A Bubble in Complacency
by ilene - January 30th, 2011 10:13 pm
Courtesy of John Mauldin, Thoughts From The Frontline
The Recent GDP Numbers – A Real Statistical Recovery
Consumer Spending Rose? Where Was the Income?
A Bubble in Complacency
Egypt
Rosie, Las Vegas, Phuket, and Bangkok
This week I had the privilege of being on the same panel with former Comptroller General David Walker and former Majority Leader (and presidential candidate) Richard Gephardt. A Democrat to the left of me and a self-declared nonpartisan to the right, stuck in the middle and not knowing where the unrehearsed conversation would take us. As it turned out, to a very interesting conclusion, which is the topic of this week’s letter. By way of introduction to those not familiar with them, David M. Walker (born 1951) served as United States Comptroller General from 1998 to 2008, and is now the Founder and CEO of the Comeback America Initiative. Gephardt served in Congress for 28 years, was House Majority Leader from 1989 to 1995 and Minority Leader from 1995 to 2003, running for president in 1988 and 2004.
Some housekeeping first. We have posted my recent conversation with George Friedman on the Conversations with John Mauldin web site. And on Saturday we will post the Conversation and transcript I just did with David Rosenberg and Lacy Hunt, which I think is one of the more interesting (and informative!) ones I have done. You can learn more about how to get your copy and the rest of the year’s Conversations (I have some really powerful ones lined up) by going to www.johnmauldin.com/conversations. Use the code “conv” to get a discount to $149 from the regular price of $199. (If you recently subscribed at $199 we will extend your subscription proportionately. Fair is fair.)
The Recent GDP Numbers – A Real Statistical Recovery
Now, before we get into our panel discussion (and the meeting afterward), let me comment on the GDP number that came in yesterday. This is what Moody’s Analytics told us:
“Real GDP grew 3.2% at an annualized pace in the fourth quarter of 2010. This was below the consensus estimate for 3.6% growth and was an improvement from the 2.6% pace in the third quarter. Private inventories were an enormous drag on growth, subtracting 3.7 percentage points; this bodes very well for the near-term outlook and means that current demand is very strong. Consumer spending, investment and…
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Stock World Weekly
by ilene - January 30th, 2011 8:23 am
Here’s this week’s Stock World Weekly. Enjoy! Comments welcome.
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Hugh Hendry On The “Near Certainty” Of European Interest Rate Rises
by ilene - January 21st, 2011 9:42 pm
Courtesy of Zero Hedge
Europe risks getting it wrong again on rate rises
From European Central Bank, posted first in the FT
The euro project has not gone according to plan. It reminds me of the story of the James Bond character Q, based on the British intelligence officer Charles Fraser-Smith. It was he who invented a compass for spies hidden in a button that unscrewed clockwise. The contraption was based on the simple yet brilliant theory that the unswerving logic of the German mind would never guess that something might unscrew the wrong way. This is really what happened with the euro. New member states were supposed to take lower German interest rates and invest their resources wisely to improve and deepen their productive capacity. Instead, they used the advantage to finance speculative asset bubbles. The peripheral nations of Europe turned the wrong way. The Germans are unhappy.
But, desperate to cling to monetary union, the other European sovereigns have opted to default on their spending promises to voters rather than impose a haircut on their financial creditors. In the 1920s the pay-off structure had been very different. The first world war took an intolerable toll on the typical household both in terms of the loss of life and financial well-being; everyone had become poorer. Accordingly, there was little willingness on the part of the ruling political class to force austerity measures to redress the fiscal imbalances. The people had suffered long enough. Consequently, there was much procrastination and fiscal deficits persisted way beyond the end of the war, making capital markets reluctant to accept the waning security of government paper and forcing the sovereign to rely on the central bank’s printing press.
