The Tremor.

Baltic Dry Index. 584-02       Brent Crude 63.90

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

"The history of paper money is an account of abuse, mismanagement, and financial disaster."

Richard M. Ebeling

We open with the Dow and S&P getting a volatility reality check. Something else for the G7 finance ministers and their flunkies to ponder over as they fret, strut, prout and preen away, in yet another taxpayer funded junket, this time in rebuilt Dresden. While the New York Fed can be expected to step in yet again to prevent this stock tremor from becoming a San Francisco earthquake, sooner or later the central bankster’s gigantic bond and stock market bubble will burst.

"There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence."

Charles De Gaulle

S&P 500, Dow suffer biggest drop in 3 weeks

Published: May 26, 2015 4:41 p.m. ET

CBOE Volatility index spikes 16%

U.S. stocks sold off on Tuesday with the S&P 500 and Dow suffering their biggest one-day declines in three weeks. A sharp increase in the dollar spurred global investors to dump riskier assets such as equities and commodities, while driving them into havens such as Treasurys.

The S&P 500 SPX, -1.03% closed off 21.86 points, or 1%, lower at 2,104.20, with all 10 main sectors declining. The Dow Jones Industrial Average DJIA, -1.04%  dropped 190.48 points, or 1%, to 18,041.54, while the Nasdaq Composite Index COMP, -1.11%  ended the session 56.61 points lower, or down 1.1%, at 5,032.75.

The dollar  DXY, -0.03%  rallied on the back of the inflation data on Friday and hawkish comments from Federal Reserve Chairwoman Janet Yellen, warning that a rate hike is still in the cards for 2015.

Oil and gold prices tumbled on the dollar’s move, while Treasurys rose, sending the yield on the 10-year note down 7 basis points to 2.14%. A spike in the CBOE Volatility index VIX, +15.91% which measures implied volatility on the S&P 500, suggests investors are increasingly nervous about a possible pullback.
More
http://www.marketwatch.com/story/investors-dump-us-stock-futures-ahead-of-durable-goods-data-2015-05-26

The Stock Market Bubble In Two Charts

by Jim Quinn • May 26, 2015

Things always become obvious after the fact” – Nassim Nicholas Taleb
“Facts do not cease to exist because they are ignored.”  – Aldous Huxley

The S&P 500 currently stands at 2,126, fractionally below its all-time high. It is now 300% above the 2009 low and 34% above the 2008 and 2001 previous highs. Most people believe this is the new normal. They are comfortably numb in their ignorance of facts, reality, the truth, and the inevitability of a bleak future. When the herd is convinced progress and never ending gains are the norm, the apparent stability and normality always degenerates into instability and extreme anxiety. As many honest analysts have proven, with unequivocal facts and proven valuation measurements, the stock market is as overvalued as it was in 1929, 2000, and 2007.

Facts haven’t mattered, as belief in the infallibility and omniscience of Federal Reserve bankers, has convinced “professionals” to program their high frequency trading supercomputers to buy the all-time high. If central bankers were really omniscient and low interest rates guaranteed endless stock market gains, then why did the stock market crash in 2000 and 2008? The Federal Reserve’s monetary policies created the bubbles in 2000, 2007 and today. There was no particular event which caused the crashes in 2000 and 2008. Extreme overvaluation, created by warped Federal Reserve monetary policies and corrupt Washington D.C. fiscal policies, is what made the previous bubbles burst and will lead the current bubble to rupture.

Benjamin Graham and John Maynard Keynes understood how irrational markets could be over the short term, but eventually they would reach fair value:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” –Graham

“The market can stay irrational longer than you can stay solvent.” – Keynes

Graham’s quote reflects the difference between hope and reality. This explains the ridiculous overvaluation of Amazon, Shake Shack, Twitter, Linkedin, Tesla, Google, and the other high flying new paradigm stocks. Story stocks soar because the herd believes the stories peddled by Wall Street and company executives. Five of these six stocks don’t have a PE ratio because you need earnings to calculate a PE ratio. In the long run the market will weigh the value these companies based upon profits and cashflow. It is the same story for the market as a whole. There is no question who is to blame for what now amounts to a three headed hydra of bubbles poised to burst.

