As we noted here, October 2013 NYSE margin debt stood at a new record high of $412.5b (up from $401.2b in September) and exceeded the prior high from April of $384.4b and net investor worth dropped to a record low. However, as BofAML notes, NYSE margin debt and the S&P 500 have +0.76 correlation using a 48-month (4-year) correlation as of October 2013. This is the highest correlation in our data history back to 1964. A positive correlation means that margin debt and the S&P 500 tend to move together; which as they helpfully note means - as long as the market rises, margin debt is not a risk. Better keep BTFATHing, it's the patriotic thing to do.
Renting and leasing of consumer products with the intention of testing them out or keeping them after a specific period is nothing new, and has been the basis for viable business models in the US, and around the world, with companies such as Rent-A-Center and Aaron's for decades. However, renting and leasing clothes is something that only a materially cash strapped people would engage in. Such as those of Europe, where the depression has been going on for five years and has manifsted itself in record unemployment month after month, and youth unemployment that in many cases is well over the 50% mark. In this context one has no choice but to live thrifty, even if that means renting, and leasing, second-hand clothing.
Meet Anouk Gillis who is just such a person. As the WSJ reports, Anouk Gillis often sports a pair of organic-cotton jeans she ordered online. But she doesn't actually own them. Rather than buying the pants, which retail for around €100 ($135), Ms. Gillis signed a 12-month lease with their designer, the small Dutch fashion label Mud Jeans. The terms: a €20 deposit and monthly installments of €5. After a year, Ms. Gillis, who is also Dutch, can decide to buy the jeans, return them, or exchange them for a new pair. Ms. Gillis, a 40-year-old receptionist who lives in the small Dutch city of Tilburg, regularly buys secondhand clothes and shoes on the Internet and grows vegetables in a shared garden. For her next trip to Rome, she booked a room on the website Airbnb Inc., an online matchmaker for budget travelers and people with a spare room or other lodging for rent.
The owner of Mud jeans, Bert vsn Son explains the logic: "The idea was to make high-quality jeans available to everybody." He promises to recycle the used jeans into new pairs or sell them secondhand at the end of a lease. Of course, if he continues "flipping" the rented pair out, nobody would be the wiser.
In Europe, using rented clothes may be the start of a big trend for a youth that find itself in an unprecedented financial condition:
The deal shows how companies are trying to reconnect with Europe's cash-strapped consumers, who increasingly rely on renting, sharing or even bartering for products and services ranging from clothing to vacations to lawn mowing. The euro-zone crisis and shallow European recovery has added urgency to those efforts, as high unemployment forces many consumers to carefully control spending.
Companies like clothing retailer Hennes & Mauritz are piling into a market that until lately has been dominated by Internet startups and consumers themselves. One immediate aim: to find more ways to get customers into their stores. But they are also pursuing a longer-term goal.
It goes without saying that the main impetus for the rent/lease business model came as a result of the 2008 financial crisis.
Sharing or renting goods and services isn't a new business model, but it got a major boost from the 2008 financial crisis and the spread of digital technology, which spawned a series of startups focused on sharing, many of them in Silicon Valley. In Europe, consumers are increasingly buying into the idea, as the uncertainty sown by high unemployment and government austerity measures drives them to think about longer-term ways to save money.
In order to preserve some sense of worth, the process has even received a rather noble sounding name: "collaborative consumption." Perhaps that is only fitting for a continent that is on the last innings of its "shared" welfare experiment.
"Everything that has to do with collaborative consumption is absolutely on the rise, and that has to do with people having less money to spend," said Lucia Reisch, a professor of consumer issues at the Copenhagen Business School.
It should perhaps come as no surprise that the future is so bright, if leased, it increasingly looks two-thirds "collaborative"
According to a recent survey from the Observatoire Cetelem, a research arm of BNP Paribas SA's consumer-credit firm, 68% of Europeans surveyed said they would buy secondhand products in the years to come, compared with 58% today, while 53% said they would barter for goods or services, versus 31% which said they do so already.
Consulting firm Frost & Sullivan estimates the number of Europeans sharing cars will climb to 15 million in 2020 from 700,000 in 2011.
Now, consumer-goods companies are getting into the act. In July, in a bid to boost revenue, French retailer Intermarché, part of closely held Groupement des Mousquetaires, started offering leases on household appliances and electronic products worth more than €349. It said it may expand the program to items such as garden furniture and textiles.
It gets better, or worse, depending on one's sense of self-worth: "Since February H&M has been handing out vouchers or discounts in 42 countries in exchange for a bag of used clothing, regardless of the brand. The retailer sells the used clothes to a Swiss-based clothing and shoe recycling company."
Finally, since we are in the New Normal, the supreme irony is that even these new "collaborative" start up ideas are not actually making a profit:
Many of Europe's leasing or sharing experiments are in their early days. Mud Jeans isn't making money yet, according to its CEO and owner. Since July Intermarché has made about 100 leases, mainly for smartphones or washing machines, at the 52 hypermarkets in France that offer the program.
Well there is always tomorrow, when in addition to clothes the business models may expand to include underwear and even food. After all, if doing something, best to do it right...
Submitted by Michael Snyder of The Economic Collapse blog,
One of the men that won the Nobel Prize for economics this year says that "bubbles look like this" and that he is "most worried about the boom in the U.S. stock market." But you don't have to be a Nobel Prize winner to see what is happening. It should be glaringly apparent to anyone with half a brain. The financial markets have been soaring while the overall economy has been stagnating. Reckless injections of liquidity into the financial system by the Federal Reserve have pumped up stock prices to ridiculous extremes, and people are becoming concerned. In fact, Google searches for the term "stock bubble" are now at the highest level that we have seen since November 2007.
Despite assurances from the mainstream media and the Federal Reserve that everything is just fine, many Americans are beginning to realize that we have seen this movie before. We saw it during the dotcom bubble, and we saw it during the lead up to the horrible financial crisis of 2008. So precisely when will the bubble burst this time? Nobody knows for sure, but without a doubt this irrational financial bubble will burst at some point. Remember, a bubble is always the biggest right before it bursts, and the following are 15 signs that we are near the peak of an absolutely massive stock market bubble...
#1 Bob Shiller, one of the winners of this year's Nobel Prize for economics, says that "bubbles look like this" and that he is "most worried about the boom in the U.S. stock market."
