Wednesday, February 19, 2014

If You Have Been Waiting For The “Global Economic Crisis” To Begin, Just Open Up Your Eyes And Look Around

Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion
Soros Fund Management has doubled up a bet that the S&P 500SPX  is headed for a fall.
Within Friday’s 13F filings news was the revelation that the firm, founded by legendary investor George Soros, increased a put position on the S&P 500 ETF   SPY -0.04% by a whopping 154% in the fourth quarter, compared with the third. (A put or short position basically gives the owner the right to sell a security at a set price for a limited time, and in making such a bet, an investor generally believes the security is going to decline.)
The value of that holding, the biggest position in the fund, has risen to $1.3 billion from around $470 million. It now makes up a 11.13% chunk of all reported holdings. It had been cut to 5.14% in the third quarter, from 13.54% in the second quarter, which itself marked another dramatic lift on the bearish call.  The numbers can be found at Whalewisdom.com, which makes them slightly easier to digest than the actual SEC filing.
Japanese GDP and Exports Seriously Underperform Expectations
The huge string of unexpectedly sour economic data continues to pour in. Add Japan to the spotlight. The BBC reports Japan’s Quarterly Growth Disappoints Ahead of Sales Tax Hike.
ART CASHIN: Central Banks Have Built Up ‘A Very, Very Dangerous Situation’
In a new interview with King World News, Cashin warns that financial market conditions remain very risky. From the interview:
What I am saying is:  They thought they were going to solve a desperate problem by desperate measures.  I don’t believe it’s having the effect they wanted, and it’s building up a very, very dangerous situation.  If that money were suddenly to get velocity, inflation could break out.
Conversely, by pushing on a string and not getting anything done, they may wind up being in a spot where, if the economy moves to stall-speed, we’ll get deflationary pressure.  Yes, they’ve begun treating the patient with very, very drastic remedies, and my concern is:  Is it ultimately damaging the body in a way that will bring back some of the horrors they tried to avoid?
The following are 20 signs that the global economic crisis is starting to catch fire…
#1 The unemployment rate in Greece has hit a brand new record high of 28 percent.
#2 The youth unemployment rate in Greece has hit a brand new record high of 64.1 percent.
#3 The percentage of bad loans in Italy is at an all-time record high.
#4 Italian industrial output declined again in December, and the Italian government is on the verge of collapse.
#5 The number of jobseekers in France has risen for 30 of the last 32 months, and at this point it has climbed to a new all-time record high.
#6 The total number of business failures in France in 2013 was even higher than in any year during the last financial crisis.
#7 It is being projected that housing prices in Spain will fall another 10 to 15 percent as their economic depression deepens.
#8 The economic and political turmoil in Turkey is spinning out of control.  The government has resorted to blasting protesters with pepper spray and water cannons in a desperate attempt to restore order.
#9 It is being estimated that the inflation rate in Argentina is now over 40 percent, and the peso is absolutely collapsing.
#10 Gangs of armed bandits are roaming the streets in Venezuela as the economic chaos in that troubled nation continues to escalate.
#11 China appears to be very serious about deleveraging.  The deflationary effects of this are going to be felt all over the planet. The following is an excerpt from Ambrose Evans-Pritchard’s recent article entitled “World asleep as China tightens deflationary vice“…
China’s Xi Jinping has cast the die. After weighing up the unappetising choice before him for a year, he has picked the lesser of two poisons.
The balance of evidence is that most powerful Chinese leader since Mao Zedong aims to prick China’s $24 trillion credit bubble early in his 10-year term, rather than putting off the day of reckoning for yet another cycle.
This may be well-advised for China, but the rest of the world seems remarkably nonchalant over the implications.
#12 There was a significant debt default by a coal company in China last Friday…
A high-yield investment product backed by a loan to a debt-ridden coal company failed to repay investors when it matured last Friday, state media reported on Wednesday, in the latest sign of financial stress in China’s shadow bank sector.
#13 Japan’s Nikkei stock index has already fallen by 14 percent so far in 2014.  That is a massive decline in just a month and a half.
#14 Ukraine continues to fall apart financially…
The worsening political and economic circumstances in Ukraine has prompted the Fitch Ratings agency to downgrade Ukrainian debt from B to a pre–default level CCC. This is lower than Greece, and Fitch warns of future financial instability.
