There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Ludwig von Mises.
We
have reached the half year pause of 2017. Time to reflect on where we are in
the markets, how we got here, and where we are likely headed. Of course, no one
can foretell the future, and markets are mostly driven by greed and fear. But
in large measure they are also driven by the cartel of central banksters. In
central bankster speak, easy money or dear. Easy money takes from the thrifty
and prudent and gives to the feckless, gambling, one percenters.
We’ve
been on easy money effectively, since Greenspan suffered his breakdown after
Black Monday October 19, 1987. More specifically, the emergency measures of
ZIRP and NIRP, following the near crash of the whole Great Nixonian Error of
fiat money system, in 2008. Now the central banksters are trying to normalise
interest rates. The artificial “recovery” since 2008, is long in the tooth, thriving
or faltering, depending on spin. Depending on who’s counting, July 2017, is the
95th, 97th, or 98th month of recovery. (LIR,
Hoisington, Stockman.)
Are
the central banksters about to take from the feckless, gambling, one percenters,
and start rewarding the thrifty and prudent once again? And if they do, what
does that mean for our house of cards built on mountains of unrepayable debt.
Am I alone in seeing an unhappy reflection of that summer of 1987? While
history never quite repeats, it often gets close. The difference this time
around, our political world is far more unstable, yet more intertwined. The
multiple bubbles in 2017, dwarf into insignificance, 1987.
Below,
place your bets. Bet with the one percenters or against. The central bankster
have run out of road and talent, says the central banksters central bank, the
BIS in Basel, Swizzerland. If you don’t normalise rates now, the whole system’s
going down with the next Lehman. Oddly, from what I see in summery London, only
a few central bankster are listening. Even fewer in one percenter-land are
listening. The next crash, when it comes, it seems to me, will be as unexpected
as World War One.
True, governments
can reduce the rate of interest in the short run, issue additional paper
currency, open the way to credit expansion by the banks. They can thus create
an artificial boom and the appearance of prosperity. But such a boom is bound
to collapse soon or late and to bring about a depression.
Ludwig von Mises.
All well for world economy at mid-year? Up to a point
So strong
is the belief in the growth momentum of the global economy as it enters the
second half of 2017, the point has been reached in the economic cycle where
data not meeting expectations is dismissed as an aberration.
Flash
purchasing managers' indexes for services in Europe in June, for example, were
weaker than anyone in a Reuters poll had predicted, but the market paid scant
attention. "Way below expectations, but let's not worry," was the
mantra.
Such
economic Panglossianism - all for the best in the best of all worlds - is based
on what seems to be a majority view among policymakers and economists that the
world is enjoying a broad expansion.
"Faster
growth this year reflects a synchronized improvement across both advanced and
emerging market economies," Brian Coulton, Fitch Ratings' chief economist,
wrote in an outlook projecting 2017 would have the fastest world growth - 2.9
percent - since 2010.
Backing
up this view, central banks in the United States, euro zone and Britain are
leaning toward tightening, albeit with a cacophony of mixed signals about when.
Financial
markets are now pricing in a 90 percent chance of a euro zone rate hike by July
next year, for example, to go with the Federal Reserve's ongoing upward tweaks.
There
are, however, some inconvenient trends out there that will need consideration
in the second half.
First,
there have been some signs of a dip in economic activity, while inflation
remains, in most places, stubbornly nonchalant toward the huge monetary
stimulus thrown at it.
The Citi
Economic Surprise Index, which moves in tandem with data beating or
underclubbing expectations, has plunged for the main industrial nations this
year and is at negative levels not seen since 2011.
Real U.S.
gross domestic product has been increasing, but the pace has been slower in
each of the past two quarters up to the fairly slow annualized 1.4 percent in
January-March.
A report
by the Atlanta Fed suggests second quarter growth will bounce back - but as a
result of stronger home sales, a reflection of cheap money, offsetting sluggish
equipment and inventory investment.
Durable
goods orders declined sharply and jobs growth slowed at their last readings.
