Tag Archives: central banks

Global Intervention; The Death of ‘All Men are Created Equal’

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“Greater love has no one than this, than to lay down one’s life for his friends” – Jesus Christ, 1st century AD, John 15:13 [NKJV]

It has been a month now since Hurricane Harvey hit the southern part of Texas, dropping more rain than any storm on record in the U.S. The size and scope are unfathomable when we consider so much change in such a brief time.

15 Trillion Gallons: Putting the Rainfall Total From Hurricane Harvey Into Perspective. Fox 26 Houston, Aug 30 ‘17

 

Harvey and Irma Economic Hit Could Total $200 Billion: Moody’s, CNBC, Sept 11 ‘17

Yet in the midst of such devastation, we saw acts of kindness, courage, and sacrifice from average Americans.

Yet another storm has been building for years. The numbers it has produced are staggering. Many have benefited; many have not. However, this storm differs from Harvey and Irma. As this storm has grown, we have been told that we were in recovery, yet like a Hurricane, if we track the storm, we see it has been building in strength, not diminishing.

Let me take one factor in this storm.

Since the $700 billion bailout announced 9 years ago in September 2008 to solve the worst crisis since the Great Depression, we have watched an ongoing deluge of “financial rain” (or debt to buy up financial assets). As I write this in September 2017, the global total of this ongoing “temporary assistance” for financial markets is already over 15 times the original US bailout the world heard in September 2008.

One side effect from the storm that has been building over the last decade, is that it has produced the widest financial inequalities between the top 1% and bottom 90% of any decade in American history.

According to an NY Times article, Our Broken Economy in One Simple Chart (Aug 7 ’17), when I was leaving college in the early 1980s, the middle class and poor were seeing their take home paychecks rise faster than those in the top 1%. By 2014, the torrent of debt to inflate financial assets had flipped income growth on its head; the bottom 90% were declining while only the tiniest of percentages at the top saw their incomes leaping.

In the last decade, the huge gap has not between the upper middle class and the middle class, but between the middle class and the group that make up less than 1/100th of the population.

Has history always shown that the number at the top is small and the number at the bottom is large? Yes. However, never has the wealth of the world depended on so much debt created in this short of a period!

The chart below from the Wall Street Journal is another view of the enormous income disparity that has developed since the “recovery”….and as the chart states, these numbers are now 5 years old, so the widening is even greater in 2017.

So I ask you, have the financial policies followed by the major central banks since 2008 encouraged the idea that all men are created equal?

This short post should not lead one to label the writer as a Democrat or Republican or a Liberal or Conservative, but merely a human being looking at his nation and world and asking questions from the data.

The most powerful force that has elevated the super rich far beyond the rest of the population, whether national or global, has been the Quantitative Easing model followed by central banks. Repeatedly since 2008 we were told this explosion of debt out of thin air, was an attempt to push inflation (prices) higher.

Central banks contributed $7 trillion to BUY ASSETS (chief recipient of the inflation) across the world between 2011 and 2016. YTD an additional $2 trillion has poured into the global financial system to continue this scheme. Keynesian central planning economists call this “the wealth effect”.

BofA: $2 Trillion YTD in Central Bank Liquidity is Why Stocks Are at Record Highs, Zero Hedge, Sept 15 ‘17

But has all this debt, funneled into financial markets producing the second longest bull market in US history, produced rising wages, leading to more spending, or have debt levels increased as wages have declined since 2009?

Wall Street Hits Record Highs, S&P 500 Pierces 2500, Reuters, Sept 15 ’17

 

Consumer Debt is At a Record High, Haven’t We Learned?, Washington Post, Aug 12 ’17

How can a nation believe “all men are created equal” when month after month their stock markets produce all time highs, yet their economy produces all time highs in the number of Americans out of the workforce?

Yes millions are retired, but with 97 million Americans living paycheck to paycheck, and adults between the working ages of 15 and 64 at 205 million, one can not conclude that overall, the American society is fiscally better off today than when we were lead to believe a $700 billion bailout was enough.

Bush signs $700,000 Financial Bailout Bill, NPR, Oct 10 ’08

Five years after the S&P 500 bottom in October 2002, the public saw that $8 trillion in stock market wealth had been created. 13 months later, the entire $8 trillion was gone.

Since March 2009, we have seen US stock wealth climb $19.2 trillion as of September 20, 2017. We can see from the chart below, 5 of the central banks in the world have grown their balance sheets over $11 trillion since the summer of 2008. This had never happened until the 2008 crisis. The debt used to buy these assets and “assist” market prices for 9 years has not gone away.

