Category Archives: Financial markets

The Trade War Distraction: Huawei And Linchpin Theory, by Brandon Smith

The trade war will serve as a convenient scapegoat for crashing markets when its actually central bankers who are responsible. From Brandon Smith at alt-market.com:

Since the beginning of this year, I have been warning that trade tariffs initiated by Donald Trump would develop into a full-blown trade war with China, and perhaps other nations, and that the timing of this trade war is rather suspicious. Suspicious how? Almost every instance of further escalation was made by Trump around the exact time that the Federal Reserve was also making a large cut to its balance sheet or raising interest rates. Instead of focusing on the fact that extreme volatility has returned to markets because central banks are pulling the plug on life support, the mainstream media is holding up the trade war as the ultimate culprit behind the accelerating crash.

In other words, Trump’s trade war is acting as a perfect distraction from the crisis which the banking establishment has now deliberately triggered.

The initial response to my suggestion by a minority of liberty movement activists and skeptics was outright denial. Some people argued that the trade war would be over before it even began and that China would immediately capitulate in fear of losing the U.S. consumer market. Others argued that the trade war “had been started by the Chinese years ago” and Trump was simply “fighting back.”

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The Empire’s Sea of Woes, by Robert Gore

The noose cinches.

Second-rate George H.W. Bush got a first-rate Washington send-off. For one day it interrupted the downtrend in equity markets. It may mark the US apotheosis of inflated grandiosity. Across the Atlantic, Emmanuel Macron, pretentious popinjay of Gallic grandiosity, has gotten a deserved comeuppance. Brexit, Trump’s election, and nationalist uprisings in Southern and Eastern Europe apparently insufficient warning to the globalists who would rule us, the French rioters are sending yet another wake-up call. If that’s not enough, so too are many of the nations outside the Euro-American welfare state asylum.

The crazies’ kings, queens, and courtiers face a dwindling inheritance and mounting debt, but spend lavishly to keep up appearances. Falling markets and rioting taxpayers are unwelcome reminders that the money’s running out, leaving behind a stack of IOUs that won’t be paid. The aristocracy wants to offload the pain to the peasantry, but the riots demonstrate that the peasantry has other ideas. Our betters also want to blame their sea of woes on Eurasia’s leaders, but Russia, China, Russia, Turkey, and Iran are having none of that. They are, however, delighted to see the West crumbling and will do nothing to stop it.

Empire is America’s noose, hubris America’s curse. Once upon a time it didn’t matter much to the American people or their politicians what happened in Asia, Africa, the Middle East, or even Europe. During the nineteenth century, for the most part we minded our own business, and what a business it turned out to be. America became the world’s industrial, technological, and commercial powerhouse.

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Recession Incoming or Something Worse? 2/10 Spread Collapses, by Tom Luongo

A classic indicator of impending recession is when the yield curve inverts. In other words, short maturity bonds yield more than longer maturity bonds. From Tom Luongo at tomluongo.me:

UPDATE: Now stocks are selling off and the 2/10 spread is less than 10 basis points.  Gold, however, refuses to sell off while the euro pulls back versus the dollar.

Mike Shedlock over at Mishtalk noted yesterday that there have been a couple of troubling inversions in the U.S. yield curve recently.  They happened in the 2/3 and 3/5 year space.

Mike went on to say that the normal recession indicator, the 2/10 spread, may not invert before the economy turns down.

For further discussion, please see First Inversion in Seven Years: Can a Recession be Far Off?

I repeat my assessment:

  • The classic recession signal that most follow is a 2-10 inversion. I doubt we see a 2-10 inversion before recession hits.
  • My call: There will not be the warning nearly everyone is waiting for

I don’t mean to rain on Mike’s parade, because I fundamentally agree with him that the Fed is raising rates into a global slow-down but the 2/10 spread is collapsing this morning pretty quickly.

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Lenin would be so proud, by Simon Black

By socializing risk, in other words by making others pay for someone else’s mistakes, we make sure those risks will be taken again and again. From Simon Black at sovereignman.com:

Several years ago back in 2004-2006, if you had a pulse, you could borrow money from a bank to buy a house.

