Friday, December 18, 2015

Fwd: Stress In Markets Is Real And Growing..........AN ABSOLUTE MUST READ!

Stress In Markets Is Real And Growing

Over the last two decades the Fed's interventionism has created artificial booms and real busts. Their dreadful mistakes are "fixed" by currency debasement, lower interest rates, and money printing – creating even worse mistakes. They have successfully gutted the American economy and left a hollowed out shell. The coming collapse will be three pronged as stocks, bonds, and real estate are all simultaneously overvalued. Junk bonds are the canary in a coalmine.

We are living in a time that can only be considered monetary chaos. The media and the policy pundits may focus on the day-to-day zigs and zags of central bank monetary and interest rate policy, but what really needs to be asked is whether or not we should continue to leave monetary and banking policy in the discretionary hands of central banks and the monetary central planners who manage them.

The truth is that events have finally caught up with the structural distortions of a financial world running on illusion. To everything there is a season, turn, turn, turn, and economic winter is finally upon us. All the world 'round, people borrowed too much to buy stuff and now they're all borrowed out and stuffed up. Welcome to the successor to the global economy: the yard sale economy, with all the previously-bought stuff going back into circulation on its way to the dump.

The continued misuse of capital and continued erroneous monetary policies have instigated not only the recent downturn but actually 30 years of an insidious slow moving infection that has destroyed the American legacy. "Recessions" should be embraced and utilized to clear the "excesses" that accrue in the economic system during the first half of the economic growth cycle. Trying to delay the inevitable, only makes the inevitable that much worse in the end.

We have the most serious BUBBLE in history. The FED is between a rock and a hard place. The market is desperate to convince itself that just as more easing and more QE were bullish for the market, so rate hikes are just as bullish. You should be very skeptical of the Fed's ability to continue to control market forces much longer.

We have reached the apogee of history's greatest credit inflation. Now we're hurtling into a prolonged worldwide deflation. You can already see this deflation in the plunge of oil, iron ore, copper and other commodity prices. We are in uncharted waters after nearly 20 years of madcap money printing by the Fed and other central banks. The world's central banks are finally out of dry powder. They no longer have the means to inflate the global credit and financial bubble.

There is a Category 5 deflationary hurricane forming off the Chinese coast as Beijing accelerates the devaluation of the yuan against the dollar under the guise of "reform". The truth is that this deflationary storm has already laid waste to the global commodity complex, doing trillions of dollars in damage. The truth is that this deflationary storm has driven inflation expectations down to levels last seen when the world was coming to an end in the Lehman aftermath.

With economic growth currently running at THE LOWEST average growth rate in American history, the time frame between the first rate hike and next recession will not be long. For investors, there is little "reward" in the current environment for taking on excess exposure to risk assets. The deteriorating junk bond market, declining profitability and weak economic underpinnings suggest that the clock has already begun ticking. The only question is how much time is left.

Wall Street's proclivity to create serial equity bubbles off the back of cheap credit has once again set up the middle class for disaster. The warning signs of this next correction have now clearly manifested, but are being skillfully obfuscated and trivialized by financial institutions and the mainstream media. Those in power never understand markets. They are very myopic in their view of the world. The assumption that lowering interest rates will "stimulate" the economy has NEVER worked, not even once. Nevertheless, they assume they can manipulate society in the Marxist-Keynesian ideal world, what if they are wrong? AND THEY ARE VERY WRONG!

The world's central banks have finally run out of dry powder. They will be unable to stop the credit implosion which must inexorably follow the false boom.

There's No Upside Left

The upside is ephemeral, illusory or wishful thinking; the downside is real and lasting.

There's no upside left--not just in the real economy, but in jobs, politics or policy tweaks. Yes, there will be huge relief rallies in the stock market--relief that the Fed is still omnipotent, that the Fed didn't destroy the world by withdrawing liquidity, etc., etc., etc.--but in terms of sales and profits, there's no upside left: an increasingly nervous upper middle class is reining in profligate spending, while everyone below the top 10% is running out of credit cards, student loans, etc. to tap.

Whatever surplus the real economy generated has been skimmed by financiers, lenders and the central state. Stock buybacks have boosted the wealth of corporate managers and institutional owners while creating zero jobs; lenders have feasted on high-interest credit cards, federally backed student loans and subprime auto loans that are immediately spun off to credulous suckers as high-yield securitized debt.