Are tens of millions of Americans, whether rich, poor, or middle class preparing for the next major financial storm? Will we talk, listen, and work together as this storm sets in, or place our hope in more debt and more “assistance” from our government, who itself sees debt as “unlimited” and the Federal Reserve as the force to calm the financial wind and waves.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” – The Declaration of Independence, 1776

 

A Curious and Confident Mind

 

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Who Needs Bankers, We Need God

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In the fall of 2013 I released a public article called “Who Needs God, We Have Bankers”. Over the last 2 years I have often thought of changing the title and releasing it again, but the power of the eternal snooze button from financial reality has stopped me.

After recent events, it seemed time to review the idea of “unlimited debt brings ‘stability’’; go back to sleep”.

The Snooze Button

The one thing about time, is like gravity, there are rules everyone plays by and always will.

Yes, debts had piled up in the trillions since 2013. Yes, it has produced the “wealth effect” assisted by various repetitious algorithmic suppression games, thus creating an even more powerful nirvana in the minds of people.

But the rules of markets and life have not changed since 2013. Thus, the value of asking questions instead of accepting the status quo become even more valuable with each passing year in this central bank/ state promoted mania.

First, let’s review the snooze button from the Oct ’13 article….

“The snooze button; what a great invention. When you have awakened from a deep sleep, and know you can get ready in less time, just hit the snooze button. You know it will still awaken you for your test or to get ready for your 8:00 flight, but in the meantime, you can enjoy a few more moments of precious sleep.

 

However, if you keep hitting snooze and fail to look at the time, you can also awaken to find that the extra sleep has now placed you in a position where you missed the final exam or your flight. The rewards for a few extra moments of sleep have suddenly become very costly.”

…and how Quantitative Easing (or hyper money printing to buy up assets) by central bankers has created the effect of a snooze button among investors worldwide. The higher the prices, the more the sleep, yet higher risk brings a greater need for an alarm to ring.

“Since the largest collapse of financial assets in history in 2008, the major central banks in the world, the Bank of JapanThe People’s Bank of China, the European Central Bank, the Federal Reserve, and the oldest of this group, the Bank of England, have worked together to create the largest asset bubbles ever seen while keeping the public in a perpetual state of blissful sleep. The method is actually quite simple.

 

Offer ultra-cheap credit to the global banks by which they can go promote even wilder speculation. Allow extreme levels of leverage in the system, something the general investor seems to never be aware of along the way. If things start looking weak, make certain the standards for collateral against those loans for speculation are LOWERED, allowing even more reckless behavior into the system.”

Now I ask you, were these statements from my October 2013 article correct at that time? If so, based on the actions of these central banks since 2013 it becomes even more important that we understand them in 2017.

If, so, then it must be true that we have more debt in the world today, higher asset values, more complacency, and greater risk not only our money, but our day-to-day use of it.

Let’s compare the stats.

Fall 2013, Summer 2017

December 1913 – Federal Reserve Act passed, establishing the Federal Reserve. US National Debt, $3 Billion

Fall 2013 – US National Debt – $17,000 billion (17 trillion)

Summer 2017 – US National Debt – $20,000 billion (20 tr.)

October 2013 – The combined balance sheet assets of the European Central Bank, the Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank had reached $10 trillion. [Remember, this does not include the People’s Bank of China.]

May 2017 – The combined assets of these 5 major banks had reached $15 trillion.

 

The one thing that has become very clear in the summer of 2017, is that US equity markets since the fall of 2013 are substantially higher, the US national debt is more than twice what it was at the October 2007 top ($9 tr.), the NASDAQ 100 has climbed almost 5 times the level it stood 8.5 years ago, five of the major central banks have purchased 50% more in assets than they had in 2013 with debt they created out of thin air, and the global credit growth has contracted sharply since 2015.

Does this look like “financial stability”?

Is it time we should be asking, “Who Needs Bankers, We Need God”?

UN Wants Global Currency To Replace Dollar, UK Telegraph, Sept 7 ‘09

 

The IMF’s SDR; Only Way to Combat the Next Financial Crisis, Business Insider,

Oct 26 ’16

Time for Discussions on the Moral Ramification of “Unlimited Money”?

Have we placed our “faith” in global central bankers, global political meetings and think tanks to take care of the “big stuff” so we can go about our own lives and plans? If so, have we allowed these global groups to become our gods?

When will it be time to return to the past and question the moral ramifications of “unlimited debt” exchanged for artificially inflated “riches”?

Ponder these quotes. Are they not relevant to us today?

“We must not let our rulers load us with perpetual debt. We must make our election between economy [thrift] and liberty or profusion [abundance] and servitude. If we run into such debts as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds… our people must come [will have] to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their [the government’s] debts and daily expenses, and the sixteenth being insufficient to afford us bread, we must [will] have no time to think, no means of calling the mismanagers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers.