The Federal Reserve has simultaneously blown bubbles in the stock, bond, and real estate markets by keeping interest rates at 0% for the last six years, three rounds of QE money printing that created $3.6 trillion out of thin air to prop up the insolvent Wall Street banks, and unending jawboning about inflation being too low as real middle class wages stagnate at 1989 levels. There isn’t a question about whether the bubbles exist, only about how much bigger they will become before bursting again.
As John Hussman points out, the financial stability of the world will be endangered when the bubbles burst this time.

“Unfortunately, the Federal Reserve has now created the third financial bubble in 15 years. Focusing on two variables – inflation and unemployment – the Fed has missed the most important consideration: the risk to financial stability. It is the same mistake the Fed made during the housing bubble. This mistake will ultimately end just as tragically. The only question is how much worse the Fed makes the situation in the interim.”

The mouthpieces for the vested interests on Wall Street and slithering around the halls of Congress, roll out their tired storylines about low interest rates supporting ridiculous valuations and corporate profits remaining permanently high because we’ve entered a new paradigm. We’ve heard it all before. Taking extreme risks based upon false economic beliefs, the infallibility of Ivy League educated academic bankers,  and delusions of never ending gains produced by Wall Street HFT computers will end in tears for the third time in fifteen years.

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http://davidstockmanscontracorner.com/the-stock-market-bubble-in-two-charts/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday

The G-7's Problem: Can the World Deal With a Greek Default?

12:00 AM BST May 27, 2015
When the world’s top finance ministers and central-bank chiefs meet in Dresden this week, they may struggle to stick to an agenda set by their German hosts that doesn’t mention Greece.

The Group of Seven meeting starting on Wednesday will officially focus on big-picture themes of economic growth, tax evasion and strengthening the global financial architecture. Yet the most pressing matter for many of the policy makers attending is whether Greece can stay in the euro, and whether the world can handle the consequences if it can’t.

Time is running out for the Mediterranean country to reach agreement with its German-led creditors over economic reforms needed to unlock bailout funds before loans from the International Monetary Fund come due next month. That’s leading non-European observers, like officials from the U.S. Treasury, to warn of unpredictable consequences if Greece and its partners don’t manage to avert a default.

“There are no major pressing issues related to currencies or trade to be discussed,” Christian Schulz, an economist at Berenberg Bank in London, said in an interview. “The worry on everyone’s mind will of course be Greece, and the message for Greece is going to be that it has to do what it takes to save its economy.”

While the G-7 doesn’t have a mandate to decide how to deal with Greece, it brings together together officials from the euro area’s three biggest economies, as well as the European Central Bank, the International Monetary Fund and the European Union -- the institutions backing the 240 billion-euro ($262 billion) aid package that expires next month.

At a former palace of Saxon princes and kings, German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann will host their counterparts from France, Italy, Japan, the U.K., Canada, and the U.S.. International Monetary Fund Managing Director Christine Lagarde, European Central Bank President Mario Draghi and Eurogroup head Jeroen Dijsselbloem are all scheduled to attend.
More
http://www.bloomberg.com/news/articles/2015-05-26/greek-default-nerves-risk-eclipsing-germany-s-dresden-g-7-agenda

What does China know that we don’t? A London Bullion Market default? Fort Knox empty? All the West’s gold, MF Globalled? Stay long fully paid up physical precious metals. Gold and silver look set to explode higher.

"If ever there was an area in which to do the exact opposite of that which government and the media urge you to do, that area is the purchasing of gold."

Robert Ringer

China sets up giant gold fund to expand its market power

Published: May 27, 2015 12:53 a.m. ET

HONG KONG (MarketWatch) — China has set up its largest gold-investment fund ever, expected to total 100 billion yuan ($16 billion), aiming to invest in mining projects in the region and enhance Chinese influence in global gold markets, local media reports said Wednesday.

