by ilene - July 23rd, 2014 3:49 pm
Courtesy of Lance Roberts of STA Wealth Management
Paul LaMonica, whom I have spoken with several times, recently wrote a piece for CNN Money entitled "5 Reasons Why The Market Won't Crash." Because investors often fall prey to cognitive biases that obfuscate rising investment risks, I am particularly fond of articles such as Paul's, as they allow us to look at both sides of the investment argument.
So, while I do not disagree with Paul's arguments for a continued bull market, I will provide the counter-points.
[Disclosure: As a money manager my portfolio models are fully allocated to the markets currently. However, it is less important for me to understand why the markets will continue to rise, as I am already allocated to equity risk, than to know what could potentially subtract a significant portion of my client's capital. Getting back to "even" is not a great long-term investment strategy.]
"What if I told you this is only the beginning of a great run for stocks which may last another dozen years? And that while the bull may be aging, it's — like Jake LaMotta — still raging?" – Paul LaMonica, CNN Money
1) No Recession In Sight.
Bear markets often occur around the same time as severe economic downturns. The 2008 credit crisis. The 2001 recession following the dot-com meltdown. The oil shock of the mid-1970s.
There aren't any signs pointing to a recession now. The U.S. economy has pretty much plodded along for the past four years. Yes, it's a frustratingly weak recovery. I've called it the low and slow barbecue recovery since 2010. But it's still a recovery.
While major market corrections tend to coincide with recessions, recessions are never been identified in advance, not even by National Bureau of Economic Research which is the agency that dates the start and end of recessions. This is due in part to a) Building optimism (particularly in sentiment survey's such as the Fed regional manufacturing surveys) that tends to run ahead of underlying economic realities, and b) The heavy revisions to past data.
For example, in December of 2007, I wrote:
"We are either in, or about to
by ilene - July 23rd, 2014 3:25 pm
Courtesy of John Rubino.
The old Dickens quote “It was the best of times, it was the worst of times” is pretty much always applicable to a world as big and complex as this one. But lately, as the disparity between financial markets (best of times) and geopolitics (worst) has grown to almost comical proportions, Dickens has been sounding even more apropos than usual. To take just a few “worst of times” examples:
- Palestinians are shooting rockets at Israel, which is responding with a full-scale invasion that will end up killing many hundreds, including an appalling number of kids.
- A coalition of Islamic radical groups called Islamic State for Iraq and Syria (ISIS) is grinding towards Iraq’s capital, home of the small city that is the US embassy. What we’ll do should it be taken is anybody’s guess, but odds are it won’t be pretty. Meanwhile, Iraq’s Christians are the largely-unnoticed victims of the fundamentalist resurgence.
- Someone using advanced anti-aircraft missiles shot down a civilian passenger jet over Ukraine, and Russia, Europe and the US are making all kinds of threats and counter-threats as they try to apportion blame. There are an awful lot of soldiers in a small space, and the press is now full of “Archduke Ferdinand moment” kinds of analysis.
Meanwhile, global growth isn’t looking so hot. See World GDP Hopes Are Collapsing, which comes with this dramatic chart:
Now, contrast this dark vision with the financial markets, where the picture has literally never been brighter. The US on Wednesday July 23: Stocks mostly higher; S&P 500 in record territory.
And that’s the tame part of the equities world. Emerging market stocks are absolutely soaring. See: EMERGING MARKETS-Indonesia, Russia gains push emerging stocks to new 17-mth high.
So what’s happening? One would think that rational investors would be cautious about buying volatile assets like stocks when there are so many geopolitical landmines just waiting to blow up — and when global growth is failing miserably to meet economist expectations. Instead they’re buying with abandon.
One possible explanation is that the world’s major economies continue to flood the financial system with credit which has to go somewhere. And with bonds yielding next to nothing, equities (and real assets like San Francisco houses and fine…
by ilene - July 23rd, 2014 3:16 pm
Anatoly Shary, the Ukrainian citizen who started the "312" Investigation (see Ukraine Caught in Third Major Lie? Magic Number 312) has a 1 minute 44 second video update in which he claims to know when and where Kiev made that bogus claim.
Link if Video Does not Play click here.
