Financial topics

[Higgenbotham]

This is essentially what I have been saying for 5 years. This market will not stop until it is allowed to stop.

The flames will at some point either burn themselves out and crash organically, or reach a critical mass and incinerate everything in its wake.

They have to juggle quite a few things to keep it all up in the air. I'm not sure why, but the Feds said a few years ago that they can't hold up the municipalities directly so, for example, they let Detroit go. My guess is that by doing so it would have affected the US government bond rating too much. Anyway, this is starting to look like a repeat of 2011, only a larger process at work. For example, this is a chart of MUB, a municipal bond fund.

In the interview I posted from Orlov last week, he said the first step in the process will be that parts of the US "go dark" while "business as usual" continues in Washington and New York. This chart would indicate that is what will happen, as the main stock indexes are being held at record highs with the municipal bonds having peaked in December 2012.

MUB.gif (45.31 KiB) Viewed 3186 times

I'm not discounting the idea that it is the Chinese who are doing all they can to make the bubble larger.

Forbes Asia |5/21/2014 @ 4:16AM |1,157 views

China's Shadow Banking Sector Valued At 80% of GDP

The China Banking Regulatory Commission has shed light on the country’s opaque shadow banking sector. It was as large as 33 trillion yuan ($5.29 trillion) in mid-2013 and equivalent to 80% of last year’s GDP, according to Yan Qingmin, a vice chairman of the commission.

In a Tuesday WeChat blog sent by the Chong Yang Institute for Financial Studies, Renmin University, Yan wrote that his calculation is based on shadow lending activities from asset management businesses to trust companies, a definition he said was very broad. Yan said the rapid expansion of the sector, which was equivalent to 53% of GDP in 2012, entailed risks of some parts of the shadow banking business, but not necessarily the Chinese economy.

http://www.forbes.com/sites/ywang/2014/ ... 80-of-gdp/

First thing that stands out is 1157 views on this article. Not too many aware of this new estimate. According to this, the Chinese shadow banking system has grown by $1.43 trillion in 12 months, about double what the Fed has been pumping in. Serious stuff.

I have heard Fed officials say numerous times over the past few weeks that they are concerned about the bubble. They are tapering down the counterfeiting slowly. Yet the market goes higher and higher. The growth of the Chinese shadow banking system might be what is feeding the bubble at this point.

[Higgenbotham]

John one of the tricks in "living well" or as some would say doing "Shiva's dance" well, is being able to live and think in different worlds or realities at the same time. That is being able to accept the positive as well as the negative aspects of "reality".

On Principles & Values: OpEd: Nomination hearing showed end of Western civilization

During the worst of the Clarence Thomas hearings, the nominee for the Supreme Court was subjected to scurrilous and vulgar sexual allegations that were telecast internationally. The shock of seeing how far our governing processes had descended was so great that I went to a friend's office and said, "Television is showing the end of Western civilization in living color." He replied, "Of course it's coming to an end. But don't worry. It takes a long time, and in the meantime it's possible to live well."

Source: Slouching Towards Gomorrah, by Robert Bork, p.335, Dec 16, 2003

[Higgenbotham]

> dear doom-sayers and perma-bears...there's a point where being too
> early is indistinguishable from being wrong...

In 2004, someone pointed out that I could never be wrong, since I
could always just say that the financial crisis simply hadn't arrived
yet. My response was that if the level of public debt ever leveled
off and starting falling, then I would be wrong. As the US debt now
is approaching $20 trillion, I'm certainly in no danger of being
called wrong by those standards.

So, from my personal point of view, being early is quite easily
distinguished from being wrong.

John

Yes, you did say that.

fredgraph.jpg (15.56 KiB) Viewed 3159 times

The only positive this graph shows is that the rate of collapse has slowed a bit. To many, a slowdown in the rate of collapse feels pretty good but feelings are not objective.

The way I see it is that I was 3 years too late. I didn't say the collapse became irreversible (i.e. a Dark Age is coming) until 2011.

[Higgenbotham]

On the other hand, one may find it difficult to identify what is driving the stock market. One’s own consumption may be of mostly transient pleasures, and one may worry whether one’s work is really making a positive contribution to the commonweal. In that case, the economic descent will be proceeding unchecked.