The “Silk Road Gold Fund” — led by the Shanghai Gold Exchange and others — is reportedly focused on investing in gold projects as part of China’s “New Silk Road” push to deepen economic ties with other countries in the region, particularly those along the ancient Silk Road trade route linking Eastern and Western Asia. In fact, the fund’s founding late last week took place in Xi’an, the historic starting point of the Silk Road.

In addition to buying stakes in gold-mining projects and companies in the New Silk Road area using “private-equity and venture-capital methods,” the new fund would also be used to invest in gold-miner stocks and to set up gold exchange-traded funds, the state-run Shanghai Securities Journal quoted an unnamed insider as saying on Monday.

The fund may also boost China’s power over the world gold market and could increase the use of the yuan USDCNY, +0.0081%  in pricing gold, the National Business Daily quoted economist Song Qinghui as saying on Wednesday.

Song also said additional funds aimed at the New Silk Road, possibly focused on transportation and other infrastructure investment, may be set up in the future, the report said.
More
http://www.marketwatch.com/story/china-sets-up-giant-gold-fund-to-expand-its-market-power-2015-05-27?dist=tcountdown

“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”

“Adam Smith” aka George Goodman.

At the Comex silver depositories Tuesday final figures were: Registered 60.85 Moz, Eligible 117.93 Moz, Total 178.78 Moz.  

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

Today, yet another look at what the Great Nixonian Error of fiat money wrought in the Great Casino of Wall Street just before it died.

Memo To Blogger Ben—–The TWC/Charter Deal Is A “Bubble” Staring You In The Face

by David Stockman • May 26, 2015

It’s Merger Monday again on this holiday adjusted Tuesday. So the announcement of another humongous debt-fueled M&A deal is right on schedule.

This time it involves the utterly pointless combination of two giant, quasi-monopoly cable companies—–Time-Warner Cable (TWC) and Charter (CHTR)—– that are already on their homeward journey to Joseph Schumpeter’s Walhalla of creative destruction. But not before da boyz in the casino have one last go at a positively lunatic speculation.

To wit, during the last 12 months, TWC and Charter have managed to generate a combined total of $4.6 billion in free cash flow (i.e. EBITDA less CapEx). At the moment the market is valuing their combined TEV at $116 billion. That computes to a free cash flow multiple of 25X!

But that’s not evidence of a bubble. No sir. Over the weekend Blogger Ben assured the world that the financial markets are neither exuberant nor irrational:

BERNANKE: NO LARGE MISPRICINGS IN U.S. SECURITIES, ASSET PRICES

That’s right, the TEV of Charter is $41 billion and today the market is valuing the take-out of TWC at $75 billion. Blogger Ben, do you really think that $4.6 billion of free cash flow in the dying cable industry is worth $116 billion?

Needless to say, Ben couldn’t possibly know. He has been superintending a world of falsified debt prices for so long that he would not recognize an honest cap rate if he saw one. In this case, scroll back 10 years when Ben was heralding the Great Moderation and you will see that TWC and Charter had combined debt of $24 billion.

As of last Friday that number had grown to $44 billion and with the announcement of today’s deal, which contemplates borrowing another $32 billion to pay stockholders $100/share in cash plus munificent deal fees, another huge dollop of debt will be added. So upon deal completion, the cable debt mountain at  the “New Charter” will total $76 billion.

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http://davidstockmanscontracorner.com/memo-to-blogger-ben-the-twccharter-deal-is-a-bubble-starring-you-in-the-face/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday

"All previous attempts to base money solely on intangibles such as credit or government edict or fiat have ended in inflationary panic and disaster."

Donald Hoppe

Solar  & Related Update.

With events happening fast in the development of solar power, I’ve added this new section. Updates as they get reported.  

No update today.

The monthly Coppock Indicators finished April

DJIA: +112 Down. NASDAQ: +198 Down. SP500: +150 Down.