Captions in English
"Each conscious citizen must help the security service of his country. I finally decided to help, once and for all, the Security Service of Ukraine to fins the Buk that, according to the SSU, was moved towards the Russian border, and the fact of its movement became the proof of its Russian origin. The photo of the Buk was published not by me, but by the SSU on its official site. This proof was presented by the SSU even to some [sentence incomplete]. So the photo was made from a video, and the video was filmed at Yasinovataya traffic police checkpoint on March 17. Moreover, I'm so ready to help the Security Service of Ukraine, that will reveal a license plate number of a vehicle, which helped the Buk be transported. The license plate number is AE4483HE. [intense sarcasm coming up] Now I'm awaiting a reward from the Security Service of Ukraine for the fact that I helped expose the Russian spies."
The video concludes "In order not to be trapped in a bottleneck, you should stop lying".
This morning at 10:27 RT posted nearly the same collection of material I posted far earlier at 2:51AM (see link at the top).
More intense sarcasm coming up …
As proof I am a Russian spy, paid for and owned by RT, I present Bogus photos of ‘Russian’ air-defense systems in Ukraine debunked by bloggers.
By the way, my real name is not Mish but Misha, and I await a big deposit of rubles as my reward.
by ilene - July 23rd, 2014 3:04 pm
Courtesy of Charles Hugh-Smith of OfTwoMinds
Just as the Federal Reserve cannot directly force you to stick the needle of monetary heroin (debt) into your arm, it also can't force employers to pay employees more.
The official policy of the Central Bank (Federal Reserve)/government is: inflation is necessary for "growth," i.e. economic expansion. The unstated reason for this official support of inflation is that it's easier for borrowers to service their debts as their income inflates.
To take an extreme example: let's say a homeowner has a mortgage of $100,000, an annual wage of $40,000 and annual mortgage payments of $10,000. At 100% annual inflation in both prices and wages, the home mortgage remains fixed at $100,000, the payment remains fixed at $10,000 but his earnings double to $80,000.
Where the mortgage payment initially took 25% of his earnings, now it only takes 12.5%. Yippee Skippy, the homeowner has an "extra" 12.5% of his earnings to support more consumption and debt: thanks to inflation, the homeowner can now buy a car on credit and use the "extra" 12.5% of earnings to pay the auto loan.
Central banks around the world seek inflation for another reason: the Keynesian Cargo Cult that dominates all central banks and governments believes with quasi-religious certainty that people respond to inflation by buying more stuff now rather than later: since prices will rise in the future, it makes sense to buy stuff now at "lower prices compared to next year's prices."
This is called bringing demand forward, as the demand to buy stuff is shifted from the future to the present.
In an economy dependent on debt-based consumption, inflation is absolutely essential to reduce the real costs of servicing old debts so households can afford to buy more stuff on credit. This is the basis of the Fed's insistence that inflation is equivalent to "growth"--inflation enables households to continue adding more debt to buy more stuff, as long as earnings inflate along with prices.
There are three problems with the Fed's "inflation is growth" scenario:
1. Earned income (wages and salaries) don't inflate along with prices
2. Rising inflation and low interest rates crimp lender profits and increase risks
3. Bringing demand forward exhausts households' ability to fund additional consumption with debt.
by ilene - July 23rd, 2014 11:34 am
Courtesy of Larry Doyle
In late April I had the good fortune to speak to a packed house about my book In Bed with Wall Street at the Boston Public Library, the third largest library — and one of the oldest — in our nation. In early June I was pleased to regale a filled room at the Library of Congress, the largest library in the world, about the exploits and escapades of those ‘in bed with Wall Street.’
Thursday July 31 at 6pm
New York Public Library: Science, Industry, and Business Branch
188 Madison Avenue (at 34th Street)
I am pleased that there have been some selected recent initiatives and statements made that address topics I highlight in the book. That said, the culture of regulatory capture, what some might define as ‘legal corruption’, and illegal corruption as well remains rife with a host of ugly and unsavory activities that have little to do with promoting and protecting the public interest. I welcome bringing real transparency to an incestuous Wall Street-Washington culture that badly needs it.
I hope those in and around New York City next Thursday evening can join me for this talk. Bring a friend or a colleague and rest assured I will not be bashful in pulling back the blanket, naming names, and a whole lot more.
