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Stock and Awe, Bears in Bondage

Is the US stock market going to crash in 2017? [By Philip Timms [Public domain], via Wikimedia Commons]

The Trump Rally pushed ahead relentlessly through a summer full of high omens and great disasters, all which it swatted off like flies. Even so, all was not perfect in the market as nerves began to jitter midsummer beneath the surface even among the most longtime bulls. Wall Street’s fear gauge (the CBOE Volatility Index) lifted its needle off its lower post to a nine-month high after President Trump’s comments about “fire and fury” if North Korea didn’t toe the line. (Mind you, the high wasn’t very far off the post because of how placid the previous nine months had been.)

As volatility stirred languidly over the threat of nuclear war, stock prices took a little spill with all major stock indices seeing their biggest one-day drop since May. The SPX fall amounted to a 1.4% drop in a day — nothing damaging. The Dow dropped about 1% in a day. But beneath the surface, the market is looking different and shakier.

For example, trading narrowed to fewer players as more stocks in the Nasdaq 100 finally moved below their fifty-two week lows than moved above them. Likewise in the S&P. This phenomenon is known as the “Hindenburg omen,” and tends to precede major crashes.

 

 

It’s a serious signal that highlights times of decoupling within an index or an exchange. The S&P hasn’t suffered five signals so tightly clustered since 2007 and 2000…. This year the pattern has been popping up more often in all four indexes … 74 omens so far in 2017, second only to 78 recorded in November 2007…. That they are manifesting in several indexes and forming so frequently are good reasons to brace for weakness. (MarketWatch)

 

Long credit cycles like the current one always end with a crash. But first they deteriorate. The headline numbers remain positive while under the surface a growing list of sectors start to falter. It’s only when the latter reach a critical mass that market psychology turns dark. How far along is this process today? Pretty far, it seems, as some high-profile industries roll over: ‘Deep’ Subprime Car Loans Hit Crisis-Era Milestone…. Used Car Prices Crash To Lowest Level Since 2009 Amid Glut Of Off-Lease Supply…. Junk Bonds Slump…. The worst is yet to come for retail stocks, says former department store executive Jan Kniffen…. U.S. Stock Buybacks Are Plunging…. “Perhaps over-leveraged U.S. companies have finally reached a limit on being able to borrow simply to support their own shares.” (–John Rubino, The Daily Coin)

 

The fact is that the market is breaking down beneath the shrinking number of Big Cap stocks and levitating averages. This has all set-up a severe downside shock within the coming weeks. As to the market’s weakening internals, consider that there are 2,800 stocks on the New York Stock Exchange (NYSE). Back in early 2013 when the bull market was still being super-charged with massive QE purchases by the Federal Reserve, 85% or 2,380 of them were above their 200-DMA. By contrast, currently only 1,050 of them (37.5%) are above that level, meaning that the bull is getting very tired. (–David Stockman, The Daily Reckoning)

 

 

Trading shifted this summer from the major players (often called the “smart money”) buying to smaller buyers trying to jump in, which is also the typical final scenario before a crash where the smart money escapes by finding chumps who fear missing some of the big rush that has been happening. And buybacks seem to be slumping as corporations hope for a new source of cash from Trump’s corporate tax breaks.

In spite of those underlying signs of stress, the market easily relaxed back into its former stupor, with the fear gauge quickly recalibrating, from that point on, to absorb threats and disasters with scarcely a blip as the new norm. The market now yawns at nuclear war, hurricanes and wildfires, having established a whole new threshold of incredulity or apathy, so the fear gauge stirs no more.

With the New York Stock Exchange eclipsed by the larger number of shares that now exchange hands inside “dark pools” — private stock markets housed inside some of Wall Street’s biggest casinos (banks) where the biggest players trade large blocks of stocks in secret during overnight hours —  the average guy won’t see the next crash when it begins to happen. He’ll just awaken to find out it has happened … just like much of the nation woke one Monday to find out that northern California had gone up in flames over the weekend.

 

Bulls starting to sound bearish

 

While concern over these national catastrophes never came close to letting the bears out of their cages, it did change the dialogue at the top as if something was beginning to smell … well … a little dead under the covers. Perhaps these slight and temporary tremors in the market are all the warning we can expect in a market that is now almost entirely run by robots and inflated by central bank largesse.

While the bearish voices quoted above can be counted on to sound bearish, many of the big and normally bullish investors and advisors became more bearish in tone as summer rolled into fall. For the first time in years, Pimco expressed worries about top-heavy asset valuations, particularly in stocks and junk bonds, advising its clients in August to trim risk from their portfolios. Pimco argued that that the new central bank move toward reversing QE could leave equities high and dry as the long high tide of liquidity slowly ebbs. Pimco’s former CEO said much the same:

 

Bill Gross … perhaps the preimminent bond market analysts/ trader/ investor of the age… has gone on record as stating only just recently that the risks of equity ownership are as high as they were in ’08, and that at this point when buying weakness “instead of buying low and selling high, you’re buying high and crossing your fingers.” (Zero Hedge)

 

Goldman Sachs even took the rare position that the stock market had a 99% chance that it would not continue to rise in the near future, and places the likelihood of a bear market by year’ send at 67%, prompting them to ask “”should we be worried now?” The last two times Goldman’s bear market indicator was this high were right before the dot-com crash and right before the Great Recession. In fact, there has only been one time since 1960 when it has been this high without a bear market following within 2-3 months. Of course, everything is different under central-bank rigging, but some central banks are promising to start pulling the rug out from under the market in synchronous fashion, starting last month. (Though, as of the Fed’s own latest balance sheet shows, they have failed to deliver on their promise, cutting only half as much by the close of October as they said they would.)

