Monday, February 29, 2016

Peaking Behind The Curtain....It's Not Pretty!

Peaking Behind The Curtain....It's Not Pretty

The populist revolt fueling non-mainstream political movements in both Europe and the US flows from a single source: you can not fool all the people all the time.The central lie of our time is that governments can and should forcibly assume control of individuals' lives, in the name of vague and always shifting greater goods.The Command and Control Futility Principle holds that governments and central banks can control one, but not all variables in a multi-variable system. The number of variables global governments and central banks have arrogated to their purported control has grown beyond measure. Breakdowns are visible everywhere, and as those failures exact their ever-increasing toll on the masses, the masses are pushing back. TRUMP IS A SYMPTOM OF THIS DISEASE.

The last financial crisis was a watershed. Capitalism's rough justice was obviously, and gallingly, not allowed to play out. Favored financial institutions didn't face the consequences—insolvency and bankruptcy—of their promotion of various bubbles and their leveraged business models. They were bailed out with taxpayer funds. Especially galling was that they knew they were going to be bailed out. More salt on the wound: improvident homeowners and housing speculators who took on too much mortgage debt were, other than a few spotty government programs, not bailed out or even offered appreciable relief. Since the crisis passed, banks have operated on the assumption they will be bailed out again during the next crisis. Despite all the hype about improved capital ratios and cleaned up loan books, fractional reserve banking is still fractional reserve banking; a leveraged business model that is wiped out if enough loans and speculations go bad.

Still more salt: despite unprecedented government debt and spending, new programs, particularly Obamacare, central bank debt monetization, and ultra-low interest rates, the purported recovery is the weakest on record, with the labor force participation rate at a multi-decade low, the number of people on food stamps recently reaching a record high, and real incomes back where they were in the 1970s. Those ultra-low interest rates have destroyed the incentive to save and forced retirees back into the workforce (the one group whose labor force participation rate has increased), but provided cheap funding to the carry-trade set, stock options-laden corporate executives, and Silicon Valley moguls. Their trophy art, cars, mansions, and spouses grace the media. That's beyond salt, it's rubbing people's noses in it.

The messes the globalist powers that be have made outside their jurisdictions are even larger than the ones inside. Led by the US, the Western powers have bestowed unending chaos on the Middle East and Northern Africa. They have achieved none of their goals, but have created massive blowback with the spread of terrorism and the refugee inundation of Europe. Not only have the war-torn lands not been reordered along liberal democratic lines, but mountains of money and barrels of blood continue to be spent in perpetual war. Meanwhile, ordinary citizens in Western homelands, not the elites, are left to contend with terrorist attacks, refugees burdening already strained social welfare systems, and obnoxious and illegal behavior by some of the new entrants. The elites shun even acknowledging these problems.

It comes as a surprise only to the elites and their media mouthpieces that the peasants are revolting, tired of their prevarication, arrogance, and ineptitude. Don't, however, expect them to pay attention to anything so insignificant as the popular will; they won't go gentle into that good night. In the US, the establishment can live with Hillary, and if either Trump or Sanders—the revolution's candidates—wins, the new president will soon learn who actually runs the government. Or he will have an unfortunate accident or heart attack. However, the Empire is leaving nothing to chance; it has already initiated a preemptive counterattack.

The counterattack has three overlapping fronts: war, the economy, and civil liberties.

"The Quagmire to End All Quagmires" stated that "the US faces the danger of being dragged into World War III." That phrasing may have been an error. The US government most likely won't get "dragged" into World War III; it will probably initiate it. If Turkey and Saudi Arabia invade Syria, assume they've been green-lighted by the US government, which will join them in the carnage.

As the economy goes down in flames, central bankers and the usual totalitarian creeps are embracing negative interest rates and bans on cash. Negative interest rates self-evidently destroy the incentive to save, the foundation of honest capitalism and progress. Many commentators have pointed out that negative rates lead to an increased demand for zero return cash, so the monetary Dr. Strangeloves have to ban it to drive money into the banking system. Although negative interest rates are patently absurd and counterproductive, always strong selling points for the Strangeloves, the real reason for locking money in the banking system is to prevent a systemic run. As in the last crisis, on a mark-to-market basis the leveraged banking system—with the largest US and European banks still massively exposed to derivatives—will be recognized as insolvent and subject to a run unless money is kept locked in the banks and expropriated.

This assault on financial freedom goes hand in hand with the war against civil liberties, a specious battleground in the concocted "War on Terrorism." The mainstream media and even some of the non-mainstream blogosphere have been filled with articles about the "complexity" of the Apple-FBI standoff on encryption. The word "complexity" is often a tip-off that someone's about to pull an intellectual fast one.

Encryption is simple. It's one of those issues most people dread: an either-or. Either one's computer communications are encrypted and safe from prying eyes, or they are not. There is no middle ground, and Apple is ostensibly cutting its throat asking Congress, of all people, to come up with one. Encryption that has been compromised, for any reason, is useless. At Apple and the rest of Big Tech's behest an encryption "compromise" will emerge that fatally compromises encryption, cementing Big Tech's partnership with government. Lovers of liberty and privacy will be left searching for quite possibly illegal encryption developed by smaller, guerrilla software outfits.

Many will say that deliberate war, economic destruction, and technological repression are inconceivable; such a strategy is contradictory, counterproductive, depraved, deranged, diabolic, deadly, pathologic, sociopathic, psychotic, and out-and-out evil. All of the above are true but that has never stopped our government masters before and it won't stop them now.

The proto-Marxist Jacobins of the French Revolution put it this way: "Out of order, chaos." But first the Jacobins had to create the chaos, with an artificially engineered grain shortage leading to food riots, which they exploited for their revolutionary ends. Vladimir Lenin put it this way, when told that bread riots were breaking out in Russia: "The worse, the better." The better for creating the optimal revolutionary conditions. The Black Panthers, revolutionary Marxists of the 1960s, said, "Burn, baby, burn."

The currently existing social compact has to be burnt to the ground before the new world economic order can be built up from the ashes. This will be as true in 2017 as it was in 1917.

