today, followed by financial waterfall moments for the next week.
Watershed moment today, followed by financial waterfall moments for the next week.
They ARE going to raise rates and they'll look you in the eye and tell you it's because things are going along so well! But in reality, the raising of rates is simply to collapse the system on purpose. They need to destroy the dollar and all other currencies for that matter so they can move toward their one-world government and one-world currency. This has been pretty well documented in plain sight.
The real questions for me is how do they deflect from the blame of causing the destruction of capital? Is there a massive false flag in the waiting that then moves us toward marshall law and (attempted) gun confiscation? How tyrannically bold will they be, and will the bulk of the people wake up to see the light of day in time to save what's left of the free world?