Category Archives: Financial markets

Market Weekly: What Happens After ‘The Churn?’ by Tom Luongo

Someday soon markets are going to realize how bad a Biden presidency is going to be. From Tom Luongo at tomluongo.me:

If you’re a fan of The Expanse (and if you aren’t you should be) you’ll be familiar with the term The Churn. The Churn is the controlling idea for Amos Burton, whose only defining ethos is survival.

Simply put, The Churn is that moment when, “the rules of the game change.” Which game?

Amos: The only game. Survival. When the jungle tears itself down and builds itself into something new. Guys like you and me, we end up dead. Doesn’t really mean anything. Or, if we happen to live through it, well that doesn’t mean anything either.

Embedded in Amos’ idea of The Churn, however, is that while the rules change society itself keeps on keeping on. So many people right now are trying to analyze the political situation in terms of The Churn, the normal ebb and flow of who has the upper hand in the power struggle.

The impeachment idiocy on Capitol Hill is your prime example of this. Petty bureaucrats like Pelosi and Schumer are still thinking in terms of their political futures, the normal rules for using leverage to secure their Party’s future.

Mitch McConnell still thinks playing the role of controlled opposition will keep the fundraising up for the mid-terms. Nikki Haley is already texting people for money for her 2024 bid as the magic GOP brown woman who will save the party after ousting the demon Trump.

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Orange Man Gone, by David Stockman

Trump’s heart may have been in the right place but his policies often weren’t. From David Stockman at davidstockmanscontracorner.com via lewrockwell.com:

The everlasting irony of Donald J. Trump’s presidency is this: He had all the right enemies, but virtually without exception made all the wrong decisions during his hapless four-year sojourn in the Oval Office.

The list of his enemies is enough to make any right-thinking supporter of peace, prosperity and liberty proud. That starts with the TV networks and print organs of the mainstream stenographers club, who peddle the state’s propaganda and call it news. This most especially includes the masters of mendacity at CNN, the New York Times, and the Washington Post.

It also includes the bipartisan national security mafia, the climate change howlers, the race card hondlers, the Russophobes, the Neocon War Brigades, the NATO/IMF/UN acolytes, the Washington nomenclatura, the careerist racketeers of Capitol Hill, the beltway shills of the Lincoln Project, the Silicon Valley thought police and the celebrity scolds of entertainment and media, among others.

With so many worthy enemies it is amazing that the he managed to do so little good and so very much wrong. But there is really no mystery to it when you cut to the essence of Donald J. Trump, the POTUS Poseur.

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Peter Schiff: Biden Takes the Helm of a Sinking Ship

The ship of state has been taking on water for a long time, and Biden is just lucky enough to be head of state as it sinks. From Peter Schiff at schiffgold.com:

Joe Biden was inaugurated on Jan. 20, becoming the 46th president of the United States. And as Peter Schiff put it in his podcast, he took the helm of a sinking ship.

But the stock markets sure don’t act like the ship is taking on water. All four major stock indices closed at new record highs on inauguration day. Peter said this proves that the stock market rally really didn’t have much to do with Donald Trump.

If the stock market gains were really attributable to Donald Trump’s policies, and Joe Biden is already unwinding those policies and reversing as many as he can by executive order, why are all the stock markets making record highs? To me, that shows you that the stock market couldn’t care less about Biden being president, because it didn’t matter that Trump was president. This stock market rally that Donald Trump took credit for was not the result of Donald Trump’s policies.”

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Inflation Breeds Even More Inflation, by Thorstein Polleit

Inflation is a slippery, one-way slope. from Thorstein Polleit at mises.org:

I. Warning against Fiduciary Media

Early in the 20th century, Ludwig von Mises warned against the consequences of granting the government control over the money supply. Such a regime inevitably creates money through bank credit that is not backed by real savings—a type of money that Mises termed “fiduciary media.”

In 1912, Mises wrote,

It would be a mistake to assume that the modern organization of exchange is bound to continue to exist. It carries within itself the germ of its own destruction; the development of the fiduciary medium must necessarily lead to its breakdown.1

Mises knew that breakdowns of economic activity were the inevitable outcome of government interference in the monetary sphere. However, public opinion has not correctly diagnosed the root cause, regularly blaming instead the free market system—rather than the government—for the malaise. In times of crisis, people call for more government intervention in all sorts of markets, thereby setting into motion a spiral of intervention which, over time, erodes the liberal economic and social order.