Regardless of the rhetoric—Liberté, égalité, fraternité; Dictatorship of the Proletariat; The Thousand Year Reich; The New World Order—the truth is that the means—destruction and death—are the ends. Psychopaths kill millions of people because…they enjoy killing millions of people. Citing Ayn Rand, a malevolent desire to kill others is, at root, a desire to kill one's self. The slogans, the supposed omelets that justify cracking all those skulls eggs, are dross.

That imparts analytic clarity to the future. When one understands that one's life is on the line, one must fight with everything one has. Or else. FEW UNDERSTAND WHAT IS REALLY HAPPENING!

Banks Are in the Bull’s-Eye.........

Banks Are in the Bull's-Eye

* Between Jan. 4 and Feb. 15, the S&P 500 lost around 7.5%. But the bank-stock benchmark dropped 16.1%.

* In Europe, the FTSE Eurofirst broad-stock index dropped 9.5%. But the benchmark index for European bank stocks plunged 19.5%.

* The story goes on to note that the S&P 500 remains about 23% above where it traded in July 2007, the peak of the last bull market and the top of the last major credit cycle. But the banking sector is still trading for 51% less than it was back then.

* In Europe, the benchmark stock average is still 21% below where it traded in mid-2007. But the banking sector is going for a whopping 71% less than it did back then.

In other words, bank stocks rebounded less than the broader market after the LAST credit-cycle crisis. And they're finding themselves in the bulls-eye of THIS credit-cycle crisis, too.

Bank stocks are finding themselves in the bulls-eye of the current credit-cycle crisis.

Why? There are several reasons …

First, banks and other financial firms are among the most-levered to the performance of credit markets. That's because credit is their business. They make loans, invest in and underwrite bonds, advise on corporate takeovers and stock sales, and otherwise make or lose money depending on the health of the credit markets.

Second, banks are highly leveraged, or reliant on borrowed money to enhance returns. As the FTstory notes, "If one ignores the vanishing trick of risk-weighting, the true leverage of many large banks remains at more than 20 to one."

The problem is that leverage cuts both ways. You can make more money than the average, lightly leveraged company in bull cycles, but you stand to lose much more in bear cycles.

Third, banks have been doing all kinds of foolish things lately, egged on by central bankers and their NIRP/ZIRP/QE programs worldwide. Between 2010 and 2015, we saw a huge boom in subprime auto lending, a huge boom in commercial-real-estate lending, a huge boom in junk-bond underwriting, a huge boom in leveraged corporate takeovers, and more.

Now with those bubbles popping, it's going to drive up loan defaults and drive down investment and underwriting revenue. Declines in inflated asset values will put even more pressure on financial stocks.

Fourth, banks are suffering from the ill effects of post-crisis regulations. They're facing restrictions on several activities. They're burdened by huge compliance costs. And they're getting buried under multibillion-dollar lawsuits around the world.

Finally, in an effort to avoid future government bailouts, regulators instituted so-called "bail-in" policies after the crisis. Those measures stick more bondholders and equity holders with the bill for financial failures.

This has 
the perverse side effect of helping intensify electronic "runs on the bank" in bank shares and bonds during times of crisis.

Bottom line: During the housing and mortgage crisis of 2007-2009, banks and other financial firms got crushed. Now, that process is playing out again in 2016, with foreign banks getting hit particularly hard.

What Happens Next?.....All The Deniers Are Going To Be Very Surprised!

What Happens Next?.....All The Deniers Are Going To Be Very Surprised!

With so much riding on the American "consumer" - given the collapse of the US manufacturing industry and massive mal-investment and 
over-stocking,falsely signalled by The Fed's "help" - one wonders just what happens next as the Services economy begins to roll over and the gap between the consumer and industrial America - which has never, in over 30 years, been wider - converges back to a new normal dystopia.

The industrial and non-industrial parts of the economy have recently disconnected for only the third time in the past 40 years and this is by far the biggest disconnect.

It's different this time...yes it is, it's worse than ever!


Inventories.....ANOTHER PESKY FACT!


While inventories remain at record levels, wholesale sales are crashing, and the result is that the nominal spread between inventories and sales is all time high.



What must the rest of the world think?


Friday, February 26, 2016



Now some stats about the US government:

U.S. Tax revenue: $2,170,000,000,000

Fed budget: $3,820,000,000,000

New debt: $ 1,650,000,000,000

National debt: $18,990,000,000,000

Recent budget cuts: $ 38,500,000,000

Now, remove 8 zeroes and pretend it's a household budget:

Annual family income: $21,700

Money the family spent: $38,200

New debt on the credit card: $18,990

Outstanding balance on the credit card: $142,710

Total budget cuts: $385!!!!!


Imagine that one player can print all the money they want.

Before long, that one player will own everything, and everyone else is broke or in debt.

Exponential growth and debt can only be maintained over a finite period of time. As in case of Ponzi schemes, during this initial time period, the scam works and investors are paid in full to attract future investors. Everyone believes therefore that the scheme works. QE worked the same way. But when the exponential growth slows down, the pyramid collapses, primarily because the initial interest rate that was set was too high. Bernard Madoff's Ponzi scheme has shown that choosing a lower interest rate prolongs the time frame that the scam works. Banks indeed work with even lower interest rates, so draw your own conclusion.

The art and craft involved in managing a good Ponzi scheme is in how well the perpetrators can position themselves for the inevitable crash and bust before it actually happens. While things are going relatively well for all in the economy, the financial elite spend their time and money buying up land, industry, war materials, yachts and anything else you can imagine. When the economy finally cracks completely, they are prepared to survive. Just look at the recent history of luxury real estate purchases or gold repatriation.

This new breakout of contagion is the latest confirmation that competing economies are in a "race to the bottom." As global growth rates continue to shrink, each economy is forced to resort to "beggar thy neighbor" policies to steal growth from other countries. 

Simply put, negative rates are simply the latest fad designed to keep currencies depressed, in an effort to support exports and avoid deflation. It may seem counter-intuitive, but a strong currency is not necessarily in a nation's best interests.