Morgan Stanley’s former chief economist said at the start of fall that the combination of high valuations and rising interest rates is about to reck havoc in the market. He claimed the Fed’s commitment to normalization should have come much earlier, as the market now looks as frothy as it did just before the Great Recession.

Citi now calculates the odds of a major market correction before the end of the year at 45% likelihood. Even Well’s Fargo now predicts a market drop of up to 8% by year’s end.

Speaking of big banks, their stocks look particularly risky. Two years ago, Dick Bove was advising investors to buy major banks stocks aggressively. Now, he’s taken a strikingly bearish tone on the banks:

 

A highly-respected banking stock guru warns that financial storm clouds loom for Wall Street’s bull rally. The Vertical Group’s Richard Bove “warns that the overall market is just as dangerous as the late 1990s, and he cites momentum — not fundamentals — as what’s driving bank stocks to all-time highs,” CNBC.com explains. “If we don’t get some event in the economy or in politics or in somewhere that is going to create more loan volume and better margins for the banks, then yes, they would come crashing down,” Bove told CNBC. “I think that the risk in these stocks is very high at the present time,” he said. (NewsMax)

 

It’s a taxing wait for the market

 

These are all major institutions and people who are normally quite bullish. Some of the tonal change is because of concern about the Fed’s Great Unwind of QE, while much is because enthusiasm over Trump’s promised tax cuts has become muted among investors deciding to wait and see, having been burned by a long and futile battle on Obamacare. In fact, the market showed more interest in Fed Chair Yellen’s suggestion of a December interest-rate hike than in Trump’s release of a tax plan.

Retiring Republican Senator Bob Corker predicts the fighting over tax reform will make the attempt to rescind Obamacare look like a cakewalk, and he intends to lead the fight as one of the swing voters to make sure it is not a cakewalk now that he and Trump are political enemies.

The Dow took a 1% drop in the summer when Bannon was terminated so that anti-establishment resellers felt they were losing the battle and when the Republican government seemed deadlocked on all tax-related issues, which it still may be.

On the bright side, with Mitch McConnel’s Luther Strange losing his senate race and Bob Corker quitting, anti-establishment forces appear to be gaining a little power. That’s, at least, something. On the other hand, Trump has just chosen an establishment man to run the Fed, and Trump, who once ridiculed Janet Yellen for propping up Obama’s economy with low interest rates, said a few days ago,

 

I also met with Janet Yellen, who I like a lot. I really like her a lot.

 

President Trump’s new Federal Reserve chair, Jerome “Jay” Powell, “a low interest-rate kind of guy,” was obviously picked because he is Janet Yellen minus testicles, the grayest of gray go-along Fed go-fers, going about his life-long errand-boy duties in the thickets of financial lawyerdom like a bustling little rodent girdling the trunks of every living shrub on behalf of the asset-stripping business that is private equity…. Powell’s contribution to the discourse of finance was his famous utterance that the lack of inflation is “kind of a mystery….” Unless you consider that all the “money” pumped out of the Fed and the world’s other central banks flows through a hose to only two destinations: the bond and stock markets, where this hot-air-like “money” inflates zeppelin-sized bubbles that have no relation to on-the-ground economies where real people have to make things and trade things…. The “narrative” is firmest before it its falseness is proved by the turn of events, and there are an awful lot of events out there waiting to present, like debutantes dressing for a winter ball. The debt ceiling… North Korea… Mueller… Hillarygate….the state pension funds….That so many agree the USA has entered a permanent plateau of exquisite prosperity is a sure sign of its imminent implosion. What could go wrong? (–James Howard Kunstler)

 

Powell doesn’t sound like a man who sees a need for change in the current Fed programming, but he is the very best Trump could think of for carrying out his desire to make America great again.

 

Bulls still climbing to dizzying heights

 

While some of the leading bulls have started sounding like bears of late, the bulls still lead the bears by more than 4:1, and investors remain in love with technology almost as much as they were before the dot-com crash. ”Still, as Sir John Templeton famously said,

 

Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.

 

We are clearly in the euphoric stage where the market just cannot stop itself from rising. It’s been a year-long euphoria now as the Trump Rally, which stalled for some time midyear, found a second wind. It is now on track to soon become the greatest rally in 85 years. You have to go back to FDR and the recovery from the Great Depression to find anything greater. No euphoria there, given that is all based on tax cuts that have as much likelihood of failing as the Obamacare repeal had.