#2 The total amount of margin debt has risen by 50 percent since January 2012 and it is now at the highest level ever recorded. The last two times that margin debt skyrocketed like this were just before the bursting of the dotcom bubble in 2000 and just before the financial crisis of 2008. When this house of cards comes crashing down, things are going to get very messy...
"When the tablecloth gets pulled out from under the place settings, you're going to have a lot of them crash and smash on the floor," said Uri Landesman, president of Platinum Partners hedge fund. "That margin's going to get pulled and everyone's going to have to cover. That's when you get really serious corrections."
#3 Since the bottom of the market in 2009, the Dow has jumped 143 percent, the S&P 500 is up 165 percent and the Nasdaq has risen an astounding 213 percent. This does not reflect economic reality in any way, shape or form.
#4 Market research firm TrimTabs says that the S&P 500 is "very overpriced" right now.
#5 Marc Faber recently told CNBC that "we are in a gigantic speculative bubble".
#6 In the United States, Google searches for the term "stock bubble" are at the highest level that we have seen since November 2007 - just before the last stock market crash.
#7 Price to earnings ratios are very high right now...
The Dow was trading at 17.8 times the past four quarters of earnings of its 30 components, according to The Wall Street Journal on Friday. That was up from 13.7 times its earnings a year ago. The S&P 500 is trading at 18.7 times earnings. The Nasdaq-100 Index is trading at 21.5 times earnings. At the very least, the ratios are signaling that stock prices are rich.
#8 According to CNBC, Pinterest is currently valued at more than 3 billion dollars even though it has never earned a profit.
#9 Twitter is a seven-year-old company that has never made a profit. It actually lost 64.6 million dollars last quarter. But according to the financial markets it is currently worth about 22 billion dollars.
#11 Howard Marks of Oaktree Capital recently stated that he believes that "markets are riskier than at any time since the depths of the 2008/9 crisis".
#12 As Graham Summers recently noted, retail investors are buying stocks at a level not seen since the peak of the dotcom bubble back in 2000.
#13 David Stockman, a former director of the Office of Management and Budget under President Ronald Reagan, believes that this financial bubble is going to end very badly...
"We have a massive bubble everywhere, from Japan, to China, Europe, to the UK. As a result of this, I think world financial markets are extremely dangerous, unstable, and subject to serious trouble and dislocation in the future."
#14 Bob Janjuah of Nomura Securities believes that there "could be a 25% to 50% sell off in global stock markets" over the next couple of years.
#15 According John Hussman via Tyler Durden of Zero Hedge, the U.S. stock market is repeating a pattern that we have seen many times before. According to him, we are experiencing "a well-defined syndrome of 'overvalued, overbought, overbullish, rising-yield' conditions that has appeared exclusively at speculative market peaks – including (exhaustively) 1929, 1972, 1987, 2000, 2007, 2011 (before a market loss of nearly 20% that was truncated by investor faith in a new round of monetary easing), and at three points in 2013: February, May, and today."
As I mentioned at the top of this article, this stock market bubble has been fueled by quantitative easing. Easy money from the Fed has been artificially inflating stock prices, and this has greatly benefited a very small percentage of the U.S. population. In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.
When this stock market bubble does burst, those wealthy Americans are going to be in for a tremendous amount of pain.
But there are some people out there that argue that what we are witnessing is not a stock market bubble at all. That includes Janet Yellen, the new head of the Federal Reserve. Recently, she insisted that there is absolutely nothing to be worried about...
"Stock prices have risen pretty robustly," Yellen said. "But I think that if you look at traditional valuation measures, you would not see stock prices in territory that suggests bubble-like conditions."
We shall see who was right and who was wrong. Let's all file that one away and come back to it in a few years.
So where are stocks going next?
If you had the answer to that question, you could probably make a lot of money.
Yes, the current bubble could burst at any moment, or stocks could continue going up for a little while longer.
After all, the S&P 500 has risen in December about 80 percent of the time over the past thirty years.
Perhaps that will be the case this December as well.
Do you feel lucky?
Annualized auto sales spiked their most MoM in almost 3 years reaching their highest level since May 2007 and beating expectations by the most since cash-for-clunkers in 2009. Inventories are at record highs, GM channels are almost the most-stuffed on record, and incentives are surging once again... the "field of dreams" economy rolls on... what could possibly go wrong?
It seems some among the mainstream media believe "the economy is improving." In the interests of clearing up that little misunderstanding, we hope the following chart will clarify which "economy" is improving...
When former Tyco International CEO Dennis Kozlowski was convicted for stealing $150 million in company money in 2005 on 22 criminal counts including grand larceny, conspiracy, securities fraud/sales and falsifying business records to a prison term of 8.33 to 25 years, he became the poster child for corporate greed. Shortly thereafter the entire financial system nearly collapse when everyone on Wall Street became a poster child for corporate greed and nobody went to jail. As such it became a moot point to make anyone a symbol for "corporate greed" since the Department of Justice itself admitted there is a brand new category reserved for the uber-greedy ones, also known as Too Big To Prosecute. Which is why moments ago, news broke that Kozlowski was granted parole after serving 100 months in jail, exactly nobody was surprised.
“Mr. Kozlowski is grateful to the parole board for its decision to grant him parole,” Alan Lewis, Kozlowski’s attorney at Carter Ledyard & Milburn, said in an email to FOX Business.
The New York State Board of Parole said it announced the decision to Kozlowski on Tuesday and his tentative release date is January 17, 2014.
Kozlowski had been denied parole in April 2012 on the grounds that he remained a threat to “public safety and welfare.” The former Tyco CEO filed suit after that denial.
Now that Dennis is no longer a threat to the public welfare, we expect him, Enron's Skilling and of course MF Global's Jon Corzine to form KozCorSki Asset Mismanagement and proceed to "manage" everyone else's centrally-redistributed money (get to work Mr. Chairwoman) in the one way that modern society truly deserves.
