Baltic Dry Index. 1008 -14
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
There can be few
fields of human endeavour in which history counts for so little as in the world
of finance. Past experience, to the extent that it is part of memory at all, is
dismissed as the primitive refuge of those who do not have the insight to
appreciate the incredible wonders of the present.
J. K. Galbraith.
Today we end
the week with bad timing. Just as H.M.G.’s flaky coalition has signed up to
America’s War Party attempt to take down Russia, urging the continental masses
to commit economic suicide by imposing meaningful sanctions on Russia, a Russian
aircraft carrier and fleet show up in the English Channel. Not to worry, say
the Russians, we don’t want England and good luck to an independent Scotland,
we’re off to a base near Estonia. We’ll visit Bonnie Scotland later.
Russian aircraft carrier sails into English Channel
HMS Dragon is escorting the Russian aircraft carrier Admiral Kuznetsov through the English Channel
A Russian aircraft carrier task
group has sailed into the English Channel under escort by a Royal Navy warship.
HMS Dragon met the Russian
warships in the south western approaches to the Channel on Wednesday and is
shadowing them as they are expected to head into the North Sea and back to
Russia.
The heavy carrier Admiral
Kuznetsov is accompanied by the nuclear-powered Kirov class cruiser Peter the
Great and several support ships after a five-month mission to the
Mediterranean.
Naval sources said it was not
unusual for Russian warships to pass through the channel and the Kuznetsov was
also escorted past British waters on its way out in December when it passed
Scotland heading south.
Capt Vadim Serga, spokesman for
the Russian Northern Fleet, said: “The cruiser has accomplished its mission
within the Navy task force in the Mediterranean and headed for Severomorsk. The
aircraft carrier Admiral Kuznetsov is expected to return to base by late May.”
More
In another
case of bad timing, Professor Roubini thinks we’re at the start of a credit
bubble. Where has he been since the Fed started ZIRP and QE Forever in 2008? I
think that we’re near the end of a massive global credit bubble, one that
started all the way back in the Great Nixonian Error of fiat money on August 15th
1971. Since 2008 we are now in the final blow off phase.
"In
economics, hope and faith coexist with great scientific pretension."
J. K.
Galbraith.
Nouriel Roubini: We’re at the very beginning of a credit bubble
May 8, 2014, 2:37 PM ET
Nouriel Roubini whipped out the “b” word
on Thursday, telling
Maria Bartiromo at Fox Business Network that we’re at the beginning of
a credit bubble. We’re not on the brink of a major collapse, but we might be
getting there, he cautioned.
----The Federal Reserve will keep its key lending rate low even after it lifts off from near zero, where it has rested for the past half decade, Roubini said. That slow process of normalization will keep the spigot of borrowing flowing, helping support the economy. But it will also lead to risky lending practices. Hence, a bubble is inflating that could eventually pop.
He’s by no means the first person to make this claim: the question of financial stability is one of the key criticisms of the Fed’s accommodative policies. Roubini didn’t criticize the central bank, so much as say that the Fed is damned-if-you-do, damned-if-you don’t.
Roubini cited the return of some of the key characters associated with the period before the last financial collapse: Lots of low quality bond sales, debt without strong protections for bondholders, and a certain kind of risky security called PIK-toggle bonds. The economist says:
“All the risky things that were happening back in ’06 and ‘07 are back again to the same level, if not more. So we are in the beginning of a credit bubble, but just the beginning.”
More
In another more
important case of bad timing, the Fedster’s say that the can only spot bubbles
once they’re obvious. Still if the Greenspan magic is still in place, the Fed
can’t do anything to stop them, only pick up the pieces after they burst. Stay long fully paid up physical precious
metals held outside of the reach of John Bull and Uncle Scam.
In central banking as in diplomacy,
style, conservative tailoring, and an easy association with the affluent count
greatly and results far much less.
J. K. Galbraith.
Bubble Babble—Why The Fed Is Clueless
by Jeffrey P. Snider •
It is only one word, but it has been
repeated so many times by FOMC members in the past year or so it has taken on
the imprimatur of officialdom vernacular. Whenever speaking of bubbles, these
policymakers inevitably include the word, “obvious.”
----According to St Louis Fed President James Bullard’s “obvious” bubble definition, there have been two “gigantic” bubbles in recent history. In his analysis, the first, dot-coms, ended “relatively benignly” while the second did not (I think that too is obvious). There is such a huge flaw in that perception because it childishly permits the bury-your-head-under-the-blanket strain of examination. If you don’t see the monster maybe it won’t see you.