#15 The unemployment rate in Australia has risen to the highest level in more than 10 years.
#16 The central bank of India is in a panic over the way that Federal Reserve tapering is effecting their financial system.
#17 The effects of Federal Reserve tapering are also being felt in Thailand…
In the wake of the US Federal Reserve tapering, emerging economies with deteriorating macroeconomic figures or visible political instability are being punished by skittish markets. Thailand is drifting towards both these tendencies.
#18 One of Ghana’s most prominent economists says that the economy of Ghana will crash by June if something dramatic is not done.
#19 Yet another banker has mysteriously died during the prime years of his life.  That makes five ”suspicious banker deaths” in just the past two weeks alone.
#20 The behavior of the U.S. stock market continues to parallel the behavior of the U.S. stock market in 1929.
Yes, things don’t look good right now, but it is important to keep in mind that this is just the beginning.
This is just the leading edge of the next great financial storm.
The next two years (2014 and 2015) are going to represent a major “turning point” for the global economy.  By the end of 2015, things are going to look far different than they do today.
None of the problems that caused the last financial crisis have been fixed.  Global debt levels have grown by 30 percent since the last financial crisis, and the too big to fail banks in the United States are 37 percent larger than they were back then and their behavior has become even more reckless than before.
As a result, we are going to get to go through another “2008-style crisis”, but I believe that this next wave is going to be even worse than the previous one.
Why The Next Financial Crisis Could Be Worse Than 2008
Last year the Federal Reserve celebrated its 100th birthday. Only two days before Christmas in 1913, deep into the night when many legislators had already left for the holidays, Congress passed the Federal Reserve Act, creating a “non-governmental” central bank – a bankers bank if you will – and charged it with the responsibility of controlling the nations monetary system. In all those years, the Fed has never engaged in a monetary explosion like it is today. We are truly in uncharted territory. In this article we’ll discuss the real reason behind the Feds easy money policy and how its could create an economic disaster, even more severe than 2008. First, some background on the Fed.
U.S. Monetary System: The Changing Of The Guard
The Fed was created on December 23, 1913, largely as a result of the Bank Panic of 1907. When Congress amended the Federal Reserve Act in 1977, it created what has come to be known as the Feds dual-mandate. Basically, the Fed is responsible for full employment and stable prices. The tools of the Fed include: adjusting short-term interest rates; regulating the money supply; establishing bank reserve requirements; and a few less-utilized tools. The current “Chair” of the Federal Reserve is Janet Yellen. Note: “Chairman” has been changed to “Chair” due to the first woman appointed to this position. The Fed Chair is appointed by the President to serve a four-year term. Next , we’ll discuss how a specific piece of legislation which emerged during the Great Depression, could have saved us in 2008.
Bank’s Risk Redemption: The Glass-Steagall Act
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Jim Rogers Tells Us What Everyone Keeps Getting Wrong About China
How healthy is the real estate market today?
The Subprime Majority.   Recently, I came across a report by the Corporation for Enterprise Development (CFED) titled Assets and Opportunity Scorecard.  Some of their findings are quite interesting.  According to the CFED Scorecard, 56% of all consumers have sub-prime credit.  Sub-prime is “earned”. A consumer has to miss a few payments, or default on a loan or two to earn that status.  These 56% cannot, or should not, be taking on more debt, especially a large debt like a mortgage.  They may also be struggling with a mortgage that they should not have taken out in the first place.
Liquid Asset Poor.  CFED found that 44% of households in America are Liquid Asset Poor, defined as having saved less than three months of expenses.  As one would expect, 78% of the lowest income households are asset poor, but 25% of middle class ($56k to $91k) households also have less than three months of expenses saved.  Pertaining to real estate, the report suggests that there are little savings to buy and a small cushion for changes, such as job loss.
Income Inequality.  The Center for Household Financial Stability of the St. Louis Fed recently released a study titled Inequality, the Great Recession, and Slow Recovery.  Skip the 43 pages of academic mumbo jumbo and you will find half a dozen of very simple and informative charts, such as the two below.   I will leave the inequality debate to others.  With regard to a real estate stress test, it appears that households are not exactly well prepared to weather even minor economic setbacks.
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