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Trump is just being Trump - and that will be his undoing
My comment: Trump has always used any means to win the deal, legal or not, ethical or not. Morality and ethics are just not part of his vocabulary, so he sees nothing wrong in colluding with the Russians to expose Hillary's dirty laundry. But what may have worked for his RE deals will not work in his dealing as president. It's apparent that the Trump team worked with the Russians to get negative info on Clinton and that Kushner and Trump Jr lied about their involvement with the Russians. I think this story will only grow bigger until it brings about Trump's downfall. It already is affecting progress on his agenda. I fully expect the Republicans will not get anything accomplished. But the markets could care less. All the markets care about is the Fed and the amount of liquidity.
Indeed and Yellen's dovish comments only encourage more speculation in the markets. And it's not just stocks, it's RE too. RE brokers in Seattle brag about selling houses for 100K over the asking price and proclaim that $500k townhouses are cheap. And it's true in China as well (see below). The CBs cannot afford to allow the bubbles to pop, so they continue to support them as they grow ever larger. When they do burst, it will be one for the record books.
The following is from http://creditbubblebulletin.blogspot.com/2017/07/weekly-commentary-bubbles-inflate-only.html
Yellen's testimony:
Georgia Senator David Purdue: “Thank you for being here and for your service. I just have two quick questions. I’m very concerned about global debt. The Institute of International Finance recently reported that their estimate of total global debt is $217 trillion, or more than 300% of global GDP. Do you agree with that?”
China's RE bubble :
‘The harder the government tries to control the market, the more prices will rise,’ Mr. Pei said. With each new policy intended to restrict home purchases, buyers are piling in. Stressed about the prospect of being left behind, many are borrowing heavily, believing prices will continue to rise... Another article of faith is that the Communist Party won’t allow housing prices to collapse.”
Nah, no correction. It's a one-sided market. Earnings ALWAYS beat expectations. Retail is looking sick though. Consumer getting tapped out ? More than the Amazon effect ? Also, Republicans will get nothing done.
Only In San Francisco: Couples Making $138k A Year Now Qualify For Subsidized "Affordable Housing" : http://www.zerohedge.com/news/2017-07-13/only-san-francisco-couples-making-138k-year-now-qualify-subsidized-affordable-housin
My comment: Ain't Amerika great ?
Excerpt:
A family of at least two people who collectively earn $138,000 or less per year will likely soon qualify for one tier of San Francisco's affordable housing that would allow them to buy a home unit, following Tuesday's Board of Supervisors meeting.
Under the city's previous policy, last updated in 2002, only those who earned 55 percent of the typical San Francisco median household income or less were able to utilize the option to buy affordable housing, per ABC. With the new proposal, families of at least two who are together earning up to 150 percent of San Francisco's median income can take advantage of that amendment.
Based on the Mayor's Office of Housing and Community Development median salary outlines, that means any family of at least two earning less than $138,400 qualifies.
Our Financial Buffers Are Thinning : http://www.zerohedge.com/news/2017-07-13/our-financial-buffers-are-thinning
My comment: We have nothing to fall back on during the next financial crisis or recession/depression. Sovereign debt will explode higher and private debt will implode and both businesses and individuals declare bankruptcy. The will always print more money, but will it only make things worse ? Debt is the global economy's Achilles heel.
Excerpts:
In terms of our economy, there are indications that our financial buffers are thinning to the point of failure. Millions of households have less than $500 savings--an essential, basic buffer against unexpected expenses.
Millions of households have borrowed money to make up for stagnating or declining income. Charting master Lance Roberts of Real Investment Advice published this chart showing how debt has been used to maintain households' standards of living:
Central bank balance sheets acted as buffers during the 2008-09 global financial crisis. But instead of rebuilding this buffer by letting balance sheets slowly decline (i.e. as bonds owned by the central bank reach maturity), central banks have thinned the buffer by rapidly expanding balance sheets during the current slow-growth expansion:
The ability of governments to borrow and spend during recessions is a key macro-economic buffer. But instead of slowing fiscal borrowing and spending, the U.S. government has ramped up borrowing immensely, thinning the buffer available for future fiscal stimulus:
All the buffers that absorbed the shock waves of the 2008-09 Global Financial meltdown have been drained or thinned to the point that they no longer have the capacity to absorb the next global financial crisis.
