Tag Archives: central bank policies

The Next Crisis Will Be The Last, by Lance Roberts

The economy is not strong, and the growth we have has all been financed on the national credit card. From Lance Roberts at realinvestmentadvice.com:

It is an interesting thing.

Throughout the last four decades there is a direct link between the actions of the Federal Reserve and the eventual economic and market outcomes due to changes in monetary policy. In every case, that outcome has been negative.

The general consensus continues to be the markets have entered into a “permanently high plateau,” or an era in which asset price corrections have been effectively eliminated through fiscal and monetary policy. The lack of understanding of economic and market cycles was on full display Monday as Peter Navarro told investors to just “buy the dip.”

“I’m thinking the smart money is certainly going to buy on the dips here because the economy is as strong as an ox.”

I urge you not to fall prey to the “This Time Is Different” thought process.

Despite the consensus belief that global growth is gathering steam, there is mounting evidence of financial strain rising throughout the financial ecosystem, which as I addressed previously, is a direct result of the Fed’s monetary policy actions. Economic growth remains weak, wages are not growing, and job growth remains below the rate of working age population growth.

While the talking points of the economy being as “strong as an ox” is certainly “media friendly,” The yield curve, as shown below, is telling a different story. While the spread between 2-year and 10-year Treasury rates has not fallen into negative territory as of yet, they are certainly headed in that direction.

This is an important distinction. The mistake that most analysts make in an attempt to support a current view is to look at a specific data point. However, when analyzing data, it is not necessarily the current data point that is important, but the trend of the data that tells the story. Currently, the trend of the yield curve is highly suggestive of economic growth not being nearly as robust as the mainstream consensus believes.

To continue reading: The Next Crisis Will Be The Last

 

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Bull Market Requiem, by Northman Trader

The Northman Trader has many reasons not to be bullish on the stock market. From the Northman Trader at northmantrader.com:

A bull market requiem:

Following the financial crisis the world needed coordinated structural solutions (and those would be hard requiring tough choices). Instead what the world got was coordinated central bank intervention which shrunk the middle class, made the rich richer and provided the rest with the illusion that things were getting better as pro forma unemployment rates shrunk and housing prices rose again and stock markets jumped from record to record. In the meantime politicians (of both parties) used the easy money illusion to do precisely nothing on the structural front. Instead they added debt and more debt and recent tax cuts just added to the combination of both: Wealth inequality and debt.

The data is very clear. Things are better for the few:

The greatest bull market ever (?) and 90% of income earners have less net worth than before the financial crisis? Given what it took on the intervention and debt fronts this is intellectual bankruptcy. Policy makers have failed the larger population. Full stop.

Income growth? Forget it:

Debt? A disaster zone with no end in sight:

And only getting worse. Much, much worse. Here’s the CBO projecting the coming explosion in debt which doesn’t even presume a coming recession:

This is what policy makers have produced ahead of the next recession:

The construct was ready to fall apart in early 2016. Earnings recession they called it. Bullshit. It was a recession in the making and central bankers knew it and hence we saw the cumulative insanity of over $5 trillion in additional intervention between 2016 and now. People forget: In this short period we witnessed the most aggressive global central bank intervention ever:

To continue reading: Bull Market Requiem

The Donald’s Blind Squirrel Nails An Acorn, by David Stockman

Would Amazon stock trade anywhere near $1000 a share in a world of honest money? David Stockman says no. From Stockman, at davidstockmanscontracorner.com:

It is said that even a blind squirrel occasionally finds an acorn, and so it goes with the Donald. Banging on his Twitter keyboard in the morning darkness, he drilled Jeff Bezos a new one—or at least that’s what most people would call having their net worth lightened by about $2 billion:

I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!

You can’t get more accurate than that. Amazon (AMZN) is a monstrous predator enabled by the state, but Amazon’s outrageous postal subsidy—-a $1.46 gift card from the USPS stabled on each box—-isn’t the half of it.

The real crime here is that Amazon has been exempted from making a profit, and the culprit is the Federal Reserve’s malignant regime of Bubble Finance. The latter has destroyed financial discipline entirely and turned the stock market into the greatest den of speculation in human history.

That’s why Bezos can kill established businesses with impunity. The casino allows him to run a pernicious business model based on “price to destroy”, rather than price for profit and a return on capital.