What is peculiarly interesting at present is the euphoria over volatility itself. Look at the following two graphs: (The first indicates what is happening in terms of market volatility. The second shows where people are betting volatility will go from here.)

 

 

 

The CBOE Volatility Index dove 8% last Friday to close the week just a hair’s breadth above its lowest volatility record ever! So, at a time when volatility in the stock market is essentially as low as it has ever gone, bets that volatility will go lower have risen astronomically. Yeah, that makes sense.

Essentially, hoards of investors are so certain that volatility is down for the count that they are betting it will practically cease to exist months from now. As Mauldin Economics has argued, we are now, among all our other bubbles, in a volatility bubble.

Such low volatility when the market is priced to its peak means market investors see no risk even at such a high top and even in an environment that has been literally plagued for months by external risks from hurricanes to wildfires to endless threats of nuclear annihilation by a lunatic. That’s because all investors know the market will stay up for as long as the Federal Reserve chooses to keep propping it up. Investors must not be taking the Fed’s threat of subtracting that support seriously, or they are choosing to stay in to the last crest of the last wave and then all hoping to be the first ones out before the wave crashes. Is that rational or irrational euphoria?

This market is not just notable for how long its low-volatility euphoria has gone on but also for how low the volume of trades have been. We are almost at a point of no volatility and no volume. That means nobody is selling stocks if they don’t get a higher price, but there aren’t many buying either. The few companies whose stocks are pushing the market up are trading less and less. That trend holds in both the US and Europe. European trading volume is its lowest in five years; and in the US, it is 22% below last year and still falling. That things are so calm in the middle of global nuclear threats, devastating hurricanes and wildfires and constant political chaos on the American scene and with such a do-nothing congress strikes me as surreal.

The Wall Street Journal concludes,

 

The collapse in trading volumes is closely tied to the recent fall in volatility, where measures of daily stock price movements have plumbed multiyear lows. When markets aren’t moving, there are typically fewer people scrambling to protect their portfolios against further losses or seizing an opportunity to buy things that look cheap.” (The Wall Street Journal)

 

What does it mean; where do we go from here?

 

Even the WSJ says it isn’t sure what this low-volatility/low-volume stasis means. I have to wonder if the market will reach such a lull in volatility that everyone just sits there, looking at each other, wondering who will be the first to move again. Is that finally the moment panic breaks in? Even the Journal wonders if the eery calm means investors have simply become so bullish they refuse to sell. Or is it that everyone is already in the market who wants in at current prices now that the Fed has stopped QE and is now even reversing it. Is the lull extreme narrowing happening because there is no longer excess new money in the market to invest but no one scared enough to drop their price and sell? Is there no money that wants in at current prices and under the current knowledge that money supply will now be deflating for the first time in years?

Is this the way the unwind of QE starts to suck money back out of the market … by reducing the number of interested traders to a thin trickle while the fewer number of interested players who do have money to invest keep bidding up prices? If you’re already in this hyper-inflated market, where earnings only look good on a per-share basis because companies keep spending a fortune buying back shares, then you may see no reason to sell; but, if you’ve been sitting on the side with a pocketful of cash, it may look awfully late in the game to jump in.

(Consider also that growth in earnings throughout the first half of 2017 was easy to show because it compared to the first half of 2016, where earnings were terrible. Now the climb in earnings has to steepen in order to show growth year on year.)

So what if the tax reform that everything seems to be depending on flops? Charles Gaparino warns,

 

If tax reform bellyflops the way ObamaCare repeal did, many smart analysts are coming to the conclusion that the market will turn sour. Without tax cuts, one Wall Street executive told me, “the markets will drop like a rock….” This is a significant change in investor attitudes…. As much as stock values represent economic and corporate fundamentals, they also represent raw emotion known as the “herd mentality.” And that mentality, according to the investors I speak to, has begun to shift in recent weeks…. The market mentality that once said anything is better for the markets than Hillary is now saying to the president and Congress: Deliver on those promised tax cuts or face the consequences. And they won’t be pretty. (The New York Post)

 

Evidence of how reactive the market will be if tax cuts are less than expected came a couple of weeks ago when the Russel 2000 fell the most it has since August on news that the Republicans’ proposed corporate cuts would be phased in over a period of years. That demonstrated that the Trump Rally is mostly about the tax cuts; they are fully priced in; so, if the tax cuts fail or even get dragged out over years, the market fails.

With savings way down, personal debt extremely high, corporate debt quite high, and central banks threatening to reduce liquidity, consumption will have no means of support if asset prices also fall; so, the whole broader consumer-based economy goes back down if the stock market fails. Of course, central banks will revert to more QE if that happens; but each round of QE has been less effective dollar-for-dollar.