Despite the double-POMO, US stocks fell with the highest volume in 2 weeks today. The S&P 500 and EURJPY were joined at the hip for entire day exchanging the leadership role with each momentum ignition rally faded at VWAP. No deer today but with VIX's move and stocks down 3-in-a-row, some are starting to worry (which with a 1.4% from the highs drop in the S&P is kinda pathetic). Treasuries rallied (but remain 2-4bps higher on the week) mirroring the move in the USD (which sold off back to unchanged on the week as EUR strengthened). Despite an early blip, gold flatlined but silver slid lower as WTI crude surged further (closing +3.7% on the week back over $96). VIX closed off its intraday highs but at 2-month highs as it seems hedgers unwound into underlying sales.
Only one thing matters...
and volume was very large today - highest in 2 weeks... (notice how EURJPY was jerked higher to enable a VWAP close at cash - and now futures are fading again)
Homebuilders and financials have been hammered in the last few days...
WTI is surging (catching up to Brent - not good for gas prices), gold flatlined as silver slid...
FX market roundtripped with the USD ending unch of the week...
and VIX remains disconnected (as we suspect weakness in stocks today was unwinding hedges and reducing underlying exposure in stocks)...
and credit remains unimpressed...
Congress Backs Terrorists In Syria … Then Says We Need NSA Spying Because There are Terrorists In Syria
However, the U.S. has been funding the Syrian opposition since 2006 … and arming the opposition since 2007. (In reality, the U.S. and Britain considered attacking Syrians and then blaming it on the Syrian government as an excuse for regime change … 50 years ago (the U.S. just admitted that they did this to Iran) . And the U.S. has been planning regime change in Syria for 20 years straight. And see this.)
The New York Times, (and here and here) , Wall Street Journal, USA Today, CNN, McClatchy (and here), AP, Time, Reuters, BBC, the Independent, the Telegraph, Agence France-Presse, Asia Times, and the Star (and here) confirm that supporting the rebels means supporting Al Qaeda and two other terrorist groups.
Indeed, the the New York Times has reported that virtually all of the rebel fighters are Al Qaeda terrorists.
The Syrian rebels are now calling for terrorist attacks on America. And we’ve long known that most of the weapons we’re shipping to Syria are ending up in the hands of Al Qaeda. And they apparently have chemical weapons.
And yet the U.S. is stepping up its support for the Islamic extremists.
The chair of the House Intelligence Committee – Mike Rogers – voted for arming the Syrian rebels. And the chair of the Senate Intelligence Committee – Diane Feinstein – has apparently quietly let arms flow to the rebels.
So are they admitting their mistake?
Heck, no! They’re using the specter of Syrian terrorists to justify mass surveillance by the NSA on innocent Americans …
And now he’s trying to use rebel Al Qaeda as an excuse for mass surveillance by the NSA.
As Juan Cole notes:
Senator Diane Feinstein and Rep. Mike Rogers took to the airwaves on Sunday to warn that Americans are less safe than two years ago and that al-Qaeda is growing and spreading and that the US is menaced by bombs that can’t be detected by metal detectors.
Call me cynical, but those two have been among the biggest detractors of the American citizen’s fourth amendment rights against unreasonable search and seizure of personal effects and papers. I think their attempt to resurrect Usama Bin Laden is out of the National Security Agency internal playbook, which specifically instructs spokesmen to play up the terrorist threat when explaining why they need to know who all 310 million Americans are calling on our phones every day. [Here's what he's talking about. And here.]
Now, obviously there are violent extremists in the world and the US like all other societies is likely to fall victim to further attacks by terrorists. But if they could not inflict significant damage on us with 9/11 (and economically and in every other way except the horrible death toll, they could not), then it is a little unlikely that this kind of threat is existential.
In fact the number of terrorist attacks in the US has vastly declined since the 1970s (as has violent crime over-all), as WaPo’s chart shows:
(The chart shows each attack as a number and does not show fatalities; obviously the Oklahoma City bombing and 9/11 would be prominent in that case. But the fact is that foreign terrorist attacks kill almost no one in America these days. You’re far more likely to fall in your bathtub and die than to face terrorism).
Rogers makes a big deal out of the fighting in northern Syria as a threat to the United States and says “thousands” of “Westerners” have gone to fight there. But
Rogers is just obfuscating by mentioning vastly exaggerated statistics.
The number of Americans estimated by the FBI to be fighting in Syria? 24. Two dozen. That’s it.
The Syrian civil war has nothing to do with the US, and is a local struggle rather unlikely to involve hitting America (more especially since, as Rogers carefully avoids mentioning, the US is committed to arming these rebels to fight against al-Assad.)
That’s right. Mike Rogers voted to give arms to the Syrian rebels. And while he may hope they don’t go to the al-Qaeda affiliates (as happened when Ronald Reagan gave $5 billion to the Afghan Mujahidin in the 1980s) [oops], he has no guarantee that won’t happen and is willing to take the risk. If Rogers were really, really concerned about the Jabhat al-Nusra, he wouldn’t be risking upping its firepower with Americans’ tax dollars as a justification for monitoring who your 15 year old daughter calls on her cell phone.
Let us say that again. Feinstein and Rogers just came on television to scaremonger the American people with the Syrian jihadis, and both of them voted to give the Syrian rebels millions of dollars in arms.
That’s a pretty good racket. You support the jihadis abroad and then point to jihadis abroad as the reason for which you have to get into the underwear of the American people.
Then they brought up Iraq, which is another local struggle. Dick Cheney repeatedly warned that if the US left Iraq, the terrorists created by the US Occupation (he didn’t put it that way) would follow us home. But it was never very likely an allegation. You could easily get an attack in the US by a disgruntled Sunni Iraqi. But that the Sunni Arabs of Iraq are gunning for the US? No sign of it.
Indeed, Al Qaeda wasn’t even in Iraq until the U.S. invaded that country.
And U.S. policy has lead to a world-wide increase in terrorism.
Of course, mass surveillance doesn’t really have much to do with terrorism in the first place.
Bonus:Mass Die-Off of West Coast Sealife: Fukushima Radiation … Or Something Else?
Walmart today announced that Cyber Monday 2013 was the biggest online sales day in its history. The five-day period from Thanksgiving to Cyber Monday is the highest five-day stretch in online sales for the retailer to date, and Walmart.com processed more than one billion page views during that period. Somehow WMT managed to process all this traffic without having to spend $1 billion in taxpayer funds to "fix" it website or having to retain Google and Oracle to comb through its 500 million lines of flawed code. So what were WMT's online shoppers spending most of their money on?