 

If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them [the banks], will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” – Thomas Jefferson

 

“He who oppresses the poor to make more for himself or who gives to the rich, will only come to poverty.” – Solomon, Proverbs 22:16

 

“Government printing press money distorts economic reality, dilutes morality and is the true source of “income inequality.” Financial speculation rises with the increase in paper money and the general work ethic deteriorates. The something-for-nothing mentality pervades society.” – Bob Livingston, Personal Liberty, The Immorality of Paper Money, July 14 ‘14

 

“The argument that money is apolitical and amoral is equivalent to saying:  we are wealthy and powerful not because the system is designed to concentrate wealth in our hands but because we are lucky, talented and/or divinely deserving”. – Charles High Smith, Why Our Status Quo Failed and Is Beyond Reform (2016), Location 678, Kindle Edition

 

“ And He told them a parable, saying, “The land of a rich man was very productive. And he began reasoning to himself, saying, ‘What shall I do, since I have no place to store my crops?’ Then he said, ‘This is what I will do: I will tear down my barns and build larger ones, and there I will store all my grain and my goods. And I will say to my soul, “Soul, you have many goods laid up for many years to come; take your ease, eat, drink and be merry.”’ But God said to him, ‘You fool! This very night your soul is required of you; and now who will own what you have prepared?’ So is the man who stores up treasure for himself, and is not rich toward God.” – Jesus Christ, Luke 12:16-21

 

A tired, but curious mind

 

 

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Trillion Dollar Pictures

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To the World of 2024,

It would appear that our time in this maddening central banking experiment is ticking down. For that reason, I am going to post pictures with few comments until history gives us world headlines to post.

First is a picture from news service Zero Hedge, comparing the size of the derivatives book of banking giant Deutsche Bank in September 2016 with the Gross Domestic Product of the entire nation of Germany and the GDP of the entire European Union. [The Run Begins: Deutsche Bank Hedge Fund Clients Withdraw Excess Cash, 9/29/16]

germangdp_eugdp_db-derivaties-sept9-16-zh

Next, is a chart from Tom Fitzpatrick of Citigroup just released. Once again, the source was a post from Zero Hedge. [The Chart That Give Citi “The Chills”, Oct 10]

oct10_zh_citi_sp500-2016vs1987

The third picture reveals that on August 12, 2016 world markets saw THE lowest yield on the 10 year British Gilt ever in history, records spanning more than three centuries. These yields have risen sharply (prices falling) since then.

oct11_ukt10y

My next chart shows that since reaching its all time high on August 15, 2016 (18,668), the Dow Jones Industrial Average has repeatedly stopped declining after falling to its 100 day moving average on September 9th. There is no way a worldwide crowd of investors could randomly repeat a pattern at a technical line this many times. This would make sense if powerful high speed computers halted the decline around this level repeatedly. 

oct11_dow_100day

Are we looking at the final day the Dow was above its 100 day? Could price and experience change soon?

As you look at the pictures above and the postings since 2014 on this blog, you can see why I am so concerned about the world of price illusion from central banking intervention while the global economy we all live in daily continues to slow.

20161010_weber

Alex Weber, Chairman of global banking giant UBS, also a former President of the German Bundesbank, made these comments recently. They once again remind us that a knowledge of the financial world and history is of value, even when an experience provided by constant intervention gives us the false sense of a world without risk.

“They (central banks) have taken on massive interventions in the market, you could almost say that central banks are now the central counterparties in many markets. They are the ultimate buyers…

 

Investors have been driven into investments where they have very little capability for dealing with what is on their plate and I think that is a sure reminder of where we were in a different asset class in 2007.”

Hang on. The pressure to our thinking and feelings is rising.

A Curious Mind

 

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A New Holiday: Central Bankers’ Day

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Today is September 21, 2016.  Two of the largest central banks in the world gave press releases after their regularly scheduled two day meetings. It is not normal for two major central banks to do this on the same day, but this is what took place today.

The reason I am calling it a “holiday” is because the most common theme across investment markets at the management or trading level has become “central banks run the show”. Free markets? What’s that? We now are centrally planned with constant intervention by the state (i.e. major central banks) to make certain the public is happy with their 401k statements and rising real estate prices.

Will this grand illusion end very badly and powerfully? Could it be very soon?

Cheap Oil Has Killed Nearly 200,000 Jobs, CNN Money, August 4, 2016

Vancouver Average Detached Home Prices See Worst Slide in 39 Years, Huffpost British Columbia, Sept 2, 2016

Have we reached a place in history where more central planning, greater the debt levels, and more “assisted” markets become week by week, the MORE confident we can become that this is a much better path than when we had a more free market structure, far less debt, and “assistance” was occasional rather than constant?

Read on. Keep thinking.

The Sept 21st View Looking Back

sept21_dow-131pm_2

sept21_dow_fedrelease

Once again, the computer algos with some “assistance” kicked off another hard run back up. Will it last long? Go to a new all time high again? What is important is that we all remember that the image of central bankers bring happiness was issued on this new “holiday”.

