Monday, February 15, 2016

Obama: We’re Not ‘Wildly Overspending,’ A Lot of Stuff People Put On Internet and News Is ‘Factually Inaccurate’

“There are a bunch of folks who say that we’re wildly overspending, even though we aren’t.”

President Obama argued, “there are a bunch of folks who say that we’re wildly overspending, even though we aren’t” and that many things on the Internet and news broadcasts “are just factually inaccurate” on Friday’s broadcast of “The Ellen DeGeneres Show.”

Obama: We’re Not ‘Wildly Overspending,’ A Lot of Stuff People Put On Internet and News Is ‘Factually Inaccurate’

Posted February 14, 2016 5:46 pm by with 0 comments

“There are a bunch of folks who say that we’re wildly overspending, even though we aren’t.”

President Obama argued, “there are a bunch of folks who say that we’re wildly overspending, even though we aren’t” and that many things on the Internet and news broadcasts “are just factually inaccurate” on Friday’s broadcast of “The Ellen DeGeneres Show.” Obama said, “The amount of stuff that is just put out there on the Internet, or on, sometimes news broadcasts that are just factually inaccurate is surprising, and it’s really hard to catch up. Since I came into office, we reduced the deficit by two-thirds. But if you ask the average person, they’re sure that spending has shot up, and the reason is because, there are a bunch of folks who say that we’re wildly overspending, even though we aren’t. And that’s just one small example, but it happens all the time, and that’s something that we have to fix, partly by people paying more attention to what’s going on every single day. And it’s hard. People are busy.”

Keiser: Deutsche Bank ‘technically insolvent’, running a ‘ponzi scheme’

© Luke MacGregor

Financial Crisis 2016: High Yield Debt Tells Us That Just About EVERYTHING Is About To Collapse

By Michael Snyder
Money Tornado - Public DomainDid you know that there are more than 1.8 trillion dollars worth of junk bonds outstanding in the United States alone?  With interest rates at record lows all over the world in recent years, investors that were starving for a decent return poured hundreds of billions of dollars into high yield debt (also known as junk bonds).  This created a giant bubble, but at first everything seemed to be going fine.  Defaults were very low and most investors were seeing a nice return.  But then the price of oil started crashing and the global economy began to slow down significantly.  Energy company debt makes up somewhere between 15 and 20 percent of the junk bond market, and the credit rating downgrades for that sector are coming fast and furious.  But it isn’t just the energy industry that is seeing a massive wave of defaults, debt restructurings and bankruptcy filings.  Just like with subprime mortgages in 2008, investors are starting to wake up and realize that the paper that they are holding is not worth a whole lot.  So now investors are rushing for the exits and we are starting to see panic on a level that we have not witnessed since the last financial crisis.
Just look at what has been happening in recent days.  Investors took nearly 500 million dollars out of the largest junk bond ETF (iShares HYG) last week alone.  The following chart shows that HYG has now fallen to the lowest level that it has been since the last financial crisis
HYG February 2016
During the last financial crisis, junk bonds starting crashing well before stocks did.  In fact, many consider junk bonds to be a sort of “early warning system” for stocks.  For many analysts, when you see high yield debt collapse that is a huge warning sign that you need to get out of stocks as soon as possible.
And this makes perfect sense.  When financial trouble erupts, it is going to hit more vulnerable companies first usually.
Blue chip companies are typically not in the high yield debt market.  Normally, high yield debt is only for companies that have more risk associated with them.  And it is risky companies that typically start to crumble the quickest.
Another high yield ETF that I watch very closely is JNK.  As you can see, the chart for JNK looks nearly identical to the chart for HYG…
JNK - February 2016
What these charts are telling us is that a new financial crisis began during the second half of last year and that it is now accelerating.
At this point, yields have reached levels that we have not seen since the collapse of Lehman Brothers.  The following bit of analysis comes from Wolf Richter
The average yield of CCC or lower-rated junk bonds hit the 20% mark a week ago. The last time yields had jumped to that level was on September 20, 2008, in the panic after the Lehman bankruptcy, as we pointed out. Today, that average yield is nearly 22%!
Today even the average yield spread between those bonds and US Treasuries has breached the 20% mark. Last time this happened was on October 6, 2008, during the post-Lehman panic:
Junk Bond Spreads - Wolf Richter
At this cost of capital, companies can no longer borrow. Since they’re cash-flow negative, they’ll run out of liquidity sooner or later. When that happens, defaults jump, which blows out spreads even further, which is what happened during the Financial Crisis. The market seizes. Financial chaos ensues.
After junk bonds crashed in 2008, virtually every other kind of investment followed suit.
Just about the only thing that didn’t crash were precious metals.  Gold and silver soared, and that is what you would expect to happen during a major financial crisis.
Another thing that I am watching closely is margin debt.
During past financial bubbles, we have seen lots of people borrow lots and lots of money to buy stocks.
If that sounds like a really bad idea, that is because it is a really bad idea.
Whenever margin debt peaks and then starts to decline precipitously, that is a signal that a stock market crash could be imminent.  The following chart comes from James Stack
Margin Debt - James Stack
After looking at that chart, I can’t understand how anyone couldn’t see the pattern.
We keep making the same mistakes, but we never seem to learn from history.  In fact, the mainstream media keeps telling us that this new financial crisis “isn’t 2008? over and over again.  Even though the exact same patterns are happening once again, they still believe that this time will somehow be different.
And to a certain extent that is actually true. This current crisis is not going to be the same as the last one.  Eventually, it is going to prove to be even worse than the last one once everything is all said and done.
So what should we all be doing?  In a recent article entitled “70 Tips That Will Help You Survive What Is Going To Happen To America“, I gave my readers some basic pieces of advice on how to get prepared for what is coming.  But not all of them will apply immediately.  For example, my wife and I don’t believe that we will need our emergency food next month.  But down the road we are absolutely convinced that we will need it.
For the moment, one of the key things is to build up an emergency fund.  In my opinion, everyone should have an emergency fund that can cover at least six months of bills and expenses.  And now is not the time to go into debt.  Instead of buying lots of shiny new toys, now is a time to spend money on practical things that will be needed during the hard times that are coming.
Unfortunately, most people believe what they want to believe, and most people do not want to believe that hard times are coming.  They have an extraordinary amount of faith in the system, and they are convinced that this time will be different somehow.
So I wish them the best, but as for me and my family, we are getting prepared.
What about you?
Are you getting prepared?
Please feel free to share your thoughts with the rest of us by posting a comment below…