Anyone working for Corporate America or government has little upside but plenty of downside: bonuses are being slashed, divisions closed, sold off or privatized in the case of government, all to cut costs.

State and local pension funds, bloated by seven years of speculative frenzy, are about to start bleeding from every orifice as reality and risk intrude on the central banks' fantasy of never-ending asset bubbles.

Whatever pension and bennies you were promised--start practicing your fractions, because only a fraction of the bloated promises made by politicos desperate to get re-elected can be paid in the real world.

Doing a great job will either get you fired or overworked: no upside there. If you have the courage (or foolish devotion to truth) to be honest, then you'll be fired as a disruptive "non-team-player" who stepped on too many toes in the pursuit of excellence.

Or if you knuckled under and kept the truth to yourself but managed to get the impossible tasks completed despite the incompetence and/or shoddy work ethic of your managers and peers, you'll get promoted to a job that requires twice the responsibility and workload for a 10% raise.

Anyone taking one of the hundreds of thousands of low-paying service-sector jobs has limited upside in pay and benefits; the corporate owners skim whatever upside there is because labor is in surplus except for narrow fields of expertise.

Productivity gains have been skimmed by corporate owners or the managers: Wage Gains: For Your Boss - Yes; For You - Not So Much.

It's all downside.....

It would be nice if an elected official could downsize the Empire or the Deep State, but this is wishful thinking. Can anyone force a radical downsizing (i.e. slashing and burning waste and inefficiency, eliminating multiple layers of management, unraveling cartels and monopolies, closing loopholes for patent-troll litigation, etc.) of the weapons acquisition monstrosity, the regulatory monstrosity, the litigation monstrosity, the healthcare/sickcare monstrosity, or the ineffective higher education monstrosity?

The legions living off these inefficient, bloated systems will destroy any real reforms and anyone who dares propose them. The only available process of radical downsizing /rationalization is collapse. 

I don't blame anyone for trying to save their job, division or agency; but the systemic cost of protecting privileges, bureaucracies and cartels is collapse.

But labor isn't the only thing that's in surplus--so is capital. That's why the yield on capital is near-zero or below zero. This has driven money managers to accept extremely dangerous levels of risk to chase yields. That central banks have masked the risk by claiming an omnipotence that cannot exist in the real world has only increased the systemic risks of implosion.

As for the central banks' favored optical distortion device, the stock market--what will drive long-term upside once the market is de-FANGed? Another raft of absurdly overvalued Unicorn stocks?

With risk piling up and yields crashing, there is only downside......

Meanwhile, the engine of distributed wealth creation, people willing to risk their labor and capital on new enterprises, is cratering.

There's no upside to risking everything when the commercial building owner, bank and local / federal government skim whatever you earn to the point that you're losing money every month.

Oh, wait--there is some upside: the black market/cash economy. Those who sidestep the burdens of regulation, litigation and taxes have plenty of upside. But it's all downside for everyone collecting government paychecks and benefits paid with taxes, because the cash economy generates zero income tax revenue and very little in fees.

That only increases the burden being loaded on the tax-donkeys who have no choice but to pay higher taxes and the legitimate businesses getting socked with ever-higher fees and regulatory costs.

The upside is ephemeral, illusory or wishful thinking; the downside is real and lasting.


"Above all, don't lie to yourself. The man who lies to himself and listens to his own lie comes to a point that he cannot distinguish the truth within him, or around him, and so loses all respect for himself and for others. And having no respect he ceases to love." 

                                 Fyodor Dostoyevsky

The lies we tell ourselves are only exceeded by the lies perpetrated by those controlling the levers of our society.

We've lost respect for ourselves and others, transforming from citizens with obligations to consumers with desires. The love of mammon has left our country a hollowed out, debt ridden shell of what it once was. 

By falling for the false materialistic narrative of having it all today, millions of Americans have enslaved themselves in trillions of debt. 

The totals are breathtaking to behold:

Total mortgage debt – $13.6 trillion ($9.9 trillion residential)
Total credit card debt – $924 billion
Total auto loan debt – $1.0 trillion
Total student loan debt – $1.3 trillion
Other consumer debt – $300 billion

The masses have been lied to by bankers and their mass media mouthpieces, while willfully buying into the lie of living for today and funding it with debt. An entire society bought into the fallacy that a country could transition from savings and investment to borrowing and consuming, with no adverse consequences. 