Documents Emerge in Senate Hearing from William Broeksmit, Deutsche Exec Alleged to Have Hanged Himself in January
by ilene - July 23rd, 2014 10:40 am
Courtesy of Pam Martens.
Anshu Jain, Co-CEO of Deutsche Bank, was not having a good day yesterday. First the oath-taking, subpoena-issuing Senate Permanent Subcommittee on Investigations released a detailed email to him from William Broeksmit, the 58-year old former Deutsche risk executive alleged to have hanged himself in his London home on January 26. By the end of the day, someone had leaked to the Wall Street Journal a deeply critical letter of Deutsche Bank from the New York Fed which said that “The size and breadth of errors strongly suggest that the firm’s entire U.S. regulatory reporting structure requires wide-ranging remedial action.”
What the U.S. Senate’s Permanent Subcommittee on Investigations was taking testimony on yesterday, however, was far from an “error” committed by Deutsche Bank. Both Deutsche Bank and Barclays were shown, through emails, marketing materials and witness testimony, to have set up elaborate schemes to effectively loan out their balance sheet to hedge funds to conduct billions of trades each year in trading accounts under the bank’s name, deploying massive leverage that is illegal in a regular Prime Brokerage account for a hedge fund client.
The banks got paid through margin interest, fees for stock loans for short sales, and trade executions. The hedge funds got paid not only from trading profits but also through a tricked up “basket option” offered by the banks that magically turned millions of short-term trades into long-term capital gains, saving the hedge funds about half the rate of taxes owed on the short-term trades, some of which lasted only minutes.
One hedge fund, Renaissance Technologies, was said by Senator John McCain to have ripped off the U.S. taxpayer to the tune of $6 billion in unpaid taxes on long-term capital gains.
Broeksmit’s name first emerged in yesterday’s Senate hearing as Senator Carl Levin, Chair of the Subcommittee, was questioning Satish Ramakrishna, the Global Head of Risk and Pricing for Global Prime Finance at Deutsche Bank Securities in New York. Ramakrishna was downplaying his knowledge of conversations about how the scheme was about changing short term gains into long term gains, denying that he had been privy to any conversations on the matter.
by ilene - July 23rd, 2014 9:55 am
Courtesy of Larry Doyle.
I am honored and humbled to read a message that was recently widely disseminated to FINRA member firms. The full body of the e-mail is an endorsement by Lieutenant Colonel Elton Johnson Jr. of Karen Fischer, a candidate for a position on the FINRA Board of Governors. Johnson prefaces his endorsement of Ms. Fischer by writing:
My name is Elton Johnson, Jr. I am an Iraq-Afghanistan war vet having served two tours in Iraq and one tour in Afghanistan and a small broker-dealer owner who took FINRA to task to provide more meaningful transparency.
Much of my story is prominently detailed in the book “In Bed With Wall Street” written by Larry Doyle which I would strongly recommend to EVERY FINRA member (Mr. Doyle was introduced to me by Karen Fischer).
I am sure that many of you will remember that in 2010, with overwhelming membership support, I presented to the Board, seven (7) Initiatives calling for Truth, Transparency, and Accountability. ALL of these proxy proposals passed with overwhelming support from the membership. Unfortunately, the FINRA Board ignored the mandate of its members and did not grant even one of the reforms as proposed.
I am truly grateful to receive such a ringing endorsement of my book by one who is literally and figuratively ‘in the trenches.’ Dare I say, if I were in a foxhole I would want to be right next to Lt. Colonel Elton Johnson.
I thank him and all those who serve and protect our nation. Many in Washington, on Wall Street, and especially in the leadership positions of our respective financial regulators would do very well to embrace the virtues espoused by the lieutenant colonel.
I salute him.
by ilene - July 23rd, 2014 3:51 am
Courtesy of Mish.
I have strong evidence from Ukrainian citizen Anatoly Shary that Kiev is caught in a third major lie regarding Buk deployment.
It takes a while to go over the evidence, condensed below, all having to do with the number 312 painted on a missile launcher.
Follow the Number
On March 8, Censor.Net, a Ukrainian Nationalist cite, says “Ukraine Defends Donetsk From Russian Incursion: ‘Buk’ Air Defense Rocket Systems Are Taking Up Positions. PHOTO + VIDEO”
The sub-headline reads: “A resident of Gorlovka, driving to work in Soledar, came across an entire convoy of military equipment. …My coworkers and I counted 11 missile launchers …”
Image Posted on Censor
I captured the entire page for posterity just in case someone needs it.