And where have we arrived under complete Republican leadership in the midst of all this? As the Committee for a Responsible Federal Budget stated,

 

Republicans in Congress laid out two visions in two budgets for our fiscal future, and today, they choose the path of gimmicks, debt, and absolutely zero fiscal restraint over the one of responsibility and balance. While the original House budget balanced on paper and offered some real savings, the Senate’s version accepted today by the House fails to reach balance, enacts a pathetic $1 billion in spending cuts out of a possible $47 trillion, and allows for $1.5 trillion to be added to the national debt…. The GOP is now on-the-record as supporting trillions in new debt for the sake of tax cuts over tax reform…. “Tax cuts do not pay for themselves; they can create growth, but in the amount of tenths of percentage points, not whole percentage points. And they certainly cannot fill in trillions in lost revenue. Relying on growth projections that no independent forecaster says will happen isn’t the way to do tax reform. (TalkMarkets)

 

This is progress? The Republicans are proving month after wearying month they are incapable of doing everything they have sworn for years they would do if they were in power. They could complain as an obstructionist body about the other sides, but they have no solutions they can agree on. The Republican answer in the budget and tax plan that have just come out guarantees mountains of additional debt as far as the eye can see … with the perennial promise that cuts will eventually be made in some distant future by a congress that will not in any way be beholden to the wishes and slated demands of the present congress. (Always tax cuts now, spending cuts promised to be made by other people far down the road.)

If the program passes, however, it will shore up the stock market which has been banking entirely on that possibility; but at the cost of deeper economic structural problems to be solved (as always) by others later on. If it doesn’t pass, you do the math as to what that likely means for all the underlying weaknesses presented above when huge tax breaks are already baked into stock prices.

If you want to see whether or not tax cuts have EVER created sustained economic growth, read the last article linked above, but here is a chart from that article for a quick representation of the truth:

 

 

UPDATE: This Has Never Happened Before To The Nasdaq

(Two days after initial publication of the above article)

 

No 52-week high in the Nasdaq 100 has ever been accompanied by as few advancing stocks as today’s. Today’s action on the Nasdaq exchange is Exhibit A. On the one hand, the Nasdaq 100 (NDX) managed to rally – again – closing at a new all-time high – again. Despite the new high, however, the breadth on the Nasdaq read as follows (according to our vendor):

Nasdaq Advancing Issues: 840
Nasdaq Declining Issues: 2105

… As a matter of fact … today saw the fewest advancing issues ever on a day when the NDX closed at a 52-week high. (Zero Hedge)

 

 

  • John
  • John

    “The bond market is eating up whatever crap is offered. This is the kind of market where, as an issuer, the only question to ask is “how much do you want and how long will you lend?” To which the only answer is “SOLD.”

    Yet, instead, the US government is rolling everything at the front of the curve because they envision this benign bond friendly environment continuing forever. I think it might go down as the Trump administration’s greatest error. And yeah, I said it. That’s what a monster mistake I believe this policy to be.”

    http://www.themacrotourist.com/posts/2017/11/17/clifford/

    • You would think, when they have had the advantage of the lowest interest rates in history, they would have already financed the entire debt at the lowest 30-year rate possible. Then, IF THEY COULD JUST STOP DEFICIT SPENDING, they could role that debt along for thirty years of gradual inflation to where payoff down the road would be a piece of cake. Of course, that requires they be smart.

      • John

        Definition of smart is whatever the CONgessional campaign donors think!

  • John
    • Thanks for the update. Interesting, isn’t it, that they are already failing to make progress. With this latest, they are now back to doing only half of what they said they would. What will be really telling is seeing where they are after the first week of December — when we know October and November are both fully in. Will they have finally gotten it to the $20 billion promised unwind to where these early moves are just machinations involved in shifting funds around for the big roll off, or will they have actually backtracked over the course of November to almost doing nothing?

      Let’s keep our eye on it. I’m trying to be cautious in reserving judgment on the Reserve, but right now it looks like they are not capable of doing even the gradual roll back that they said they would.

  • John
    • So disgusting to see continually the degree to which big money runs the world while it pretends at the very margins to care about what happens to the middle class through the duplicitous mouths of people like Cohn and Munchkin, and TheRump, whose new tax plan is by far the greatest give-away to the supremely wealthy establishment that the world has ever seen. They talked all about how it wouldn’t contain tax breaks for the very rich, and yet all of its largest tax breaks benefit the very rich the most of all. (But, of course, it gives the always requisite crumbs to the middle class in order to assure their votes remain in ThRump’s pockets.)

  • John
  • John Shaeffer

    US “inflation” since 1900

    http://stockcharts.com/c-sc/sc?s=%24INDU&p=D&st=1900-01-01&en=2017-11-10&i=t97224497436&r=1510579329357

    You can see the “crashes in 1929 and 1987–barely!

    “Strong men have sound ideas and the force to make these ideas effective.”

    Andrew Mellon (thought this was ironic).