It is therefore a rather discomforting truth that today’s governments the world over produce fiduciary media, the very kind of money Mises had warned us against.

It is an inflationary regime. The relentless rise in the money stock necessarily reduces the purchasing power of money to below the level that would prevail had the money supply not been increased. Early receivers of the new money benefit at the expense of those receiving it later.

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Peter Schiff: The Bond Market Is Rigged!

The Federal Reserve has its multi-trillion pound thumb on the scale. From Peter Schiff at SchiffGold.com via zerohedge.com:

You may have noticed that the financial media has started talking about inflation. But by and large, it’s not a warning. It’s reassurance. Many analysts are dismissive of any concerns raised about inflationary pressure. They often claim the bond market isn’t signaling inflation. But as Peter Schiff points out in a clip from a recent podcast, the bond market is rigged.

The narrative is that the bond markets aren’t signaling much concern about inflation. Treasury yields have risen in recent weeks with the 10-year rate now above 1%. As Peter pointed out in a more recent podcast, the upward trend does indicate some investors are starting to get nervous about inflation, and at some point, we could see “an explosive move up in interest rates.” But so far, the broader market hasn’t caught on. Even though the trend is up, yields remain historically low and they don’t exactly scream “inflation problem.”

After all, if investors were concerned about inflation, why would they be willing to loan money to the US government for 10 years at 1%?”

Typically, inflation is a major concern for lenders. If you plan to lend somebody money for 10 years, you have to consider what that amount of money will buy when you get it back. In effect, you’re giving up the opportunity to buy something with your money today in order to lend it to somebody else. You’re willing to do this because the borrower is paying you for the service of loaning him that money. But if inflation is going to eat away your purchasing power over time, you will want to charge a higher rate of interest to compensate for that loss.

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Clear and Present Danger, by Sven Henrich

The Federal Reserve, hell bent on supporting financial markets, will destroy the economy. From Sven Henrich at northmantrader.com:

The Federal Reserve and other central banks represent a clear and present danger to future financial stability.

I’ve been saying for a while central banks are fueling an asset bubble and as global market distortions keep expanding week after week there’s no reason to back to walk away from that assertion but rather to stand up and scream the message from the rooftops especially now that central bankers are casually letting some key truths slip (intended or not).

Following up to the Alternative View and The Ugly Truth we got a stunning admission today from Philly Fed Chief Harker:

“The U.S. central bank may begin paring back its bond-buying program as soon as the end of this year, Federal Reserve Bank of Philadelphia President Patrick Harker said. “I could see, potentially, that occurring at the very end of 2021 or early 2022. But it is all going to depend on the course of the economy, which will depend on the course of the virus,”.“It could cause disruption in the markets if we try to do it too soon,” he said.”

There it is, the crux of it all. Not a disruption in the economy, in markets. For a central bank that claims to target the economy with its policies this statement reveals a keen awareness that markets are greatly influenced by the Fed’s QE liquidity operations, QE and otherwise, indeed are dependent on it and the fear of markets reacting is profoundly on the Fed’s mind.

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Don’t dismiss gold and silver… by Alasdair Macleod

After the fiat currencies collapse, which could be soon, they’ll be replaced by gold and silver-backed money, which would impose stringent fiscal control on free-spending and heavily indebted governments. From Alasdair Macleod at goldmoney.com:

There is worrying evidence that 2021 will see the end of fiat currencies, led by the US dollar. US dollar money supply has accelerated at an extraordinary rate, a process that will continue.

Signals from the markets that a monetary collapse is increasingly likely include a weakening dollar on the foreign exchanges, bitcoin’s price reflecting an growing disparity between the rate of its issue and that of fiat, rapidly rising commodity prices, and a bubble in non-fixed interest financial assets.

Current thinking is yet to link these events with a developing collapse in fiat currencies, but it is only a matter of a relatively short period of time, perhaps spurred on by a banking crisis, before a realisation that a John Law-style financial asset and currency collapse is on the cards.