There is no useful means by which you can plausibly separate the two bubbles, as one not only followed from another (intentionally, pace Krugman) they were in so many ways concurrent. You cannot assume otherwise because it is now “obvious.” That sets up a curious contradiction since they are obvious apparently only in hindsight. Janet Yellen certainly was not concurrently aware of their existence, holding no special favor or petition toward a solution at the time. Maybe obviousness needs to be itself obvious.
Tortured logic is all you end up with here. And it was apparent once more today in Yellen’s morning remarks.
For the equity market as a whole, the answer is valuations are at historically normal ranges. Long-term interest rates are low and that is one of the factors that feeds into equity market valuation. There are pockets where we could potentially see misvaluations, but overall those broad metrics don’t suggest that we are in obviously bubble territory. [emphasis added]
The first sentence in the quote above is intimately related to the last, though it is not obvious at first glance.
Historical range now includes that obvious dot-com bubble which stretched valuations to extreme proportions. That means that anything even just short of the height of ridiculousness of 1999-2000 gains inclusion into the “historical range.” We can compare valuations, for example, between now and the late-1990’s and still maintain the vapid validity of that statement. In fact and increasingly that is the only time period that matches current conditions.
Taken a step further, the only way to become an obvious bubble is apparently to exceed the dot-coms by an obvious degree or order of magnitude. In 1999 and 2000, Greenspan was still a genius who crafted a “new normal” without a business cycle out of nothing but his charming briefcase. It can only be defined, Bullard admits, in hindsight, which is realistically the only place obvious can attain obviousness.
More
I’ll leave
the last word on the Fed’s final bubble to David Stockman, a real expert.
Fed fueling century’s ‘greatest bubble’: Stockman
by Contributor •
----The
Fed is “a posse of academic zealots and unreconstructed Keynesians who think
debt is the magic elixir, and they won’t stop printing money and putting their
foot on the floorboard until they really blow something up,” Stockman said.
At this point, his biggest
concern is the impact that the Fed’s stimulative policies have had on equities.
“I think the Fed is now inflating
the greatest and third bubble yet of this century,” Stockman said. “The Russell
2000, even though it’s come off a little bit, is still trading at 80 time
trailing earnings. That’s crazy, and you can say that about many other sectors
of the market.”
So what’s his preferred course of
action now?
“What we need to do is get the
Fed out of there, free interest rates, let the money market find the natural
balance and purge some of this enormous speculation,” he said.
More
Must Have Been Monetary Immaculate Conception! Greenspan Denies Bubble Responsibility, Again
by David Stockman •
It must have been monetary
immaculate conception! In a word, Alan Greenspan’s pathetic
rationalizations are why we are in such monumental trouble. Moreover,
the Maestro’s successors and assigns all partake in the same group
think. So we are at the mercy of a serial bubble machine in the Eccles
Building—which is run by a small posse of incorrigible bubble deniers.
Some day there will be an
inquisition…. but in the interim here’s what he said (and what I said!)
By Mike Swanson
Alan Greenspan appeared on CNBC yesterday and declared that his monetary policies had nothing to do with the financial crisis of 2008.
He claimed that bubbles can be ok if they are “non-toxic” and that his low rate policies did not have much to do with the housing bubble and subsequent bubble in mortgages that led to the banking crisis of 2008.
He claims he had nothing to do with it.
“Despite the fact that we lowered rates, we did not have long-term rates moving down. We did not have money supply accelerating. There were no fingerprints of an easy money policy in the marketplace,”
More
Janet Yellen’s Bathtub Economics: Excuse Me Doctor—There’s Bubbles In That Tub!
by David Stockman •
Some people are either born
or nurtured into a time warp and never seem to escape. That’s Janet
Yellen’s apparent problem with the “bathtub economics” of the 1960s
neo-Keynesians.
As has now been apparent for
decades, the Great Inflation of the 1970s was a live fire drill that
proved Keynesian activism doesn’t work. That
particular historic trauma showed that “full employment” and
“potential GDP” were imaginary figments from scribblers in Ivy
League economics departments—not something that is targetable by the
fiscal and monetary authorities or even measureable in a free market
economy.