  • John
  • John

    That yield curve chart bears resemblance to the Dave GDP sans US govt. debt chart. The worst thing that could happen to the various bubble markets is if da boyz freeze their rate increase “plan.”

    http://wallstreetonparade.com/2017/11/does-jerome-powell-hear-the-alarm-bells-from-flattening-yield-curve/

    • Either way, it all goes down, right? 1) They unwind and the economy discovers liquidity problems in corners where they didn’t expect it (or in plain sight where their blind belief in their recovery caused them not to see it coming), or 2) They freeze their unwind and rate-increase plans or maybe even go back to more QE and back down to negative interest, pumping the markets up even higher for longer, but further stretching the damaging distortions they have already built into the markets (which have made it so that they are already not even “markets” anymore but a completely rigged casino.

      If you believe in those two scenarios, then you have two smart approaches to the markets. 1) Keep betting, knowing the Fed has it all rigged and ride it up as far as it will go, betting you have the smarts to know exactly when and how it all crumbles in order to get out just before the first major slabs crash to the ground. 2) Refuse to participate in something you know to be a completely false economy that will eventually collapse and just try to find ways to protect what you have. The problem with the first one that there are already such obvious cracks in the real economy and in the way markets are functioning that there is ample reason not to be surprised at all if it falls apart on them tomorrow. The problem with the latter approach is that you really have no idea what will be a safe haven because cash in banks may go down if money, itself, crashes or if your bank crashes. Bitcoin is a mystery. Gold is rigged by central banks which own enough of it to cast it off as ballast if their own money fails in order to crash its price and kill the exit route. (They have also been known to have their friends in government nationalize all of it at a government-set price.)

      • John

        Interesting–I am in flyover VA and a neighbor sold a plot of horse/cattle land recently. Somebody must have the same idea, although they aren’t living on it, perhaps collecting wealth where and when they can.

        • Aye. I am constantly finding ways for others to rent out small bits of my land and buildings for agricultural purposes, so they do all the farming, and I do the reaping. Other than maintaining the property, I pretty much have everyone else doing the farming and paying me for the privilege. One person rents space for a horse, which they take care of entirely. Another person does all the haying and pays me with 40% of the bales, which they put up in the loft for me, and I then sell them to others who pay me to take them out of the loft themselves. Another person pays me $900 a month for space to keep his bees and process his honey … and another is now contemplating paying me for space to put in a large garden for a gardening school and space for an artists workshop for teaching art.

          Another has offered, if I give them pasture space, to do all the care of a steer and pay me with side of beef (I have to share in buying the initial calf.) I’m contemplating tilling some of the land and replanting it all in wildflowers for the bees for a share in the honey profits from pure organic wildflower honey (specialty crop in mind) where the bees will do all the harvesting and someone else all the processing and marketing, and because its all wildflowers, left to their own after planting, I won’t have to do any weeding or use any herbicides.

          So, the long-fallow farm is developing bit by bit. No big money, but moves toward self-sufficiency and community building, and it’s fun to see the land becoming productive again in various ways as I develop it into primarily passive agricultural income for me that are also turning out to be good opportunities for others. Of course, I spend a lot of time and money restoring old buildings, putting in landscape, etc.; but I figure all of that adds to value down the road and makes it a more beautiful place to live. We’ve already had multiple requests to host weddings here, but for now we’ve turned those down as I’m not sure about wanting the crowds. Maybe we’ll do that once in awhile. Even had a small-time video producer stop by to ask if he could film a commercial here.

          To me, it’s just wonderful to watch the forty eagles perched like a candelabra in the winter branches of the tree next door, listen to the owls at night, and see the farm slowly coming back to life. It’s a lifestyle investment. The point is people can find their own ways of investing money that work for them and their lifestyle that aren’t really that plugged into the “system.”

          • John

            Good deal–they are using straw bails to build house around here. You could look it up.

          • Auldenemy

            Sounds like a slice of paradise David, and there is no greater natural paradise than one a person puts heart and soul into (as you have obviously done). I escaped city life 15 years ago and haven’t missed it one bit. I live in a small farm cottage which is crumbling (rather like me), and while I am not in a very remote area, it is at least much more peaceful than life in the heart of a city or in the suburbs. I couldn’t get a mortgage due to having a late stage cancer diagnosis in my 30s, so I don’t own my home and must admit I am not too happy about the way the rent has sky rocketed in recent years. That said, I feel enormously grateful for being here and I just hope I can hang on to it for a bit longer anyway. I really hope you go with your wild flowers idea for promoting honey production. As you will know, there is a critical decline in the bee population (certainly here in the UK and Europe but I think also in the US?). I think your way of living offers the most rewards, and as you say, in a crisis situation (as in if/when the entire financial situation implodes, you won’t go hungry). I find the hoot of an owl out here at night so completely comforting. I am not a deeply religious person but if there is God, it is in nature.

            • My heart feels the consolation of that peaceful establishment you describe for yourself, all other struggles notwithstanding.

    • Or here’s another way to look at the death of real GDP growth:

      A man from Chicago, in his 50s, was diagnosed with incurable cancer. He went home to a small Greek island to die. Dying was cheaper there… and he could live in his parent’s home until the final event.

      With time on his hands, he took up gardening. He grew vegetables. And grapes. And made wine.