Below find the top-selling items at Walmart.com on Cyber Monday.
LG 50" 1080p 60Hz LED HDTV
Apple iPad 2 16GB with Wi-Fi
Fisher-Price Power Wheels Red Ford F150 Raptor 12-Volt Battery-Powered Ride-On
Mega Bloks First Builders Build 'n Learn Table Plus Bonus Play Set
TRIO Stealth G2 10.1" Tablet Dual Core with 16GB Memory (mobile top-seller)
Tilting Wall Mount for 37" to 70" Flat Panel TVs, with HDMI Cable (mobile top-seller)
Submitted by Simon Black of Sovereign Man blog,
At this point, you’d pretty much have to be living under a rock to have not heard of Bitcoin.
I actually asked this question (‘have you been living under a rock?) to someone recently who proudly proclaimed that he had never heard of Bitcoin, almost expressing gratification in his ignorance of a game-changing model.
Bitcoin is on fire. Mainstream media coverage is everywhere.
Today, in fact, the Forex Industry Conference kicks off at the W Hotel here in Santiago. And the lunchtime workshop is featuring an hour-long panel on Bitcoin, including the folks behind Coin4ce.com, Chile’s largest Bitcoin trader.
No doubt, digital currency is a growing trend in Latin America… particularly in neighboring Argentina where the government has been nationalizing everything that isn’t nailed down.
The Argentine government has imposed a series of desperate capital controls and price controls, including severe restrictions on purchasing gold and foreign currencies.
Most Argentines have been left to suffer the terrible inflation and erosion of purchasing power that comes with holding a rapidly depreciating paper currency.
But for some Argentines, Bitcoin has been a salvation. And demand for the digital currency has soared in the country as people have realized that Bitcoin cannot be controlled or nationalized by the Argentine government.
As a result, Bitcoins in Argentina frequently trade for more than 30% higher than in neighboring countries… presenting a rather interesting arbitrage opportunity.
With all the mainstream attention, though, Bitcoin has been building its share of detractors. I read an article on Forbes recently entitled something like “Why Bitcoin is doomed to fail”.
Most of these pieces roll out the same tired points– that nobody knows anything about the mysterious programmer who put it together… that it’s too volatile… etc.
True, Bitcoin is incredibly volatile. A lot of this is based solely on momentum and speculation.
Think about it– the premise behind Bitcoin is that it is an alternative to fiat currency. So is gold. Yet while Bitcoin has soared in the last few months by practically an order of magnitude, the nominal gold price has remained flat.
This suggests to me that a lot of the new Bitcoin buyers are speculators– people that are trading paper currency for Bitcoin, hoping to trade their Bitcoins back into even more paper currency at a later date.
This approach defeats the purpose of holding a fiat currency alternative. And it raises a rather interesting problem that is unique to Bitcoin: with such a huge runup in the nominal price of Bitcoin, how is it supposed to be taxed?
The capital gain rules for precious metals are very clear, especially if you’re a US taxpayer. But the IRS has literally issued ZERO guidance on Bitcoin.
If, for example, Bitcoin is considered a ‘currency’ by the IRS, then Bitcoin gains should be taxed as ordinary income according to IRC section 988(a)(1)(A).
But if Bitcoins are considered to be a long-term investment, such as shares of Google that you hold for more than a year, than it should be taxed at lower capital gains rates.
And what about if your Bitcoins are stolen? Are such losses deductible like other investment losses? Or would it be treated like personal property as if your car was stolen?
And what if you’re a US taxpayer holding Bitcoins at an overseas-based brokerage? Would this ‘account’ need to be reported on foreign financial disclosure forms?
Everything is up in the air. And while the IRS has issued fairly clear guidance on precious metals, they haven’t made a peep about Bitcoin… leaving, once again, the onus on the taxpayer to figure everything out.
With November in the books, a month in which the S&P rose 2.85%, and a centrally-planned 27% year to date, it is time to check how the most prominent US hedge funds are doing heading into the home stretch. As usual - it is not pretty. And yes, while hedge funds don't benchmark to the S&P, after 5 years of underperformance, their LPs sure start asking themselves why do they pay 2 and 20 at a time when one can buy the SPY for free and thanks to CIO Bernanke, outperform 98% of all hedge funds?
Best and Worst Hedge funds of 2013:
The complete latest HSBC presentation:
The broad-based measure of Treasury bond volatility - MOVE - has broken higher, and, as BofAML's MacNeil Curry notes, confirms a base and change in trend (to higher or more volatility). With the month of December traditionally a strong month for the MOVE Index and Treasury volatility in general, Curry warns there are two ways the volatility can move higher - either higher rates or lower equities.
We look for Treasury volatility to head higher to 81/87 and potentially beyond
THERE ARE 2 WAYS THE MOVE CAN HEAD HIGHER: Higher rates OR lower equities.
We expect 10yr yields to run to the Sep highs at 3.00% and eventually beyond. However, we are very focused on 5yr yields, specifically the 1.451%/1.473% zone as KEY. Through here completes a 2m Head and Shoulders Base, 1.670%/1.659% and potentially beyond.
The other way the MOVE/Treasury volatility can rise is from a DECLINE IN equities. Yesterday's price action in the S&P500 was a concern, resulting in cash a break of month long wedge support (1807) and ESZ3 breaking the 1799.75/1799.00 pivot.
However, for damage to transpire to the larger uptrend, we need to see a minimum of a close below the 21d in cash at 1786. Back above 1799.75 in ESZ3 is needed to indicate stabilization and a resumption higher.
Since Friday's holiday-shortened session, US equities have tried and failed to sustain the exuberance of the month, quarter, year. Volume is heavy but postive breadth is becoming narrower with fewer and fewer names leading the rise and the break in EURJPY is weighing heavily on the overall markets as stocks catch down to recent indications from bonds, the USD, precious metals, VIX, and credit that the Fed taper may be coming sooner than many hoped. And it's a double-POMO Day... get to work Mr. Henry.
The carry unwind continues to drag stocks down...
as the Pre- and Post-Thanksgiving pop has folded quickly...
Can you tell from the lower pane (relative volume) which days were sell-offs?
Bonus Chart: Did the S&P hitting its Fibonacci extension level mark a technical turning point?
