Steve Bull's Blog, page 1327
August 31, 2017
Bill Blain: “I’ve Got October 12th As The Day The Big Equity Crash Occurs”
Submitted by Bill Blain of Mint Partners
The big risk? The ECB taper… what follows?
“It will not always be summer; build barns.”
Today’s sermon is about complacency.
Yesterday, I read in a Fixed Income analyst comment something about the: “robust macro backdrop ahead of the ECB meeting on Sept 7th creating a solid base for risk assets and prompting a steady flow of borrowers to get funding programmes underway..” Sure enough, there is a feeding frenzy developing in the new issue bond market…
Meanwhile, my stock picking chartist Steve Previs warns the gauges he follows, like put/call ratios and VIX, reflect an “overly confident” market. He thinks a top is coming.
Personally, I’ve still got October 12th at 10.30 in the morning tagged as the moment the big equity crash occurs and I get out my buying boots ready for the opportunities that will follow. (Why Oct 12th? Why not..? The date has a nice ring about it as day of manic market mayhem – and the following day is a Friday the 13th… meaning it will panic folk even more!” Mwwwhahahaha..! )
n the fixed income markets I think we’re glossing over the likely pain to come courtesy of the ECB.
What happens post the next ECB meeting, (or more likely the ECB meeting after that, or the one after that, based on the ECB’s predilection for kicking the can down the road)? Forget inflation and growth nonsense.. at some stage the ECB has no choice but to ‘fess up how it’s actually been mutualising European debt, and cut its buying programme. We’re all talking about European normalisation, wondering when, but when it actually happens, please explain exactly how that “solid base for risk assets” works.
…click on the above link to read the rest of the article…
Austrian Monetary Theory vs. Federal Reserve Inflation Targeting
One of the leading policy guideposts for central banks and many monetary policy proponents nowadays is the idea of “inflation targeting.” Several major central banks around the world, including the Federal Reserve in the United States, have set a goal of two percent price inflation. The problem is, what central bankers are targeting is a phantom that does not exist.
Perhaps we can best approach an understanding of this through an appreciation of some of the writings by members of the Austrian School of Economics on matters of monetary theory and policy. Carl Menger (1840-1921), the founder of the Austrian School in the 1870s, had explained in his Principles of Economics (1871) and his monograph on “Money” (1892), that money is not a creation of the State.
Money Emerges from Markets, Not the State
A widely used and generally accepted medium of exchange emerged “spontaneously” – that is, without intentional government plan or design – out of the interactions of multitudes of people over a long period of time, as they attempted to successfully consummate potentially mutually advantageous exchanges. For example, Sam has product “A” and Bob has product “B”. Sam would be happy to trade some amount of his product “A” for some quantity of Bob’s product “B”. But Bob, on the other hand, does not want any of Sam’s “A”, due to either having no use for it or already having enough of “A” for his own purposes.
…click on the above link to read the rest of the article…
Why Wages Have Lost Ground in the 21st Century
The problem with stagnant wages is our socio-economic system requires ever-higher incomes to function.
One of the enduring mysteries for conventional economists is why wages aren’t rising for the bottom 95% even as unemployment is low and hiring remains robust. According to classical economics, the limited supply of available workers combined with strong demand for workers should push wages higher.
Why have wages for the bottom 95% lost ground in an expanding economy?We can start our search for answers by looking at a chart of wages going back 44 years to the early 1970s. Note that the top 5% began pulling away in the 1980s, when financialization and globalization took off, and accelerated in the 1990s tech boom and the early 2000s housing bubble. The bottom 95% benefited from these booms, but at a much more modest level: wages for the bottom 95% almost returned to 0% gain as opposed to actual declines.
But after the wheels fell off the bubble in 2008/09, the “recovery” since then has seen wages for the top 5% soar and the wages for the bottom 95% crater. (This chart is for males; the next chart reflects family income.)