The fragility of our financial buffers will only be revealed when they fail in the next crisis.
What if the Republicans can't get anything done ?
Will it affect the markets ? It would certainly kill Trumps agenda on taxes, healthcare, and infrastructure.
Dow 40,000 !!! - Not to worry -
My comment: Just how is a bankrupt ECB, aging boomers, and massive amounts of debt to fuel the markets to DJI 40K after 2018 ?
ARMSTRONG: Major Central Bank May Fail Next Year : http://www.financialsense.com/martin-armstrong/major-central-bank-fail-next-year
Excerpts:
“We can get a short-term correction into 2018, but this thing’s going up a lot higher,” he said. “Once it gets through 23,000, it will probably go to about 40,000. Everything’s relative”—referring to extremely low bond yields and the US vs. the global economy.
The move out of government bonds and into equities will fuel this rise, he argued. Ultimately, we should expect the contrarian position — that we aren’t in for a new bear market — to play out.
ECB Failure Next Year?
The problems developing in Europe stem from government, not the private sector, and a banking crisis appears to be developing there.
“In Europe, they look like a stiff wind can just blow them right over,” Armstrong said. “US banks are not there yet. Give them a few more years.”
The lack of confidence in governments and banks will ultimately create the conditions where capital begins to move, leading to a threat to the European Central Bank itself.
“Europe is basically a basket case,” he said. “We’re looking at a central bank that can go bankrupt.”
Gold seasonality -
My comment: Should change by mid-August
The Golden Age Has Just Begun : http://www.zerohedge.com/news/2017-07-06/golden-age-has-just-begun
Doug Noland -
Weekly Commentary: The Road to Normalization : http://creditbubblebulletin.blogspot.com/2017/07/weekly-commentary-one-gargantuan-trade.html
My comment: We need a good depression to clean the system out. The Fed would be helpless and counterproductive.
Excerpts:
I never bought into the popular comparison between 2008 and 1929 – and the related notion of 2008 as “the 100-year flood”. The 2008/09 crisis was for the most part a private debt crisis associated with the bursting of a Bubble in mortgage Credit – not dissimilar to previous serial global crises, only larger and somewhat more systemic. It was not, however, a deeply systemic debt crisis akin to the aftermath of 1929, which was characterized by a crisis of confidence in the banking system, the markets and finance more generally, along with a loss of faith in government policy and institutions. But after a decade of unprecedented expansion of government debt and central bank Credit, the stage has now been set for a more systemic 1929-like financial dislocation.
There are huge vulnerabilities associated with various markets having become so highly synchronized on a global basis. And in the grand scheme of grossly inflated global securities, asset and derivatives markets, the scope of available bank capital is trivial.
The World Is Now $217,000,000,000,000 In Debt And The Global Elite Like It That Way : http://www.zerohedge.com/news/2017-06-30/world-now-217000000000000-debt-and-global-elite-it-way
My comment: Kaboom !!!
Excerpts:
Global debt levels have surged to a record $217 trillion in the first quarter of the year. This is 327 percent of the world’s annual economic output (GDP), reports the Institute of International Finance (IIF).
The surging debt was driven by emerging economies, which have increased borrowing by $3 trillion to $56 trillion. This amounts to 218 percent of their combined economic output, five percentage points greater year on year.
In 2017, interest on the national debt will be nearly half a trillion dollars.
That means that close to 500 billion of our tax dollars will go out the door before our government spends a single penny on the military, on roads, on health care or on anything else.
And we continue to pile up debt at a rate of more than 100 million dollars an hour. According to the Congressional Budget Office, the federal government will add more than a trillion dollars to the national debt once again in 2018…
Today, we are living in the terminal phase of the biggest debt bubble in the history of the planet. Every debt bubble eventually ends tragically, and this one will too.
Bill Gross recently noted that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”. One wrong move and the whole thing could blow sky high.
