Tag Archives: central bank policies

Bottom’s In—Not! by David Stockman

Posted on February 8, 2018 | Leave a comment

David Stockman doesn’t think this is a good dip to buy. From Stockman at davidstockmanscontracorner.com:

Flush. Rinse. Repeat. BTFD!

Well, you could also give a good whack to the weak hands, burn the over-boughts, call in the sideline cash and get giddy about the fundur…mentals!

After all, the man on bubblevision said nothing has changed since the January 25 high at 2873 on the S&P 500. So there’s that: Another easy peasy 6% gain by just getting back to the trajectory of still another blowout year.

Moreover, having posted nine consecutive such years, one more doesn’t seem that hard to imagine, nor does another successful episode of buying the dip. The chart below documents dozens of that very thing since the March 2009 bottom.

Unfortunately, it also charts an alternate financial universe that is treading hard upon its sell-by date. That is, this is not the work of a capitalist free market in equity securities; it’s the consequence of a $14 trillion bond-buying spree by the Fed and other central banks since the financial crisis.

This tsunami of false liquidity and the accompanying price-keeping operations did drastically suppress interest rates and fuel rampant free-money carry trades. It also fostered the TINA (there is no alternative) trade in stocks and the investor scramble for yield into corporates and junk bonds, which, in turn, triggered massive corporate financial engineering maneuvers.

The latter flushed trillions of buying power into the Wall Street casino, even as it shrunk the supply of equities. Deeper in the casino, short sellers were executed, portfolio hedging became dirt cheap and various exotic forms of structured finance in options and volatility trades ramped the stock indices still higher.

At length, the financial markets and the main street economy became completely decoupled, and that is the true “fundamental” that has not changed in the last two weeks. It’s also the fundamental which guarantees that the Friday-Monday swoon was just a minor warm-up for the main event.

That’s because the economy is getting progressively weaker and longer in the tooth—-even as the central banks pivot away from the massive liquidity injections which inflated and sustained the financial bubble.

Indeed, whatever dip buying that remains will likely be shallow and short-lived. The peak level of central bank liquidity injection at a $2.1 trillion annual rate is already fast sinking toward the flat line, pulled down by the Fed ramping its bond dump-a-thon toward $600 billion per annum and the fast fading ECB’s bond-buying campaign as it glides toward the zero bound by October.

To continue reading: Bottom’s In—Not!

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Is A Massive Stock Market Reversal Upon Us? by Brandon Smith

Posted on February 8, 2018 | 1 comment

If the stock market continues down from here, Brandon Smith will be able to say he’s predicted it for some time. So will David Stockman, Robert Prechter, SLL, and any number of other seers. Smith says it’s the result of a plot by the globalists. Other seers, including SLL, have other explanations. Smith says: “The masses determine their economic optimism  (if they are employed) according to the Dow and the S&P and, to some extent, by official and fraudulent unemployment statistics.” Prechter argues that it’s the exact opposite: social moods of optimism and pessimism determine the Dow and the S & P. See The Socionomic Theory of Finance if you want to know more. Prechter offers a cogent explanation of markets and crowd psychology and has an overall predictive record that’s hard to beat.

From Smith at alt-market.com:

I have been saying it for years and I will say it again here — stocks are the worst possible “predictive” signal for the health of the general economy because they are an extreme trailing indicator. That is to say, when stock markets do finally crash, it is usually after years of negative signs in other more important fundamentals.

Of course, whether we alternative analysts like it or not, the fact of the matter is that the rest of the world is psychologically dependent on the behavior of stock markets. The masses determine their economic optimism  (if they are employed) according to the Dow and the S&P and, to some extent, by official and fraudulent unemployment statistics. When equities start to dive, society takes notice and suddenly becomes concerned about fiscal dangers they should have been worried about all along.

Well, it may have taken a couple months longer than I originally predicted, but it would seem so far that a moment of revelation (that slap in the face I discussed a couple weeks ago) is upon us. In less than a few days, most of the gains in global stocks for 2018 have been erased. The question is, will this end up as a “hiccup” in an otherwise spectacular bull market bubble? Or is this the inevitable death knell and the beginning of the implosion of that bubble?

After I predicted the election of Donald Trump, I also predicted that central banks would begin pulling the plug on life support for equities markets. This did in fact take place with the Fed’s continued program of interest rate increases and the reduction of their balance sheet, which effectively strangles the flow of cheap credit to banking and corporate institutions that fueled stock buybacks for years. Without this constant and ever expansionary easy fiat, there is nothing left to act as a crutch for stocks except perhaps blind faith. And blind faith in the economy always ends up being smacked down by the ugly realities of mathematics.

I believe the latest extraordinary dive in stocks is NOT a “hiccup,” but a sign that “contagion” is still a thing, and also a trailing sign of instability inherent in our fiscal system. Here are some reasons why this trend is likely to continue.