--Marc Widdowson, 2001

[Higgenbotham]

The mismatch between the vastly increased scale of contemporary societies and the political institutions they embody has led some commentators to suggest that nation states are simply an anachronism, due to give way gradually to inter-governmental organisations like the European Union and United Nations. These will then restore the balance in the international system. However, this supposition is quite unrealistic. If President Nixon was unable to abolish the Tea Tasting Board, it is hardly likely that it will be possible to abolish the entire government of each EU member state and replace it with a new hierarchy descending from Brussels. That is not a destination that can be reached from where the world is today.

Those who believe, in an echo of Marx, that the nation state will simply wither away because it is inappropriate to the circumstances of the contemporary world have not learnt anything from history. Institutions take on a life of their own, and generally they persist well past the point at which their original purpose has been superseded. If anything, the number of nation states in the world has actually been increasing, as states like Yugoslavia and the Soviet Union have broken up. The mismatch between scale and integration is a contradiction, but it is very likely the kind of contradiction that it takes a dark age to resolve.

--Marc Widdowson, 2001

30 Jun 2013

France's triumphant 'Joan of Arc' vows to bring back franc and destroy euro

Marine Le Pen is spoiling for a fight. The leader of France's Front National vows to smash the existing order of Europe and force the break-up of monetary union, if she wins the next election.

It is no longer an implausible prospect. "We cannot be seduced," she said, brimming with confidence after her party secured 46pc of the vote in a by-election earthquake a week ago. Her candidate trounced the ruling Socialists in their own bastion of Villeneuve-sur-Lot.

"The euro ceases to exist the moment that France leaves, and that is our incredible strength. What are they going to do, send in tanks?" she told the Daily Telegraph at the Front National's headquarters, an unmarked building tucked away in the Paris suburb of Nanterre. Her office is small and workaday, almost austere.

"Europe is just a great bluff. One side there is the immense power of sovereign peoples, and on the other side are a few technocrats," she said.

http://www.telegraph.co.uk/finance/fina ... ce=refresh

25 May 2014

Marine Le Pen's confidence vindicated by Front National election triumph

FN leader claims 'the people have spoken', as far-right party polls an historic 25% of votes in the European elections

It was, as even their avowed opponents agreed, an historic victory. Or as French foreign minister Laurent Fabius succinctly put it, there was "one winner and a lot of losers".

From the beginning of the European election campaign weeks ago Marine Le Pen was insistent that Sunday evening would finally see the Front National emerge as "France's number one party".

Election pundits scorned her pretensions; the opinion polls confirmed them.

As the election results were predicted – and later confirmed – on Sunday evening, there were cheers followed by an enthusiastic but not particularly in-tune rendition of La Marseillaise from the party faithful gathered at the FN headquarters in the Paris suburb of Nanterre.

The far-right FN had done better than even it had probably expected or hoped, polling a historic 25% of votes in the European elections and becoming France's top party on the European stage.

As she arrived at the FN power base, supporters broke out into cheers and chanted "Marine, Marine."

"The people have spoken. Our people demand one type of politics: they want French politics by the French, for the French, with the French. They don't want to be led any more from outside, to submit to laws," a jubilant Le Pen told supporters.

"The sovereign people have proclaimed loud and clear … that they want to take back their destiny into their own hands.

"We must build another Europe, a Europe of free and sovereign nations and freely decided cooperation. Tonight is a massive rejection of the European Union.

"If Germany has become the economic heart of Europe, through the incompetence and weakness of our leaders, then France has been and will be the political heart of Europe. What is happening in France signals what will happen in all European countries; the return of the nation."

As Le Monde wrote after Sunday's estimations: "Marine Le Pen has won her bet: the Front National is the main winner in the European elections".

http://www.telegraph.co.uk/news/worldne ... ce=refresh

[Higgenbotham]

Why Obama won't bail out Detroit
July 19, 2013

Obama bailed out the auto industry four years ago but won't bailout Detroit after it became the largest city to file bankruptcy

But even if Obama still had the ability to bail out Detroit, it's not likely he would do so, said Jared Bernstein, senior fellow, at the Center for Budget and Policy Priorities, a liberal think tank.

