Category Archives: Financial markets

Memo from Insiders: Dear Bagholders, Thanks for Buying Our Shares at the Top, by Charles Hugh Smith

“The History of Little Guys Who Made Oodles of Money in Stock Market Manias and Held On To Their Winnings” is a remarkably short book. From Charles Hugh Smith at oftwominds.com:

What looks like a powerful, can’t-lose rally to newbies is recognized as distribution by old hands. In low-volume markets (as in the past few months), insiders holding large positions can’t dump all their shares at once or the price of the stock would plummet due to the thinness of the bid.

The only way to get top-dollar for one’s overvalued shares is to play distribution games: sell a little each day on the upticks, and buy back shares when they threaten to drop below the key support levels followed by trading algos.

When insiders have finished distributing their shares to naive and trusting bagholders at the top, then the price can flush lower with a velocity that shocks the complacent bagholders who saw only the inevitability of an endless rally rather than the inevitability of a collapse of bubble valuations.

Stocks are priced for a V-shaped recovery and/or $1 trillion in federal giveaways per month. Neither is possible. The V-shaped recovery hopes were based on $6 trillion in federal/Federal Reserve stimulus washing over the nation, boosting household incomes and opening spigots of cash for enterprises and local governments.

The basic idea was to give the economy a needed shot of adrenaline to get to to the point where a recovery would be self-sustaining: companies would hire back laid-off workers, people would start borrowing and over-consuming again, sales and income tax revenues would return to pre-pandemic levels, etc.

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The Big Lie: The EU is Fixed, The Dollar is Dying and COVID Will Kill You, by Tom Luongo

Anytime the mainstream media joins together in a Hallelujah chorus, they’re trying to pull one over on you. From Tom Luongo at tomluongo.me:

Dyin’ ain’t much of a livin’, boy
– The Outlaw Josey Wales

The Davos Crowd is desperate. That much has been clear to me for months.

From the moment they tied COVID-19 to the breaking of the oil markets back in March they have worked like no other time in history to convince us the world we knew was gone.

The latest iteration of this big lie is the all-out assault on the U.S. dollar. Now for months a few analysts like me have been steadfast in reminding everyone that no matter how much money the U.S. prints in the short run, it is only doing so because of the extreme levels of latent and active dollar demand in the world.

So, there is narrative and there is reality. And reality is that today there is huge demand for the U.S. dollar regardless of what the headlines tell you.

That said, that doesn’t mean that demand doesn’t ebb and flow. And now that we’re on the other side of the first wave of this crisis period, marginal dollar hoarding has slacked off.

This is most evident in the dramatic rise in the euro back above $1.17 and the British pound breaking back to challenge $1.30. But in the grand scheme of things these are just relief rallies within primary bear markets.

But in the past couple of weeks, coinciding nicely with a massive rally in the precious metals, there’s been a deluge of talk about the end of the dollar.

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Financial System – A Hubristic Swindle, by Egon von Greyerz

Egon von Greyerz is almost certain to be proved right when he says that what we have now amounts to the biggest financial swindle in history. From von Greyerz at goldswitzerland.com:

Zeus punished the hubristic King Sisyphus to roll a huge boulder up a very steep hill in Hades. Before Sisyphus reached the top, the stone rolled down and he had to start all over again.

Hubris is serious sin that seldom goes unpunished. The arrogance and uber-confidence which TPTB (the powers that be) have displayed in leading the world to ruin will clearly be severely punished. But sadly the punishment will affect the whole world and not just the Elite that caused it.

BANKERS AND GOVERNMENTS HAVE INFLICTED INCREDIBLE DAMAGE

It could be argued that blaming one group for the coming global collapse might be unfair. The world economy has always oscillated between boom and bust and is thus a natural phenomenon like the seasons. But the main difference this time is the incredible damage that governments, central bankers and bankers have inflicted on the world.

In 2006 when the Great Financial Crisis started, US Federal debt was $8.5 trillion and today it is $26.5t. In 14 years debt has more than trebled. GDP in 2006 was $14t and is now $21.5t. So debt to GDP has gone from 60% to 123%.

This is what is called running on empty. US debt creation has nothing to do with investing in productive assets. With the debt to GDP ratio doubling in 14 years it is clear evidence that all the printed money is not going into the real economy but is supporting a bankrupt financial system which has kept the money to prop up their own insolvent balance sheets and to remunerate the top executives with fantasy money.

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The Power of Ones, by Robert Gore

Your first duty is to think for yourself.