Even more crucially, the
double digit inflation, faltering growth and repetitive boom and bust
macro-cycles of the 1970s and early 1980s proved in spades
that interventionist manipulations designed to achieve so-called
“full-employment” actually did the opposite—that is, they only amplified
economic instability and underperformance as the decade wore on.
The irony is that the
paternity of this real world proof came from the Yale economics
department, which was inspired in the 1960s and 1970s by one of the most
arrogant, wrong-headed Keynesians of modern times—–Dr. James Tobin. It was
Tobin’s neo-Keynesian theories and activist role in the
Kennedy-Johnson White House which gave rise to the Great Inflation and its
destructive aftermath.
Still, Professor Tobin could
perhaps be forgiven for the original science experiment in full
employment economics he helped author from his perch at 1600
Pennsylvania Avenue. After all, economists were just then enamored by
newly invented large-scale math models of the US
economy and their equations always generated beneficent results.
But there is no debate about what
happened next. The Heller-Tobin CEA proclaimed that the America of the early
1960s—an economy that Eisenhower had left in fine, growing, non-inflationary
fettle—was suffering from too much “slack”. This
included unnecessarily high levels of unemployment (@ 5.5% in 1962!)
and a general failure to utilize capital and labor resources at their
full-employment level and thereby achieve “potential GDP”.
The latter was held to be
mathematically calculable and was reckoned by the JFK’s Keynesian
doctors to be tens of billions greater than reported GDP.
Accordingly, until the nation’s economic bathtub was filled full-up to
the brim there was an urgent need for more fiscal and monetary stimulus.
When conservatives protested that
deficits should be reserved for national emergencies and were potentially
inflationary, Tobin and his acolytes impatiently huffed that
traditionalists didn’t understand economic “slack” and its policy cures. As
they had it, “slack” was an economic free lunch that could be harvested by
means of “accommodative” policy until the last steelworker was called back
to work and every auto plant mustered a third shift.
----Needless to say,
the whole thing ended in calamity. Johnson’s guns and butter economy got red
hot; inflation soared; widespread shortages suddenly materialized; large
industrial strikes proliferated; the US balance of payments plunged deep
into the red; and then a full-blown dollar and gold crisis flared up in
the winter of 1967-1968. All the while, insuperable pressure was put on the Fed
to “accommodate” fiscal policy until the politicians could screw up enough
courage to take away the fiscal punch bowl.
History makes clear that then and
there the Fed was housebroken. When Johnson closed the gold pool on his
way out the White House door and Nixon performed the coup de grace by
defaulting on America’s obligation to redeem dollars for gold at Camp
David in August 1971, the US dollar left the traditional world of monetary
standards. Thereupon it embarked upon the brave new world of the PhD standard
that reigns among all central banks today.
----As is well-known, one of Tobin’s first students to be conferred a PhD after he repaired from his Washington follies to Yale was Janet Yellen. That was 1971. If Keynesian economics in a national bathtub that was not at all a closed system was nonsense even then, it surely is nothing less than a laughingstock in the blooming, buzzing, churning global economy of today—-a place where the source of the marginal supply of labor and capital cannot even be pronounced in Washington, let alone be measured, calibrated and factored into a policy equation.
Yet here is Janet Yellen at
a Congressional hearing yesterday faithfully
lip-synching professor Tobin. She has not even learned any new
jargon in 43 years!
“In light of the considerable
degree of slack that remains in labor markets and the
continuation of inflation below the (Fed’s) 2 percent objective, a high degree
of monetary accommodation remains warranted,” Ms. Yellen said.
This was all by way of justifying
the lunatic proposition on which the Fed is now operating: Namely, that for the
68th consecutive month it kept the money market rate at zero—a condition that
has never previously occurred in all of human history. Well, outside of
post-bubble Japan anyway, and its evident how well that’s working.
But under the
Keynesian macro-models— zero interest rates are really nothing more
than a magical “slack” fighter. The assumption is that the US economy—even as
it prepares to enter it sixth year of “recovery”—remains deficient in
that mysterious ether called “aggregate demand”. Therefore more of
same needs to be conjured by the ultimate in low interest rates—which is
to say, 5 bps on the federal funds.
----So here we are again at the same broad market multiple as 2007—-which happens to be about 19X on a reported basis. S&P 500 earnings have barely grown by 10 percent since late 2011, notwithstanding more than a trillion dollars of share buybacks. So there are bubbles everywhere— even the broad market is up by nearly 50% without any justification accept that the fast money traders know the Fed will keep banging the fed funds lever.