Of course, all is not rosy for central bankers. The Bank of Japan continues having troubles getting the yen to go down according to their plans, and their stock market to climb much before stalling. Now yields on its debt have been climbing from their lowest levels in history.

sept21_yen-rising

sept21_japannikkei

sept21_japanyields10t

Holiday Happiness?

As you look at the chart of the NASDAQ 100 above, ask yourself, “Are stocks reflecting the comments and data that brought us into this “holiday”? Do financial markets at all time high levels reflect the REAL economy? If not, should every investor have an exit plan?

Most of the comments and charts below were pulled today, Sept 21st.

The first two tweets are by Lawrence Summers, former US Treasury Secretary and Chief Economist at the World Bank.

sept21_summers-lacktools

sept21_summers-fed-fragile

I thought these bankers “always” had another scheme to fix the problem? With the NASDAQ producing its highest levels ever today, it would appear that “the crowd” is certainly not thinking about a “shock at a fragile moment”. This NASDAQ image is of extreme confidence.

On this “holiday”, are there any “gloom and doom” naysayers who just can’t understand all the optimism central bankers have brought stock investors?

sept21_worldtrade

But what does world trade have to do with a stock market?

sept21_investmentdecline

If business investment has been slowing, why should that possibly impact our 401k statements and retirement plans?

sept21_germanycds-db

Yes, I know there are things called Credit Default Swaps which rise in price sharply if these big investors believe a company or country is on the verge of default, but why worry that one of the largest banks in Europe could be on the verge of default or nationalization by the German government? Besides, that only happens in times like September 2008 when Lehman’s filed bankruptcy and AIG was nationalized and stocks were getting clobbered.

Stocks certainly don’t seemed phased by such news today.

Could Germany Allow Deutsche Bank To Go Under, Zero Hedge, Sept 21

Meet the Riskiest Bank in the World, Business Insider, Sept 21

As we can see, central bankers have made sure at that millions of stocks investors sitting in stock funds at all time high levels will not impacted by something that happens in Europe…right?

sept21_corporatedebtdoubledsince2008

The doubling of corporate debt since 2008? That doesn’t look good? What if corporate stock prices start falling, wouldn’t the company still have all this debt on its books?

If debt were climbing faster than earnings and had reached the highest levels since 2000 this seems like something that would impact all time high stock prices, doesn’t it?

sept21_debttoearnings-highsincentury

Well, I am not going to worry or be concerned about this silly old data. My experience from trusting central bankers for the last few years has come out okay. The brokerage statement is fine. Besides, what could some manager who oversees a couple hundred billion in investments know that I don’t know? Why do I need to even think about making changes now, especially since today is a central banker’s “holiday”?

$195 Billion Asset Manager: “The Time Has Come To Leave The Dance Floor”, Zero Hedge, 9/21

One things is for certain. Central bankers have been at this a very long time. They know what they are doing. This is certainly no “experiment”, and they would never artificially push up prices to trick us into thinking we were wealthy from trillions in new debt.

World Seeing Greatest Monetary Experiment in History, Jacob Rothschild, RT, August 17, 2016

jacobrothschild

The six months under review have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world. We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30 percent of global government debt at negative yields, combined with quantitative easing on a massive scale,” Rothschild writes in the company’s semi-annual financial report.

bernanke

Fed Seeking To Create Wealth, Not Just Cut Rates, Yahoo News, Sept 14, 2012

The Federal Reserve wasn’t just trying to drive down interest rates when it announced a third round of bond purchases Thursday.

 

It also wants to make people feel wealthier – and more willing to spend.

 

The idea is for the Fed’s $40 billion-a-month in bond purchases to lower interest rates and cause stock and home prices to rise, creating a ‘wealth effect’ that would boost the economy.

 

And “if people feel that their financial situation is better because their 401(k) looks better or for whatever reason – their house is worth more – they’re more willing to go out and spend,” Chairman Ben Bernanke told reporters. “That’s going to provide the demand that firms need in order to be willing to hire and to invest.”

sept20_dow2-living2024

Thank goodness we can have these holidays in celebration of our central bankers. Why would anyone be foolish enough to think these central planners of our financial markets and global economy would ever face limits in markets?

Bank of Japan Risk: Running Out of Bonds To Buy, WSJ, Sept 9, 2016

ECB Fast Exhausting German Bonds for QE Buying As Yields Tumble, Bloomberg, July 19, 2016

sept21_centralbankersbubble

sept21_fedpolicycrackcocaine

Now I am having doubts? Maybe having an “unlimited punch bowl” is not such a good idea? Maybe I should stop betting with an “all in” approach, never selling or reducing my junk bond and stock positions at these all time high levels?

Just not today. It’s a holiday.