Humanity’s greatest scourge is groupthink. Millions have marched off to war, convinced of their side’s goodness and the enemy’s evil, and didn’t come back or came back in coffins. Billions have embraced politics and political philosophies with warning labels for anyone who cared to look: destruction and death sure to follow. Against the death toll from groupthink, the Black Plague, Spanish Flu, cancer, heart disease, and every other human malady shrink to insignificance.

If you could somehow open the brains of those who followed leaders and malignant idiocies to their deaths, the one thing you would find is the thought—actually the stale remnant of a thought, a trite rationalization—because everyone is doing it. Fortunately, it’s never everyone doing it, there are always those who oppose; it’s how the human race has survived. When word and deed become too dangerous, they oppose in thought.

Those times when it has been too dangerous to overtly express opposition to groupthink have been humanity’s darkest ages, lived under its most corrupt and barbaric regimes. We are entering such a time now. These descents are always presaged by a deterioration in thought—mob think and mob rule that become increasingly deranged and dangerous. The specifics of the various manifestations are trivial details, the important commonality is their reflexive hostility to independent thought and the truth.

“Probably. But not quite. I’m not afraid any more. But I know that the terror exists. I know the kind of terror it is. You can’t conceive of that kind. Listen, what’s the most horrible experience you can imagine? To me—it’s being left, unarmed, in a sealed cell with a drooling beast of prey or a maniac who’s had some disease that’s eaten his brain out. You’d have nothing then but your voice—your voice and your thought. You’d scream to that creature why it should not touch you, you’d have the most eloquent words, the unanswerable words, you’d become the vessel of the absolute truth. And you’d see living eyes watching you and you’d know that the thing can’t hear you, that it can’t be reached, not reached, not in any way, yet it’s breathing and moving there before you with a purpose its own. That’s horror. Well, that’s what’s hanging over the world, prowling somewhere through mankind, that same thing, something closed, mindless, utterly wanton, but something with an aim and a cunning of its own. I don’t think I’m a coward, but I’m afraid of it. And that’s all I know—only that it exists. I don’t know its purpose, I don’t its nature.”

Stephen Mallory to Howard Roark, Ayn Rand, The Fountainhead, 1943

Having lived through the Russian Revolution, Ayn Rand knew well the nature of the mob—a drooling beast of prey or a maniac who’s had some disease that’s eaten his brain out…closed, mindless, utterly wanton, but something with an aim and a cunning of its own.

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Mall and Hotel Loans Are Blowing up Commercial Mortgage-Backed Securities, by Wolf Richter

The debt implosion is just getting started, but in the commercial mortgage-backed securities market it’s picking up steam. From Wolf Richter at wolfstreet.com:

CMBS delinquency rates for retail properties spiked to 18% and for hotel properties to 24%.

he delinquency rate for Commercial Mortgage Backed Securities (CMBS) spiked by 317 basis points to 10.3% in June, after having spiked by 481 basis points in May, which had been the largest month-to-month spike in the data going back to 2009, according to Trepp, which tracks securitized mortgages for institutional clients.

Another 4.1% of the underlying loans missed the June payment deadline. Because they’re not yet 30 days past-due – they’re marked in “grace” period or “beyond grace” period – they’re not yet included in the delinquent pile. A loan that is in the “grace” period or in the “beyond grace” period could revert to “current” in July without a payment being made, if the borrower enters into a forbearance agreement with the loan servicer. If the borrower fails to obtain a forbearance agreement, the loan will be added to the pile of 30-plus days delinquent loans:

Trepp suggested that this still might get a little worse, but more slowly, and not much worse. “So perhaps we have reached terminal delinquency velocity,” as the report put it, where “most of the borrowers that felt the need for debt service relief have requested it.”

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GE: The Story Of America, by the Zman

In many ways, General Electric is the emblematic American corporation. From the Zman at theburningplatform.com:

If you were to pick one company that symbolizes how America has changed and been changed over the last half century or so, it would be General Electric. The company founded by Thomas Edison is in many ways a microcosm of the American economy over the last century or more. It rose to become an industrial giant in the 20th century, the symbol of America manufacturing prowess. It then transformed into a giant of the new economy in the 1990’s, a symbol of the new America.

Today, General Electric is a company in decline. After a series of problems following the financial crisis of 2008, the company has steadily sold off assets and divisions in an effort to fix its financial problems. In 2019, Harry Markopolos, the guy who sniffed our Bernie Madoff, accused them of $38 billion in accounting fraud. The stock has been removed from the Dow Jones Industrial composite. Many now speculate that GE will end up in bankruptcy in order to reorganize.