A weak domestic currency makes a nation's exports more competitive in global markets, and simultaneously makes imports more expensive. Higher export volumes spur economic growth, while pricey imports also have a similar effect because consumers opt for local alternatives to imported products. This improvement in the terms of trade generally translates into a lower current account deficit (or a greater current account surplus), higher employment, and faster GDP growth. The stimulative monetary policies that usually result in a weak currency also have a positive impact on the nation's capital and housing markets, which in turn boosts domestic consumption through the wealth effect.

Since it is not too difficult to pursue growth through currency depreciation – whether overt or covert – it should come as no surprise that if Nation A devalues its currency, Nation B will soon follow suit, followed by Nation C, and so on. This is the essence of competitive devaluation.

This phenomenon is also known as "beggar thy neighbor," which, far from being the Shakespearean drama that it sounds like, actually refers to the fact that a nation which follows a policy of competitive devaluation is vigorously pursuing its own self-interests to the exclusion of everything else.

However, some of the worst fears about negative interest rates are that the banks would pass them on to consumers, causing them to withdraw their deposits and stash the money under their mattresses—as of yet it has not yet come to pass. However, to the extent the banks absorb the cost of the negative interest rate on their own, profit margins will come under even further pressure than they have already, adding to the stress on the credit markets.

When the drugs no longer work as expected and the patient is still desperately ill, it is time to put the priest on notice that he may be called at any minute to perform the last rights.

Given the recent moves in the stock and credit markets it is further proof that QE and low interest rates are not working but they remain the favored and only tool available to the Bank of Japan and ECB to keep their patients alive.

As it becomes ever clearer that the drugs are losing their potency the gloom deepens on the prospects for economic growth. Banks do not make money in a negative interest rate environment nor one in which the risk of corporate and sovereign default rises.

We are told that there will not be a repeat of 2008 but the doubts are growing, very serious cracks are appearing.

Liquidity has a reputation for being very much in evidence when not required, and then disappearing without trace the moment you need it.There is a broad-based problem insofar as the investor base across markets has developed a greater tendency to crowd into the same trades, to be the same way round at the same time. This "herding" effect leads to markets which trend strongly, often with low day-to-day volatility, but are prone to abrupt corrections.

In principle, markets could gap to a point where they went from being absurdly expensive to being absurdly cheap, without very much trading. But the existence of the feedback loop to the real economy means that the fundamentals tend also to be affected by extreme market moves: "cheap" may be a moving target. This in turn could force central banks to step back in again. 

But then we are left with a paradox,The more liquidity the central banks add, the more they disrupt the natural order of the market. On the way in, it has mostly proved possible to accommodate this; however the way out is proving not to be so fact it may be impossible.


Initial Jobless Claims............ANOTHER PESKY FACT!

Initial Jobless Claims

With the Services economy now joining the manufacturing sector in recession - with both employment components collapsing - one may be surprised to see initial jobless claims hovering back near 42-year lows...

Even the waitress & bartender jobs recovery is stalling...



Everything Is Rolling Over.........ANY BOUNCE IS A HEADFAKE

Everything Is Rolling Over

What we have is a breakdown in both 7 years of momentum and central bank credibility.

Should the failure to break out higher persist then the market is facing a drop to as low as 1575-1600 on the S&P, something which even Goldman now agrees with.

Looks like central planners are going to have their hands full to preserve years of a carefully, if artificially, erected "wealth effect."

Many indicators rolled over in advance of price, which is bearish:

New year-long+ lows for S&P 500 on-balance-volume = distribution

S&P 500 VIGOR broke the October 2015/October 2014 lows = distribution

The US Most Active advance-decline line has completed a top. Similar tops precede/coincided with S&P 500 breakdowns in late 2007 and 2000.

Weekly global index-level advance-decline line remain weak

The Dow Theory Sell Signal in late August was reconfirmed on February 11

Monthly MACD sell signal last March and the first weekly MACD sell signal below zero since 2008 in early January.
Bullish daily MACD & VXV/VIX support a tactical bounce.

A rise off extreme lows for net free credit (free credit balances in cash and margin accounts net of the debit balance in margin accounts) could exacerbate an equity market sell-off.

The high yield market remains a risk with the US high yield index in a weaker pattern than the S&P 500. HY OAS has widened out of a 3-year bottom, similar to late 2007 / late 2008 – just before the financial crisis.

Growth weakening relative to Value for large caps, small caps, and MSCI ACWI. Relative breakdowns for FANG (FB, AMZN, NFLX, GOOGL) and NASDAQ 100 leadership suggests that "Generals" have begun to follow the "Troops" lower.

Bearish January Barometer and the S&P 500 is not following the normally bullish seasonal periods of November-January and November-April

2016 is a Presidential Election year. The average return for an Election year with a non-1st term President is -3.2% vs. 14.1% in an Election year with a 1st term President and 7.6% for all Presidential Election years. I WOULD SUGGEST THAT HISTORY HAS NO PRECEDENT FOR OBAMA, HE IS THE WORST PRESIDENT EVER AND THERE WILL BE SEVERE CONSEQUENCES, RAMIFICATIONS AND A HIGH PRICE TO BE PAID FOR THE DAMAGE HE HAS DONE.



The idea that election years are always good for U.S. stocks is wrong, and investors who are waiting for the power of the election to turn the market around this year need to recognize that they could be in for disappointment and pain.

Since 1920, the eighth years of presidential terms have represented the worst of election years. While the Dow Jones Industrial Average  has posted an average gain of 4.8% in election years since then, the last year of a two-term presidency has been down an average of almost 14% on the Dow and about 11% for the S&P 500, with losses in five of the last six times a two-term president was finishing up.

In fact, with the recent history of two-term presidents and their final year in office, the fourth year of the election cycle has been worst, on average, for the Dow dating back to 1941.

In other words, investors haven't had the kind of experience they assume happens in election years, meaning they should have even less confidence that there will be any election protection for the market in 2016.

In short, Election years ain't what they used to be.

And if you believe that past is prologue when it comes to election years, consider this statistic: In the last 16 presidential election years, 14 full years followed the direction of the first five trading days of the year. The first five trading days of 2016, of course, represented the worst opening week in stock-market history.

If you don't want to use a time frame as short as a week as an indicator, then consider that in 75 percent of those last 16 election years, the market finished the year moving in the same direction as it started for the month of January. January 2016 also was down. All of this is particularly true this year, when the election scenario is anything but ordinary.

