Comment by Phil

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Phil
June 30th, 2014 at 7:34 am

Good morning!  

Cash, Cash, CASH!!!! is what I'm feeling today.  I'm sorry but, the more I read, the more I worry.  I know the solution is to stop reading or drink more but, as a responsible adult with two teenage girls, I'm worried!  

It's the EOQ and maybe we'll drift in here in a very low-volume holiday week but the macro news just gets worse and worse:

Central Banks Face Bumpy Road to Normalization, BIS Says. Central banks shouldn’t procrastinate and must be ready for a rough ride as they exit emergency policy measures, the Bank for International Settlements said. “It will be difficult to ensure a smooth normalization,” the BIS said in its annual report released today. “The prospects for a bumpy exit together with other factors suggest that the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly.”

Central Bankers Who Bemoan Low Volatility Share Blame, BIS Says. Central bank policy makers have expressed concern this year that low market volatility is masking future risks. In fact, they’re helping cause the issue they bemoan, the Bank for International Settlements said. Record-low interest rates and unconventional monetary easing by the Federal Reserve, European Central Bank and the Bank of Japan reduced price swings across markets, the BIS wrote in its annual report published today. That’s prompted investors to take greater risks to maintain returns, even amid an uncertain global recovery, according to the BIS, which that acts as a central bank for the world’s monetary authorities. ?

How The Fed Distorts Everything

Axel Merk: The Fed's Next Move? "If You're Not Concerned, You're Not Paying Attention"

Hedge fund correlation risk alarms investors. The industry’s correlation with equity markets rose sharply in the two years leading up to the financial crisis.

 

The Truth About First Quarter S&P 500 Earnings  – A change to pension accounting, which helped "revise" US GDP by $500 billion higher, said revision also flowed through to reported corporate earnings, not just non-GAAP EPS but also GAAP, and EPS for the S&P500 were revised retroactively higher virtually uniformly by about $1.5 per quarter.  In other words, had it not been for the pension accounting fudge which helped raise LTM S&P 500 GAAP EPS from $100 to $106, the P/E of the S&P would be nearly 20x as of Q1. 



Q2 Economic "Hope" Misses The Point

ECB Rates Allow Zombie Loans to Stymie Credit, BIS Says. Loose monetary policy makes it easy for euro-area banks to keep bad debt on their books, potentially delaying the flushing out of sour loans, the Bank for International Settlements said in its annual report. The European Central Bank’s record low interest rates and ample liquidity have boosted banks’ lending margins, allowing them to gloss over losses in their business, the Basel, Switzerland-based BIS said in the report, released today. That’s what makes it so crucial to find other means to fix banks’ balance sheets, such as the ECB’s asset-quality review, it said.

Europe's Fragile Recovery Is Stalling As Germany Sputters

Slowing China Economy Dims Profit Outlook to 2012 Low. The most-actively traded Chinese companies in the U.S. are on pace to report the smallest profits in two years as growth in the world’s second-largest economy decelerates to the slowest since 1990. Analysts covering stocks listed on the Bloomberg China-US Equity Index (HSCEI) estimate that on average they will post earnings of $5.64 per share this year, which would be the lowest profits reported since 2012, data compiled by Bloomberg show. They’ve cut revenue forecasts by 7.9 percent in the past 11 weeks. 

China's Crackdown On Corruption May Now Be Weighing On Growth

Hong Kong’s China debt trap. Opinion: Are the city’s banks getting too cozy with mainland Chinese finance.

 

Kuroda Optimism Questioned as Price Outlook Drops. Bank of Japan Governor Haruhiko Kuroda says inflation will get back on track toward his target after a slowdown in the summer. Bond traders are skeptical. The market for inflation-linked debt shows expectations for annual consumer-price increases of 1.25 percent over 10 years, the lowest outlook since April 1 and compared with the BOJ’s goal of 2 percent, according to the so-called break-even rate. The gauge has retreated from as high as 1.39 percent on June 3 as data showed slumping household spending, falling wages and slowing exports. The equivalent U.S. rate was 2.25 percent.