In fact, bank lending standards were so loose back then that there were some infamous cases of people who DIDN’T have a pulse who were still able to borrow money.

That’s right. Some banks were so irresponsible that they actually loaned money to dead people.

Of course, it turned out that lending money to dead people… or people with terrible credit who had a history of default, was a bad idea.

And the entire financial system almost blew up as a result of this reckless stupidity.

But then something even crazier happened: the Federal Reserve came in and bailed out all the banks with trillions of dollars of free money.

That was utterly nuts. Instead of being wiped out by their idiotic mistakes, the banks learned that they would always be bailed out no matter how stupid or greedy they acted.

The key lesson was that there would be zero consequences for bad behavior.

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Misdiagnosing The Risk Of Margin Debt, by Lance Roberts

Margin debt helps keep stock markets afloat. From Lance Roberts at realinvestmentadvice.com:

This past week, Mark Hulbert wrote an article discussing the recent drop in margin debt. To wit:

“Plunging margin debt may not doom the bull market after all, reports to the contrary notwithstanding.

Margin debt is the total amount investors borrow to purchase stocks, which historically has risen during bull markets and fallen during bear markets. This total fell more than 6% in October, according to a report last week from FINRA. We won’t know the November total until later in December, though I wouldn’t be surprised if it falls even further.

A number of the bearish advisers I monitor are basing their pessimism at least in part on this plunge in margin. It’s easy to see why: October’s sharp drop brought margin debt below its 12-month moving average. (See accompanying chart.)”

“According to research conducted in the 1970s by Norman Fosback, then the president of the Institute for Econometric Research, there is an 85% probability that a bull market is in progress when margin debt is above its 12-month moving average, in contrast to just a 41% probability when it’s below.

Why, then, do I suggest not becoming overly pessimistic? For several reasons:

1) The margin debt indicator issues many false signals
2) There is insufficient data
3) Margin debt is a strong coincident indicator.”

I disagree with Mark on several points.

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Debt, Death, and the US Empire, by Antonius Aquinas

Insolvency will sound the death knell for the American empire. Fron Antonius Aquinas at antoniosaquinas.com:

Deep State Operative John Bolton

In a talk which garnered little attention, one of the Deep State’s prime operatives, National Security Advisor John Bolton, cautioned of the enormous and escalating US debt.  Speaking before the Alexander Hamilton Society, Bolton warned that current US debt levels and public obligations posed an “economic threat” to the nation’s security:

It is a fact that when your national debt gets to the level ours is, that it constitutes an economic threat to the society.  And that kind of threat ultimately has a national security consequence for it.*

What was most surprising about Bolton’s talk was that there has been little reaction to it from the financial press, the markets themselves, or political commentators. While the equity markets have been in the midst of a sell off, it has not been due (as of yet) to US deficits, currently in excess of $1trillion annually.  Instead, the slide has been the result of fears over increase in interest rates and the continued trade tensions with China.

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Treacherous Times for Bond Funds Ahead, by Wolf Richter

Why you’re better off owning high-quality individual bonds rather than bond funds or ETFs when the bond market is going to hell. From Wolf Richter at wolfstreet.com:

Bond ETFs and open-end bond mutual funds sound conservative in marketing materials, but they pack special risks & surprises in a downturn that can entail a catastrophic loss for investors.

Exchange-traded bond funds and bond mutual funds are big business. They’re a lot easier for retail investors to buy and sell than the actual bonds, particularly bond ETFs, which trade on stock markets just like stocks — and can even be day-traded. But this liquidity for investors is precisely the potentially catastrophic problem.

And in this era of rising interest rates and deteriorating credit, bonds already have plenty of other problems.

Corporate America carries record amounts of debt. Part of this debt is in form of bonds (the other part is in form of loans). The amount of bonds outstanding has ballooned over the past five years, even as the credit quality has deteriorated. Now there are $6.1 trillion of investment-grade US-corporate bonds outstanding, according to Moody’s (plus over $1.2 trillion of “junk bonds”). These bonds are everywhere, including in bond ETFs and bond mutual funds, and therefore in retail investors’ portfolios.

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