In many election years, the ultimate candidates are obvious by the time the Iowa caucuses are over, but the current election has enough possibilities that the market hasn't yet factored in just which candidates ultimately have the inside track to the White House. The market has ignored Donald Trump, presumably waiting for him to win something besides a poll. At some point, however, the potential for a candidate to actually win office and effect the market will factor into the daily market volatility.

And at this point the market is not really enamored by any of the prospects for the next resident of the White House. Anyone who thinks that this election year means up markets could be in for significant disappointment both in politics and in their portfolio.

Thursday, February 25, 2016



Broadly speaking, significant technical tests are underway this week. This applies to the major U.S. benchmarks, and influential sectors. The U.S. markets' longer-term technical bias remains bearish.

Technically speaking, the S&P 500 has balked at its second test of significant resistance. The S&P 500 has rallied from two-year lows, reaching a significant technical test.

Beyond technical tests, the 2016 downdraft has inflicted broadly-based damage, and the S&P 500's longer-term backdrop supports a bearish view. The next several sessions, and the February close, should add color to the immediate outlook.

The specific area matches its breakdown range top — S&P 1,950 — a level that remains an important bull-bear battleground. Against this backdrop, the S&P 500's longer-term technical bias remains bearish. The index hasn't closed atop its 50-day moving average since Dec. 29.

Significant resistance rests at 1,950, closely matching the 50-day moving average, currently 1,949.5. Near-term support rests at 1,927, and is followed by the 10% correction mark of 1,917, matching last week's close.

The Dow Jones Industrial Average has reached six-week highs, closing Monday slightly atop major resistance just under the 16,600 mark.

With Tuesday's early downturn, initial support holds around 16,460, and is followed by a deeper floor just above 16,200. Ssignificant resistance rests at its range top, closely matching the 50-day moving average, currently 16,633. The Dow closed Monday at 16,620 — just under the 50-day — and its response to resistance, over the next several sessions, should be a useful bull-bear gauge. 

The Nasdaq Composite has support at 4,548, and is followed by a more significant floor at 4,517. The Nasdaq is the weakest major U.S. benchmark. It's positioned firmly under the 50-day moving average, and the February peak. Its first notable support matches the former breakdown point, around 4,517. More broadly, the Nasdaq's longer-term technical bias remains bearish.

The Big Picture

Credit Is Sending A Warning........

Credit Is Sending A Warning

Markets Only Do This When Conditions Are Getting Worse

If you want to know if a rally is the real deal, you must watch credit markets as credit leads equities – always. 

By looking at investment grade spreads below, credit has actually deteriorated during this rally, the opposite of what you'd want to see. When spreads widen out (line on chart goes up) this means the market is demanding a higher rate of interest for riskier corporate bonds vs governments. Markets only do this when conditions are getting worse/tighter. This line is going in the wrong direction.

Goldman Expects A 20% Drop Before Markets Can Rally...........

Goldman Expects A 20% Drop Before Markets Can Rally

It's All A Short Squeeze.

Since last Thursday's intra-day low, the S&P rallied +6.6% in four days with the former laggards and most heavily shorted stocks leading the charge. This action is very typical of a bear market rally and should be viewed with skepticism.

For those wondering whether we'll be riding the short squeeze euphoria wave higher, Goldman's answer is definitively "no." In a note the bank says short covering and positioning have fueled the bounce and that a sustained rebound is exceptionally unlikely until either valuations get significantly more attractive.

On Monday, everyone was giddy that the rally was back on. Less than two days later, the dour fatalism of some HFT algo stop hunting price action and a few comments by the Saudi oil minister, and the markets have remembered that nothing has changed and that nothing has been fixed.

Indeed, the bullish euphoria that had gripped markets is all gone: "It will take some time before market sentiment does turn. It's still very pessimistic. Most investors are very risk averse.

The market has all of a sudden woken up to two very important and very interconnected facts: 

1) central banks are desperate, and 

2) sluggish global growth and trade look to have become structural and endemic rather than cyclical and transitory.

Oil is still a huge question mark and barring a Saudi production cut which oil minister al-Naimi made clear on Tuesday isn't going to happen will likely continue to fuel the global disinflationary impulse. Meanwhile, markets are asking more questions about negative rates and central banker omnipotence every day.

It is risky to read too much into price action currently. Volatility remains very high and many of the moves may reflect positioning rather than a genuine change of view about fundamentals. Remember that at the heart of the correction there has been a growing concern about growth and, with it, the risks of deflation.

Goldman's conclusion: there will be no sustained rally until at least one of the following three things occurs: 

1) Valuations become cheap; 

2) The broad macro data stabilizes enough to shift up inflation expectations and/or; 

3) Policy action becomes more supportive.

Put simply, number 2 isn't going to happen. At least not for the foreseeable future. Oil prices would need to rise dramatically, the global deflationary supply glut would need to moderate on the back of a sustained uptick in aggregate demand, and China would need to stop exporting deflation.

As for number 3, monetary policy can't get any more supportive. Literally. Rates are so low that the cash ban calls are rolling in and for a variety of reasons, policy makers across the globe have been reluctant to embark on massive fiscal stimulus programs.

Finally, as for number 1, either earnings would need to rise or else stocks need to fall. Considering the fact that the world looks very likely to careen into recession just as primary market appettite for the bond deals that are fueling bottom line-inflating buybacks dissipates, I know which alternative seems more likely to me.

So with the market wide short squeeze now officially over, global selling of stocks has resumed, dragging down everything from banks to commodity producers as well as emerging markets, while in the US S&P futures have tumbled back down to, or rather just below, the psychological support level of 1900 early Wednesday am, driven by another day of tumbling USDJPY, but also by the latest surge higher in gold - something which according to Goldman, has stopped out its gold "short" which clearly means systemic risk is once again rising.

March will not be a pretty month for risk assets...... 

There is still a great deal of bad energy debt hanging over the global markets, a potential currency devaluation in China, and a crisis brewing in European financials.

Are We Back In February 2008?

Services Sector Falls Into Recession: Markit Services PMI Crashes Into Contraction...........