A perfect storm -
Bob Rodriguez: "We Are Witnessing The Development Of A Perfect Storm" : http://www.zerohedge.com/news/2017-06-30/bob-rodriguez-we-are-witnessing-development-perfect-storm
My comment: I think gold will be sought as a safe haven. If, as I expect, the Fed does implement QE on steroids, I think gold will explode higher...and I do not think we have much longer to find out. And the next financial crisis will be far bigger than 2008-2009.
Excerpts:
The 2016 election was one of the most important elections in the last 80 years. Back in 2009 I said if we do not get our economic house in order sometime between 2014 and 2018, we could see a crisis of equal or greater magnitude than the 2007-2009 crisis. I also argued that we would have a substandard recovery that would be no better than 2% real GDP growth for as far as the eye can see. Productivity and capital spending would be substandard. All of those have played out.
Here we are in 2017. I have seen absolutely nothing that would give me any degree of confidence that Washington will get its act together. We are into a period of expanding deficits. We are hitting a time where the entitlements are worsening in terms of their funding status. We are in a decade that is unprecedented from anything that we’ve seen before with monetary policy and fiscal policy.
Why on Earth should I allocate capital into a system where the scales are completely manipulated, price discovery is distorted, and the Fed doesn’t have a clue what’s going on? They’ve missed every economic forecast for the last nine years straight. Why would anybody pay any attention to what those people are doing?
I have confidence in one thing. The Fed will blow it.
My thoughts are very much analogous to those of Lacy Hunt. Where Lacy and I part company is what happens after the deformation hits. He would argue that we will be in a dis- or deflationary period for an extended period of time; therefore, you should own 30- and 20-year Treasury bonds.
I’m not so sure about that scenario. It occurred in Japan because it has a very cohesive society. That is not the case in the United States or in Europe. Our patience will be far shorter. At some point, in no more than one to two years, the Fed would likely panic and panic big time, and we will see QE on steroids. We will see monetary inflation. Lacy and I have a similar view. But the really big question is what the outcomes will be on the other side of this mess. Both of us could be very right, or very wrong, or partially in between.
I am managing my estate in a hedged fashion because what we are going through is without any precedent in human history. How can anybody have confidence that their particular view is the right view?
Well, I keep buying the stuff (ie the PM miners) because even though it's been a long slog, I think it will pay off very well when the current bubbles created by the global CBs burst. What the CBs have done in creating global bubbles in RE, stocks, art, and many other asset classes will end very badly and I do not think the Fed or other CBs will be able to extricate themselves from loose monetary policies. Due to the Fed, the last REAL recession we had was 1992-93 (all subsequent recessions were aborted by Fed liquidity). So the next recession will be a huge. And the longer the bubbles persist and the larger they get, the more severe the consequences will be. Sovereign debt will explode higher in the next recession and corporate and household debt will implode as it is defaulted on even as the FED prints more and more money. I really think Doug Noland has it right:
Weekly Commentary: Washington Finance and Bubble Illusion
http://creditbubblebulletin.blogspot.com/2017/06/weekly-commentary-washington-finance.html
Excerpts:
Over a period of years, securities markets became progressively more emboldened to the view that higher asset prices were the top priority of global central banks. For years I’ve argued that this is one policy slippery slope. For good reason, markets do not these days take seriously the threat of a tightening of financial conditions. The Fed and fellow central banks will surely seek to avoid what at this point would be a painful development for the global securities markets. When faced with a well-established Bubble, the notion of a painless tightening of financial conditions is a myth.
The current debate, focusing simplistically on interest rates and the level consumer price inflation, misses the overarching issue. U.S. and global central banking shifted to an untested and radical regime of directly inflating securities prices. No longer do central banks attempt to loosen or tighten bank lending through subtle changes in reserve holdings and interbank lending rates. Why not just purchase securities, supporting prices while injecting liquidity directly into the marketplace?
The Fed became increasingly supportive of the debt and equities markets – of Wall Street more generally - nurturing speculation, securities leveraging, derivatives and myriad deleterious financial and economic effects.
All these consequences of precarious financial and policy regimes - and resulting Credit and assets Bubbles – apparently ensure that the Fed and global central bankers are trapped in policy doctrine beholden to the securities and derivatives markets.