      The seasons came and went. But he remained. He didn’t die. Instead, he lived another 30 years, working in his garden, drinking his wine, joining the neighbors in eating, drinking, singing, and dancing.

      No funeral, no flowers, no casket, no grave… no life insurance payment… no medical treatments… no drugs… no doctor visits… no diagnoses… no tests… no estate planning… no inheritance battles… no lawyers… no home sale… no commissions… no new kitchen… and so on.

      In short, no bump up in GDP.

      The man thrived with all he needed, but to the government economists, he had clearly ceased to exist. He was no longer participating in their count. Whose life was more real?

  • Auldenemy

    I watched a video of a talk given my Nomi Prins in London recently. She is one smart cookie and as she worked for Goldman Shysters she is someone who more people should take note of. Basically she is in complete accord with the views you have been expressing for years David. She said the stock market bull is a complete fake, built out of truly terrible Fed monetary policies post 2008 that have just aided the already super rich (the bankster lead Corporate elite who are the true power in the West). She spoke about how CBs in the West co-ordinate their operations and between them have created trillions of invented money that is not productive for Western economies but rather simply enriches its banksters and big corp chiefs. She talked about the negative affect of too many buybacks which is a result of almost interest free loans, also how ZIRP and NIRP have forced more and more institutions and individuals into the stock market bubble. She says it is simply unsustainable, something you have argued for a long time.

    As to Trump’s intended tax cuts, if they do ever happen it looks like once again they will only benefit those who don’t need them! Nomi Prins didn’t cover that particular topic but she warned of the utter insanity of Trump’s endorsement of lowering regulations on Banksterville, pointing out that the 2008 financial crash was a direct result of Clinton signing up to withdraw Glass Steagall, which opened the gates for Banksterville to speculate like there was no tomorrow (using the money of private citizens, in their private bank accounts as collateral). She made the point that Glass Steagall had prohibited that; the rule being that banks could not play with money in private accounts, thus citizens were protected from the gambling side of banking activities. Hope you don’t mind me talking about Prins but I have a lot of respect for her integrity (she left Goldman when she realised it was just a nest of corruption and of course she is very aware all the major US, UK and EU banks are the same). At the end of the day, it is people like you and her who will be proved right. We are living in an age of monetary insanity and it won’t end until it completely collapses.

    • The one thing I like most about Prins is that she is one of only two people I know of (Bannon being the other) who left Goldman Sachs because they got tired of all the crap that happens there. (At least, ostensibly that is the reason, and their actions and writing now indicate they are being honest about that.) So, I value her integrity.

      Another thing I like about her (though I have not often listen to her) is that she’s a lot smarter about the ins and outs of finance than I am, having worked inside operations at GS for some time. She’s a rare voice to here from the Goldman Club, having left it and its glitter behind, and to be speaking out against it all the time. Though she’s obviously doing quite well financially, I’m sure she would have done even better for herself had she remained in the club, but she just couldn’t stomach it.

      It’s been reassuring to me to see that she confirms my opinion that the end of Glass Steagall was the biggest factor in the 2007+ financial crisis. Lot’s of other banking deregulation contributed … as well as a lot of foolish home buyers getting in way over their head on homes they hoped to flip and taking on adjustable-rate mortgages in order to qualify.

      Sadly, from what I see at this point, Trump is actually the greatest gift the establishment ever had — from further banking deregulation to a tax plan (which I plan to cover soon) that is a huge boon to the top ten percent, and especially the 1%. It’s an extraordinary gift to his club members at the top and just takes us more steps down the road of piling up those mountains of government debt. The notion that it is aimed to help the middle class is mostly smoke and mirrors.

      • Auldenemy

        Yes, I think Prins does have integrity. She spoke one time about how difficult she found it at Goldman Sachs when 9/11 happened and her fellow banksters were only interested in how they could profit out of it (what trades to go for!). That was obviously a defining moment for her, one where she realised that if she stayed in that environment she would no doubt become extremely wealthy but in the process lose her dignity. To leave an all powerful banking mafia like Goldman, and speak out against it calmly but firmly takes guts. She will have made a lot of enemies in the process. I think it is important to acknowledge her part in shining a torch on what has become the complete corruption of our monetary systems by a parasitical elite made up of banksters, politicians and big Corp. chiefs. They turned everything into a casino, including housing. Housing used to be about a place to live, not a wild money making scam. It was Banksterville that turned it into that, with full backing of its Western government puppets. It never should have been allowed to happen. So now we have young people who will never own their own homes (even if both are in full time work), and the house price bubble has spilled over into the rental market, with people like me forced to pay mortgage type rents for properties that are often poorly maintained and which the tenants can be evicted from at any time (so no security).

        I notice on all the monetary/financial sites that nearly all the writers in this area (and commentators) are male. So that is another reason I respect Prins so much (she is working in an area that is still mainly male dominated and known for its chauvinism). I don’t meant to over-praise her, as you say, she will have made a good amount during her years at Goldman and since it (as she writes and goes on frequent lecture tours). That said, at least she can sleep at night, knowing she owns her own soul (rather than it being owned by the despicable Goldman Sachs).