In the
euro zone, the overall picture is relatively positive with a current 1.9
percent year-on-year growth rate - but there are centers of trouble, such as in
Italy, the bloc's third largest economy. And while deflation may have gone,
inflation is still below target.
The
jobless rate is lower, but still above 9 percent (twice that for the young),
consumer spending has been easing and wage growth is stubbornly slow.
China,
meanwhile, has avoided the slowdown some feared. Indeed, factories grew at
their quickest pace in three month in June.
But an
official crackdown on excessive debt and shadow banking has been enough of a
risk to economic stability to make the central bank cautious about taking
further action, particularly ahead of this year's Communist Party Congress.
In Japan,
the government has raised its overall view of the economy because of growth in
private consumption. But the latest data showed retail sales rising less than
expected with slowing sales of durable goods and clothes.
More
German bonds may offer the clearest warning that the stock market’s bull run is sputtering
Published: June 30, 2017 11:48 p.m. ET
German bunds are trying to deliver a message to stock-market investors:
Achtung!According to market technician Tom McClellan, a narrowing yield spread between German 10-year bonds, known as bunds TMBMKDE-10Y, +3.58% and their U.S. counterpart TMUBMUSD10Y, +1.44% has historically been a bad omen for equity markets.
The yield differential between bunds, which were carrying a negative yield about a year ago and reached a record spread—2.38 percentage points—on Dec. 28 with U.S. 10-year paper, has been on a tightening trend lately, illustrated by one McClellan chart (see below):
How is a narrowing spread in German bond yields a problem for U.S. stocks?
As McClellan explains it, a rising yield premium between German and U.S. government paper tends to be a market condition that has historically been supportive to higher moves in the Dow Jones Industrial Average DJIA, +0.29% S&P 500 SPX, +0.15% and Nasdaq Composite Index COMP, -0.06%
Ever since June 2009, the yield on the US 10-year T-Note
has been higher than its German counterpart. It turns out that this is a pretty
bullish condition, at least for as long as the spread between the two is
rising.
As a bull market ages, though, this spread
shows the wearing out by displaying a divergence relative to prices. It can
take many months for the divergence to finally matter, and bring a meaningful
price decline. We are just now starting to see those first signs of such a
divergence
|
McClellan’s chart shows that after a speak bund/Treasury spread, which has occurred in 1999, 2000, and 2010, equity markets unraveled. It isn’t’ clear why this pattern has played out, but the market technician says the relationship has only been an effective predictor, albeit with some delays, since the 1980s.
The ominous bond pattern should be taken with a grain of salt, but it comes as Wall Street has closed a tumultuous week for fixed-income investors, following comments from global central bankers, including European Central Bank boss Mario Draghi, that may have stoked fears that easy-money policies, which have underpinned stock and bond valuations during this eight year-old bull market, are nearing an end.
More
http://www.marketwatch.com/story/german-bonds-may-offer-the-clearest-warning-that-the-stock-markets-bull-run-is-sputtering-says-mcclellan-2017-06-30?mod=MW_story_latest_news
Central banks have set investors up for a long, hard road back to ‘normal’
Published: June 30, 2017 2:55 a.m. ET
Getting back to normal was never going to be easy.Investors and policy makers got a reminder of that this week as European Central Bank President Mario Draghi and other central bankers sent signals that reiterated that the era of extraordinarily easy monetary policy will eventually run out.
Global bond yields are jumping and that’s sending ripples through global financial markets. Stocks SPX, -0.86% are lower—except for the financial sector, which tends to benefit from higher long-term yields. Gold GCQ7, -0.21% is lower despite the equity weakness and a softer dollar, with traders apparently paying more attention to the competition from those higher yields. As for the dollar, it’s suffering at the hands of the euro EURUSD, -0.1049% which is trading at 13-month high versus the U.S. unit.
It speaks to the idea that efforts by the ECB to exit its own quantitative-easing program and steer policy back toward a more normal state could be the biggest catalyst for market turmoil in coming months. That’s because compared at least with the Federal Reserve, which is well along in its own tightening cycle and is making plans to begin shrinking its balance sheet, and the Bank of England, the ECB faces the bigger task.