In terms of Washington Finance, it is simply astonishing to contemplate what has unfolded since the crisis. Outstanding Treasury securities have reached $16.0 TN, with the Fed’s balance sheet ending 2016 at $4.43 TN. After all the fraud, insolvency and receivership, one might have assumed a downsized Agency sector. Not to be. Once Washington Finance takes hold, there’s apparently no letting loose. After a notably strong year of GSE growth, outstanding Agency Securities ended 2016 at a record $8.52 TN. Total Washington Finance ended the year at an incredible $28.93 TN, or 156% of GDP.
This almost $29.0 TN of “money-like” Credit provides a deceptively (Bubble Illusion) solid foundation to U.S. and global finance.
To be sure, the current backdrop so dwarfs market misperceptions, distortions and mispricing from the mortgage finance Bubble period.
FWIW -
In Gold We Trust Report: https://ingoldwetrust.report/media/5c/cc/59/8a/in-gold-we-trust-2017-compact-version-english.pdf
My Comment: I just do not believe inflation will be the primary driver for higher gold prices. A recession will be deflationary as over-inflated assets will be forced liquidated. Gold will respond as a safe haven when other assets will be under pressure and the CBs are forced to print infinitum.
Excerpts:
This prompts the conclusion that the U.S.
is caught up for the third time within two
decades in an illusionary bubble economy created by money supply
inflation and equipped with an expiry date.
In comparison with the earlier two bubbles, however, the excess is not limited to certain sectors (technology in 2000, credit in 2008), but it is omnipresent and includes various asset classes,
especially also bonds and (again) property. In view of the current situation, the renowned analyst Jesse Felder rightly talks about an “Everything Bubble”
Upcoming recession fears resulting in a U-turn by the Fed, and the consequential depreciation of the US dollar would probably finalise the entry into a new age of inflation. This will be the moment in which gold will begin to shine again.
The ratio of total debt to the US GDP has been around 150% in the past 150 years. Historically, there have only been two significant exceptions: the 1920s (“the roaring twenties”), where a strong expansion of credit laid the foundation of the stock market crash and the Great Depression; and the current phase, which originated in the 1970s. Unlike October 1929, even more
debt was encouraged to build up in the economy
after the 1987 stock market crash, driven by Alan Greenspan’s loose interest rate policy. In 2009, the ratio was at 378%, reaching an all-time-high. Since then, gentle efforts have been made to deleverage, but at 365% we are still in unhealthy
regions. No trace therefore of deleveraging and austerity
.
The next downturn will fall at the footsteps of the CBs, especially the Fed. They have created one bubble after another for 3 decades.
FWIW -
Goldman's New Favorite Trade: Make 25x Your Money If Stocks Drop 7% : http://www.zerohedge.com/news/2017-06-21/goldmans-new-favorite-trade-make-25x-your-money-if-stocks-drop-7
To infinity and beyond. But the higher it goes and the longer it lasts, the harder it will fall and the more dire the consequences. Let 'er rip.
Buy, buy, buy...but gradually.
LVMH CEO Warns "Economic Crisis Is Unavoidable"LVMH CEO Warns "Economic Crisis Is Unavoidable" : http://www.zerohedge.com/news/2017-06-16/lvmh-ceo-warns-economic-crisis-unavoidable
My comment: A global economic crisis is inevitable. The CBs will resist it with more and more QE, but they are already overextended. Watch gold when that happens.
Excerpts:
"For the economic climate, the present situation is...mid-term scary," Bernard Arnault told CNBC Thursday.
"I don't think we will be able to globally avoid a crisis when I see the interest rates so low, when I see the amounts of money flowing into the world, when I see the stock prices which are much too high, I think a bubble is building and this bubble, one day, will explode.
"There has not been a big crisis for almost ten years now and since I've had a business I have seen crises more than every ten years, so be careful."
"There’s a lot of money in the market. Bubbles are building up and at some point they’ll explode."
I think you are referring to Serra Pelada, not Colossus. Serra Pelada had terrible mining conditions and some miners were killed as they fought over the gold, but that was before Colossus took over the property.