The mass delusion is clearly evident in the comparative consumer debt data from 1971:

US population in 1971 – 208 million
Total credit card debt 1971 – $8.5 billion ($41 per capita)
Total auto loan debt 1971 – $40.5 billion ($195 per capita)

US population in 2015 – 320 million
Total credit card debt 2015 – $890 billion ($2,781 per capita)
Total auto loan debt 2015 – $1.03 trillion ($3,219 per capita)

The population of the US has grown by 54% since 1971, but the amount of credit card debt per person has grown by 6,782%, and the amount of auto loan debt has grown by 1,650%. Meanwhile, real median household income has grown by 8% since 1971. Replacing income with debt in order to give the appearance of wealth is nothing but a lie.

It requires an ever larger amount of debt to generate an additional dollar of GDP. The exponential increase in debt became unsustainable and the Wall Street lies resulted in a global conflagration in 2008. The desperate effort by the Fed to re-inflate the debt bubble through ZIRP and QE has resulted in pathetic economic growth, while leaving willfully ignorant consumers with a record level of debt.

Americans are embarrassed and ashamed by their levels of consumer debt, but they can't stop.

Appearances are all that seem to matter in our society today.

The Fed's master plan to revive the economy with massive doses of debt has failed.

There is no avoiding a collapse brought on by decades of warped monetary and fiscal policies, and irrational behavior by bankers, corporations and consumers. 

It's far too painful to deal with reality, so we ignore it!

We have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff 'that just ain't so.

At this point in time it is necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.

Seven years of zero rates, massive monetary inflation and incessant market backstopping have desensitized and anesthetized. Rational thought ultimately succumbed to "perpetual money machine" quackery. And now all of this greatly increases vulnerability to destabilizing market dislocations, as senses are restored and nerves awakened. A lot of this looks like late 2007 or early 2008, but today, market mispricing is systemic and global – virtually all securities classes at home and abroad.

A 20-Year-Old Perversion In The Stock Market Is Ending. We are entering a new regime of slowly rising rates and a stronger dollar, what worked the last 30 years is unlikely to be leadership in the new regime.

The American middle class is getting poorer. Wages have been stagnant for decades - if jobs can be found to get those wages. Jobs are exported overseas by big corporations. Small businesses get harassed with taxes and big government red tape. There are bailouts to central bankers to the tune of trillions while Main Street businesses go bankrupt. Endless QEs have propped up 'their' stock market, largely owned by the 1 percent. The rich are getting fabulously richer while a record number of people are on food stamps.
The Federal Reserve is the heart of darkness. They're a private group of elites who get to print up money for themselves and their cronies while their mainstream media tells everyone it's all fine and dandy. 

They get richer and more powerful while the middle class gets the debt and abuse. The middle class has one foot in the grave and the other foot on a banana peel, thanks to our corrupt and dysfunctional system of money. Central bankers won't have answers for what ails global markets.

It's time to end the Federal Reserve. It's time to shut down the IRS. It's time to end crony capitalism, which is leading us deeper into fascism.

Our country has gone mad over the last few decades! 

We had a chance to come to our senses in 2008, wipe away the debt, liquidate the criminal Wall Street banks, prosecute the perpetrators, and reorient our economy and society back to one built upon savings and investment, rather than borrowing and consumption. It was not to be, as Bernanke and the Deep State decided their best interests trumped the interests of the people. The coming collapse may finally put an end not only to the American dream, but to America.

Looking back, after the coming crash, it will be obvious that it should have been crystal clear, completely obvious to any thinking person, that we had really big problems.

In fact, all great financial bubbles have watershed moments that in many ways signify the height of lunacy, and most miss them all, until it is too late.

There are a lot of flashing warning signs right now that the system is quickly running out of steam.

It's pretty clear that there's an incredible amount of risk in the system, probably more than at any other point in history.

Central banks have printed so many trillions of dollars that there's hardly anything that makes sense in the financial system anymore.

This is not a consequence-free environment…

And in the future when we look back and say, "It should have been so obvious," we will all feel like the fools that we are, as we struggle to survive amid the confusion and chaos that is coming.


No comments:

Post a Comment