Despite much hope that the current breakout of the markets is the beginning of a new secular "bull" market - the economic and fundamental variables suggest otherwise. Valuations and sentiment are at very elevated levels while interest rates, inflation, wages and savings rates are all at historically low levels. This set of fundamental variables are normally seen at the end of secular bull market periods. It is entirely conceivable that stock prices can be driven higher through the Federal Reserve's ongoing interventions, current momentum, and excessive optimism. However, the current economic variables, demographic trends and underlying fundamentals make it currently impossible to "replay the tape" of the 80's and 90's. These dynamics increase the potential of a rather nasty mean reversion at some point in the future. The good news is that it is precisely that reversion that will likely create the "set up" necessary to launch the next great secular bull market. However, as was seen at the bottom of the market in 1974, there were few individual investors left to enjoy the beginning of that ride.
The Indian government has imposed a duty of ~11.3% on gold imports. Additionally, they have created bureaucratic complexities, including a requirement from gold importers to export 20% of their imports. The government claims that this has resulted in a serious drop in imports, something they wanted, given consistently high, unsustainable current-account deficits. The spot price of gold is $1,300 per ounce. In India, however, it is trading at a premium of 18%, at a price of $1,534. One might ask who is pocketing this premium? Have imports really come to a stand-still? Let's look at the reality on the ground...
Does anything about 2014 remind you of 2008? The long lists of visible stress in the global financial system and the almost laughably hollow assurances that there are no bubbles, everything is under control, etc. etc. etc. certainly remind me of the late-2007-early 2008 period when the subprime mortgage meltdown was already visible and officialdom from Federal Reserve chairman Alan Greenspan on down were mounting the bully pulpit at every opportunity to declare that there was no bubble in housing and the system was easily able to handle little things like defaulting mortgages. The party, once again, is clearly ending and raises the question: "If asset bubbles no longer boost full-time employment or incomes across the board, what is the broad-based, “social good” justification for inflating them?"
"Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending" - Ben Bernanke, 2010 But history suggests the opposite: it is higher savings rates which lead to economic prosperity. Examine any economic success story such as modern China, nineteenth century America, or post-World War II Japan and South Korea: did their economic rise derive from unbridled consumption, or strict frugality? The answer is self-evident: it is the savings from the curtailment of consumption, combined with minimal government involvement in economic affairs, which generates economic growth.
It should now be evident that America's foreign policy is to an extent being driven by our banking mess. Again and again, we see Washington, including Wall Street's handmaiden, the Fed, exporting monetary chaos implicitely in order to weaken the status of potentially competing reserve currencies. Until democratic governments around the world become strong enough to counteract the power of the plutocrats by taxing them, both their income and their wealth (as Sweden does) the revolving looting of sovereign governments and demolition of middle classes by the plutocrats and their corporations will continue.
There probably isn’t a more over-used phrase thrown across the media landscape than, “It’s different this time.” One can’t look at the financial markets, the political stage, and more without shaking ones head. Nothing seems to make sense. Yet if one wants to lazily answer, “It’s different this time.” Things become crystal clear. Water now seems to run uphill. The definition of words no longer mean what they once did. (we’re still marveling on what is – is) Free society means the loss of only a few freedoms per year, as opposed to everything at once. Work is a bad thing however, if someone else goes to work and pay for your things – then that’s good. You can keep your plan if you like your plan – but if we don’t like it – well – you can’t. The Federal Reserve would never monetize the debt – however if you’re a preferred dealer in the QE (quantitative easing) program – they’ll do it for you. These precarious times leave many scratching their heads. Expressed another way, When everyone is on the band wagon – except the band. You had better take notice.