(h/t Brad Wishak)
Amid proclamations of hundreds of thousands accessing the "fixed" website (though no details on who is signing up), admissions that work continues to be needed, delays, and broken promises; President Obama has deemed it fit to utilize his lectern to market the Affordable Care Act once again.
- *U.S. SAYS OBAMACARE WEBSITE ERROR RATES ARE 'AT LOW LEVELS'; but
- *BOEHNER SAYS OBAMACARE IS 'FUNDAMENTALLY FLAWED'
From "easy" women to keg-standing kids, there is something for everyone in this special one-time offer... grab your popcorn...
Submitted by Adam Taggart of Peak Prosperity,
IF you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
So, let's say you're a prudent person who has concerns that our economy isn't 'recovering' as robustly as you'd like.
Perhaps you still remember the speed and depth of the 2008 credit crisis' arrival, and its toxic impact on asset prices, jobs, and overall trust in the financial system. Maybe you took notes during the preceding tech and housing bubbles and their aftermath. If so, you likely swore that "Never again!" would you put your wealth at risk during such obvious times of public mania.
Chances are, you've probably logged a lot of hours over the past several years on the Internet trying to read the economic tea leaves more closely. Are things becoming more stable, or less? What are "safer" measures for protecting and building wealth than simply putting all your chips into the paper markets (stocks & bonds) and real estate?
As a result, you've probably had a smaller percentage of your wealth in the stock/bond markets over the past few years than your peers. You probably also own some gold and silver, likely having bought much of it between 2009-2011 with the stock market collapse still fresh in your memory. Chances are also good you've made a series of "preparedness" investments (stored food, etc) as an insurance policy in case really tough times were to break out. Most of your family and friends didn't take these steps, nor are particularly interested to talk about your reasons for taking them.
So, if this sounds at all like you: five years after the 2008 crisis, how is the "prudent" strategy looking today?Looking Like An Idiot
As one who took similar steps, I'll confirm it looks pretty lousy to the casual observer.
Stocks & Bonds
There has been an absolute party in the stock market over the past two years. The S&P is up nearly 40% (!) since early 2012 and has almost tripled since its 2009 lows. It's been nearly impossible not to make money in the stock market recently (unless you've owned mining shares).
Bonds have remained at historically-elevated prices. And although 2013 has seen prices come off slightly from their highs, prices are still substantially above pre-crisis levels.
The pumped-up performance of paper assets here is of course due to the staggering amounts of new money the Fed has been creating since 2008. Starting with a balance sheet of $880 billion pre-crisis, the Fed has since expanded it by an additional $3 trillion. In less than 5 years. And it's continuing to expand to the tune of $85 billion (some calculate $100 billion) per month.
Most of that money sits in excess reserves enriching the banks at zero risk, at high hidden cost to the public (a rant for another day). But enough of it is sloshing over into the markets where it does exactly what excess liquidity always does: rise all boats.
So, if you decided to stay out of the markets, you've watched the party boat pass you by. They say "Don't fight Fed" and so far, the Fed is indeed winning. In reality, it will likely prove to be the Charlie Sheen version of "winning", but to the casual observer whose 401k is up 20% this year, the Fed definitely appears to be playing the better hand.
How soon we forget. Home prices have resumed climbing at historically-aberrant rates. The Case-Shiller home price index just reported that, year-over-year, its national home price index grew by 11.2%.
A number of markets have re-entered bubble territory. San Francisco, where prices are now higher than at their 2007 peak, saw a 26% year-over-year increase in average prices. Las Vegas, the poster child for housing prices excesses six years ago, saw a 29% average price increase from 2012 to 2013.
The tell-tale sign of an overheated housing market -- house flipping -- is back.
If you've been holding off on purchasing real estate (as I have) -- expecting a stumble back into recession, or higher interest rates, could bring prices down to saner baselines -- again, you're watching prices get away from you.
Ugh. There's no denying it has been a very rough two years for gold and silver holders. As I'm writing this, gold and silver are dropping to near 4-year lows.
For those burned by the last crisis who purchased precious metals near their zenith in 2011, hoping to protect the purchasing power of their capital -- the nauseating declines since early 2012, especially in silver, have done anything but.
Those who bought PMs pre-2008 enjoyed a long stretch of validation while prices appreciated year after year. With a material percentage of that appreciation now gone, and month after month of relentless losses punctuated by vicious price smashes, it's harder to feel as smart as it once was.
But it's maddening. With the $3 trillion in new currency recently created by the Federal Reserve, shouldn't precious metals be appreciating? Wildly? Isn't that their central promise: to hold value as the purchasing power of paper money inflates away? But instead, they're decreasing in dollar price, even as the money supply continues to expand. How is that possible?
And Bitcoin! From almost out of nowhere, a new alternative currency skyrockets from nearly valueless to (briefly?) match the price of gold. It's like adding insult to injury for the 99.9% of precious metals holders who don't also hold Bitcoin. How can the world suddenly wake up to the advantages offered by non-fiat currency and yet still treat the granddaddy of sound money like kryptonite?
In 2009 and 2010, those of us who had warned our friends of the lurking risks in our economic and financial system suddenly looked like geniuses, instead of the kooks folks had dismissed us as. Now, we're back to being kooks.
A chart Chris has been sharing recently with our enrolled members shows that at no time in the past 30 years has sentiment been this bullish. Not even during the Internet stock mania of the late 1990s:
Faith in the current system is as high as it has ever been, and folks don't want to hear otherwise.
This extreme optimism extends beyond the Economy. In the Energy sphere, in news headlines discussion of the "shale miracle" is still omnipresent -- without, of course, any mention of net energy, extraction costs or depletion rates. In the Environment, coverage of the real-time collapse of key fisheries or water shortages likely to impact food production rarely get any mainstream notice.
In short: if you're one of those people who thinks it prudent to have intelligent discussion on some of these risks -- that maybe the future may turn out to be less than 100% awesome in every dimension -- you're probably finding yourself standing alone at cocktail parties these days.The Madness of Crowds
Charles MacKay's excellent classic reference book Extraordinary Popular Delusions and The Madness of Crowds explains the nefarious nature of public manias: they strive to suck in as many participants as possible before collapsing.