This time around, however, the political class has concluded that the Greeks (especially the Greeks!) and the other peripheral states have done so well off the back of the euro project that it is their turn to shoulder the burden. They calculate that the social pain would be less severe than the financial costs of a debt default and/or a euro exit. Of course, this is to neglect the financial consequences of bailing out the financial sector in 2008 and its ensuing impact on the ordinary household. Can an analogy be drawn between the first world…
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12 Economic Collapse Scenarios That We Could Potentially See In 2011
by ilene - January 20th, 2011 12:56 pm
Courtesy of Michael Snyder at Economic Collapse
What could cause an economic collapse in 2011? Well, unfortunately there are quite a few "nightmare scenarios" that could plunge the entire globe into another massive financial crisis. The United States, Japan and most of the nations in Europe are absolutely drowning in debt. The Federal Reserve continues to play reckless games with the U.S. dollar. The price of oil is skyrocketing and the global price of food just hit a new record high. Food riots are already breaking out all over the world. Meanwhile, the rampant fraud and corruption going on in world financial markets is starting to be exposed and the whole house of cards could come crashing down at any time. Most Americans have no idea that a horrific economic collapse could happen at literally any time. There is no way that all of this debt and all of this financial corruption is sustainable. At some point we are going to reach a moment of "total system failure".
So will it be soon? Let’s hope not. Let’s certainly hope that it does not happen in 2011. Many of us need more time to prepare. Most of our families and friends need more time to prepare. Once this thing implodes there isn’t going to be an opportunity to have a "do over". We simply will not be able to put the toothpaste back into the tube again.
So we had all better be getting prepared for hard times. The following are 12 economic collapse scenarios that we could potentially see in 2011….
#1 U.S. debt could become a massive crisis at any moment. China is saying all of the right things at the moment, but many analysts are openly worried about what could happen if China suddenly decides to start dumping all of the U.S. debt that they have accumulated. Right now about the only thing keeping U.S. government finances going is the ability to borrow gigantic amounts of money at extremely low interest rates. If anything upsets that paradigm, it could potentially have enormous consequences for the entire world financial system.
#2 Speaking of threats to the global financial system, it turns out that "quantitative easing 2" has had the exact opposite effect that Ben Bernanke planned for it to have. Bernanke insisted that the main goal of QE2 was to lower interest rates, but instead all it has done is…
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AAII: BULLISH SENTIMENT HITS 6 YEAR HIGH
by ilene - December 24th, 2010 2:18 am
Courtesy of The Pragmatic Capitalist
This morning’s AAII sentiment survey is consistent with just about every other sentiment reading of late – investors are wildly confident that stocks will be higher in the coming 6 months. The optimism is almost near universal. The following chart tells the story of this bi-polar market. On August 26th, just days before the market bottom, the bullish sentiment hit just 20.7% – no one thought stocks were set to rise. Now, after a 20% rise in equities the consensus is uniformly positive.
Charles Rotblut of AAII elaborated on this morning’s results:
“Bullish sentiment, expectations that stock prices will rise over the next six months, rose 13.1 percentage points to 63.3% in the latest AAII Sentiment Survey. This is the highest level of optimism since November 18, 2004. This is also the 16th consecutive week that bullish sentiment has been above its historical average of 31%, the longest such streak since 2004.
Neutral sentiment, expectations that stock prices will remain essentially flat, declined 2.3 percentage points to 20.3%. This is a six-week low for neutral sentiment and the 20th consecutive week that neutral sentiment has been below its historical average of 31%.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 10.7 percentage points to 16.4%. This is the lowest level of pessimism since July 14, 2005. It is also the 11th time in the past 12 weeks that bearish sentiment has been below its historical average 30%.
The spread between bullish and bearish sentiment is currently at +46.9 points. This is the most positive bull-bear spread since April 15, 2004, when it reached +50.0 points. A wider differential was recorded on March 5, 2009, when the bull-bear spread fell to -51.4 points.
Bullish sentiment is more than two standard deviations from its historical mean, making it a statistical outlier. In simpler terms, bullish sentiment is running red hot. In fact, the current reading is the 18th highest since the survey started in 1987. Higher readings were recorded in 1987, 2000, 2001, 2003 and 2004. Such high levels of optimism have been correlated with a decline in the S&P 500 over the proceeding 24 weeks, though the magnitude of the declines have varied. A spreadsheet showing all of the survey’s historical data is attached.”