        Lastly, I really enjoyed reading about how you choose to live; the many benefits of owning land and making it as productive as possible without poisoning it with endless weed killers and fertiliser sprays (which are sadly used on the farm I live on and of course on most farms throughout the entire Western Hemisphere). You and others are benefitting from your land but you are not exploiting it to the point of ruin which is what is happening with modern farming practices (the insect population is being decimated and cancer is becoming endemic despite much lower smoking rates). Human beings are so good at destroying things by their greed. Of course it is much easier to destroy than to build and nurture something, but the latter has a pay back that is far greater than the former.

        • She gets my vote of praise. That’s for sure.

          I definitely hope we help the bee population, and I use only organic pesticides. Those, of course, can still decimate bees, but I try not to spray when things are in bloom, and I try to spray things like Neem oil that won’t kill an insect if it lands, doesn’t like the neem and flies off. It will, however, kill on contact if they get sprayed directly. Mostly, it seems to work by their not liking it and moving on, and it kills fungal diseases.

          I enjoy the lifestyle in our piece of paradise:

          https://uploads.disquscdn.com/images/53f3f004063c1b64f6fc79538fb15fe082246d0108ce26393bea3c4785e4ff54.jpg

  • John

    http://www.truthinaccounting.org/news/detail/what-will-the-fed-report-for-its-total-assets-today

    “With capital reported at $41.2 billion, the capital / asset ratio (less than 1%) depicts highly leveraged, and risky, institution.”

    “The Federal Reserve sets its own accounting standards, a topic for another day. Among other things, it doesn’t mark its securities portfolio ‘to market.’ ” (It might be pointed out that they also don’t mark their gold stock, part of the portfolio, to market.)

    What does reducing a mark to fantasy balance sheet really mean? It seems to be another propaganda tool.

    • All said and done, they reduced it by $6 billion, reducing only their holdings in US treasuries, but none in their pretty collection of bad derivatives. They haven’t explained why they couldn’t manage another $4 billion in derivatives, mostly related to mortgages. Maybe they decided the markets couldn’t even handle that much, or maybe it’s just a technicality.

      • Auldenemy

        Also, what does it say when the CB of the so called richest nation on earth has a balance sheet of way over $3 Trillion thanks to inventing money to buy rotten bank assets and bonds and nearly 10 years on from that can only reduce the balance by a measly few billion! It doesn’t exactly bode well does it.

        • John

          This is a bit dated but still germane :)–thought you guys might appreciate:

          https://steemit.com/money/@thylbom/is-the-federal-reserve-system-broke

          • “Do THEY even know if the Fed is solvent or broke, and what does that even mean?”

            Indeed. What does it mean when the Fed has unlimited capacity to print its way out of financial trouble, and what does it mean if they have to write off a couple trillion in bad debts? Who takes the loss? If it hurts their balance sheet, create more money on the balance sheet? But why should it hurt the Fed at all? It’s hard to even get my head around what a write-off of all that bad debt means when it happens to the institution that has the capacity at will and without regulation to create as much money as it wants whenever it wants … so long as it stays within its mandate of keeping unemployment down and inflation at a low level.

            • John

              Probably important to keep the peeps (sheep?) in a perpetual crisis–they were doing it long before the Fed 🙂

              https://www.studenthandouts.com/01-Web-Pages/01-Picture-Pages/Abraham-Lincoln/Abraham-Lincoln-Political-Cartoon-1864-Running-the-Machine.jpg

            • Evil has no inventive capacity. It only copies what it has seen and destroys.

            • Auldenemy

              Well said! It really annoys the hell out of me that CBs label their buying of what you rightly term, ‘Bad debts’ as, ‘Assets’. An un-repayable debt cannot possibly be described as an, ‘Asset’ except in bankster world of course. Truly we are living in an age where the lunatics are running the asylum. I have even started to think Trump is as bonkers as Kim. What President in his right mind would exchange hate Tweets with someone else who is certainly not in his right mind and happens to be obsessed with building nuclear missiles?

            • Indeed. You have a non-performing loan, and I’m going to pay you face value for the loan and call that an asset??? It might be an asset if I paid you a seriously marked-down value based on what I could likely recover from it; but at full price, it will most likely be loss and is, therefore, a liability.

            • Oh, yeah, and get in a twitter war with a stark-raving lunatic armed with hydrogen bombs. That’s always a good idea. Tell the world that Kim is as unstable as Kim clearly presents himself to be and then see if you can tip this lunatic off balance by constantly poking his unstable ego. I have to question the strategy of speaking brashly and loudly and poking rabid dogs with a little stick. Sort of the antiRoosevelt approach.