Timid policy only means these bubbles keep expanding until they implode. The longer it takes to burst, the worse the consequences.
China's "Bubble Prophet" Sees Unprecedented Surge In Home Prices : http://www.zerohedge.com/news/2017-06-11/chinas-bubble-prophet-sees-unprecedented-surge-home-prices
Excerpts:
Which is why it is understandable why after some feeble efforts to rein in China's latest housing bubble at the end of 2016 and early 2017 when things got really out of control, Beijing once again let loose some time in March, as the latest Chinese housing price data revealed
But how far will prices soar this time?
That is the question Bloomberg asked China's "property bubble prophet." The answer was troubling: "China’s home prices could rise by another 50 percent in the nation’s biggest cities, as the latest measures to rein them in are likely to be eased by policy makers seeking to support the broader economy." This is hardly a bold statement: in February even China's housing minister admitted there is a housing bubble.
"We’re living through a bubble," Zhu said. "If we don’t engage in more meaningful reform, which we haven’t, we’re very likely to have a financial crisis or a burst of the bubble. It’s a matter of sooner or later." As a result, while he didn't specify a time, Zhu said he expects real estate prices in major cities to surge "by another 50 percent or so" after measures to rein them in are eased. And because policy makers have previously imposed curbs only to ease them again, people see them as a bluff.
Noland was saying much the same thing in this week's CBB at http://creditbubblebulletin.blogspot.com/2017/06/weekly-commentary-crowded-longs-shorts.html. But I'm not so sure. When the Fed has your back, you just buy the dips.
U.S. Weeks Away From A Recession According To Latest Loan Data : http://www.zerohedge.com/news/2017-06-10/us-weeks-away-recession-according-latest-loan-data
My comment: I think it will take a little longer than a few weeks, but we'll see. Consumers need to max out their credit cards.
True, but the lender would take a big loss on any used vehicle, particularly with a glut of used cars due to expiring leases and due to the high original price of the vehicle.
Peak debt -
My comment: I find it difficult to predict the stock markets because they are not fundamentally driven (it's the CBs that control the markets). But I do think that peak debt will spell doom for all bubbles here and globally. I would add mortgage debt to the 3 debts in the article below (RE prices are mind blowing).
Meet The Three Headed Debt Monster That's Going To Ravage The Economy : http://www.zerohedge.com/news/2017-06-10/meet-three-headed-debt-monster-thats-going-ravage-economy
Excerpts:
While the U.S. government can seemingly borrow and spend without limits, the U.S. consumer appears to be nearing the end of its rope. Somehow this always seems to happen at the worst possible time.
The three heads of the consumer debt monster consist of student loans, auto loans, and credit card debt. What makes these debts particularly nasty is that there’s no collateral backing them. Where’s the collateral?
The BOJ has to keep buying their sovereign debt (ie printing money) in order to get inflation up to 2%. The problem is these idiots don't recognize asset inflation as real inflation and with the glut of oil, it will be difficult to increase inflation. Of course, Venezuela has found the secret to increasing inflation as the current inflation rate is 800%.
EGO deal to buy ICG -
My comment: I think (and I hope) this deal falls through because I think Integra Gold (v.ICG/ICGQF) can do much better. The market seems to be betting that it will fail since ICG has fallen back from $0.84 to $0.73 losing much of the buyout premium. And with EGO plummeting, many ICG investors would be taking a big hit if the deal was approved. The problem is that EGO has some real problem properties in Greece, Turkey, and Romania (all bad jurisdictions for mining) and it has caused the EGO share price to drop from $C5.00 when the deal was announced to C$3.85 today. I do not think ICG shareholders, myself included, will approve of the deal.
re: Black Swan events
per your post : However, black swan events are rare and we just had one so the chances are likely that we muddle through this.