Needless to say, under a regime of sound money and honest capital markets Amazon would be a far more benign economic creature. That’s because no real investors would value AMZN’s money-loosing e-Commerce business at $540 billion—-nor even a small fraction of that after 25-years of profitless growth.

As we observed a few weeks ago,

AMZN is allegedly a tech company owing to its cloud business (AWS). But that’s exactly the skunk in the woodpile.

When you set aside AWS’ sales and operating income during 2017, Amazon’s e-Commerce business generated $160 billion of sales, but posted operating income of negative $200 million.

That’s right. The monster of the retail midway posted no profit whatsoever last year!

And it’s getting worse. During 2016 the e-Commerce business posted $1.1 billion of operating income on $124 billion of sales; and the year before that (2015) operating income was $2.6 billion on e-Commerce sales of $99 billion.

Stated differently, incremental annual sales of $61 billion over the past three years resulted in a $2.8 billion reduction in operating profit.

There you have it. As the third great bubble of this century has accelerated towards its blow-off top, the robo-machines and momo traders have turned absolutely rabid, thereby enabling Bezos to go flat-out berserk in pursuit of growth at any cost.

To continue reading: The Donald’s Blind Squirrel Nails An Acorn

The Real Reason Why Stock Markets Will Continue To Crumble This Year, by Brandon Smith

Central banks, according to Brandon Smith, will continue to pull the plug on equity markets. From Smith at alt-market.com:

Public sentiment on the economy is generally influenced by to two false indicators — the national unemployment rate and stock markets. This is not to say the average person tracks either of these numbers very vigorously; they don’t. What they do is hear these numbers on the morning news, the radio news on their way to work (if they are employed) or they hear them on the evening news just before bed. If the jobless rate is low and the Dow is high, then all is right with the world, at least financially.

When it comes to the economy, most people are lost.

The average American, in particular, is not as oblivious to the world of political and social discourse as they are on economics. Whether on the left or the right of the political spectrum, most citizens know that lines are being drawn and ideological battles are accelerating into realms of the extreme.  Conservatives and the liberty activists that stand at the front line of the culture war understand quite well the threat of globalism and the “philosopher king” elitism of international financiers. They know that these criminals must eventually be dealt with if freedom and stability are to return to the world.

There is a rather common disinformation tactic used to manipulate people within conservative circles that has made a resurgence lately in the wake of the Trump election win. It is the idea that Americans within the “working class” aren’t interested in “high-minded” debates over philosophical conflicts, such as the conflicts between individualism versus collectivism and globalism. There is also the notion that “real” Americans could not care less about the elitist culprits behind the political theater of the false left/right paradigm.

This attitude is presented as a superior one. That is to say, disinformation agents play to people’s egos, suggesting that the working class should be focused on putting food on the table and money in their wallets and that the rest of this “intellectual nonsense” should be ignored as frivolous.

 

To continue reading: The Real Reason Why Stock Markets Will Continue To Crumble This Year

The Fed Has Its Finger On The Button Of A Nuclear Debt Bomb, by Brandon Smith

Lower the price of something and people want more of it. The price of debt—interest rates—has been historically low for a long time, which has promoted debt saturation in every sector of the economy. Rising rates will wreak havoc. From Brandon Smith at alt-market.com:

I hear a lot of talk lately in the alternative media (and even the mainstream media) of the potential for World War III. The general assumption when one hears that term is that “nuclear conflict” is imminent. But a world war does not necessarily have to be fought with nukes. For example, we are perhaps already witnessing the first shots fired in a global economic war as the Trump administration gets ready to implement far-reaching trade tariffs. This action might provide cover (or justification) for destructive attacks on the U.S. fiscal system by China, Japan, Russia, the EU, OPEC nations, etc. The ultimate attack being a dumping of their U.S. debt holdings and the death of the dollar’s world reserve status.

Of course, an economic “world war” between nations would in itself be a smokescreen for and an even more insidious internal war being waged against the global economy by central banks.

There is a longstanding misconception that central banks always manipulate economic conditions to make them appear “healthy” and that the main concern of central bankers is to “defend the golden goose.” This is false. According to the evidence at hand as well as open admissions by central bankers, these private institutions have throughout history also deliberately created financial crises and collapses.

The question I always get from people new to the field of alternative economics is — “Why would central bankers crash a system they benefit from?” This question is drawn from a flawed understanding of the situation.