Here’s family income going back to the postwar boom of the late 1940s and 1950s. Note the structural change in the early 1970s and the stagnation in all income levels since 2000:
The forces that gathered steam in the 1970s, 80s and 90s that pressured wages are well-known: financialization, which benefited the top echelons at the expense of the increasingly burdened debt-serfs; globalization, which pitted American workers against an ever-expanding global work force of low-paid employees, and automation/software, which expanded from the factory floor into service sectors.
…click on the above link to read the rest of the article…
The Coming CONTAGION – CDS Sales Double from 2016
The issue of credit default swaps (CDS) in 2017 is running at twice that of last year reflecting rising concerns of another coming crash. The number of hedge funds and banks dealing with highly sensitive credit derivatives has reached almost $30 billion in 2017 up from only about $ 15 billion in 2016 and just $ 10 billion back in 2015. The credit default insurance, which is supposed to pay certain amount of money a particular company or government registers its insolvency. The trading in CDS was blamed by numerous observers for creating the financial crisis that became a widespread contagion in 2008 in particular.
Hedge funds are now investing in these risky securities in order to achieve returns on the order of magnitude that are difficult to achieve in the current market environment due low interest rates. High-profile funds such as Apollo, Brigade Capital and Blue Mountain are among those who bought tranches with terms of 2-3 years, according to the FT. The real danger with this instruments is that the next crash will be far worse in the bond markets than at any time since 1931 and the prospects of actually being able to collect on these time-bombs is more unlikely since the entire system will freeze. The crisis is one stemming from liquidity and failure to understand the contagion will lead to significant losses.
The pending view on the stock market remains extremely bearish among professional since their historical view is very myopic and their models rarely extend back before 1971. The was the entire reason Long-Term Capital Management collapsed and set off a crisis that became a contagion. Because they could not liquidate positions in Russian debt, they were forecast to start selling investments around the world to raise cash to cover losses in Russia. Therefore, you can have a great solid investment in an area unrelated to the bond crisis, yet that investment can tank regardless of the fundamentals.
…click on the above link to read the rest of the article…
August 30, 2017
Gold Reset To $10,000/oz Coming “By January 1, 2018” – Rickards
– Trump could be planning a radical “reboot” of the U.S. dollar
– Currency reboot will see leading nations devalue their currencies against gold
– New gold price would be nearly 8 times higher at $10,000/oz
– Price based on mass exit of foreign governments and investors from the US Dollar
– US total debt now over $80 Trillion – $20T national debt and $60T consumer debt
– Monetary reboot or currency devaluation seen frequently – even modern history
– Buy gold eagles, silver eagles including monster boxes and gold bars
– Have a 10% allocation to gold, smaller allocation to silver
Editor: Mark O’Byrne
Source: Agora Financial
A new monetary standard which will see the dollar “reboot” and gold be revalued to $10,000/oz according to best-selling author and Pentagon insider Jim Rickards.
A monetary ‘reboot’ is not unprecedented
Articles about an imminent return to the gold standard are not exactly infrequent in the gold world and it can be easy to become immune to them and dismiss them without considering the facts and case being made.
Many of the articles are not just based one ever-wishful daydreams. Much of it comes from information that is true about today and is then applied to situations that we have seen in the past.
Rickards makes this point himself. A monetary reset is not unheard of. Since the Genoa Accord in 1922 there have been a further eight reboots. The most recent was in 2016 in what Rickards refers to as the Shanghai Accord which purportedly saw deals done that would allow China to ease without leading to a sharp correction in the US stock market.