If there is a new cold war with Russia, many observers believe the U.S. is losing it. First under President George W. Bush and now under President Obama, the U.S. and Vladimir Putin’s Russia have engaged in a series of foreign policy battles — and Putin has repeatedly got his way. The Russian president’s objective is clear. He wants to reassert Russia’s influence in Eastern Europe while preventing NATO’s further expansion toward Russia. Lawmakers and experts across the political sphere warn that if the Obama administration and its western allies are not effective in dealing with Putin this time, it could have serious consequences going forward. And the dangers go beyond Putin.
When one studies history, all events seem to revolve around the applications and degenerations of war. Great feats of human understanding, realization and enlightenment barely register in the mental footnotes of the average person. War is what we remember, idealize and aggrandize, which is why war is the tool most often exploited by oligarchy to distract the masses while it centralizes power. With the exception of a few revolutions, most wars are instigated and controlled by financial elites, manipulating governments on both sides of the game to produce a preconceived result. Every major international crisis for the past century or more has ended with an even greater consolidation of world power into the hands of the few, and this is no accident.
The U.S. government and the Russian government have both been forced into positions where neither one of them can afford to back down. If Barack Obama backs down, he will be greatly criticized for being "weak" and for having been beaten by Vladimir Putin once again. If Putin backs down, he will be greatly criticized for being "weak" and for abandoning the Russians that live in Crimea. In essence, Obama and Putin find themselves trapped in a macho game of "chicken" and critics on both sides stand ready to pounce on the one who backs down. But this is not just an innocent game of "chicken" from a fifties movie. This is the real deal, and if nobody backs down the entire world will pay the price.
"Hello there citizen! I hope you are enjoying your day. I also hope you are enjoying your freedom from oppression that our kind, benevolent government provides. As a former lead bureaucrat in the Obama Administration, let me assure you, Washington is working around the clock to protect you and add fulfillment to your life..."
Russia’s seizure of Crimea is the most naked example of peacetime aggression that Europe has witnessed since Nazi Germany invaded the Sudetenland in 1938. It may be fashionable to belittle the “lessons of Munich,” when Neville Chamberlain and Édouard Daladier appeased Hitler, deferring to his claims on Czechoslovakia. But if the West acquiesces to Crimea’s annexation – the second time Russian President Vladimir Putin has stolen territory from a sovereign state, following Russia’s seizure of Georgia’s Abkhazia and South Ossetia regions in 2008 – today’s democratic leaders will surely regret their inaction. When Chamberlain returned from Munich, Winston Churchill said, “You were given the choice between war and dishonor. You chose dishonor and you will have war.” Obama and other Western leaders face a similar choice. And if they choose dishonor, one can be certain that an undeterred Putin will eventually give them more war.
The plague of our time is Keynesian economics. It has destroyed the economics profession and enabled the political class to obtain powers never intended. Keynesian economics provided the intellectual cover for the criminal class we politely call “government” to plunder its citizenry.
According to the stock markets in the US and in Europe, the world’s economy is not just in good shape, but is in the best shape it’s ever been. The S&P 500 hit an intraday new record high of 1,858.71 on Feb 24, 2014, and is now 18.6% above the peak it hit in 2007, a moment everybody now recognizes was heavily overvalued. An almost 19% gain above the prior all time high is an enormous and unusual event. Surely, you are thinking, there must be an equally compelling story and loads of fundamental data to support such a bull market?
Well, there really isn’t.
What others describe as the Deep State we term the National Security State which enables the American Empire, a vast structure that incorporates hard and soft power--military, diplomatic, intelligence, finance, commercial, energy, media, higher education--in a system of global domination and influence. One key feature of the Deep State is that it makes decisions behind closed doors and the surface government simply ratifies or approves the decisions. A second key feature is that the Deep State decision-makers have access to an entire world of secret intelligence. What would best serve the Deep State is a dollar that increases in purchasing power and extends the Deep State's power.
Many speak of China now as more assertive, confident and sure of its position in the world. And yet wealth and the hard power that has come with it seem in fact to have made China’s behavior more insecure, not less so. Insecurity above all is the more accurate description of China’s diplomatic character at the moment, rather than a newfound confidence.