Source: AAII
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WHAT DOES THE YIELD CURVE TELL US ABOUT FUTURE ECONOMIC CONDITIONS?
by ilene - December 21st, 2010 3:15 pm
Pragcap asks: "WHAT DOES THE YIELD CURVE TELL US ABOUT FUTURE ECONOMIC CONDITIONS?"
There are few indicators more prescient than the yield
The current curve, however, is quite steep and tends to be consistent with a Federal Reserve that is attempting to stimulate the economy (something they also have a tendency of overshooting). Based on past readings the Cleveland Fed says the current environment is consistent with 1% growth in real GDP:
“Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year, the same projection as in October and September. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year.”
But meager growth is better than no growth. At current levels the probability of recession is virtually 0%. Unfortunately, low growth means this is going to continue feeling like a recession for a large portion of the country. And in a balance sheet recession the usual Fed toolbox of altering interest rates is unlikely to have the usual stimulative impact.
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Just Another Manic Monday – Stagflation Official in China
by Phil - December 13th, 2010 8:14 am
Wheeee, everything must be great!
We are crushing our levels as the market flies ever higher. Our 11,500 target on the Dow looks sure to be tested and we’re already flipping bullish with our "Breakout Defense" trades, in which our goal is to make 5,000% in 5 trades or less. We are not ashamed to jump on the bullish bandwagon – if they are giving away money, we’ll stand in line with everyone else, only we’ll take a larger share – thank you very much. We certainly know how to use leverage just like a Bankster – we have a spread and we’re not afraid to use it!
Speaking of Banksters, the must-read article of the weekend is the NY Times piece that goes into surprising details of secret bank meetings that are regularly held in NY where the Gang of 12 (just 9 of them) do their best to manipulate the derivatives market, influence regulations and regulators and, of course, crush their competition. The article even goes so far as to name my old friends at ICE as possibly maybe having something to do with these shenanigans and I am SHOCKED at these allegations as the good people at ICE were so good about telling me how I had things all wrong when I made similar statements last year (which I now legally know cannot be proven and therefore must not be true).
And thank goodness that the commodity and derivatives clearinghouse that was founded by Big Banks and is controlled by Big Banks cannot be proven to be operating in favor of Big Banks because we wouldn’t want to think that the Big Banks had some preferential treatment (beyond the access to the discount window and the TARP money and the POMO money, etc.) – that would just be unAmerican. By unAmerican, I mean the old America that they write about in the Declaration of Independence and the original Constitution, of course – not the Corporate Kleptocracy this country has developed into. Under the new guidelines, leveraging your influence and having the government rob the people to increase your profits on which you don’t pay taxes is the very definition of patriotism, isn’t it?
Ah well… As I said last Monday, this is really Somebody Else’s Problem because we are in "get it while the gettin’s good…
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“The Secret Of Oz” – The Truth Behind The Modern Financial System, And The Money-Political Complex
by ilene - November 15th, 2010 12:40 pm
In case you missed the movie recommendation from Zero Hedge, it’s worth watching. I’ve got it playing in the background. – Ilene
"The Secret Of Oz" – The Truth Behind The Modern Financial System, And The Money-Political Complex
Courtesy of Tyler Durden
While America is entertained by a rather realistic cartoon of what happens when the Fed (semantics aside) prints money with which to buy up whatever assets it so chooses, and launders the cash for the Primary Dealers (a topic discussed ad nauseam on Zero Hedge), we present a rather more somber and serious look at the modern financial system, courtesy of Bill Still, creator of the movie: "The Secret of Oz" which explains in a far more nuanced manner the interconnectedness in the vicious square of power, politics, money creation and debt formation, and Wall Street, the Fed, and the Political forces in DC are intertwined to a degree that essentially makes the whole concept of democracy moot (a topic touched upon earlier by Bill Buckler). As Still says: "The world economy is doomed to spiral downwards until we do 2 things: outlaw government borrowing; 2. outlaw fractional reserve lending. Banks should only be allowed to lend out money they actually have and nations do not have to run up a "National Debt". Remember: It’s not what backs the money, it’s who controls its quantity." As more and more Americans are finally expressing an interest in what is really happening behind the scenes, but seem to not have the patience for simple algebra, we hope the following movie answers most of the pent up questions.