We are seeing classic signs of the abandonment of concern by the public in favor of not missing out on 'easy gains'. In addition to the examples mentioned above, signals that the fear trade has given way to the greed trade are abundant these days:
- Stock chasing - here's a quote the WSJ recorded from an actual retail investor buying shares on the first day of the recent twitter IPO: "I messed up not buying any Facebook so I want to get some Twitter. I'm just buying because everyone's talking about Twitter". Not because of its product (which she admitted she didn't use). Or its business model (which has never been profitable and unclear if it ever will be). The purchase decision was made purely based on hype.
- Priority abandonment - at Peak Prosperity, we speak with professional financial advisers frequently. The advisers we know best focus on risk mitigation and remain skeptical of the sustainability of the prolonged market rally. Many of their accounts signed on after 2008, clearly declaring that they prioritized protection of their capital over everything else. Yet a growing number of these investors are watching the continued rise in financial asset prices and are now pushing for more aggressive management. They're abandoning the prudence that was so important to them just a few years ago.
- Bear capitulation - the path to a bull market peak is littered with the carcasses of bearish analysts that dared to challenge its rise. As the % bearish Investors Intelligence chart above shows, there are few bears left to be found anymore. Just last week saw a major defection from the bear camp, with the perennially critical Hugh Hendry throwing in the towel, exclaiming:
"I can no longer say I am bearish. When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out."
- Warning sign dismissal - it's not as if there aren't clear alarm bells being sounded by the very experts the public looks to for such warnings. It's just that these warnings are being ignored by the market. No one wants the party to end:
"All markets are bubbly"
"In many countries the stock price levels are high, and in many real estate markets prices have risen sharply...that could end badly. I find the boom in the U.S. stock market most concerning,"
"Now, five years later, signs of frothiness, if not outright bubbles, are reappearing in [at least 17 global] housing markets"
"What we are witnessing in many countries looks like a slow-motion replay of the last housing-market train wreck. And, like last time, the bigger the bubbles become, the nastier the collision with reality will be."
When this latest global asset bubble bursts as Roubini reminds us, by definition, it must; the public will cry "Why didn't anyone warn us?" The media will reflexively utter "Nobody saw this coming". But the truth is, there is evidence galore for those who choose to look for it.The Wisdom of Looking Like an Idiot Today
The other key characteristic about popular manias/bubbles is that they collapse suddenly. Much more swiftly than they took to build.
The resultant carnage catches the masses like deer in headlights. The Kubler-Ross stages of grief begin quickly, and since Denial is Stage 1, most folks delay taking action out of disbelief. Soon Bargaining is reached, and they continue to delay reaction as prices continue falling - praying for the chance to get out if a reversal would just happen. It's not until Acceptance that most will take action, selling after the down draft has largely run its course.
Here are some useful stats to keep in mind that show how sudden and savage the 2008 market collapse was:
- Week of Oct 6, 2008 - the Dow Jones drops 18%; its worst week ever in terms of both absolute and percentage loss
- March 6, 2009 - the nadir for the stock market. By this date, 5 months after the crisis began, the Dow was down 54% since October
The takeaway here is that the wealth destruction caught most investors flat-footed. Most were unprepared -- both psychologically as well as with their portfolio positioning -- to react.
Many investors thought themselves savvy and nimble enough to avoid the losses they ultimately suffered, telling themselves a similarly ill-fated narrative as Charles Prince told his shareholders:
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,”
Most readers remember how Citigroup's price dropped from over $500/share when Prince made this comment, to $10/share in March 2009. Prince was booted from his CEO role in late 2007 due to emerging losses resulting from the bank's MBS and CDO positions, investment classes which proved to be at the heart of the 2008 crisis.
So, a smart question to ask at this time is: is the moment in time we're in today closer to January 2006, when there were several years left of exuberance to ride? Or are we more like September 2008, poised at the precipice?
A smarter answer is: there's no way to know with acceptable certainty.
Like grains of sand piling up or snowflakes falling on a cornice, we can assess the growing level of risk, but we can't identify the grain of sand or snowflake that will cause the eventual cascade. We can't predict the collapse timing with confidence. We can -- and will -- continue to make our best educated estimates; but the exact timing is unknowable.
So, given that fact, as John Hussman so pithily captures, bubble markets force us to make a choice:
The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak.
And so your choice is upon you. Look at the evidence around you -- a movie nearly identical to one you saw in 2008 and in 2000 -- and either decide to party with the herd while the music plays (look smart today), or park yourself in safety now (look smart tomorrow).
Since the timing of the next correction is unknowable, the prudent choice is obvious. But it's not easy for all the reasons mentioned at the start of this article.
A helpful question to ask yourself is: if I could talk to my 2009 self, what would s/he advise me to do?
For most of us, our past self, recently reminded of the anguish of wealth destruction, would say "Run to safety!" at the first whiff of anything bubblicious. Research has shown that when the chips are down, the benefits of loss aversion are always preferred to the joys of gain.
Don't put yourself in a position to relearn that lesson so soon after the last bubble. Exercise the wisdom to look like an idiot today.The Need For Discipline is Greater Than Ever
OK, so what should today's "idiot" focus on doing?
- Build cash - it not sexy. And it's not fun to see the dollar price of nearly every asset known to man escalate while you hold cash. But bubbles are designed to take as much as possible from as many people as possible. During the popping of a bubble, the real wealth (underlying assets like companies, land, minerals, etc) doesn't vaporize like the high prices do. Those assets are simply transferred at a lower (more attractive) price to those people who still have money. Be one of those people.
- Hold onto your precious metals - I know. It's painful right now. For most PM owners, just hold onto what you have right now. Those with stronger stomachs should be dollar cost averaging in. Remember the fundamentals for owning gold and silver have not changed AT ALL over the past few years. Stay largely with physical bullion. Don't speculate with the mining stocks at this time unless you're a risk-junkie (or masochist?) and then only with money you can afford to lose.
- Scout out locally-based hard asset investments for the future - Once this bubble pops, higher interest rates and lower prices will result. Look around your local area for assets (businesses, housing, farmland, livestock, etc) that you would consider holding at least a percentage ownership in. Calculate what price would make you an interested investor. While that price may be years away, when the impact of a market correction hits, you'll be poised to move ahead of the other savvy investors to secure the opportunities you want (and play a role in stabilizing the community in which you live).