Rickards isn’t the only one who is speculating that there could be some big monetary changes on the horizon. In March intelligence service Stratfor wrote:
…click on the above link to read the rest of the article…
The return of the peasant: or, the history of the world in 10½ blog posts
About a year ago I started publishing on this site various projections for how the future population of southwest England where I live might be able to feed itself substantially on the basis of small-scale, relatively self-reliant ‘peasant’ farming – convincing myself, if no one else, in the process that such a ‘Peasant’s Republic of Wessex’ might be feasible. The notion that a small farm future of this sort may occur and may even be desirable and worth striving for is, I confess, hardly a mainstream political position. And yet it’s one that I’ve come to, for reasons that I’ve documented here over the years. Essentially, I think that humanity faces a series of interlocking ecological, economic, political, cultural and social crises that, if they’re resolvable at all, are most resolvable through a turn to small-scale, predominantly self-reliant farming. Actually, I see this way of life less as a ‘solution’ to modern ‘problems’ as a non-modern way of being that’s intrinsically less problematic. But I’m anxious to avoid easy dualities – not everything about modernity is necessarily bad, and not everything in a turn to small farm agrarianism would necessarily be good. I’ll say more about that in due course.
The main difficulties in achieving a turn to small-scale agrarianism are not agricultural, but social and political. So I now want to turn my attention away from issues of farm scale and structure towards these socio-political issues. As I started thinking about them, I found myself constantly drawn to history and to what the past may be able to teach us about the possible course of a small farm future. I’m still not really sure whether it does have much to teach us. I said above that a small farm future would be non-modern, but that’s not the same as pre-modern: a non-modern small farm future needn’t necessarily much resemble a pre-modern small farm past.
…click on the above link to read the rest of the article…
Creating Community Through the Act of Gardening
CREATING COMMUNITY THROUGH THE ACT OF GARDENING
“Through one simple, little act, we can cultivate a world that is more diverse, unified, and collaborative, and less divided and lonely – ultimately, a world more joyous and sustainable than this one through one simple act: gardening,” begins a riveting TEDTalk by Jasun “Plaedo” Wellman, a community organizer, educator, gardener, and artist.
Gardening, he said, offers a practical remedy to many of society’s increasingly common ills – disconnection, depression, and disease. However, he didn’t come to gardening in search of salvation and sustainability. Instead, Wellman admits that he used to look down on this “quaint, old-fashioned idea.” As a student of philosophy, he was interested in more intellectual pursuits – until the recession hit and his degree left him few career options.
The silver lining, he said, was the community garden he walked by on his way to work. As a student with financial aid, the garden meant nothing – but when he started working for minimum wage washing dishes part time, the garden began to look more like it could be a way to save money.
“I began my journey of learning to grow my own food, unaware of all that the garden would eventually grow in me,” Wellman said.
He likens his own “inner transformation” to the miraculous beginnings of a plant sprouted from a seed but admitted that at first, his garden wasn’t growing much food. While he wasn’t saving money, Wellman said, he was learning how to tackle a variety of real-world, practical problems – uncovering the more intellectually challenging side of gardening.
In the process, he was also benefitting from the healing aspect of gardening – the hypnotic, calming effect of pruning, pulling, and planting.
…click on the above link to read the rest of the article…
Fearing Contagion, Russia Bails Out Bondholders in its Biggest Bank Collapse Yet
“The panicky mood has been dampened down,” as o ther banks are rumored to be teetering.
True to the playbook of bank bailouts, the Central Bank of Russia (CBR) decided to bail out Bank Otkritie Financial Corporation, the largest privately owned bank in the country, and the seventh largest bank behind six state-owned banks.
The Central Bank put in an undisclosed amount of money in return for at least a 75% stake. This is likely to be Russia’s biggest bank bailout ever, well ahead of the current record holder, the $6.7 billion bailout of the Bank of Moscow in 2011.
Otkritie and its businesses would operate as usual, the Central Bank said. The banks obligations to creditors and bondholders, which include other Russian banks, would be honored to avoid contagion.
The controlling shareholder of Otkritie bank is Otkritie Holding, with a 65% stake. The bank had grown by wild acquisitions, grabbing other banks, insurers, non-pension funds, and the diamond business of Russia’s second largest oil producer Lukoil. Otkritie Holding is owned by executives of Lukoil, state-owned VTB bank, Otkritie, and other companies. So clearly, this bank is too big to fail.