Yes, the Fed’s
plumber-in-chief is still in her 40-year time warp. When the great
Bernanke-Yellen Bubble bursts any time soon—-they will say once again that none
was “obvious” on the way up.
As an institutional matter,
Yellen and her merry band of money printers cannot possibly see any
financial bubbles. Implanted squarely in the heart of the Wall Street
speculation channel, bubbles is what they do.
More, much more.
“You know, sometimes, when they say you're ahead of your time, it's just a polite way of saying you have a real bad sense of timing.”
George
McGovern.
At the Comex
silver depositories Thursday
final figures were: Registered 54.96 Moz, Eligible 119.64 Moz, Total 175.60 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
We end on bad timing today with the World Bank’s
estimate that suggested China would overtake the USA to become the world’s
largest economy by the end of the year. That’s right 2014. HSBC thinks that
bunk. It’s still about a decade away.
Still in the grand scheme of things, a decade is not very long to plan
for the demise of the fiat dollar reserve standard. China will rightly want to
trade in Yuan, and by then will almost certainly have the depth of markets to
pull it off. Stay long gold and silver. Whatever the outcome with Russia, the
War Party at the Project for the New American Century (PNAC,) have just about a
decade to try to take down China, assuming that they win with Russia of course.
Not a dead cert by any means. An economic wipe out of Europe looks more likely
at present.
If
all else fails, immortality can always be assured by spectacular error.
J. K.
Galbraith
May 9, 2014, 12:37 a.m. EDT
When China will overtake the U.S., in one chart
LOS ANGELES (MarketWatch) — There’s been some excitement in
recent days over estimates based on World
Bank data suggesting that China will overtake the U.S.
later this year to become the world’s largest economy.
In
fact, HSBC economist Frederic Neumann says in a note out Friday, “some
commentators are even so excited, they calculated the exact day when this will
happen: November 2 (on the basis of World Bank forecasts, at least).”
But
Neumann isn’t buying it.
The
problem, he writes, is that the assumption rests on using purchasing power
parity (PPP), which adjusts nominal prices (or in this case, entire economies)
to account for the difference in living costs.
The
“Nov. 2” scenario then takes the PPP values from the World Bank and uses growth
forecasts from the International Monetary Fund to predict China’s
trumping of the U.S.
“Wonderful.
Except it’s all a bit theoretical,” writes Neumann.
“PPP is useful for comparing
living standards across economies (although even here, there are shortcomings),
but not their relative size. After all, PPP doesn’t provide a true measure of a
country’s purchasing power on global markets (imports measured in U.S. dollars)
or its potential contribution to the bottom line of a multinational firm,”
Neumann says.
He notes that the same
assumptions create other interesting but possibly misleading factoids: For
example, Japan is no longer the No. 3 economy, but — under the same PPP-driven
comparison — is smaller than India. Likewise, Indonesia’s economy would be
larger than that of Italy, and Sri Lanka would top New Zealand.
That said, the current difference
in growth rates do put China on an inevitable course to overtake the U.S.
economically.
Neumann uses various possible
rates of economic expansion and extends them (using current foreign-exchange
values) to try to predict when China will win the world crown. The results are
in the HSBC chart below, with the timeframe somewhere between 2024 (if China
grows at 7% and the U.S. at 2%) and 2034 (if China grows at 6% and the U.S. at
3%).
“So, it’ll happen at some stage,
just not this year or next,” Neumann writes. “Chinese are better off than thought,
but there’s still a long way to go.”
More
J. K.
Galbraith.
Another weekend, and despite President Putin asking them not to, parts
of eastern Ukraine are going to hold a vote on leaving the Ukraine. Russia has
moved vulnerable assets out of the Mediterranean back to Russia. The American
War Party seems to have forgotten how the USA came into existence. Next week looks likely to be interesting. Have
a great weekend everyone.
Fear and euphoria are dominant forces,
and fear is many multiples the size of euphoria. Bubbles go up very slowly as
euphoria builds. Then fear hits, and it comes down very sharply. When I started
to look at that, I was sort of intellectually shocked. Contagion is the
critical phenomenon which causes the thing to fall apart.
Alan Greenspan.
The monthly Coppock Indicators finished April
DJIA: +189 Down. NASDAQ: +347 Down. SP500: +249 Down. Sell in May, go away.
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