I assume you are referring to the housing bust as the black swan event. If so, I do not consider that a black swan event (i.e. something that was unexpected). We've had 2 major bubbles since 2000 (the dot com bubble and the RE bubble, both of which were predictable events) and we are in the midst of the third bubble (the government finance bubble) and this third bubble will burst like the two previous bubbles. The big difference this time is that the CBs have exhausted much of their ammunition to fight any financial crisis. And as opposed to your view that this bubble is stable due to events in the US, I would argue that we need to watch what happens globally, especially China, Europe, Japan, and EM countries as all of these countries have unsustainable debt levels. One final point about RE: even though we do not have the gimmicks that pushed RE to extremes in 2005, RE has, nevertheless, reached extremes and those who have loaded up on mortgage debt will feel a lot of pain. RE is in many ways far worse than it was in 2005.
Well, it's also RE and stocks that are in a bubble. RE prices have surpassed the 2005 peak in many areas. I read that a 2 bedroom apartment in some CA city now rents for $7K per month. RE in the Seattle area is absolutely insane. Some LA developer wants to sell a house for $500Million and an ugly piece of art recently sold at Sotheby's for $110Million. We are in the Mother of all bubbles...Noland refers to it as the government finance bubble (ie extreme sovereign debt levels) but it encompasses virtually all asset classes (stocks, bonds, RE, art) and the cumulative total of the major CB balance sheets is $14Trillion. China has a huge debt problem with much of it in the unregulated shadow banking system and in RE. The levels of debt in all categories is at records and it will be impossible to prevent it from causing a major financial crisis which overwhelms the CBs.
I don't think this market caves until there is a very very serious financial crisis which affects the global economy and gets the attention of all of the CBs and even then the markets will respond to more CB liquidity, but only for a while. The markets need to go into hyperspace, then all hell breaks loose. When the markets realize that the emperor has no clothes, then it's time to short. IMO
Spanish Banking Crisis Spreads As Banco Popular Credit Curve Inverts : http://www.zerohedge.com/news/2017-06-05/spanish-banking-crisis-spreads-banco-popular-credit-curve-inverts
My comment: Italian and Spanish banks are both problems
Excerpts:
Popular may not be a systemically important institution, but it’s nonetheless an institution of great import. It has the largest portfolio of small business customers in Spain and enjoys the patronage of one of Spain’s most influential institutions, Opus Dei. Its well-heeled members are among the bank’s most important shareholders and investors, and they stand to lose a lot of money if a last-minute buyer is not found soon.
May 29 – Financial Times (Dambisa Moyo): “Virtually every class of US debt — sovereign, corporate, unsecured household/personal, auto loans and student debt — is at record highs. Americans now owe $1tn in credit card debt, and a roughly equivalent amount of student loans and auto-loans which, like the subprime mortgage quality that set off the 2008 financial crisis, are of largely low credit quality (and therefore high risk). US companies have added $7.8tn of debt since 2010 and their ability to cover interest payments is at its weakest since 2008… With total public and private debt obligations estimated at 350% of gross domestic product, the US Congressional Budget Office has recently described the path of US debt (and deficits) as almost doubling over the next 30 years. But this is not just a US phenomenon. Globally, the picture is similarly precarious, with debt stubbornly high in Europe, rising in Asia and surging across broader emerging markets. A decade on from the beginning of the financial crisis, the world has the makings of a fresh debt crisis.”
My comment: Debt is the Achilles heel of the global economy and the of the CBs. And the amount of debt just keeps ramping higher. The CBs will do everything they can to prevent this debt from imploding, but that only makes the bubble even larger.
I would defer to Doug Noland on that question, but I do know that the longer it takes, the worse the consequences and it will be worse than any bursts we have ever experienced. It's global and it's huge. I would also note, as did Noland this week, that even while stocks rose to all time highs, bond yields declined and gold spurted higher. I expect the CBs to continue to keep monetary policy loose even as stock markets reach unstainable bubbles. So, have the popcorn ready and sit back and watch. Here are some excerpts from this week's report from Doug Noland:
Weekly Commentary: Liquidity Trade : http://creditbubblebulletin.blogspot.com/2017/06/weekly-commentary-liquidity-trade.html
Excerpts:
It’s not quite 1999 at this point, but it’s been moving in that direction. In about five months’ time, the Nasdaq 100 (NDX) has posted a gain of 20.5%. NDX stocks with greater than 50% y-t-d gains include ...