Lukoil is also one of Otkritie’s largest clients. So Lukoil CEO Vagit Alekperov said in a statement that he saw no risks for Lukoil associated with the bail out, and that Lukoil supported the Central Bank’s decision.
In July, according to Reuters, Kremlin-backed rating agency ACRA downgraded Otkritie to a BBB- rating, citing the “low quality of its loan portfolio.”
On August 17, Moody’s placed Otkritie on review for possible downgrade, citing two big issues:
“The recent elevated volatility of the bank’s customer deposits, which puts pressure on its liquidity position and negatively affects its funding costs”
The bank’s “increased involvement in financing the large financial and industrial assets of its controlling shareholder Otkritie Holding.”
…click on the above link to read the rest of the article…
CO2 is Changing the Jet Stream in Ways that will Create more Harveys
The flooding over Houston has become absolutely devastating, and now it is officially record-breaking. Parts of Southeast Texas have now seen 50 inches of rain since Friday — and the rain is still falling.“The record for total rainfall from a tropical system has been BROKEN!” the National Weather Service tweeted Tuesday morning. The previous record for wettest tropical system in the continental United States was 48 inches. Harvey had already hit 49.20, and the rain was still coming.
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Global Warming Linked To More Extreme Weather And Weaker Jet Stream
“The kind of stalled weather pattern that is drenching Houston is precisely the sort of pattern we expect because of climate change,” climatologist Michael Mann explained in an email to ThinkProgress. Earlier this year, Mann co-authored a study explaining how human-caused warming is changing our atmosphere’s circulation, including the jet stream, in a way that leads to “increase in persistent weather extremes” during the summer.
“I agree with Mike [Mann] that the weak steering currents over the south-central US coincident with Harvey are consistent with our expectations for a warmer world, which of course includes effects of a very warm Arctic,” Jennifer Francis, a climate scientist at Rutgers University, told ThinkProgress.
…click on the above link to read the rest of the article…
Systemic Uncertainty, Meet Fragility
That’s the problem with fragility: everything looks fine on the surface until a crisis applies pressure. Then the whole rickety contraption collapses in a heap..
Life is inherently uncertain, but systems that were once considered certainties have increasingly become uncertain. Social Security is one example; recent polls reflect widespread doubts among Millennials and Gen-Xers that there will be any Social Security benefits left for them by the time they reach retirement age.
This doubt is fact-based; as the number of retirees swells, as Medicare costs soar ever higher and the number of full-time jobs paying into Social Security/ Medicare stagnates, these pay-as-you-go programs break down; Social Security is already paying out billions more than it collects from employers and employees.
Uncertainty is one thing, fragility is another. The socio-economic systems we rely on are also becoming increasingly fragile and prone to failure, for an entirely different set of reasons than those driving uncertainty.
Changing fundamentals drive uncertainty. The nation’s demographics and stagnant wages for the bottom 95% are extremely unfavorable for pay-as-you-go programs like Social Security and Medicare; their future is uncertain because the inputs and outputs are changing.
Fragility is a function of systems being thinned by cronyism, self-serving insiders, fraud, lack of transparency, lack of competition, monopolies, profiteering and a decline of quality. Systems that become too costly due to the above dynamics are hollowed out as everyone seeks some way to reduce the costs. Redundancies are stripped out, staff is slashed to the bone, senior managers with the most experience are pushed out to lower payroll costs, quality control is whacked, and inferior inputs are presented as equal to the higher quality inputs that they replace.
When these weakened systems are under pressure or face a crisis, they crumble. Shoddy materials fail, inexperienced managers make hasty, ill-informed decisions, the barebones staff is overwhelmed, equipment that wasn’t properly maintained to save money breaks down, and so on.
…click on the above link to read the rest of the article…