Here’s Neil Staines, head of trading and execution at The ECU Group, in a Thursday blog post:
It was the jump in the euro that likely spooked Draghi’s fellow policy makers, who, according to news reports, argued Wednesday that Draghi’s remarks had been misinterpreted by the market. After an initial pullback, however, the euro was back in rally mode.
Economists
and traders say it’s no surprise the ECB is sensitive to sharp rises by the
shared currency. A stronger euro tightens monetary conditions and tamps down
inflation, undermining the ECB’s effort to get inflation back to its target of
near but just below 2%.
And
that’s also where the Fed comes in. Ideas the Fed is banking to heavily on a
pickup in inflation is leading to doubts about whether Chairwoman Janet Yellen
and fellow policy makers will push rates as high as they forecast.
That
threatens to make life even harder for the ECB, and any other central banks looking
to normalize policy, wrote Kit Juckes, global macro strategist at Société
Générale, in a Thursday note. That’s because currency traders pay close
attention to the expected differential between official interest rates. If
expectations for future Fed rate rises are scaled back while expectations for
ECB tightening remains intact, the euro could make an unwelcome surge (see
chart below):
More
Goldman Commodity Analysts Ask: How Did We Get It So Wrong?
By Alex Longley and Mark Burton
29 June 2017, 18:28 GMT+1
Goldman
Sachs Group Inc. analysts might not be the only ones to have incorrectly
called commodity prices this year, but they are at least trying to figure out
how they misjudged the market.Commodities have tumbled 9 percent since their 2017 peak in mid-February, and Goldman acknowledges that some factors weren’t predictable, including rising oil supplies in Libya and Nigeria and the impact of weather on crops.
“But this still leaves the question of how did we (and the market) get it so wrong?” analysts from the bank said in a research note Thursday.
The report came less than 24 hours after Goldman joined other major banks including JPMorgan Chase & Co. and Morgan Stanley in cutting its forecast for West Texas Intermediate crude. Societe Generale SA has also slashed its crude forecasts.
Across the globe, traders have been wrong-footed by
the commodities rout this year. They’ve watched as oil prices have slipped
despite production cuts by the Organization of Petroleum Exporting Countries.
They’ve seen copper prices drop as scrap dealers de-stocked heavily to take
advantage of higher prices. They’ve witnessed policy changes in the Philippines
that caused a sell-off in nickel.
More
“Under the gold standard, a free banking system stands as the
protector of an economy's stability and balanced growth... The abandonment of
the gold standard made it possible for the welfare statists to use the banking
system as a means to an unlimited expansion of credit... In the absence of the
gold standard, there is no way to protect savings from confiscation through
inflation”
Alan Greenspan
In other news at the half year of 2017,
Xi gets pushy with Hong Kong. With America over a Chinese barrel over North Korea,
how long before Xi gets pushy with the rest of the world?
China's Xi warns Hong Kong to toe the line as he swears in new leader
Chinese
President Xi Jinping swore in Hong Kong's new leader on Saturday with a stark
warning that Beijing will not tolerate any challenge to its authority in the
divided city as it marked the 20th anniversary of its return from Britain to
China.
A massive
deployment of police blocked roads and prevented protesters from getting to the
harbour-front venue close to where two decades earlier, the last colonial
governor, Chris Patten, tearfully handed back Hong Kong to Beijing at a
rain-soaked ceremony.
"Any
attempt to endanger China's sovereignty and security, challenge the power of
the central government ... or use Hong Kong to carry out infiltration and
sabotage activities against the mainland is an act that crosses the red line
and is absolutely impermissible," Xi said in a sweeping speech that
touched upon the "humiliation and sorrow" China suffered during the
first Opium War in the early 1840s that led to the ceding of Hong Kong to the
British.
Hong Kong
has been racked by demands for full democracy and, more recently, by calls by
some pockets of protesters for independence, a subject that is anathema to
Beijing.