A tired but curious mind

 

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No Worries, “They” Will Keep It Up

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To the World of 2024,

The title of this post will sound strange to everyone living in 2024. How could people all over the world come to believe that a small group of powerful bankers, central banks, could use their “tools” so that the nations of the world could eventually reach a point where the public at large did not need to be concerned about a major change in prices? No matter what negative event shook global financial markets, these “money fireman” were always standing ready to pour on MORE debt and/or use various manipulative tools to “assist” investment markets until things “returned to normal”.

Let me illustrate with a recent event for us, which by 2024 will be studied as history. It is called the Brexit. This was a public referendum where the British people voted to leave the European Union on June 23rd.  Friday the 24th produced big drops in stock markets around the world.

July21_LossesJune23

Yet the monetary fire hoses were ready, as demonstrated by comments from the big central banks listed in this article on that same Friday.

Central Banks Ready to Pump Billions into System to Calm Jittery Markets After Brexit Shock, Financial Post, June 24, 2016

[US Federal Reserve, European Central Bank, Bank of England, Central Bank Governors and Finance Ministers from the G7, Swiss National Bank, Bank of Japan, People’s Bank of China, Reserve Bank of India, and the Central Bank of the Russian Federation]

July20_Gains.SinceJune24

Four weeks later, not only have the events of June 24th been quickly erased, but they and other high risk developments over this period as seen through “the markets” can be viewed as no big deal. Risk? What is that?

This global “rescue” did not take place during the Great Recession in 2008. This did not take place in 2009 when the Federal Reserve started “temporarily” buying up toxic assets (mortgage backed securities) from the banks in order to free up credit.

This is July 2016, the 89th month since the March 6, 2009 low. It is impossible to believe that “stability” was the goal of central bankers. If the objective was to calm markets, they failed. The view of risk has now become, “This is great. Central bankers will drive up my stock investments very quickly, and if U.S. stocks, push them to new all-time highs!

Declines? What is that? ‘They’ will always keep prices up.”

July21_SPBiggestDrops

The problem, as you know, is that these major central banks have been “rescuing” the nations of the world with more debt since the Great Recession, than any time prior to 2008.

July21_Waiting

So why are there still millions of investors sitting in US stock funds at the highest prices ever recorded, when with each passing week there are myriads of reasons the dominoes should start falling?

Why Italy’s Banks Could Ignite a Eurozone Crisis, Marketwatch, 7/21/16

UK Property Funds Suspend Trading, Freeze Assets, Investopedia, 7/6/16

(Bank of Japan governor) Kuroda: Helicopter Money is Illegal, FT, 4/28/16

Something Big Is Coming: Bernanke to “Secretly” Meet With Kuroda; “Helicopter Money” on the Agenda, Zero Hedge, 7/7/16

Yen Soars, Stock Slide After Kuroda Says “No Need or Possibility for Helicopter Money”, Zero Hedge, 7/21/16

The financial industry was taught, and thus passed on to Main Street investors, the idea that no matter what happens, the American stock market ALWAYS comes back. Why study lessons from 400 years of financial history? What’s wrong with US and world debt loads’ soaring?

We have seen interest rates drop since the 1980s. In the US, the highest levels ever seen were in 1981 when the yield on 10 year US Treasuries reached 15.84. Now this month, on July 5th, the yield on the 10 year hit a low of 1.37. This low was the lowest ever in American history.

If we can all look back and agree that it was obvious that rates would fall from the highest levels on record in 1981, can we not also agree that rates at some point would rise?

While this 36 period has rewarded bond investors who have seen prices rise as yields have fallen, are these same investors considering this piece of history?

July22_HistoryofInterestRates

“The greatest of all secular bear bond markets, which began in April of 1946, and probably ended in September 1981, carried prime long American corporate bond yields from their lowest recorded yields to their highest. The yield index rose from 2.46 to 15.49% for seasoned prime issues and up to 16.5% (industrials) and 18.0% (utilities) for high-quality new issues… If a constant maturity thirty-year 2 ½% bond had been available throughout this second bear market of the century, its prices could have declined from 101 in 1946 to 17 in 1981, or 83%.” – A History of Interest Rates, Third Edition Revised (1996), Sidney Homer and Richard Sylla, pg 366-367

Having become a world where our own experience supersedes the lessons from history, how should public perception change when stocks go down, and rates rise?

July22_Dow

July22_USTreasuries36Years

In 2024, the answer will be yet another story from the annals of financial manias. Everyone will understand that “the state” could never stop investment prices from deflating, since they were the very ones whose actions and polices over inflated them since 2008.

Sadly, this has created not only enormous financial problems across societies, but reduced the critical importance of ethics in a sound financial and economic system.