- Design your trading plan for a market down draft - what steps will you/your financial adviser take if the market starts cratering? If you don't have a plan in place currently, now is the time to design it. Will you employ stops? What "safe assets" will you move to? (Treasurys, cash, other currencies?). Will you strictly be a sidelines observer, or will you take any active short positions on the downside? Will there be opportunity to generate income using vehicles like covered calls? Whatever makes sense for you, devise your strategy in the calmness of today vs on-the-fly while the markets are melting down around you and everyone is panicking. And if your financial adviser is unable to provide you with a comforting answer as to his/her strategy for captaining your money through another 2008 (or worse) correction, we have a few recommended advisers you may want to consider talking with.
- Build your roof while the sun is shining - so many of the most valuable investments are not financial (emergency preparedness, energy efficiency, community, health - to name just a few). Use the gift of time we have now to invest in expanding your degree of resilience. If it's been a while, take a fresh skim though our What Should I Do? Guide to identify any areas you aren't satisfactorily prepared in. These are the investments where its infinitely better to have in place "a year early vs a day late"
- Increase emotional fortitude - being "wrong" in the eyes of society is trying. And stressful for many, especially if your partner or others of those close to you don't share your views. Keep learning by reading this site and a wide range of others including those with opposing commentary. Develop your opinions based on the data you determine is most accurate -- your ability to stand resolute against popular sentiment will be grounded in your confidence in the "big picture". Seek support from the thousands of other Peak Prosperity readers who are wrestling with the same issue set you are, by participating in our Groups. We created them to help people support each other both virtually and "in person" within their local communities.
- Develop an income loss plan - if we're correct in our prediction of a major down draft, a return to deep recession is likely, and with it, a return to higher unemployment. Loss of income is a stressful trauma, especially if it happens unexpectedly and is compounded by a hobbled job market. Take some time to assess your job's level of vulnerability to another recession. If it's higher than you'd like, ask yourself what you would do if a sudden layoff occurred. Start doing the work now to at least sketch out the path you would take if that happened. And if possible, develop some relationships or related skills now that would give you an unfair advantage should you ever need to head down that route. The first third of our book Finding Your Way To Your Authentic Career has a number of exercises that provide useful guidance for those looking to do this.
- Develop an income enhancement plan - the resilience that comes with multiple income streams really helps you sleep at night, as you're less vulnerable to having your entire life upended if a sudden pink slip appears. Also, having extra income to direct to other goals (retirement, education, homesteading, etc) enables you to hit them faster. We're all busy, but thinking creatively for a moment, what could you start doing today to secure extra income streams in the future. This is a topic that Chris often helps folks think through in his consultations.
Essentially, the approach here is to dismiss what is not in our control and focus on what we can best do with what is. Be practical. Be prudent. Be dull to those watching you from the dance floor.
John Hussman signed off his latest report with the advice: "Risk dominates. Hold tight." I agree. Now is the time act with the courage of our convictions.
As Kipling put it at the end of his poem:
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: 'Hold on!'
If you can talk with crowds and keep your virtue,
Or walk with Kings - nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds' worth of distance run,
Yours is the Earth and everything that's in it,
And - which is more - you'll be a Man, my son!
Much has been said about how the median household income in the US has gone nowhere since the great financial crisis (and in real terms has been declining for the past decade). We won't add much to this topic suffice to say that please don't take your declining income grievances to Washington D.C. for the simple reason that, as the chart below shows, what's bad for America is good for its (heavily lobbied) politicians.
Submitted by Michael Krieger of Liberty Blitzkrieg blog,
The past several weeks have seen the emergence of several innovative and user friendly websites related to Bitcoin specifically, and crypto-currencies generally. The first was FiatLeak.com, which shows the amount of BTC purchased and where in the world those purchases take place in real time. Then we saw CoinMarketcap.com, which calculates and ranks the ever-changing market caps of the more than forty virtual currencies being traded out there.
Now something else has been brought to my attention. It is very different, but just as cool and potentially much more useful. The site is CoinMap.org and it serves as a sort of Google Maps for Bitcoin. The site attempts to plot the various brick and mortar retail locations across the globe that accept BTC. When you see your target area you just zoom in and it will give you a closer view of the city in your crosshairs and the name and website of the businesses in question.
It looks like this (click on the map to get to the site).
According to Coindesk, this site was only showing 552 on the chart as of early November. With 1,397 on the map right now, you can clearly see the incredible growth dynamic happening in the Bitcoin economy. Sadly and somewhat surprisingly, there are none in Boulder but I am hopeful that will change very shortly.
Unfortunately for Bill Ackman, another leg of the "short Herbalife to the grave" thesis just broke when a Belgian Appeal Court hearing overturned its previous findings:
- *HERBALIFE 'WELCOMES' JUDGEMENT BY BELGIAN APPEAL COURT
- *HLF CITES CLAIMS THAT HLF WAS OPERATING A PYRAMID SCHEME
- *HERBALIFE SAYS COURT STATES ITS SALES MODEL IN FULL COMPLIANCE
The stock is up 5% on the news, breaking to a new record high above $75.
Herbalife PR Statement:
Global nutrition company Herbalife (NYSE: HLF), welcomes the judgment by a Belgian Appeal Court that states the company`s sales model is in full compliance with Belgian law.
This judgment overturns a previous ruling by the lower court, in response to claims brought by Belgian consumer organization Test-Aankoop, that Herbalife was operating a pyramid scheme.
Herbalife always believed that the first judgment contained factual errors and was based on misinterpretations of its direct-selling sales method, and was confident that the original judgment would be overturned on appeal.
As we explained over two months ago, and as the Fed is no doubt contemplating currently, the primary topic on the agenda of central bankers everywhere and certainly in the Marriner Eccles building, is how to boost inflation expectations as much as possible, preferably without doing a thing and merely jawboning "forward expectations" (or more explicitly through the much discussed nominal GDP targeting) in order to slowly but surely or very rapidly and even more surely, get to the core problem facing the developed world: an untenable mountain of debt, and specifically, inflating it away. Of course, higher rates without a concurrent pick up in economic activity means a stock market tumble, both in developed and emerging countries, as the Taper experiment over the summer showed so vividly, which in turn would crush what many agree is the Fed's only achievement over the past 5 years - creating and nurturing the "wealth effect" resulting from record high asset prices, which provides lubrication for financial conditions and permits the proper functioning of capital markets. Perhaps this is the main concern voiced by JPM's chief US economist Michael Feroli who today has issued an interesting piece titled simply enough: "Raising inflation expectations: a bad idea." Is this the first shot across the bow of a Fed which may announce its first taper as soon as two weeks from today, in order to gradually start pushing inflation expectations higher?