Services Sector Falls Into Recession: Markit Services PMI Crashes Into Contraction

Following this week's ongoing demise of the US manufacturing sector, tumbling to its weakest since October 2012, Markit US Services PMI collapsed into contraction at 49.8, massively below expectations of 53.5. This is the weakest level for the last pillar standing in the US recovery since the government shutdown in 2013, and as Markit even admits, "slumping business confidence and an increased downturn in order book backlogs suggest there's worse to come."

The last leg of the US recovery stool just broke...

Whoever wins the White House, the party establishment loses............

Whoever wins the White House, the party establishment loses

Democratic and Republican insiders could be left out in the cold come November.

WASHINGTON — As the primary elections winnow the field of presidential hopefuls, making it increasingly likely that Donald Trump will face Hillary Clinton in the general election, it is already clear that this bizarre campaign will be remembered for the collapse of the political establishment.

Whichever party loses the run for the White House will face a shambles that will make previous defeats look like a picnic. Even if the party wins, the establishment may be the loser.

If Trump, for instance, is nominated and wins — a result no one can exclude at this point — it will be a colossal failure for Republican Party leaders, who will quickly become persona non grata under a Trump presidency.

If Clinton clinches the Democratic nomination, it will be a victory for the party establishment, which has staked everything on her candidacy. But it could well turn out to be a Pyrrhic victory, because it will mark the party's rejection of the millions — especially young people — who will have voted for the insurgent candidacy of Bernie Sanders and his message of radical reform.

And yes, Clinton could then lose to Trump, despite the conventional wisdom within the Beltway that she is more "electable" than Sanders. Clinton's bear hug embrace of the Obama legacy may be a good strategy for the primaries but it could quickly become a liability in the general election.

Many of Sanders's supporters, who share his view of the current political system as irreparably corrupt, would vote for the other anti-establishment candidate, Trump. Many others would simply throw up their hands in disgust and stay home on Election Day. 

And if Clinton were to lose to Trump, it would wash the current party establishment down the drain with her.

Even if opposition to Trump would be enough to propel Clinton to victory, she would take office as a compromised candidate, her credibility largely in shreds. And that's if the FBI and Justice Department let her off the hook over the illegal handling of classified documents.

On the Democratic side, Sanders could conceivably pull off the "political upset" he has forecast. If he wins the nomination and goes on to win the general election, there would be a new wave of fresh faces in the Democratic leadership. Ditto if he were to lose the general election.

There's no need to scratch your head over this result. Unless you've been living under a rock for the past several years, or belong to the insular Beltway punditocracy, it's been obvious in high unfavorability ratings for Congress and the president that voters are frustrated and dissatisfied — and now very angry — with the political establishment.

It is not the year to run as the establishment candidate. And as for the rest of the crowned establishment in both parties, their heads, to paraphrase Shakespeare, should be lying uneasy.

Wednesday, February 24, 2016



Trump Takes Nevada By A Landslide

Donald Trump won Nevada's Republican caucuses, racking up his third nominating contest in a row and solidifying his status as the GOP's presidential front-runner.

Preliminary entrance polls taken of Republican caucus-goers show that nearly 6 in 10 are angry at the way the government is working, and about half of them supported the billionaire businessman.

Trump was also supported by about 6 in 10 of those who said they care most about immigration, and nearly half of those who said they care most about the economy.

Nevada caucuses winner Donald Trump was supported by 7 in 10 of those who preferred an outsider, according to early results of the entrance poll conducted for the Associated Press and television networks.

Trump is not only a candidate. He is a messenger from Middle America. And the message he is delivering to the establishment is: We want an end to your policies and we want an end to you.

In "Unprecedented, Historic" Move, Senate GOP Will Deny Obama Supreme Court Nominee Hearings

Yesterday, Senate Republicans went "all in" on a Supreme Court gamble, in which they vowed to deny holding confirmation hearings for any nominee from President Obama. The unprecedented decision, made before the president has named a nominee, marks a new chapter in Washington's war over judicial nominations according to The Hill. In a battle of superlatives, CNN adds that the "historic move outraged Democrats and injected Supreme Court politics into the center of an already tense battle for the White House."

It's getting harder and harder for the establishment to huff and puff and blow down that wall...


S&P 500 

A decisive move above 1950 would put in a double bottom off the 1812-1810 lows and favor a continued rally. The first resistance is 1990-2025 with the falling 100 and 200-day MAs near 2000 and 2029, respectively. The double bottom would count up to 2085, which falls well shy of the 2135 high from last May. The double bottom from October projected to 2175, but the S&P 500 stalled well below that upside count, which was a bearish sign. The risk is that a double bottom breakout above 1950 could set up another lower high within the downtrend from last May and suggest another rally to sell.


If animal spirits are alive, and the underlying fundamentals improving, then how come bond yields are struggling to make even a dead-cat bounce? Equities are clearly chasing the latest news without caution. Bonds on the other hand are ignoring today's emotions and asking what has fundamentally changed. And the answer they've settled on is "nothing.


Based on the common sense proposition that the nation's 16 million employers send payroll tax withholding monies to the IRS based on actual labor hours utilized—-and without any regard for phantom jobs embedded in such BLS fantasies as birth/death adjustments and seasonal adjustments—— inflation-adjusted collections have dropped by 7-8% from prior year in the most recent four-week rolling average.

The annual rate of change in withholding taxes for collections through Thursday, February 18, approached a level which signals not just recession but is within a couple of percent of indicating a full fledged economic depression. As of February 18, 2016, the annual rate of change was -5.6% in nominal terms versus the corresponding period a year ago. That's down from -3.7% a week before, +0.6% a month before, +5.8% three months ago, and down from a peak of +8.7% in early February 2015…….Adjusted for the nominal growth rate of employee compensation, the implied annual real rate of change is now roughly –7.5 to -8% year over year.

Nothing but down in the following chart, how can that be if employment is solid and everything is so rosy?

Important S&P 500 Levels To Watch............

Important S&P 500 Levels To Watch

The S&P 500 is three trading days from reaching "trend exhaustion."

The foundation of the ongoing rally is very suspect.