First, there is the assumption that economic systems are static rather than fluid. In reality, vast sums of wealth can be transferred into and out of any notion on a whim and at the speed of light. The collapse of one economy or multiple economies does not necessarily include the destruction of banker wealth. Even if wealth was their top goal (which it is not), global banks and central banks do not see any particular economy as a “cash cow” or a “golden goose.” From their behavior and tactics in the past, it is more likely that they see national economies as mere storage containers.

Banks can pour their wealth, which they create from thin air, into one or more of these many available containers. They can circulate that wealth within the container for a time and then pour all their wealth out at a moment’s notice. One container is no more valuable to them than any other container, and sometimes sacrificing a container can be beneficial.

To continue reading: The Fed Has Its Finger On The Button Of A Nuclear Debt Bomb

$21 Trillion And Rising: How Central Banks Are LBOing The World In One Stunning Chart, by Tyler Durden

Six central banks balance sheets sum to more than 40 percent of global GDP. The world has gone far beyond the point where an additional currency unit of debt pays for itself with more than one currency unit of additional GDP. From Tyler Durden at zerohedge.com:

Back in late 2016, we showed the unprecedented domination of capital markets by central banks using a chart from Citi, which had put together a fascinating slideshow asking simply “Where is the utility in marginal QE” and specifically pointing out that the longer unconventional monetary policy such as QE continues, the bigger its marginal cost, until eventually QE becomes a detriment.

A broad criticism of monetary policy, the presentation carried an amusing footnote: “This presentation does not change any of Citi’s existing, published views on the actual future path of monetary policy. It is merely intended as a contribution to the ongoing debate about the efficacy of available policy tools” –  after all, the last thing the market wanted is the realization that even banks no longer have faith in the central planners.

Incidentally, Citi’s broad critique of global QE took place when central banks owned just over $18 trillion in assets.

Fast forward to today when in its latest update of central bank holdings, Citi shows that as of this moment not only has the total increased by another $3 trillion to a grand total of $21 trillion and rising, but that the big six central banks now own over 40% of global GDP, more than double the 17% they held before the financial crisis less than a decade ago.

Which is remarkable in a world where there is still some confusion about what is behind the “global coordinated recovery”, and where there are deluded people who claim that central banks are now out of the picture.

To continue reading: $21 Trillion And Rising: How Central Banks Are LBOing The World In One Stunning Chart

The Worst Threat We Face Is Right Here At Home, by Chris Martenson

The Federal Reserve’s policies have so screwed up both financial markets and the economy that vicious blowback is inevitable. From Chris Martenson at peakprosperity.com:

The Federal Reserve is ruining us

Last week, volatility made a long-overdue return to the US and global equity markets.

It began with a 2-day back-to-back violent drop. Day 3 saw a big rebound, swiftly followed by two more days of gut-wrentching losses. And then finally, last Friday, the day saw massive swings both high and low, ending with a huge upside run.

During this period the S&P 500 lost more than 300 points.  Since then, though, the market has been steadily rising.

Is the danger past?  Are the markets safe once more?

And if so, did the markets recover organically? Or were they rescued by The Plunge Protection Team (PPT)?

The answer matters.

If such intervention was rare we could almost justify it, if it took the form of simple, pre-arranged circuit breakers that shut the market down for a “cooling off” after they’ve moved too far, too fast. Indeed, these already exist, and are sufficient in our view.

But if such market interventions are routine, persistent, and generally depended on by the major market participants, then they’re highly destructive over the long term. 

Sadly, we live with the latter.

Insiders get stinking rich by front-running the scheme (check). Normal adjustments are prevented (check), allowing dangerous bubbles of extreme overvaluation to form (check), while fostering malinvestment (check).

Do this long enough and you end up with a deformed economy, an eroded social structure, and markets that no longer function as appropriate mechanisms for capital distribution and economic signaling. 

This is where we find ourselves today.

Modern-Day Soviet Crop Reports

In the former Soviet Union, the communist method of assuring economic progress was to set targets for production. Famous among them were the crop reports.

In these, year after year, the various regional oblast (province) authorities would declare having met or exceeded the crop targets, despite rarely ever truly doing so.

These crop reports were so famously unreliable that the Kremlin leadership eventually took to obtaining their information from US satellite reconnaissance data rather than their own internal reporting from local Communist Party bosses.

Basing next year’s crop planting decisions on these reports often led to famines, and sometimes even mass starvation of entire regions.

Poor data = Bad decisions.

To continue reading: The Worst Threat We Face Is Right Here At Home