Bernstein was the top economic adviser to Vice President Joseph Biden and on the task force that came up with the bailout plans in 2009. He said the carmakers were bailed out because, after the meltdown in financial markets, there was no money available to fund operations at GM and Chrysler as they reorganized.

Without a bailout, both companies would have closed and liquidated, which would have rippled into bankruptcies and job losses across the rest of the auto industry and the U.S. manufacturing base.

"For the government to intervene, it's a very big deal. You only do so if the alternative is a market failure that will have systemic disruptions to the economy," Bernstein said. "That was the case then. I don't think that's the case here."

http://money.cnn.com/2013/07/19/news/ec ... y-bailout/

This is the official line.

The unacknowledged fact is that the US at this point may not have the resources to bail out Detroit and all the other municipalities that will eventually need help because the US is bankrupt. Another 2008 style bailout will, in Bernstein's own words, "ripple into bankruptcy" of the US government, so the municipalities go down first, one by one, and parts of the US will "go dark".

To quote the article, "That blank checkbook no longer is available."

And, "It's virtually impossible that Congress would approve a Detroit bailout this time around, especially with so many other local governments around the country facing their own financial problems."

Well, sure.

The anti-Detroit comments began last week, when Sen. Rand Paul of Kentucky told Breitbart.com that the federal government “is bailing them (Detroit) out over my dead body, because we don’t have any money in Washington.”

http://www.freep.com/article/20130725/N ... government

I doubt we can take what Rand Paul says on this subject at face value but, then again, if it is true that the politicians realize the jig is up, he is going to be about the only one who will say it.

[Higgenbotham]

3. Failed Monetary Stimulus. Before Thursday's report, the economy had last contracted three years ago, in the 1st Quarter of 2011. Since then, the Federal Reserve has pumped around $2 trillion dollars into the financial markets. This liquidity was intended to "jump-start" the economy, by providing money for investment and economic expansion. By the most basic measure, i.e., the overall size of the economy, the Fed's stimulus has failed.

In the 1st Quarter of 2011, the GDP was $14.8 trillion, in "chained 2009 dollars." "Chained" dollars factoring in changes in prices, i.e inflation, allowing real comparisons over time. In the first three months of this year, "chained" GDP was $15.9 trillion. This translates to a "real" increase of just $1.1 trillion over the last three years. It doesn't take advanced math to see that the Fed's stimulus is greater than the actual increase in the economy. Absent Fed action, the economy would have likely contracted over the past three years.

http://www.breitbart.com/Big-Government ... GDP-Report

Likely. I'm not sure how many times the extra $2 trillion turned over. Other factors to consider are the coordination of the Central Banks and the Chinese shadow banking system, which is a thing unto itself.

http://www.forbes.com/sites/bobmcteer/2 ... ve-easing/

fredgraph2.jpg (23.5 KiB) Viewed 3129 times

I'm not going to try to figure out how much reducing QE by $40 billion per month will reduce GDP because I don't think I can.

One footnote: I don’t know how they came up with $85 billion per month for their security purchases. They were probably playing around with a 40 number and a 45 number and just added them together. But the number sounds awfully large and arbitrary to me. My hunch is that it was plucked out of the air. How ironic, then it must seem to Mr. Bernanke that a number plucked out of the air has become so sacrosanct.

This comes from a guy who sat around the table with Bernanke. While I appreciate his honesty, it's disappointing to read something like this.

[Higgenbotham]

OK, my 2 cents.

Several months ago I said the 10 year government note yield will tell the story. The 10 year government note yield maxed out on December 31. As of today's session, interest rates turned down 104 sessions ago. The 2007 lower high of October 31 was 98 sessions after interest rates turned down while the 2011 lower high of July 7 was 101 sessions after interest rates turned down.

Along with this, the general bond market has gone to "risk off" relative to the US government notes and bonds. Junk bonds, muni bonds, emerging market bonds and corporates have weakened relative to the US government notes and bonds.

Here is an example of what I am talking about:

JNKTLT.png (15.28 KiB) Viewed 3126 times

This shows junk bonds are weakening relative to US Treasuries.

Crude oil and gasoline prices are stalling out at about $105 per barrel and $3.65 per gallon.