If the market closes below these key levels in the next three days, a top in the S&P 500 would be confirmed should the S&P 500 finish below 1,926.82 on Tuesday, or close less than 1,917 on Wednesday or Thursday, then the decline is going to be very sharp.   THE S&P CLOSED AT 1921 ON TUESDAY.

If any of those S&P 500 triggers occur, the benchmark index will decline at least 8.2 percent from Monday's close to 1,786, a level last seen in February 2014. Should the market top correspond with "bad news," the S&P 500 could see deeper selling down to 1,736, an 11 percent decline. The ongoing market rally is simply a temporary relief rally as investors exit short positions.

We've seen some pretty vicious short-covering come in, which has caused the market to move up. When that happens, it really plays havoc with the market once the next downside move begins.

The foundation of the ongoing rally is suspect. The temporary buying produces a price vacuum beneath the market and accelerates the subsequent decline. The next 
decline is going to be sharp.

The Fed's Nightmare Scenario Is Becoming Reality.........

The Fed's Nightmare Scenario Is Becoming Reality

Operating under the mistaken belief that a modest dose of inflation is either a prerequisite for, or a by-product of, economic growth, the nation's top economists have been assuring us for quite some time that inflation will stay very low until the currently mediocre economy finally catches fire. As a result, they believe that the low inflation of the past few months has frustrated Federal Reserve policy makers, who have been supposedly chomping at the bit to keep hiking rates in order to restore confidence in the present and to build the ability to cut rates in the future if the nation were to ever, god forbid, enter another recession.

In the weeks leading up to the Fed's December 16 decision to raise rates by 25 basis points (their first increase in nearly a decade) the consensus expectations on Wall Street was that the Fed would deliver three or four additional interest rate hikes in 2016. But with the global markets now in turmoil, GDP slowing, and the stock market off to one of its worst starts in memory, a consensus began to emerge that the Fed is reluctantly out of the rate hiking business for the rest of the year.

With such thoughts firmly entrenched, many were largely caught off guard by the arrival last Friday (February 19th) of new inflation data from the Labor Department that showed that the core consumer price index (CPI) rose in January at a 2.2 % annualized rate, the highest in more than 4 years, well past the 2.0% benchmark that the Fed has supposedly been so desperately trying to reach. It was received as welcome news.

A Reuter's story that provided immediate reaction to the inflation data summed up the good feeling with a quote by Chris Rupkey, chief economist at MUFG Union Bank in New York, "It is a policymaker's dream come true. They wanted more inflation and they got it." The widely respected Jim Paulsen of Wells Capital Management said that the stronger inflation, combined with upticks in consumer spending and jobs data would force the Fed to get on with more rate hikes.

But higher inflation is not "a dream come true". In reality it is the Fed's worst possible nightmare. It will expose the error of their eight-year stimulus experiment and the Fed's impotence in restoring health to an economy that it has turned into a walking zombie addicted to cheap money.

While most economists still want to believe that the recent slowdown in economic growth (.7% annualized in the 4th quarter of 2015, which could be revised lower on Friday) was either caused by the weather, confined to manufacturing, oil related, or just some kind of statistical fluke that will likely reverse in the current quarter, and that the stock market declines of 2016 have resulted from distress imported from abroad, a much more likely trigger for all these developments can be found in the Fed's own policy.

The Chinese economic deceleration and market turmoil made little impact on U.S markets prior to the Fed's rate hike. And although U.S. markets rallied slightly in the days around the historic December rate hike, they began falling hard just a few days later. Stocks remained on the downward path until a recent rally inspired by dovish comments from various Fed officials which led many to conclude that future rate hikes may be fewer and farther between then was originally believed.

In truth, the markets and the economy have been walloped not just by December's quarter point increase, but from the hangover from the withdrawal of QE3, and the anticipation of higher rates in 2016, all of which contributed to a general tightening of monetary policy.

The correlation between monetary tightening and economic deceleration is not accidental. As it had been in Japan before us, the unprecedented stimulus that has been delivered by central banks, in the form of zero percent interest and trillions of dollars in quantitative easing bond purchases, failed to create a robust and healthy economy that could survive in its absence. Our stimulus, which was launched in the wake of the 2008 crash, may have prevented a deeper contraction in the short term, but it also prevented the economy from purging the excesses of artificial boom that preceded the crash. As a result, we are now carrying far more debt, and the nation is far more levered than it was prior to the Crisis of 2008. We have been able to muddle through with all this extra debt only because interest rates remained at zero and the Fed purchased so much of the longer-term debt.

In the past I argued that even a tiny, symbolic, quarter point increase would be sufficient to prick the enormous bubble that eight years of stimulus had inflated. Early results show that I was likely right on that point. The truth is that the economy may be entering a period of "stagflation" in which very low (or even negative) growth is accompanied by rising prices. This creates terrible conditions for consumers whereby prices rise but incomes don't. This leads to diminished living standards.

The recent uptick in inflation does not somehow invalidate all the other signs that have pointed to a rapidly decelerating economy. Just because inflation picks up does not mean that things are getting better. It actually means they are about to get a whole lot worse. Stagflation is in fact THE nightmare scenario for the Fed. If inflation catches fire now, the Fed will be completely incapable of controlling it. If a measly 25 basis point increase could inflict the kind of damage already experienced, imagine what would happen if the Fed made a real attempt to raise rates to get out in front of rising inflation? With growth already close to zero, a monetary shock of 1% or 2% rates could send us into a recession that could end up putting Donald Trump into the White House. The Fed would prefer that fantasy never become reality.

But the real nightmare for the Fed is not the extra body blow higher prices will deliver to already bruised consumer, but the knockout punch that will be delivered to its own credibility.The markets believe the Fed has a dual mandate, to promote employment and to maintain price stability. But it is currently operating like it has just a single unspoken mandate: to continue to shower markets with easy money until asset prices and incomes rise high enough to reduce the real value of our debts to the point where they can actually be serviced with higher rates, regardless of what happens to employment or consumer prices along the way.

If you recall back in 2009 and 2010, when unemployment was in the 8% to 10% range, former Fed Chair Ben Bernanke initially indicated that the fed would raise rates from zero once unemployment fell to 6.5%. At the time I wrote that it was a bluff, and that if those goalposts were ever reached, they would be moved. That is exactly what happened. But when 5% unemployment finally backed the Fed into a credibility corner it had to do something symbolic. This resulted in the 25 basis points we got in December. Yet even as official unemployment is now 4.9%, the Fed can postpone future, more damaging rate hikes, so long as low-inflation provides the cover.