There’s at least one huge difference to 1999. The 10-year Treasury yield began ‘99 at 4.65% and ended the year at 6.44%. Ten-year yields ended Friday’s session at 2.16%, down 29 bps so far in 2017 and near lows since the election. Astounding amounts of government debt have been issued globally since 1999. Radical central bank measures ensured prices of these securities inflated to unprecedented levels (even in the face of endless supply). Historically low yields are a global phenomenon. German bund yields closed the week at 27 bps and French yields closed at 71 bps. It’s worth noting some current 10-year sovereign debt yields: negative 27 bps in Switzerland, 31 bps in Finland, 40 bps in Sweden, 48 bps in Netherlands, 53 bps in Denmark, 54 bps in Austria and 64 bps in Belgium.
MSCI's all-country world stock index ended the week at a record high. Both the UK FTSE (up 5.7% y-t-d) and German DAX (up 11.7%) equities indices traded Friday at new highs. European equities have been powering higher. The French CAC 40 has gained 9.9% y-t-d, Spain’s IBEX 35 16.6%, and Italy’s MIB 8.8%.
It’s worth noting that gold gained 1% on Liquidity Trade Friday, increasing 2017 gains to a notable 11%. Crude’s 1.5% Friday decline (down 4.3% for the week) was not inconsistent with Liquidity Trade dynamics. Shale exploration and extraction are thriving on easy “money.” And when it comes to Liquidity analysis, Bitcoin has earned a place at the table. Bitcoin rose $160 this week to $2,430, boosting its y-t-d gain to a remarkable 155%.
A Friday ZeroHedge article asked the relevant question: “BoJ, ECB Balance Sheets Exceed the Fed’s For First Time Ever - What Happens Next?” The over $1.0 TN global QE injections during the first four months of the year argue for “Peak QE.” The ZeroHedge article includes a chart of the G3 (Fed, BOJ, ECB) balance sheet that correlates closely with U.S. stocks going back to 2009. It’s worth noting that G3 balance sheets will soon reach $14.0 TN, up from less than $6.0 TN in early-2009 (after initial crisis-period QE). “Now what?”, indeed. Near zero rates and unprecedented “money printing” have inflated asset price Bubbles around the globe. What happens when stimulus is removed? This is by now a conspicuous problem, though markets are confident that central bankers have no stomach for finding out how big of a problem. The Liquidity Trade is premised on global central bankers being trapped in ultra-easy “money” (including ongoing printing).
Discussions continue regarding the Federal Reserve’s decision to shrink its balance sheet. Similar to rate discussions, the markets (for good reason) believe the Fed will refrain from measures that actually tighten financial conditions and impinge booming securities markets. If queried, most sophisticated market professionals would likely respond that they expect the next major change in the Fed’s holdings to be on the upside (another round of QE).
The perceived benefit of holding stocks is that the Fed has your back. But what do you do when stocks fall in the next recession and rates rise as the federal deficits balloon ? The Fed will hold things at bay as long as possible, but not forever because the next recession will overwhelm the CBs.
Much more to come as some of the large Italian ans Spanish banks are insolvent -
My comment: Imagine what it will look like in the global recession. I fully expect rates to rise in the next recession (not decline) as investors will shun sovereign debt (as the amount of debt explodes higher)
Spain's Sixth Largest Bank Crashes Most In 28 Years On Liquidation Fears : http://www.zerohedge.com/news/2017-06-02/spains-sixth-largest-bank-crashes-most-28-years-liquidation-worries
GDXJ's Epic Rebalance - It's Knife-Catching Time : http://www.zerohedge.com/news/2017-06-02/gdxjs-epic-rebalance-its-kinfe-catching-time
My comment: This guy thinks a 15% drop in some of the small cap miners is a huge drop. What little he knows since some of the small caps dropped over 90% from their 2011 highs to their lows in 2015. That's when you buy, buy, buy...and I did.
Excerpt:
Well, this opportunity proved too tempting for the street. Traders have beaten the stocks coming out of the index with an ugly stick. Actually, that description doesn’t really do justice to the true extent of the carnage.