“Dishonesty wasn’t really a solution, it was simply easier.” – Charles Hugh Smith, economist

“It’s not just the political system that’s rigged, it’s the whole economy.” – Presidential Candidate Donald Trump at the Republican National Convention, July 21, 2016

 

A Curious Mind

 

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The “Experience” Market Bubble

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May31_Secret

“There is truth deep down inside of you that has been waiting for you to discover it, and that Truth is this: you deserve all good things life has to offer. You know that inherently, because you feel awful when you are experiencing the lack of good things. All good things are your birthright!” – The Secret (2007), 41 weeks in top the five NY Times Hardcore Advice List; it opens my article, Fear and Perception, released on November 1, 20017, two days after Hong Kong’s Hang Seng stock index hit its highest level ever. So much for “all good things” being a “birthright”.

 

Four months earlier, on Thursday, July 19, 2007, I released a group email to all paid and free subscribers of Best Minds Inc. The email stated the following:

“Evidence is mounting that we are in the final throes of this worldwide, credit-fueled bubble. The wobbling dominoes certainly merit the attention of all investors and advisors.”

That same day, the Dow closed above 14,000 for the first time. It began its descent the next day, but roared back up to close 8 days above this level in October 2007 before starting its downward march through what is now known as the Great Recession. It would take until February 1, 2013, and the public watching the largest ongoing bailout of global banks ever, before the Dow would once again close above 14,000.

So if investors wanted to “experience” wealth, why was July 2007 a harbinger that their wealth was about to be taken from them? Because financial facts at the top of financial bubbles are very different from financial feelings.

By July 2007 I had already seen the Philly Banking Index decline since February. I had contacted a few of my Wall Street level sources for areas I should be watching. One individual told me to pay close attention to two big hedge funds at Bear Stearns that were close to being shut down. Their total value at the end of 2006 was close to $20 billion. On July 16, 2007, the two funds were closed. One source stated that one fund’s assets were valued at zero and the second at 9 cents on a dollar.

July20.07_Dow

July20_BKX

 

Two Big Funds At Bear Stearns Face Shutdown, WSJ, June 20, 2007

“Two big hedge funds at Bear Stearns Cos. were close to being shut down last night as a rescue plan developed over several days fell apart in a drama that could have wide-ranging consequences for Wall Street and investors.

Merrill Lynch & Co., one of the hedge funds’ lenders, said it would move to seize collateral — much of it mortgage-backed debt — from the two funds and sell it, according to documents reviewed by The Wall Street Journal.”

Since this is all history now, everyone can say, “Oh, I knew that the markets were going to fall.” However, in July 2007, the mood was very different.

On Sunday, July 22nd, I ran into a financial advisor at my church. He had signed up for my free educational services, so had received the group email on the 19th.

“Hey, are you still looking for a collapse?” he said sarcastically.

“We all have our opinions”, I stated, and walked off.

A few weeks later, anyone reading headlines knew we had entered a credit crisis. However, since we are wired to desire more, and the financial industry feeds the idea that every decline is merely a correction before soaring higher, by October, breaking 14,000 again was seen as normal, and looking for prices to be cut in half seen as nothing more than “naysayers”.

July17_Dow

July2009_BKX

However, we all know today, that history was about to change the perception of investors in 2008. By the time these comments were made by President George W. Bush to the American people, we had already seen the collapse of Bear Stearns in March and the bankruptcy of Lehman Brothers and the nationalization of AIG in September. Like today, these events did not come because there were no financial facts supporting we were living in a financial bubble in 2007, but because the feeling from rising prices built on “unlimited” cheap debt was far more “positive” while it lasted.

[President George W. Bush, The Economy & The Bailout: Primetime Address to the Nation, Washington, DC, September 24, 2008]

“Good evening. This is an extraordinary period for America’s economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We’ve seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money.

 

We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action….

 

In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday. First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system. In the short term, this will free up banks to resume the flow of credit to American families and businesses. And this will help our economy grow….”

It is no longer September 2008. It is now June 2016. The problems from the ultra cheap loans into the trillions that lead to the credit crisis of 2008 were never addressed. Global debt is now over $200 trillion, an increase of over $60 trillion since Q4 2007 when the Dow left its 14,000.

At the end of May 2016, the Dow is still hanging close to its all time high from over a year ago, and yet has seen two plunges from its 18,000 twice, both declines taking the Dow down over 2500 points in less than a month.

Yet even the most powerful financial organizations in the world continue to reveal that 7 years of “unlimited debt and intervention” have not created a strong growing economy.

The IMF Slashes World Growth Forecasts Again, CNBC, April 12, 2016

Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long,” IMF Chief Economist Maurice Obstefeld told a media conference on Tuesday, according to prepared remarks.

G7: Global Economic Growth An ‘Urgent Priority’, Al Jazeera, May 27, 2016

The leaders of the G7 group have said the world economy is an urgent priority and cautioned that a British vote to leave the European Union would seriously threaten global growth.

Act Now, Or Risk Another Deep Downturn, OECD Warns Policymarkets, Yahoo Finance, June 1, 2016

In the OECD’s (an international economic organization of 34 nations) latest economic outlook published on Wednesday, the organization said that global growth had “languished over the past eight years as OECD economies have struggled to average only 2 percent per year, and emerging markets have slowed, with some falling into deep recession”….