          • Auldenemy

            Thank for the link John. It was an interesting article, making the point that the Fed has so many opt out clauses, basically because it is unaccountable (in fact literally, ‘unaccountable’, something that one of your senators, Ron Paul keeps pointing out). When it comes to gold the Fed, along with its private bankster pals, very obviously don’t want Main St. invested in it (not real gold anyway, just their bits of invented, fictional gold. It is no coincidence that Banskterville invented ETFS, among them one for gold). Their hypocrisy is in that they themselves hold physical gold (why hold something they keep declaring to be a, ‘Pet rock’?). Why, since their Ponzi paper money scheme crashed in 2008, has Banksterville becomes net holders of the Pet Rock? Banksters remind me of the old, cowboy and Indians Hollywood B movies, where the Chief of an Indian tribe declares, ‘White man speak with forked tongue’. That is what every Fed Chairman (and now woman) does endlessly. They talk utter garbage based on economic conditions which they and their government muppets for the most part fabricate (in the case of the US by telling the complete lie that there is no inflation and full employment. Ask the average American if there is no inflation in their housing and day to day living costs and ask the nearly 100 million eligible work force Americans who are not employed why most of them aren’t taking part in this fantastic array of so called jobs?).

            My take on it all is that it is a complete farce. Banksterville went bust and the middle to lower income citizens of the West are bearing the brunt of their bailouts. The BOE and ECB copied the Fed, creating vast amounts of fictional money, along with NIRP and even ZIRP. Japan took QE to an all new level of insanity and it looks like China has too. It’s been a case of, ‘Follow my leader’. The dollar is the leader, the Fed is in the dollar driving seat and just about every other CB takes its cue from the Fed. The problem is the Fed is like The Wizard Of Oz, projecting this image of God like wisdom and authority, when in reality it is run by a collection of half baked, over paid academics who have never lived in the real world. The Fed has created a fictional stock market bull and that has been repeated by most other major nations as they all copied the Fed model post 2008. So there are vast gobs of invented money which are ending up in the pockets of the few, while down here in reality day to day living for millions of us is becoming a struggle to simply get by. Such extremes of income disparity are already leading to social unrest in the West. The parasitical elites in the Fed. in large Corp world and in politics don’t get it cos they are all drowning in loot. They are in for one very big wake up call if they continue ignoring what their policies are doing to Main St.

            As for the Fed and the US gold reserves, well that is another great mystery isn’t it, as in those gold reserves have not been independently audited since 1953! For all any of us know Fort Knox could be full of gold plates tungsten. Everything had been debased and corrupted because the West has been taken over by a bankster lead Corporatocracy. At the end of the day is Trump turning out to be any better than Hidious Hilary would have been? He already appears to have reneged on just about all the policies he was elected on, dancing with barbaric, ISIS funding Saudi elite parasites, surrounding himself with billionaire banksters and doing his best to deregulate their Towers Of Usury further (when he should be doing the opposite, adding tougher regulations). He exchanges Tweet insults with a lunatic running North Korea. We could end up with a nuclear war thanks to Twitter!! What does that say about the debasement of Western politics?

            Forgive the rant. I simply loathe the entire hornets nest of economy destroying banskters, their big corp chums and the way they have so easily bought the politics they want, along with the media they want. Our greatest enemy isn’t Russia, or China or North Korea, it is our own parasitical elites. They caused 2008 and they continue to loot and destroy our economies. In doing so they are condemning more and more of us to lives of approaching poverty and many millions in the West are already in poverty. How they have the damn cheek to boast about full employment and their artificially created stock market bulls is beyond me.

  • Chris P

    Very good Dave. You layed it out there with the possibilities. I think they will get their tax cuts and the Fed will keep the volatility down until the black swan appears that will bring all the cards down in one swoop.

    • At least now that Repubs lost the elections, they know they had better start accomplishing something in congress or they can kiss both branches good-bye in ’18.

      • Chris P

        I’m not sure if the lost, they all look and act the same. I’m sure if they had to act like a duck they would.

        • Auldenemy

          You nailed it Chris. They are all the same and it’s been like that for at least two decades. There has been this cosy, status quo, fake Neo Liberal political agenda in the US, UK and EU (no matter what Party is in power). People are now sick of it which is why Trump got elected. Sadly he appears to be as big a fake as anything that went before him.

        • One cannot expect much learning from the Republican clown car where Trump was just the most exotic and brightly colored clown. I mean, when you consider that the best of the best that the Republicans can field as brilliant statesmen to fill the highest office of government in the world are the likes of Dan Quayle, Rick Perry, and Ronald McDonald Trump, who can expect them to ever amount to anything or ever learn from their failures?

          Meanwhile, the brainiest and wisest and best-spoken stateswoman in the Democratic party is apparently Hillary Clinton while the brightest woman in the Republican party is Sarah Palin, who might be fun to invite to a barbecue, but the most learned thing she can say is that she reads magazines, you now, all of them … the magazines people read … those magazines … while she is watching Russia from Alaska probably while she gets her nails done and reads Cosmopolitan for her worldly wisdom. Of course, that was a “gotcha” question from Katy Curic because if you’re really a ditz, being asked what magazines and papers you read can actually trip you up to hem and haw and try to figure out something that sounds smart. (One could excuse her, I suppose since she is likable, on the basis that there is no true journalism out there anyway, so Cosmo is as good as CNN.)