To continue reading: Is A Massive Stock Market Reversal Upon Us?

 

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Is the 9-Year Long Dead Cat Bounce Finally Ending? by Charles Hugh Smith

Posted on February 6, 2018 | Leave a comment

Charles Hugh Smith calls the last nine years in financial market just a dead cat bounce, because fundamentally nothing has been fixed. SLL is not arguing with him. From Smith at oftwominds.com:

Ignoring or downplaying these fundamental forces has greatly increased the fragility of the status quo.
The term dead cat bounce is market lingo for a “recovery” after markets decline due to fundamental reversals. Markets tend to bounce back after sharp declines as participants (human and digital) who have been trained to “buy the dips” once again buy the decline, and the financial media rushes to reassure everyone that nothing has actually changed, everything is still peachy-keen wonderfulness.
I submit that the past 9 years of market “recovery” is nothing but an oversized dead cat bounce that is finally ending. Here is a chart that depicts the final blow-off top phase of the over-extended dead cat bounce:
Why are the past 9 years nothing but an extended dead cat bounce? Nothing that’s fundamentally broken has been fixed, and none of the dynamics that are undermining the status quo have been addressed.
The past 9 years have been one long dead cat bounce of extend and pretend, i.e. do more of what’s failed because to even admit the status quo is being undermined by fundamental forces would panic those gorging at the trough of the status quo’s lopsided rewards.
This 9-year dead cat bounce was pure speculation driven by cheap central bank credit and liquidity. Demographics, environmental degradation, the decline of middle class security, the erosion of paid work, the bankruptcy of public and private pension plans, the global debt bubble, soaring wealth and income inequality, the corruption of democracy into a pay-to-play bidding war, the destruction of price discovery via market manipulation by those who have turned markets into signaling devices that all is well, the laughable distortion of statistics to mask the real world decline in our purchasing power (inflation is near-zero–really really really), the perverse incentives to leverage up bets in financial instruments that have no connection to the real-world economy–none of these have been addressed in the market melt-up.

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Two Elephants In The Room That The GOP Has Completely Forgotten, by David Stockman

Posted on February 4, 2018 | 1 comment

The elephant party is ignoring two elephants in the room: the central bank’s policies and debt. From David Stockman at davidstockmanscontracorner.com:

The US economy is threatened by two giant problems which cause all others to pale into insignificance. We are referring to a rogue central bank that has become an absolute enemy of capitalist prosperity and a fiscal doomsday machine that is hostage to the ceaseless budgetary demands of the Warfare State, the Welfare State and the Baby Boom’s demographic imperatives.

Needless to say, both ends of the Acela Corridor are completely oblivious to these twin menaces. Indeed, they are the proverbial elephants in the room, thereby giving rise to a considerable irony: To wit, the GOP party of the elephant, which is supposed to be the palladium of financial rectitude in American politics, has forgotten about them completely.

For instance, in his triumphalist SOTU, the Donald didn’t utter so much as a single syllable about the Fed, the budget, entitlements, the $1 trillion per year deficits looming ahead or the nation’s soaring public debt.  Yet after omitting virtually everything which counts, he went on to crow about how he is making America Great Again (MAGA) by making better trade deals and borrowing untold sums from future generations.

That is to say, when he did veer into fiscal territory it was to demand repeal of the sequester caps, which are the one thing that has slightly braked runaway spending, and to boast about his own favorite deficit financed twins: The $1.5 trillion tax cut already passed and the additional $1.5 trillion infrastructure boondoggle he proposed to lob on top.

Oh, and there was also his $33 billion Mexican Wall, 5,000 new border patrol agents (in  addition to 20,000 already) and Federalization of two purported crises—the opioid epidemic and gangs like MS-13—-which should be a matter for local government, if the latter have any purpose at all.

As to the Wall Street end of the corridor, we got a good reminder of that during our appearance on Bloomberg TV last evening. The host objected to our fiscal warnings on the grounds that these threatened CR (continuing resolution) showdowns and debt ceiling crises arise episodically, but after a lot of partisan fire and brimstone they always get resolved.

The implication was that the fiscal file embodies just a messy process equation, but the pols eventually and reluctantly do their jobs. Accordingly, Wall Street’s cynicism about the matter is understandable and justified as in: Nothing to see here. Move along!

To continue reading: Two Elephants In The Room That The GOP Has Completely Forgotten

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The Next Maestro, by Michael Lebowitz

Posted on February 1, 2018 | 1 comment

There was a time when most people didn’t know who the Chairman of the Federal Reserve was. From Michael Lebowitz at realinvestmentadvice.com:

The following article emphasizes that the perceived economic prosperity of recent decades is largely the result of political expediency. Those in charge of monetary policy have repetitively failed to act in the best interests of the public in an effort to either avoid criticism or preserve their individual status. While often ignored, this dynamic is crucial to understand to form longer term expectations for asset prices.