But can the Fed get away with moving its inflation goal post as easily as it had for unemployment? In fact, the Fed has already done so, with little backlash at all. When created by Congress the Federal Reserve was tasked with maintaining "price stability". The meaning of "stability" should be clear to anyone with a rudimentary grasp of the English language: it means not moving. In economic terms, this should mean a state where prices neither rise nor fall. Yet the Fed has been able to redefine price stability to mean prices that rise at a minimum of 2% per year. Nowhere does such a target appear in the founding documents of the Federal Reserve. But it seems as if Janet Yellen has borrowed a page from activist Supreme Court justices who do not look to the original intent of the framers of the Constitution, but their own "interpretation" based on the changing political zeitgeist.

The Fed's new Orwellian mandate is to prevent price stability by forcing prices to rise 2% per year. What has historically been seen as a ceiling on price stability, that would have forced tighter policy, is now generally accepted as being a floor to perpetuate ultra-loose monetary policy. The Fed has accomplished this self-serving goal with the help of naïve economists who have convinced most that 2% inflation is a necessary component of economic growth.

But as officially measured consumer prices surpass the 2% threshold by an ever-wider margin, (which could occur in earnest once oil prices find a bottom) how far up will the Fed be able to move that goal post before the markets question their resolve? Will the Fed allow 3% or 4% inflation to go unchallenged? President Nixon imposed wage and price controls when inflation reached 4%. It's amazing that 2% inflation is now considered perfection, yet 4% was so horrific that such a draconian approach was politically acceptable to rein it in.

Once markets figure out that the Fed is all hat and no cattle when it comes to fighting inflation, the bottom should drop out of the dollar, consumer price increases could accelerate even faster, and the biggest bubble of them all, the one in U.S. Treasuries may finally be pricked. That is when the Fed's nightmare scenario finally becomes everyone's reality.

All Bubbles Are Different....But End The Same.......A VERY PESKY FACT!

All Bubbles Are Different....But End The Same

The current topping process has been extended due to ongoing global bank interventions (and a lot of exuberance) but even those interventions now appear at risk of no longer working.

The pattern of bubbles is interesting because it changes the argument from a fundamental view to a technical view. Prices reflect the psychology of the market which can create a feedback loop between the markets and fundamentals.

This pattern of bubbles can be clearly seen at every bull market peak in history.The chart below utilizes Dr. Robert Shiller's stock market data going back to 1900 on an inflation adjusted basis with an overlay of the asymmetrical bubble shape."  

There is currently a strong belief that the financial markets are not in a bubble. The arguments supporting those beliefs are all based on comparisons to past market bubbles.

The inherent problem with much of the mainstream analysis is it assumes everything remains status quo. However, the question remains of what can go wrong in the markets? In a word, "much."

Economic growth remains very elusive, corporate profits appear to have peaked, and there is an overwhelming complacency with regards to risk. Those ingredients, combined with a tightening of monetary policy by the Federal Reserve, leaves the markets more vulnerable to an exogenous event than currently believed.

It is likely that in a world where there is "little fear" of a market correction, an overwhelming sense of"urgency" to be invested and a continual drone of "bullish chatter;" markets are poised for the unexpected, unanticipated and inevitable completion of the full market cycle.

Take a step back from the media, and Wall Street commentary, for a moment and make an honest assessment of the financial markets today. If our job is to "bet" when the "odds" of winning are in our favor, then exactly how "strong" is the fundamental hand you are currently betting on?

This "time IS different" only from the standpoint that the variables are not exactly the same as they have been previously. Of course, they never are, and the result will be "…the same as it ever was."

Tuesday, February 23, 2016



Market forces are taking the upper hand" for now. That may be a good thing if you are short 'risk assets' (notably equities): as the steam is released from the pressure cooker, asset prices will deflate once again. It's the sort of scenario Bernanke might be terrified about, as the 'progress' of QE will be undone.

"Nations are not ruined by one act of violence, but gradually and in an almost imperceptible manner by the depreciation of their circulating currency, through excessive quantity." 

Nicholas Copernicus 1525

A Yellen Fed may rightfully say that it's not their job to keep equity prices high, and that she is more concerned about the labor market. That's all well and good, except that the so called recovery was, in our assessment, largely based on asset price inflation fueled by Fed syupidity. As such, when asset prices plunge, it also provides a headwind to the real economy.

Mr. Draghi at the ECB and Mr. Kuroda at the Bank of Japan (BoJ) may well see that and try to counter what they may perceive as an alarming development. Yet, we feel it's the Fed that's the biggest elephant in the room (it's the issuer of the worlds reserve currency and given the amount of global dollar credit that's been raised since 2008, it may effectively be the emerging markets' central bank); in that context, the bazookas of the ECB and BoJ may appear as mere water pistols.

Yellen, if we are not mistaken, may only react in earnest once the effect is felt on the real economy. It also means that what we believe is a bear market will be able to play out in full. Keep in mind also that some of the necessary adjustments in the marketplace will take some time to play out: low interest rates may allow many otherwise unsustainable businesses to stick around until they need to refinance their debt. As such, the adjustment in the oil sector, for example, may take much longer; and it's not just on the corporate side, as the International Monetary Fund (IMF) may be extending loans to governments of oil producing countries, thus also contributing to elevated global oil production.

In practice, the selling may only end when most investors have shifted towards a capital preservation mode. This won't be a straight line, as bear markets can have violent rallies. And not only will the BoJ and ECB not sit idle on the sidelines, but ripple effects may go through the markets as the Fed is gradually coming to grips with reality.

The answer is not in monetary policy. You cannot print your way to prosperity. That path risks destroying purchasing power and a destruction of the middle class. The result will be public resentment, the rise of populist politicians and reduced political stability, even war.