Xi's
words were his strongest yet to the city at a time of heightened social and
political tensions and concerns over what some in Hong Kong perceive as
increased meddling by Beijing in the city's affairs.
More
We
close with a 2015 USA review of the fire safety of building cladding. Just what
were the London Fire Brigade and building code writers thinking? Did nobody
bother to read a copy? Was there no one in GB following global tower fire
developments.
Building Exterior Wall Assembly Flammability:
Have we forgotten what we have learned over the past 40 years?
Author:
John Valiulis, Valiulis Consulting LLC
On Behalf
of Fire Safe North America™
This
article addresses the disturbing movement in the USA towards trading off
exterior wall assembly fire performance safety requirements in the building
code when internal sprinklers are present in buildings. This has occurred in
certain areas of the country and a similar code change was attempted in April
2015 during the 2018 International Building Code development hearings.
High-rise
building exterior walls are at risk of fire events consuming entire faces of buildings.
Such fires have occurred in countries situated in the developing world, the
Middle East, Europe, and in Asia. Where have such fires not been a significant
problem...in the United
States.
What
makes the US different than those countries where such exterior wall fires are
occurring? The fire protection engineering community in the U.S. foresaw the
increasing use of combustible components in exterior wall construction decades
ago. Through industry-funded
research, an appropriate test method was developed to determine if a given wall
assembly could support a self-accelerating and self-spreading fire up the wall,
either via the outside surface, through concealed spaces within the wall, or by
spreading fire into interior floor areas on stories above. The test method,
which today is titled NFPA 285,Standard
Fire Test Method for Evaluation of Fire Propagation Characteristics of Exterior
Non-Load-Bearing Wall Assemblies Containing Combustible Components, has been
applied nationally via adoption in the model building codes, and has resulted
in an existing building stock
with exterior walls that are inherently resistant to self-propagating fires.
Now that
building energy conservation initiatives are increasingly taking center stage
in the U.S. and beyond, there is a desire by the design community to use an
increasing amount of combustible
components within high-rise exterior wall construction, for insulating
materials, for cladding, and for water resistive barriers (WRBs). The
well-proven, decades-old NFPA 285 fire safety requirement, which ensures that
the resulting construction won’t allow vertical fire spread, is now said to be
an inconvenience to areas of the building industry. The reaction to this
“inconvenience” has been a handful of successful attempts convincing select
jurisdictions to strike out the model code (IBC) requirements for exterior wall
fire safety.
There
have also been some unsuccessful attempts to modify the IBC to reduce its
requirements for exterior wall fire safety, aiming to eliminate the NFPA 285
requirement completely for high-rise buildings.
Given the
present push to try to eliminate fire safety requirements, with the goal of
allowing unfettered
latitude in the use of plastics in exterior walls, this seems to be a good time
to review how and why exterior wall flammability limitations were codified in
the U.S. in the first place, take a look at the rest of the world where such
requirements don’t exist, and discuss the options for a future in which fire
safety and building energy efficiency can be balanced.
Origin of NFPA 285
The first
exterior wall assemblies to use a significant amount of combustible materials
were EIFS (Exterior Insulation Finish System) walls. These used a layer of
insulating material such as expanded polystyrene, polyurethane,
orpolyisocyanurate. EIFS systems were first developed in Europe during the
1950's. As the name for the system indicates, it is an insulating system
installed on the exterior of buildings. It can be fashioned to look like
concrete, stucco, and even brick. Because of this, it can easily be mistaken
for substantial non-combustible construction. In a widely publicized fire in
the U.S. northeast during the late 1980's, the fire department that was
battling a large building fire was shocked to see the neighboring building 20
ft. away catch fire. They thought it was a concrete building.
More
“The U.S. government has a technology, called a printing press
(or, today, its electronic equivalent), that allows it to produce as many U.S.
dollars as it wishes at essentially no cost…We conclude that under a
paper-money system, a determined government can always generate higher spending
and hence positive inflation.”
Dr. Ben Bernanke. 2002
So
what went wrong?
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