TD Index Specialist Peter Haynes recently wrote a report where he described the rebalance as “the single greatest wealth destruction event in index history.” He included a great chart that showed that the stocks with forecasted weight reductions have declined 15.7% while the adds are down only 3.3%.
Deutsche Bank Calculates The "Fair Value Of Gold" And The Answer Is...: http://www.zerohedge.com/news/2017-06-01/deutsche-bank-calculates-fair-value-gold-and-answer
My comment: Well, the CBs do not value gold very highly. I'll take gold over QE (money printed out of thin air) any day. Gold's day is coming (when the global recession hits).
Excerpt:
However, in our table below the average of all the selected metrics would suggest that gold should trade around USD1,015/oz, with relative G7 per capita income valuing gold at USD735/oz, whilst the bloated size of the big four central bank balance sheets suggesting that gold should travel at USD1,648/oz.
Condor on the move today -
No news, but Condor Resources is currently trading at the HOD of $0.1258, up $0.0222 (21.43%) on volume of 388K shares. Closing in on the 52 week high of $0.14. I expect CNRIF to top $1/sh before this is over. Waiting for news.
Disclosure: I won 490K shares of CNRIF (much of it bought at $0.015/sh)
Mauldin Warns The Next Recession May Be A Complete Reset Of All Asset Valuations : http://www.zerohedge.com/news/2017-05-31/mauldin-warns-next-recession-may-be-complete-reset-all-asset-valuations
My comment: Got gold ? The CBs will fight the next recession until they have exhausted every bit of credibility they have left.
Excerpts:
History shows it is more than likely that the US will have a recession in the next few years. When it does come, it will likely blow the US government deficit up to $2 trillion a year.
Obama took eight years to run up a $10 trillion debt after the 2008 recession. It might take just five years after the next recession to run up the next $10 trillion.
And you can add the $1.3 trillion deficit in this chart to the more than $500 billion in off-budget debt—and add a higher interest rate expense as interest rates rise.
The catalyst could be a European recession that spills over into the US. Or it might be one triggered by US monetary and fiscal mistakes. Or a funding crisis in China, or an emerging-market meltdown.
Whatever the cause, the next recession will be just as global as the last one. And there will be more buildup of debt and more political and economic chaos.
It May Be a Complete Reset
The Great Reset will also bring an increase in volatility. And the correlation among asset classes will once again approach 1.0, as it did during 2008–2009.
If I’m right about the growing debt burden, the recovery from the next recession may be even slower than the last recovery has been. That is unless the recession is so deep that we have a complete reset of all asset valuations.
I don’t believe politicians and central banks will allow that. They will print and try to hold on as long as possible, thwarting any normal recovery, until markets force their hands.
But then, I can think of at least three or four ways that politicians and central bankers could react during the Great Reset. Each of the four ways will bring a different type of volatility and effect on valuations.
Flexibility will be critical to successful investing in the future.
I think the answer lies in diversifying among noncorrelated trading strategies [10] that can invest in any asset class.
re:AKG - Apparently short sellers taking advantage of a break below the 52-week low.
Meanwhile, Condor Resources (CNRIF) is trading at $0.111, up 0.0111 (11.11%) - a lot of repeating 1's there.
Carson Block Says "Laws Of Economics" Dictate China Will Face "Day Of Reckoning" : http://www.zerohedge.com/news/2017-05-26/carson-block-says-laws-economics-dictate-china-will-face-day-reckoning
My comment: Doug Noland also features China in this week's creditbubblebulletin.blogspot.com . When this global bubble bursts, it will be huge and devastating. Asset prices are at the most extreme valuations in history. It's the mother of all bubbles. And it will not take another 20 years to happen. All markets are priced for perfection, so any small perturbation could be the catalyst. Got gold ?
Excerpt:
During an interview with Bloomberg’s Erik Schatzker, Block, who made his name betting against shady Chinese companies trading in the US, explains how the Chinese government’s massive stimulus has led to a potentially destabilizing explosion of corporate-debt growth in the world’s second-largest economy – and why the Communist Party won’t be able to contain the fallout once its twin bubbles -asset and credit - finally burst.