USDJPY Nears 2014 Lows As Goldman Warns Economic "Downside Risks Are High"

BofA(BAC) Fears The End Of 'The Japan Trade'

Goldman(GS) Warns Political Risks Are Set To Surge

BIS Damps $2 Trillion Emerging Market Company Debt Spree. More than $2 trillion of foreign borrowing by emerging-market companies since 2008 is leaving them vulnerable to a sudden drop in funding at the first sign of trouble, according to the Bank for International Settlements. Bond investors willing to lend generously when conditions are good can pull out in a crisis or when central banks tighten monetary policy, analysts led by Claudio Borio, head of the monetary and economic department, wrote in the BIS annual report. Emerging-market companies that lose access to external debt markets may then be forced to withdraw bank deposits, depriving domestic lenders of funding as well, they said. ?



Home-Bias Risk Identified by BIS in Bond Regulations. National supervisors may be encouraging domestic banks to buy their own governments’ bonds because the regulators are able to specify how risky the assets are, the Bank for International Settlements said. Financial institutions in Ireland, Portugal and Spain may be benefiting from a home bias that lowers the amount of capital they need to put aside to compensate for risks tied to the assets they hold, the BIS said in its annual report today. The trend is less evident in Austria, Britain and France, it said.

The Sectarian Genie Is Out Of The Bottle From Syria to Iraq

Fear Thaws Out for Investors as Online Brokers Defy Funk. With U.S. stocks stuck in the sleepiest funk since the dawn of the Internet, one group is waking up: online and discount brokers.

A Recovery Stymied by Redistribution. Public policy intended to make layoffs less painful actually made layoffs cheaper and more common. ?

Let's Take A Look At The Latest NYSE Margin Debt Data In Historical Context:



 

Standard of living costs for families rise five times more than earnings since before recession, figures show. A couple with two children would now need just under £40,600 between them to afford a decent lifestyle, study finds.

Martin Armstrong Warns Civil Unrest Is Rising Everywhere: "This Won't End Pretty"

Even The Editor Of Facebook's Mood Study Thought It Was Creepy

As I've said before – this is not the kind of news we should be reading at all-time market highs.  There are gross distortions in the markets being created by Central Bank policies and those policies rely on people's faith in their ability to produce endless supplies of fiat currency without drastically devaluing faith in the currency.  To some extent, the fact that people no longer understand the monetary system works to their advantage but it also means that those same people can completely lose faith for uncontrolled reasons at some undetermined point and they would have a very hard time restoring that faith.

Remember I said we'll see the signs when other countries begin to have crises.  Well, here's #1 on our hit parade:

1. Bulgarian bank run paves the way to early election

   EurActiv ‎- 4 hours ago

   Bulgaria's leaders have asked citizens not to panic and withdraw their savings when banks reopen today (30 June), following runs on two …

    

   Second Bulgarian Bank Hit by Run on Deposits

   Wall Street Journal‎ – 2 days ago

   EC steps in after Bulgarian bank run

   Telegraph.co.uk‎ – 42 minutes ago

This is how Iceland started 7 years ago and, when nothing really bad happened right after it, people said "see, it's just an isolated incident" and they bought even more equities because they were "bullet-proof."  

1. China Forestry joins debt default queue

   South China Morning Post (blog) ‎- 4 days ago

   The list of Chinese companies defaulting on their bonds continues to grow, with word that timber firm China Forestry Holdings (0930.HK) has …

1. Property trusts in China facing default pressure

   WantChinaTimes‎ – 1 day ago

2. China Ting Says Borrowers Default on Entrusted Loans

   Bloomberg‎ – 6 days ago

Unfortunately, you have to dig for this stuff because the MSM either buries it or doesn't report it at all.  The Billionaires that own your media do not want you to sell before they are done selling and they certainly don't want their own stock holdings to go lower and the Government pressures them anyway to bury the bad news.  

• In wealthy Chinese city, debt guarantees spark default …
  

  www.reuters.com/…/us-china-debt-idUSBREA3Q0OK20140427

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  Reuters

   

  Apr 27, 2014 – SHANGHAI (Reuters) – A network of loan guarantees set up to improve companies' access to credit in one of China's richest districts is creating …

You would think this stuff would be discussed – you would think it would be on the cover of magazines you are reading but it's not – it's as if none of this is happening.



Click on the image and read the front page of the WSJ.  Their reporters have access to the same news we do and their editors get to decide what's important enough to make their front page.  This is the "financial" paper half the investing World relies on!

Anyway, so happy Monday to you, let's just be careful out there and PLEASE make sure you have an exit strategy – that's all I'm trying to say…