As these factors are looking similar to the 2007 and 2011 tops, so is the price action looking toppy.

The days noted on this chart are not absolute highs, but my estimation of when the topping action took place in the stock market:

June 1 to October 31, 2007 is 153 days.
February 18 to July 21, 2011 is 153 days.
December 31 to June 2, 2014 will be 153 days.

I would be remiss if I did not note that the price action from May 22 to September 19, 2013 looked like topping action but it did not turn out to be so.

The most common day of the week for stocks to make an important top over the past few years is Monday and the most common day of the month is the 2nd. Today is Monday the 2nd.
Mondays: May 19, 2008; January 19, 2010; April 26, 2010; May 2, 2011; April 2, 2012
2nd: May 2, 2011; April 2, 2012; August 2, 2013

Finally, the S&P 500 has hit the 1923.44 level posted on the chart a couple weeks back.

all daily channels.gif (73.51 KiB) Viewed 3126 times

The stock market is ripe for a takedown by any measure I can see but at the same time we know this is the biggest bubble ever.

The S&P stock index futures have made a new all time high tonight.

1923_44.gif (36.52 KiB) Viewed 3122 times

This was posted on May 12. Last week the market closed the week at 1923.57.

[aedens]

http://www.quandl.com/OFDP/FUTURE_COT_2 ... -from-CFTC

Your correct and the wave analysis indicates weakening mid week and Thursday as we indicated in writing as we do here.

Longer term will consider after July 28 to adding short positions from current ratio. Till hell freezes over....

As we noted wake me up at $1000.00 on gold and $1400.00 was never taken off the table then.

http://www.salientpartners.com/epsilont ... Break.html

On the Island of the Green-Eyed Tribe, blue eyes are taboo. If you have blue eyes you must get in your canoe and leave the island the next morning. But there are no mirrors or reflective surfaces on the island, so you don’t know the color of your own eyes. It is also taboo to talk or otherwise communicate with each other about blue eyes, so when you see a fellow tribesman with blue eyes, you say nothing. As a result, even though everyone knows there are blue-eyed tribesmen, no one has ever left the island for this taboo. A Missionary comes to the island and announces to everyone, “At least one of you has blue eyes.” What happens?

If you haven’t observed exactly this sort of dynamic taking place in markets over the past five years, with nothing, nothing, nothing despite what seems like lots of relevant news, and then – boom! – a big move up or down as if out of nowhere – I just don’t know what to say. And I don’t know a single market participant, no matter how successful, who’s not bone-tired from all the mental anguish involved with trying to navigate these unfamiliar waters. These punctuated moves don’t come out of nowhere. They are part and parcel of the Common Knowledge Game, no more and no less, and understandable as such.

So for example, the market can go down, and more than a little, as the common knowledge around the subsidiary Narrative of The Fed Has Got Your Back comes undone with a second derivative shift from easing to tightening. The Fed itself is the Missionary on this new common knowledge. But the market can’t break so long as the common knowledge of Central Bank Omnipotence remains intact. So long as everyone knows that everyone knows that market outcomes ultimately depend on Fed policy, then the Yellen put is firmly in place. If things get really bad, then the Fed can save us. We might argue about timing and reaction functions and the like, but everyone believes that everyone believes that the Fed has this ability. And because it’s such strong common knowledge, this ability will never be tested and the market will never break. A nice trick if you can pull it off, and until a Missionary with the clout of the Fed comes out and challenges this core common knowledge it’s a fait accompli within the structure of the game.

game theory - no move is the herds only response, for now..... emptor

[Higgenbotham]

If you haven’t observed exactly this sort of dynamic taking place in markets over the past five years, with nothing, nothing, nothing despite what seems like lots of relevant news, and then – boom! – a big move up or down as if out of nowhere – I just don’t know what to say.

It is raining. The herd is all facing north staring straight ahead. The Fed minutes are released. The Fed minutes do not make the specific statement that it is raining. The herd continues facing north staring straight ahead. It does not come in out of the rain because the Fed minutes do not make the specific statement that it is raining. The herd looks to the left and to the right. Nobody moves. It starts raining harder. The herd continues to face north staring straight ahead waiting for Janet to tell it that it is raining. It starts raining even harder. The herd does not move.