 

“The need is urgent. The longer the global economic remains in the low-growth trap, the more difficult it will be to break the negative feedback loops, revive market forces, and boost economies to the high-growth path. As it is, a negative shock could top the world back into another deep downturn,” Mann said.

World Bank Cuts Global Growth Forecast on Weak Demand, Commodity Prices, Financial Express, June 7 ’16

The World Bank slashed its 2016 global growth forecast on Wednesday to 2.4 percent from the 2.9 percent estimated in January due to stubbornly low commodity prices, sluggish demand in advanced economies, weak trade and diminishing capital flows….

 

The downgraded World Bank forecast follows a similar move by the International Monetary Fund, which cut its growth forecasts two months ago.

May2016_Dow

May2016_BKX

 

With all the strong concerns about the global economy slowing from the world financial organizations listed above, shouldn’t both investors and advisors be asking WHY does the Dow keep returning to its first in history 18,000 level, and ignoring headlines like the ones above?

Remember 2007 when the Dow went to 14,000 for the first time in 2007? Remember how the KBW Bank Index was dropping months ahead of the broader US stock indices. As of May 31, 2016, the KBW Bank Index, after two big drops, and two big rallies, is still down 12.4% lower than its 2015 high. Are the big banks telling everyone something?

Unlimited Debt and State Intervention Was Wrong From the Start

We are quickly running out of time to sit silent and ignore this 800-pound gorilla. We must choose between two paths. The first is to continue to ignore this problem, the lessons from the 2000-2002 and 2007-2009 collapse, and the destruction straight ahead to the lives of people all over the world. We must embrace the expansion of the state and the constant “assistance” we have seen since 2009 by central banks around the world through additional trillions in ongoing bailouts in our financial markets, even the direct actions to buy up certain markets in order to artificially inflate them for a few years.

The second is to face these real world problems. We must start quickly by talking about these problems, that will impact every individual, community, school, and place of worship across our nation, and for that matter, world.

Will we speak out? Will we sit silent? One thing is for certain, hoping for more corruption of our markets and economy by central bankers and global politicians is immoral.

The trouble is finding ways to talk about what our globalist, materialist centered world has come to believe is permanent, which never was: the path to riches from bankrupting the nations.

Everyone needs to consider the hard facts presented in one of my recent articles, When Rare Data Screams, Listen. Anyone who remembers the double-digit CD rates from the early 1980s really needs to check this one out. This is history!

image014

* 1981 – Annual high in the Dow was 1,050. US national debt crosses $1 trillion for the first time. 2015 – Annual high in the Dow hits 18,351 on May 19th. The last day of 2015 the national debt hits 18.9 trillion.

 

A Curious Mind

 

 

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Do Money Rail Lines End?

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TrainRailsEnd

Since 1971, the world has been on the train of unlimited debt. With the US dollar being removed from its gold standard, all checks against a continuing extension of the rail lines have been removed. Unlimited debt is now the “solution” to “random” financial crises caused by too much debt. “Prosperity” has evolved into a permanent rail line, or so we are lead to believe.

What individual getting on a train in California and riding to Virginia would be surprised when told they had come to the end of the line? Would they expect someone to extend the track another hundred or two hundred miles over the Atlantic? Even if that were the case and the ride was smooth for a little longer, there would be an uneasy feeling that consequences were coming.

This is not an American view, this is a world view. Anyone taking a train into Hong Kong, Tokyo, Sydney, or Rio de Janeiro would face the same problem if those lines were extended out over the ocean.

Yet this is exactly what is embedded in the minds of the public; the longer the line can be extended, the more prosperity can come from unlimited debt and state intervention.

Wilshire.NationalDebt_NationalNetWorth.April2016

We know that a business or individual is not on a long-term sustainable path by taking on more and more debt to create wealth without paying down debt. So why believe that a nation can do this? Simple. Our experience.

An Italian Rail Line

For the individual reading this in 2024, you will see clearly how this story unfolded. But today, in 2016, the majority view is that global rail lines have infinite possibilities. Yet the minority voice is getting louder as the waves of problems get higher.

January news stories showed a rising level of non-performing loans in Italian Banks, loans where payments were either behind or had stopped.

This reached a level by the end of last year not seen since 1996.

Italian Bank’s Bad Loans Continue To Mount, MarketWatch, Jan 20 ’16

According to data published Tuesday by Italy’s banking lobby ABI, Italian banks’ gross bad loans, measured at their face value, stood at EUR201 billion in November, 11% higher than the same period a year prior.

Gross bad loans were 10.4% of total loans in November, the highest percentage figure since 1996.

Had the European Central Bank (big global central bank) provided bailouts for European banks before 2016? Of course, and at levels never seen in history.