Here is a video posted on the same page.
I stopped the video precisely at the 37 second mark. This is what I saw:
by ilene - July 22nd, 2014 8:54 pm
Courtesy of Mish.
Earlier today, and several times recently, I received emails accusing me of being a Russian spy and asking me how much I was receiving from RT. I find such accusations highly amusing.
Here's the deal: Few bloggers are willing to discuss MH17 for fear of getting it wrong. Whereas I suspect nearly everything, but especially reports coming from Kiev and the US. My reasons are threefold:
- There are more questions surrounding Kiev and US reports than Russian reports.
- Kiev has been caught twice in lies and distortions
- While neither US nor Russia is unbiased, the extremely one-sided, jump-to-conclusion reporting from Western media suggests close consideration of competing versions of stories is warranted.
No Perry Mason Moment
A few hours ago The Guardian reported US Intelligence: Rebels Likely Shot Down Plane 'By Mistake'.
The Huffington Post has more details in U.S. Officials: No Evidence Of Direct Russian Link To Malaysia Plane Crash.
Senior U.S. intelligence officials said Tuesday that Russia was responsible for "creating the conditions" that led to the shooting down of Malaysia Airlines Flight 17, but they offered no evidence of direct Russian government involvement.
The intelligence officials were cautious in their assessment, noting that while the Russians have been arming separatists in eastern Ukraine, the U.S. had no direct evidence that the missile used to shoot down the passenger jet came from Russia.
The officials briefed reporters Tuesday under ground rules that their names not be used in discussing intelligence related to last week's air disaster, which killed 298 people.
The plane was likely shot down by an SA-11 surface-to-air missile fired by Russian-backed separatists in eastern Ukraine, the intelligence officials said, citing intercepts, satellite photos and social media postings by separatists, some of which have been authenticated by U.S. experts.
But the officials said they did not know who fired the missile or whether any Russian operatives were present at the missile launch. They were not certain that the missile crew was trained in Russia, although they described a stepped-up campaign in recent weeks by Russia to arm and train the rebels, which they say has continued even after the downing of the commercial jetliner.
In terms of
by ilene - July 22nd, 2014 8:02 pm
Courtesy of David Stockman via Contra Corner
Professor Krugman is at it again—–conjuring fairy tales about a benign long-term fiscal outlook. Notwithstanding that the public debt has surged from 40% to 75% of GDP during the six short years since 2008, he claims there is no reason to fret and that there is no debt spiral anywhere in the future. In part that’s because the Keynesian priesthood has declared that interest rates have down-shifted on a permanent basis. CBO has therefore dutifully incorporated this assumption into its long-term projections:
This (interest rate) markdown has the effect of making the budget outlook — which was already a lot less dire than conventional wisdom has it — look even less dire. But there’s a further point worth emphasizing: the CBO has just declared an end to the debt spiral.
Even accepting CBO’s “rosy scenario” outlook (see below), it’s not evident that it has declared an end to the debt spiral. In fact, it projects publicly-held treasury debt to soar from $12 trillion today to about $52 trillion by 2039. Most people would judge that a spiral. Indeed, as shown in the CBO graph below based on “current policy”, the public debt ratio is heading sharply upwards to more than 100% of GDP.
So how does professor Krugman turn this dismal chart into an “all clear” reassurance–when it actually shows public debt heading to above WWII levels at a time when the baby boom is at peak retirement? Well, it seems that Krugman unearthed two numbers in a 182 page report that purportedly render harmless the $52 trillion of bonds, notes and bills that CBO projects will need to find a home at the historically low interest rates it forecasts for the next 25 years.
So we turn to Table A-1 on page 104 of the CBO report, and we learn that for the next 25 years CBO projects an average interest rate on federal debt of 4.1 percent and an average growth rate of nominal GDP of 4.3 percent. And this means no debt spiral at all.
A GDP growth rate higher than the average carry cost of the public debt sounds all good, but here’s the thing. Given outcomes during the 21st century to date, there is simply no plausible reason to believe that nominal GDP can grow at a 4.3% CAGR for the next 25 years. In fact, since the…