And if so, it provides an interesting perspective of where on the reflation debate the big banks - easily the biggest beneficiaries of the Fed's ultra loose policies - and specifically JPM, whose $550 billion in excess deposits exist only thanks to QE, will stand once the Fed shifts from ultra easy to, well, less than ultra easy mode.
Said otherwise, are the TBTF megabanks about to fight the Fed?
Full note from JPM's Michael Feroli below:
Raising inflation expectations: a bad idea
Ever since the Great Recession there have been repeated calls for the Fed to raise its inflation target, thereby increasing inflation expectations and hopefully speeding the recovery. We have viewed this strategy as ill-advised. Encouragingly, two separate strands of research give support to our view, and make us more confident that the Fed will not go down this path. It is important to emphasize that our thinking and the thinking contained in the Fed research does not oppose a higher inflation target simply out of distaste for higher inflation, but instead because a higher inflation target could have some immediate adverse consequences for growth and employment. We also note that this critique applies not only to policy measures that directly raise the inflation target, but also to ones that could do so through the “back door,” such as nominal GDP targeting.
The case for
The argument for higher inflation expectations takes a few forms. The most conventional such argument stresses the fact that higher inflation expectations will lower real interest rates. Recall that nominal interest rates equal real interest rates plus expected inflation. If nominal interest rates are unchanged, then a rise in inflation expectations serves to reduce real interest rates. Since real interest rates are believed to be what matters for economic activity, lower real interest rates imply more investment spending, greater home sales, and so on. When short-term nominal interest rates are already at zero and thus constrained from falling any further, the improvement that can be engineered by raising inflation expectations – and lowering real interest rates – is particularly appealing, as it appears to be one of the few ways that central banks can further stimulate the economy without relying on fiscal coordination.
The case against
If the world we lived in were the world of textbook economics, then raising inflation expectations would quickly get the economy back to full employment. Unfortunately the world is not that simple. One simple complication is the fact that if you are reading this note you probably already follow the Federal Reserve more than the average person. Former Fed Vice Chair Frederick Schultz remarked in 1979 that "most people thought the Federal Reserve was either a bonded bourbon or a branch of the National Guard.” While public awareness of the Fed has increased since then, Main Street businesses and consumers still probably pay little attention to Fed edicts, whereas financial market participants are likely to read FOMC statements, to know that Yellen is a dove, Plosser a hawk, and to understand that the Fed’s long-run inflation goal is 2 percent.
These market participants are likely to immediately react to any hint that the Fed is raising its inflation target, and the reaction would come in the form of higher long-term nominal interest rates, as lenders would demand a higher premium for inflation compensation. Since Main Street businesses and households are less prone to hang on the Fed’s every word, their inflation expectations will be less affected by FOMC pronouncements, and a rise in nominal interest rates would be seen as a rise in real interest rates. Thus, raising the inflation target would increase nominal interest rates, and with inflation expectations outside of the financial sector essentially unchanged, this would mean higher real interest rates and a slower recovery.
A recent research paper produced by senior Federal Reserve staff received considerable financial market attention, mostly due to its discussion of threshold-based forward guidance. However, the paper – “The Federal Reserve's Framework for Monetary Policy, Recent Changes and New Questions” – also explored raising the inflation target. In an environment similar to the one described above, the paper's authors simulate a model and find "part of the increase in nominal bond rates perceived by non-financial agents is perceived as a real phenomenon, leading to a reduction in expenditures and prices in the short run." In sum, formal economic modeling confirms the commonplace intuition that a rise in inflation expectations can be damaging for growth.
A separate critique of this strategy has been discussed by Lars E.O. Svensson -- a leading macroeconomist, former Princeton colleague of Bernanke, and recently a deputy governor of the Swedish Riksbank. Svensson recently argued that if a central bank successfully stabilizes inflation expectations, then there is a trade-off between inflation and employment, and higher inflation means lower employment. However, it is inflation relative to inflation expectations that matter for employment -- for a given level of realized inflation, higher inflation expectations means higher unemployment. Svensson gives the intuition as “Suppose that nominal wages are set in negotiations a year in advance to achieve a particular target real wage next year at the price level expected for that year…If actual inflation over the coming year then falls short of the inflation target, the price level next year will be lower than anticipated, and the real wage will be higher than the target real wage. This will lead to lower employment and higher unemployment.” When average inflation is below a credible inflation target, it results in higher unemployment. The challenge for a central bank in this situation is to create the demand conditions that will stimulate actual inflation. However, simply raising inflation expectations could be counterproductive – even more actual inflation will need to be realized for there not to be employment loss with a higher inflation target. Generating that actual inflation has proved to be challenging for developed market central banks around the world.
Watch out for the back door
Simply announcing a higher inflation target could lead to higher real interest rates and, ex-post, higher real wages and thus lower employment. There are other ways this outcome can arise. In particular, nominal GDP targeting could have the same effect. Under this approach, the Fed would choose a target path for nominal GDP and keep policy accommodative so long as actual nominal GDP was below that target. Nominal GDP growth can be decomposed into real GDP growth plus inflation. If trend real GDP growth disappoints, then the shortfall in nominal GDP growth would need to be made up in a higher inflation target -- leading to the same growth-inhibiting concerns about a higher announced inflation target described earlier. This concern seems particularly relevant at this juncture as many believe (including us) that the Fed is at risk of overestimating the trend in real GDP growth.
The argument for raising the inflation target is not hopeless, but must be carried out in the context of a more comprehensive stimulus plan. Christina Romer has noted how the American New Deal and present-day Japan share an aspiration to affect a regime shift in expectations. Note, however, that in both situations expectations management was complemented by action in both the monetary and fiscal realms. A central bank going it alone to raise inflation expectations can create a situation that might backfire on growth. This is why we believe that even under the leadership of a Chairman like Yellen who is undoubtedly committed to the Fed’s employment mandate, the FOMC will not undertake policy actions that lift inflation expectations above a level consistent with the 2 percent long-run goal.