Tuesday, September 27, 2016

Structural Growth & 
Dope Dealers On Speed-Dial
"Investors have been slow to recognize the implications of declining structural growth precisely because of the opium-like qualities of the Federal Reserve policies that are responsible for it. Fed policy has amplified the feedback loop of weak growth on interest rates, driving short-term rates not only to low single-digits (where historical relationships suggest they ought to be here), but all the way to zero. In turn, the discomfort with zero interest rates has provoked persistent yield-seeking speculation by investors, driving the most historically-reliable equity market valuation measures to offensive extremes. This yield-seeking behavior has also encouraged heavy issuance of low-grade 'covenant lite' debt in order to satisfy investor demand for more 'product' (just as we observed during the mortgage bubble). Corporate debt has never been higher as a fraction of corporate gross value-added. The result is an enormous volume of overvalued financial securities that rely on the cash flows generated by an increasingly stagnant economy. All of this may feel good, but it’s only a temporary high in a fatal cycle, and the members of the Federal Reserve Board are just dope dealers on speed-dial. The second outgrowth of a structurally deteriorating economy, which investors have taken as a permanent sign of strength, emerged in the wake of the mortgage collapse and the accompanying global financial crisis. See, it’s an accounting identity that gross domestic savings (household + government + corporate + imported foreign savings) must equal gross domestic investment, and deficits in one sector must show up as surpluses in another. The record profit margins we observed in this cycle were largely an artifact of a profound post-crisis deficit in the government and household sectors, coupled with a QE-induced plunge in the value of the U.S. dollar that prevented the usual deterioration in the current account (the import of “foreign savings”) as gross domestic investment rebounded. These macroeconomic drivers of corporate profits may not be obvious without a bit of arithmetic, but the upshot is that the temporary surge to record profit margins was heavily debt-financed."
- John Hussman
LINK HERE to the essay
Monetary Policy Is Depleted
Boom Bust .. Steve Keen, Head of Economics, History & Politics at Kingston University, then explains whether the angst over debt in China is warranted .. 28 minutes
Russian Bonds Earn 40X Larger Return
Than U.S. Treasuries?!
LINK HERE to the article
The Lithium Boom Is Here! -
To investors, this is the New Oil! - David Sidoo Interview .. 16 minutes

click to enlarge

Going The Way Of The Denarius
International Man's Jeff Thomas: "Human nature remains the same throughout time. Two thousand years ago, governments were typically made up of egotistical, self-centred dictatorial types, who were far more concerned with their own power than in the general welfare of their people. Today, politics remains a magnet for such people. They therefore will revert to type when faced with the very same problems .. If we spend more than we receive .. should we cut back our expenditures, or should we go into debt? We’ll go into debt .. If the debt grows to be beyond what can ever be repaid, should we cut back expenditures, or should we allow the economy to collapse? Well, we’re sorry to see the economy collapse, but rather than deny ourselves, get out the fiddle and let Rome burn .. Modern governments have a tendency to make precisely the same mistakes with regard to currencies. First, empire-building drains the coffers to the point that maintaining a sound economy is no longer possible, then successive 'emperors' make the decision to debase the currency in an effort to keep the party going a bit longer. Of course, 'inflating the problem away' never actually works. Just as Rome went into an irreversible decline, so the empire of today is self-destructing, due, in part, to monetary debasement."
link here to the essay
Erik Townsend & Mark Valek 
With Barry Habib: Where Are Interest Rates 
& Real Estate Prices Heading?
Hedge Fund manager Erik Townsend of Macro Voices is joined by Mark Valek and Barry Habib in discussing the possible consequences of the recent FOMC meeting and the likely effects on the future .. "We could see a U.S. 10 Year Treasury 1% yield if we’re headed to a recession, which is at a 50% chance over the next 24 months. Outside of an event like that, it’s difficult because things have changed around the world. We broke below 0 yield, which theoretically made upside potential and capital depreciation endless and the amount of negative yield could be infinite in theory. Now we’re seeing this move back toward 0, and this means that maybe capital depreciation and downside in yield truly is limited and in absence of an event, this means yields won’t go much higher since we don’t have much inflation, but they’re going to go much lower. In the last weeks we saw a little raise in interest rates on the long end. A blow off event is more likely, from a bond price perspective. A major bull market usually ends with a blow off. The thing that will end this bull market is inflation. The latest move in correction in long term bonds was triggered from less than expected from ECB or Bank of Japan. We need these low interest rates, and they can’t afford to decrease those. ECB will likely enhance their stimulus program after March 2017 and Bank of Japan may try to also taper down. The debt situation will prevent them from stopping these QE programs and they will have to increase once more, which could bring this blow up in Treasury or bond prices. For the time being, it’s going to be difficult for the banks to justify pushing rates below zero because they haven’t been yielding the desired result." .. 35 minutes
LINK HERE to a partial transcript

Look At How Deutsche Bank Connects
To Other Big Banks - Here Come The Dominoes
Danielle Park: "As we have written earlier, Deutsche Bank is a canary in the ongoing global financial crisis. Its culture and management have blown up a $2 trillion balance sheet .. There is the inter-connectivity between Deutsche and the other too-big-too-exist global banks as captured in this chart."
link here to the reference
Jonathan Cahn:
We Are at a Dangerous Point
Jonathan Cahn’s latest best-seller is called The Book of Mysteries .. Greg Hunter as he goes One-on-One with Rabbi Jonathan Cahn .. 43 minutes
click to enlarge
Decades Ago We Binge Borrowed Growth From
The Future .. That Future Has Arrived 
Danielle Park: "Excessive leverage 2005-2015 brought forward years of what would have been future demand and booked it as sales in the present, now the future has arrived and the world economy is slumping into the demand pothole this behavior left for us. While many so called experts are surprised, no one should be. We have earned an equal and opposite mean reversion period." .. suggests listening to Gary Shilling on rising inflation, the prospect of a Federal Reserve rate cut & the lack of ammunition for the Federal Reserve to combat a slowing economy.
link here to the reference
LINK HERE to the Bloomberg video

"In The End, Central Banking
Monetary Magic Is All Nonsense, Empty Formulas, Illusions"
"No single sector gets me excited. There’s no major asset class that I would invest in .. I’ve been investing since I was eleven years old, and never have I seen so little to do .. You see, when you’re unsure what’s most frightening, you insure against everything. But in the end, central banking monetary magic is all nonsense, empty formulas, illusions."
- Eric Peters of One River Asset Management
Courtesy of: Visual Capitalist