“I’m making records, my fans they can’t wait

They write me letters, tell me I’m great” – Joe Walsh

The modern day printing of digital dollars from thin air, literally from nothing, brings to mind a Latin phrase “ex nihilo, nihil fit” which means out of nothing, nothing comes. If that statement is true, and a moment of reflection surely produces the logical conclusion that it is true, then what do central bankers hope to accomplish by means of conjuring currency from, well, nothing? What does it further say about setting interest rates at less than nothing? If nothing can come from nothing then there is no solution in the idea that by printing dollars and inflating asset prices you can create something (a durable organic recovery). Although the net result for the economy will be nothing, the net result of those actions for individuals appears to be a redistribution of wealth in the economy. In the end, it becomes clear that the purpose of and reason for the exercise is not the good of the general public but rather advocacy of large financial institutions, political expediency and hubris. If that were not the case, then why would the Federal Reserve need to hire a veteran lobbyist (former Enron and Clinton administration employee) in navigating the use of their powers in the months following the financial crisis?

Hilltop Houses and Fifteen Cars

There is something god-like in the idea of creating something out of nothing – especially money – which fits with the progression of status among Federal Reserve (Fed) members. The idea that their stature and judgement is beyond reproach has been in play for some time.

To continue reading; The Next Maestro

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Forget Stocks, Look At EU Bonds – They Are The Real Problem, by Tom Luongo

Posted on January 31, 2018 | Leave a comment

European bonds may be the biggest central bank-blown bubble in the world. From Tom Luongo at tomluongo.me:

I’ve been banging on for months along with Martin Armstrong that the real problemoverhanging these markets is not an over-priced U.S. equity market.  That’s a sympton of a much bigger problem.

The real problem is an over-valued European sovereign bond market.

Looking at today’s bond market we see technical breakouts on yields to the upside across the continent.  And we’re not talking the usual suspects here, like Italy, Portugal or Greece.

No, we’re talking about Germany.

bunds

Note the cluster of resistance at 0.5%.  The market rejected taking yields on German 10 year debt above that level no less than six times in the past fifteen months.

Today, yields are at 0.685% and tomorrow is the end of the month.  Looks like we’re going to get a major bearish signal in German debt tomorrow.

While all the headlines are agog with stories about the Dow Jones dropping a couple hundreds points off an all-time high, German bunds are getting killed right before our eyes.

The Dow is simply a market overdue for a meaningful correction in a primary bull market.  And it’s a primary bull market brought on by a slow-moving sovereign debt crisis that will engulf Europe.

It’s not the end of the story.  Hell, the Dow isn’t even a major character in the story.

In fact, similar stories are being written in French 10 year debt, Dutch 10 year debt, and Swiss 10 year debt. These are the safe-havens in the European sovereign debt markets.

Meanwhile, Italian 10 year debt?  Still range-bound.  Portuguese 10 year debt?  Near all-time high prices.  The same this is there with Spain’s debt.  All volatility stamped out.

Why?

Simple.  The ECB.

To continue reading: Forget Stocks, Look At EU Bonds – They Are The Real Problem

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Central Banks: From Coordination to Competition, by Charles Hugh Smith

Posted on January 22, 2018 | Leave a comment

When all the world’s major central banks are spiking the punch, everyone’s happy. Things will get much tenser as they all start taking away the punch bowls. From Charles Hugh Smith at charleshughsmith.blogspot.com:

This is one reason why I anticipate “unexpected” disruptions in the global economy in 2018.
The mere mention of “central banks” will likely turn off many readers who understandably have little interest in convoluted policies and arcane mumbo-jumbo, but bear with me for a few paragraphs while I make the case for something to happen in 2018 that will impact us all to some degree.
That something is the decay of the synchronized central bank stimulus policies that have pumped trillions of dollars, yuan, yen and euros into the global financial markets over the past nine years. Here are two charts that depict the “tag team” coordinated approach central banks have deployed: when one CB tapers its stimulus, another ramps up its money-creation/asset-purchases stimulus:
The balance sheets of all the primary central banks added together is astronomical:
This team effort is motivated by self-interest, of course; no one central bank can reflate the entire global economy, and yet that is the only way to reflate each nation/bloc’s own economy, given the global connectedness of the modern economy.
But the threads of mutual self-interest are fraying. At this late stage in the credit cycle, the central banks must begin “tapering”, i.e. diminishing and then ending their stimulus policies and eventually reducing their balance sheets by selling assets they bought in the stimulus phase (or simply stop replacing bonds they own that mature).
The Federal Reserve was first out of the gate in launching quasi-unlimited bond purchases, and it was the first central bank to cease stimulus (quantitative easing) and raise interest rates. It has now signaled that it will begin selling assets (i.e. stop replacing bonds that mature).

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