Eurozone Bank Lending Slows Despite ECB’s 1 Trillion Cheap Loans, The Telegraph, April 20, 2012

ECB Poised To Launch 1 Trillion Quantitative Easing, The Guardian, January 22, 2015

So what was the solution for extending the rail lines recently?

Next Stop on the ECB Adventure: $980 Billion in Corporate Bonds, Bloomberg, March 10, 2016

Life goes on as abnormal, right? Yes, for the time being, but now without a great deal of misinformation to the public and yields plummeting so low on European government bonds that rebellion eventually comes.

Let me illustrate.

Mish Shedlock reveals one glaring problem from laying down this recent track to prosperity by the ECB. A reader of Shedlock’s writings, “Lars”, makes this observation:

The Italian central bank has under Target2 borrowed €250 billion, mainly from Bundesbank. The loan is unsecured, not a single € in collateral. The 250 billion is then lent to Italian banks, all of them insolvent. [Is the ECB Bailing Out Banks on the Sly?, Mish Shedlock, May 1 ‘16]

Will lowering borrowing costs, pushing interest rates to negative, and artificially stimulating short term rallies fix these large financial problems?

Richard Koo, Chief Economist at Nomura Securities in 2003, made it clear what needed to be done to reboot Japan’s financial institutions after years and years of constant bailouts.

BalanceSheetRecessionThe NPLs (non performing loans) should be disposed of in an orderly and predictable manner. The pace of disposal should be determined collectively by the banking authorities and the private-sector banks to ensure that the resulting deflationary impact on the economy is minimized. [Balance Sheet Recession: Japan’s Struggle With Uncharted Economics and Its Global Implications (2003), Dr. Richard Koo, pg 273]

Anyone following the headlines knows that Japan chose to bury these loans with more debt, rather than deal with this structural problem.

 

If we look at charts of Italian and German bond yields, we see that once these “rescue” programs STARTED, government bond yields went higher, now lower. Oops.

Italy_10YearGovtBondYields.RecordLows

Germany_10YearGovtBondYields_RecordLows.April2016

How can the problem of too much debt be corrected by creating trillions out of thin air to push borrowing costs to historic lows? Yes it extends the tracks, but for how long and at what long term cost? When the time comes to sell the assets the central banks are buying, who will have a few trillion lying around to buy them? Who wants bond yields at three CENTURY lows?

image008

Shedlock presented the chart below three months ago. By using the ECB’s own data, it is clear that the 2 trillion in bailout programs announced and launched since December 2011 did not stop Spain and Italy’s banks from experiencing massive capital outflows by December 2015.

Italy’s banks experienced the highest monthly outflow of capital on record.

Flows_MishShedlock_Feb2016

[Chart from Capital Flight Intensifies in Italy and Spain; Curiously, Money Flows Into French Banks, Mish Shedlock, Feb 9 ‘16]

 

What is very clear from Europe and Japan, is that time is running out on the use of more debt to extend the tracks without severe consequences. The public is starting to wake up to real world realities that no amount of central planning can stall. The actions of some passengers show they want to get off the train.

Italian Banks Under Pressure As Popolare di Vicenza IPO Fails, The Guardian, May 2 ‘16

Italian banking shares have come under pressure after the planned listing of regional lender Popolare di Vicenza flopped and the latest government measures aimed at tackling the sector’s bad loans fell short of expectations.

The stock market in Milan said it could not allow Popolare di Vicenza to list after investors bought just 7.7% of its €1.5 bn share issue….

Italian bank shares have lost nearly a third of their value this year due to concerns about €360 bn of bad debts accumulated during a three-year recession, while negative interest rates are also eroding bank profits.

May2.16_EuroStoxx50

Japan’s Negative Interest Rates Are Driving up Sales of Safes, Fortune, Feb 23 ‘16

That’s not great news for the Bank of Japan.

The Japanese are spending—but not in a way that is likely to strengthen the country’s economy.

Following the Bank of Japan’s decision to lower interest rates below zero in January, many consumers have reportedly rushed to hardware stores in search of one thing: safes.

May2_Nikkei2

May2_NikkeiBigBear

As we continued to watch what is taking place around the world, could the day come when the Dow at 18,000 is a thing of the past, a reflection of a society that had placed its faith in an unstoppable train built on unlimited debt and central banking intervention?

May3_Dow34years.DebtToo

“Ordinary people have the ability not to think about things they do not want to think about”  Blaise Pascal

74438614, 23/1/06, 2:44 pm, 8C, 5320x4923 (0+900), 67%, bent 5 stops, 1/60 s, R96.7, G73.4, B86.1

74438614, 23/1/06, 2:44 pm, 8C, 5320×4923 (0+900), 67%, bent 5 stops, 1/60 s, R96.7, G73.4, B86.1

 

A Curious Mind

 

 

 

 

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