While gold rose in dollar terms by 25% last year, it has yet to reflect an increasingly likely collapse in fiat currencies, which this article concludes is likely to happen in this new year.

Introduction

We enter the new year with a growing realisation that fiat currency debasement is accelerating. It is hardly surprising that bitcoin bulls, who have learned about relative rates of currency issuance, are in the vanguard of those hedging increasing currency debasement. They are being encouraged by statistics in charts such as that shown in Figure 1.
Screen Shot 2021 01 07 at 12.35.13 PM

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Bond Market Smells a Rat: 10-Year Treasury Yield Hit 1.04%, Highest since March. 30-Year 1.81%, Highest since February. Mortgage Rates Jumped, by Wolf Richter

The bond market may well be the canary in the coal mine for the impending financial collapse. From Wolf Richter at wolfstreet.com:\

Seems, inflation prospects jangled some nerves today.

The 10-year Treasury yield jumped 8 basis points today and settled at 1.04%, the highest since the wild panic days in mid-March 2020. As the yield rises, the price of that bond falls. This yield has now exactly doubled from the historic low of 0.52% on August 4, when folks were still betting that the 10-year Treasury yield drop below zero:

The 30-year yield jumped 11 basis points today to 1.81%, the highest since February 26. On March 3, as all heck was breaking loose, the yield had briefly plunged below 1% for the first time ever, and days later it was back at nearly 1.8%, in some wild and volatile panic trading. But this time, the upward trend started on August 4 and has been systematic:

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Waiting for the Last Dance, by Jeremy Grantham

A market pro thinks we’re in for a huge market downturn sometime this year. From Jeremy Grantham at gmo.com:

The Hazards of Asset Allocation in a Late-stage Major Bubble

Executive Summary

The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.

These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in.

But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.


“The one reality that you can never change is that a higher-priced asset will produce a lower return than a lower-priced asset. You can’t have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both – and the price we pay for having this market go higher and higher is a lower 10-year return from the peak.”1


Most of the time, perhaps three-quarters of the time, major asset classes are reasonably priced relative to one another. The correct response is to make modest bets on those assets that measure as being cheaper and hope that the measurements are correct. With reasonable skill at evaluating assets the valuation-based allocator can expect to survive these phases intact with some small outperformance. “Small” because the opportunities themselves are small. If you wanted to be unfriendly you could say that asset allocation in this phase is unlikely to be very important. It would certainly help in these periods if the manager could also add value in the implementation, from the effective selection of countries, sectors, industries, and individual securities as well as major asset classes.

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Forecast 2021 — Chinese Fire Drills with a side of French Fries (Jacobin-style) and Russian Dressing, by James Howard Kunstler

Jim Kunstler has a long list of provocative and contrarian predictions. From Kunstler at kunstler.com:

As I write, the presidential election is still not resolved, with dramatic events potentially unfolding in the first days of the New Year. I’m not convinced that Mr. Trump is in as weak a position as the news media has made him out to be in these post-election months of political fog and noise. The January 6 meet-up of the Senate and House to confirm the electoral college votes may yet propel matters into a constitutional Lost World of political monsterdom. The tension is building. This week’s public demonstration by one Jovan Hutton Pulitzer of the easy real-time hackability of Dominion Voting Systems sure threw the Georgia lawmakers for a loop, and that demo may send reverberations into next Wednesday’s DC showdown.

There may be some other eleventh-hour surprises coming from the Trump side of the playing field. As I averred Monday, we still haven’t heard anything from DNI Ratcliffe, and you can be sure he’s sitting on something, perhaps something explosive, say, evidence of CIA meddling in the election. There have been ominous hints of something screwy in Langley for weeks. The Defense Dept., under Secretary Miller, took over all the CIA’s field operational functions before Christmas — “No more black ops for you!” That was a big deal. There were rumors of CIA Director Gina Haspel being in some manner detained, deposed and…talking of dark deeds. She was, after all, the CIA’s London station-chief during the time that some of the worst RussiaGate shenanigans took place there involving the international men-of-mystery, Stefan Halper, Josepf Mifsud, and Christopher Steele. Mr. Ratcliffe seemed to be fighting with the CIA in the weeks following the election over their slow-walking documents he had demanded.

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