Fiscally sustainable policies are long-term pro-growth strategies that don't themselves blow up the debt. On the cost cutting side, it includes entitlement reform to make deficits sustainable; such a policy is pro-growth because investors are more likely going to allocate money when they see fiscal policy is sustainable. On the revenue side, rather than plow huge amounts into fiscal expansion by the government, the cutting of red tape can go a long way towards unleashing growth. Sadly, policy makers are unlikely to pursue what is necessary , only a very severe crisis will allow them to see the light.



We are now in a transition year from a bull market to a bear market and from a PROPPED UP 
economy to a recession—and this could be a very deep recession... now we see that we are finally there and more and more people are starting to realize it. But I raise the question here, 'Is it too late to panic?' Because...the advice given by so many analysts is 'Don't panic, don't sell, don't panic.' And I say, 'Yes, panic!' Panicking at the right time can save you a lot of money...

I predict in this bear market you will see the majority of stocks—majority meaning over 50% of the stocks—selling at huge discounts to current valuations.

We here other analysts say, 'Oh, this is nothing like 2008' and I agree with that, but I say that because I think it's going to be much worse. 2008 was really a crisis triggered by the subprime mortgage market and the confetti that the Wall Street firms distributed around the world. They took those subprime mortgages, put them into pools, they sold participations in these pools, in these CDOs...they got a triple-AAA rating on all this garbage and sold it around the world and then they started defaulting. That caused ripples throughout the financial system and a global financial crisis, okay; but it was basically a mortgage crisis—that's how it started.

Now, look at what we have currently. We have every major economic zone in the world in financial trouble. You have Japan with a debt-to-GDP ratio of 280%. You have China at 300% debt-to-GDP. China has over $34 trillion of debt and the banking system is flooded with bad loans. The best estimate is that they have at least 
$11 trillion of bad loans in the banking system. $11 trillion is the annual GDP of China—this is huge! And it is probably worse than what these numbers indicate.

You have Europe, you have Latin America in trouble, you have Russia in big trouble, you have Saudi Arabia even thinking about doing an IPO on their big oil company in order to make up for the shortfall of oil revenues. You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one.

How long will this 
take to unfold?

Well, from 1929 to the bottom in 1933 it took four years—probably a little bit less—so that's probably the duration but, you know, you can't forecast those things because the central banks learned something the last time around. They learned how to bail things out, they learned how to change the laws and...they've changed a lot of laws in the meantime. For example, if a bank goes under it's no longer the government that goes to bail it out—they just confiscate the depositors money. If you have a savings account at a bank that goes out of business, they will take part of your savings account to bail the bank out because they now have an interpretation that bank deposits—money that you put in a bank—you actually become an unsecured creditor...

That is the current intrepretation in the West—in Europe and in the United States. It's called a 'bail-in'. So this time around there are a lot of gimmicks that they can use. They've exhausted quantitative easing—it just doesn't work...and now the whole world is going to negative interest rates. In Europe already they have over 30% of the government bonds at zero interest rates or below so if you buy a government bond you are paying for the privelege of owning that bond, of lending the government money. The Federal Reserve just put out a note saying that banks should prepare for negative interest rates...

The world has never seen this and there is no one that knows the eventual consequences of this... This is desperation on a scale never seen before
! The central banks have run out of ammunition and tools...all they have now is more lies through endless jawboning.

Negative Interest Rates Will Fail Miserably...........THIS SUCKERS GOING DOWN!

Negative Interest Rates Will Fail Miserably

What NIRP communicates is: this sucker's going down, so sell everything and hoard your cash and precious metals.

The last hurrah of central banks is the negative interest rate policy—NIRP. The basic idea of NIRP is to punish savers so severely that households and businesses will be compelled to go blow whatever money they have on something--what the money is squandered on is of no importance to central banks.

All that matters is that people and enterprises are forced to spend whatever cash they have rather than "hoard" it, i.e. preserve and conserve their capital.

That this is certifiably insane is self-evident! 

If an economy depends on bringing future spending into the present by destroying savings, that economy is doomed regardless of NIRP, for eventually the cash runs out and spending declines anyway.

But NIRP will fail completely and totally due to another dynamic—negative interest rates force us to save even more, not less:

People who have saved all their lives realize that they their savings (no matter how much) will never throw off enough money to allow retirement, unless I live off principal. This is especially so since one can reasonably expect social security to be 
phased out, indexed out or dropped altogether. Accordingly, I realize that when I get to the point when I can no longer work, I'll be living off capital and not interest. This is an incentive to keep working and not to spend.  I TOLD YOU THE PEOPLE AT CENTRAL BANKS WERE STUPID, THEY ARE ALSO DESPERATE, AND THAT LEADS TO INSANE ATTEMPTS TO OVERCOME THE AWFUL REALITY THEY HAVE CREATED.

If banks start charging savers interest on their cash, savers will have to save even more income to offset the additional costs imposed by central banks on their savings. THE SMART ONES WILL BUY SILVER AND GOLD.

A third dynamic dooms the insane negative interest rate policy: what does it say about the stability and health of the status quo if central banks are saying the only way to save the status quo is to force everyone to empty their piggy banks and spend every last dime of cash?

What exactly are we saving by destroying savings and capital? 

Isn't capital the foundation of capitalism? 

The answer is we are saving nothing but a rotten-to-the-core, parasitic, predatory banking system, coddled and enabled by corrupt central banks and states.

What NIRP says about central banks is that they have run out of options and are now in their own end zone, heaving the final desperate Hail Mary pass that has no hope of saving them from complete and total defeat. ASK YOURSELF WHAT HAPPENS WHEN THE MAJORITY REALIZES THIS IS TRUE, WHAT WILL SAVE US THEN?

NIRP also says the economy that needs NIRP is sick unto death and doomed to an implosion of impaired debt, over-leveraged risk-on bets and asset bubbles generated by stock buybacks and central bank purchases of risky assets. AND 20 TO 25% OF THE WORLD IS ALREADY UNDER THE NIRP REGIME. 

The central bankers are delusional if they think NIRP will inspire confidence in investors, punters, households and enterprises. Rather, NIRP signals the failure of central bank policies and the end-game of credit expansion as the solution for all economic ills.

What NIRP communicates is: this sucker's going down, so sell everything and hoard your cash and precious metals. If that's what the central banks want households and enterprises to do, NIRP will be a rip-roaring success.