Still’s movie is well worth the two hours it takes to watch.
h/t Fiat Currency
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BEN BERNANKE EXPLAINS THAT QE IS NOT INFLATIONARY, JUST AN ASSET SWAP
by ilene - November 7th, 2010 2:34 pm
Pragcap’s view of QE3 differs from a number of other financial writers we post here in the Favorites. If you’re puzzled after reading this article, I suggest reading Pragcap’s comment section, particularly comments by Kid Dynamite. – Ilene
BEN BERNANKE EXPLAINS THAT QE IS NOT INFLATIONARY, JUST AN ASSET SWAP
Courtesy of The Pragmatic Capitalist
Ben Bernanke was at Jacksonville University this past Friday discussing the Federal Reserve with college students. It’s actually a very good discussion. He goes through the banking crisis step by step and provides a very clear explanation of the Fed’s role during the crisis. He confirms most of what I have been repeating for weeks now.
Most importantly, however, he explains what the Fed is doing going forward. He makes several critical points:
- He explains that the Fed “is not printing money”. They are merely swapping treasuries for deposits (sound familiar?). As he mentioned in his op-ed the other day there is no reason to believe this operation is inflationary. It alters the duration of debt outstanding and nothing more. QE IS NOT INFLATIONARY.
- He says the price increases in commodities (caused entirely by speculators and not fundamental changes) are not a concern because the slack in the economy will make it difficult to pass these costs along to consumers (sound familiar?). Unfortunately, I think the Chairman is overlooking the fact that corporations will be less likely to hire as they see their margins squeezed. This is a significant issue the Chairman appears to be glaring over. It should not surprise any of us that he is viewing this environment as an academic and not as a business owner. Just one more piece of evidence showing he is unqualified for this position.
- The Chairman proves that he absolutely does not understand how the US monetary system functions when he says that the US is analogous to Japan in that we have high government debts. He claims that Japan funds their debt internally. He clearly has no idea that the bond markets fund nothing in the USA. He goes on to explain that the US budget deficit creates risks for the country despite previously explaining that high inflation is not a problem. Clearly, the Chairman believes the government balance sheet is no different than a household balance sheet. No wonder
…
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Living Beyond Our Means: 3 Charts That Prove That We Are In The Biggest Debt Bubble In The History Of The World
by ilene - November 3rd, 2010 3:05 pm
Living Beyond Our Means: 3 Charts That Prove That We Are In The Biggest Debt Bubble In The History Of The World
Courtesy of Michael Snyder at Economic Collapse
Do you want to see something truly frightening? Just check out the 3 charts posted further down in this article. These charts prove that we are now in the biggest debt bubble in the history of the world. As Americans have enjoyed an incredibly wonderful standard of living over the past three decades, most of them have believed that it was because we are the wealthiest, most prosperous nation on the planet with economic and financial systems that are second to none.
But that is not even close to accurate. The reason why we have had an almost unbelievably high standard of living over the past three decades is because we have piled up the biggest mountains of debt in the history of the world. Once upon a time the United States was the wealthiest country on the planet, but all of that prosperity was not good enough for us. So we started borrowing and borrowing and borrowing and we have now been living beyond our means for so long that we consider it to be completely normal.
We have been robbing future generations blind for so long that it doesn’t even seem to bother most people anymore. We have become accustomed to living in debt. We go into massive amounts of debt to get an education, we go into massive amounts of debt to buy a home, we go into massive amounts of debt to buy our cars, and we even pile up debt to buy holiday gifts and to purchase groceries.
Just check out the chart posted below. It shows the total credit market debt owed in the United States. In other words, it is a measure of what everyone owes (government, businesses and consumers).
30 years ago, total credit market debt owed was less than 5 trillion dollars. Today, it is over 50 trillion dollars. Total credit market debt is now at a level equivalent to about 360 percent of GDP. This is what has been fueling the great era of "economic prosperity" that we have been experiencing….
So what is the answer to this problem?
The truth is that there is not an easy answer under our current system. The only way that the U.S. economy continues to "grow" is if the debt bubble continues to "expand". …
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(