For those interested in a longer discussion about the history of General Electric, Myth of the 20th Century did a podcast on the company. One aspect they did not cover is how General Electric transformed from a company that made things into a financial services company that owned divisions that made things. Like the American economy in the late 20th century, the company shifted its focus from making and creating things to the complex game of financializing those processes.

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Busted, by Sven Henrich

The Federal Reserve has distorted the economy and financial markets beyond recognition. From Sven Henrich at northmantrader.com:

First they dismiss you as a conspiracy theorist then they join you. The secret is out, the Fed is busted: Central banks have distorted asset prices far above the economy.
I’ve been harping about the market cap to GDP ratio for a while and even called the Fed’s asset price distortion operation a direct threat to the economy.

Now it appears the IMF agrees:

This disconnect between markets and the real economy raises the risk of another correction in risk asset prices should investor risk appetite fade, posing a threat to the recovery”

Posing a threat to the recovery. This was precisely my point on CNBC Fast Money last week:

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Let’s Talk Privilege…. by Mark E. Jeftovic

The title may make it look like this is an article about race, but it’s not. From Mark E. Jeftovic at outofthecave.io:

After the 9/11 terror attacks, when our privacies were permanently revoked, and we entered into “a war which would never end in our lifetimes”, Bush II proclaimed “They hate us because of our freedoms”.

Some critics thought that was an almost nonsensical statement to make, while the credulous took it at face value. It framed whoever perpetrated the attacks as some inhuman “other” that despised happiness itself. It was unthinkable anybody could have an actual foreign-policy derived reason for doing it, and anybody who suggested as much was usually hounded out of the public eye.

However I always thought that utterance did have a kernel of truth to it. If you looked at the United States as a global empire, and that the freedoms “they” hated were not actually the ones to assemble, or worship or to vote, as Bush intimated, but rather the ones where America acted unilaterally in its own interest observing American Exceptionalism as a type of infallible axiom, then Bush would have been closer to the substance of the matter.

Here was world hegemon who claimed the freedom to overthrow governments, the freedom to bomb or invade any country it pleased, the freedom to support brutal dictators, assassinate enemies, interfere in elections and basically do whatever it wanted. Seen in that light, then yes, the 9/11 attackers did hate our “freedoms”.

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David Stockman on What Could Happen If the Fed Loses Control

It looks like the Fed has already lost control. From David Stockman at internationalman.com:

International Man: Recently, Fed Chairman Jerome Powell said the central bank’s money printing is designed to help average Americans, and not Wall Street.

What’s your take on this?

David Stockman: Yes, and if dogs could whistle, the world would be a chorus!

The truth is, in an economy encumbered with nearly $78 trillion of debt already—including $16.2 trillion on households, $16.8 trillion on business, $23 trillion on governments—the last thing we need is even lower interest rates and even bigger incentives to take on debt and leverage.

In fact, in a debt-saturated system, the Fed’s massive bond purchases never transmit anything outside the canyons of Wall Street. This money-printing madness only drives bond prices higher and cap rates lower—meaning relentless and systematic inflation of financial assets’ prices.

As a practical matter, of course, the bottom 90% don’t own enough stock or even inflated government and corporate bonds to shake a stick at. Instead, what meager savings they have accumulated languish in bank deposits, CDs or money market funds earning exactly what the Fed has decreed—nothing!

So, when Powell says he’s only trying to help the average American, you have to wonder whether he is just stupid or the greatest lying fraud yet to occupy the big chair at the Fed.

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Storm Warning, by James Howard Kunstler

Will the Fourth of July be another target for those bent on violence and riots? From James Howard Kunstler at kunstler.com:

For all his apparent clownishness and crudity, Mr. Trump’s counter-resistance may be all that stands, for the moment, between the DNC-sponsored Jacobin jihad, and what remains of a coherent consensus of genuine American values. History is a prankster, of course, and the joke is that Mr. Trump expresses that defense of coherence so incoherently, as in Tulsa the other night. Alas, the joke is on us, but among the many lost lessons of public education in our time is the comprehension that life is tragic. Things work mysteriously, and they don’t always work out.

Mischief is everywhere and America is overwhelmed by that mischief, and the next two weeks are liable to be an awful test to see if we have anything definable as some national purpose left. Is it not obvious that in this time of danger nobody besides the beleaguered president even wants to lead? The cowardly and dishonest Left is too busy kneeling to a mob. Nobody mistakes Chuck Schumer, Mrs. Pelosi, Jerrold Nadler, and Adam Schiff for leaders, and Joe Biden in his basement has less influence over events than the ghost of Norman Bates’s mother.

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