Investors Have Started To Protect Themselves: Gold And Gold Stocks Are Flying

by Secular Investor
Deutsche Bank
In our column last week we were warning you about Deutsche Bank’s problems and potential issues with its derivatives portfolio and its capital structure. The story continued to unfold in the past week and Deutsche Bank was pushed into a corner as more and more investors started to lose confidence in the bank. A plan to buy back $5.4B in debt in a desperate move to reassure the capital markets. In fact, Deutsche’s move is so desperate it will even start buying back debt that was issued less than six weeks ago.
Where did we see that before? Oh, yes, of course. Lehman Brothers. When the shit was hitting the fan, Lehman continued to buy (back) assets instead of keeping the cash in-house to have a financial buffer to counter any potential liquidity issue.
Well, the financial world definitely wasn’t assured by Deutsche Bank’s reassurances, and this effect was predominantly felt in the gold market as the gold price jumped to a multi-year high at in excess of $1264/oz. That’s very nice, but what’s even more interesting is the fact the buying pressure actually started on Thursday, right at the moment the Hong Kong Stock Exchange opened.
Gold Hong Kong Kitco
This is very interesting as the Chinese buyers haven’t been willing to shown their eagerness to get their hands on gold, and a strong gold price appreciation during the Hong Kong trading hours was quite remarkable. We’re looking forward to see how the gold price will behave on Monday, as the US and Canadian exchanges will be closed. Will there be another coup coming from Asia?
Let’s have a look how strong the outbreak of the gold price was, and how the Hong Kong trading day played a pivotal role on Thursday.
Gold Hong Kong China outbreak
The moment the gold price broke through the 200 day moving average, all bets were off and several traders correctly recognized this could potentially be a real game changed. And indeed. Just 4 trading days after breaking through the 200MA, the gold price already touched the $1200oz-level, where it stayed at for approximately 3 days without being able to break through this symbolical level (yellow rectangle). Enter the scene: Hong Kong traders (orange arrow). In just one move they lifted the gold price above $1200/oz overnight, taking the Western traders by surprise, who quickly had to unwind their short positions, further strengthening the spike in the gold price to $1264/oz.
Stockcharts Gold Outbreak MFI
Source: Ibidem
Looking at the multi-year chart, it’s now pretty obvious the downtrend has been broken, and gold is now swiftly moving higher. Not only does this confirm the theoretical and technical pattern we saw after the 200MA was captured, there also seems to be some more room to run. The RSI, for instance, is still in the ‘safe’ zone, whilst the Money Flow Index (the yellow circle below the chart) also hasn’t reached alarming levels just yet.
Additionally, the gold/oil ratio has posted a new record as well. The previous record of 41 barrels of oil per ounce of gold was in 1892, but the eruption of the current crisis has now crushed that ‘record’. This is also a very important sign to prove the volatility of the markets is still exceptionally high. As gold and oil are moving in the opposite directions, the markets are indicating they are expecting to see more problems in the near future.
Gold Oil Ratio Deutsche Bank
Source: Deutsche Bank via
We remain unsure Janet Yellen and Mario Draghi are the right captains to save us from this rollercoaster called the ‘world economy’, and we hope you have started to protect yourself and your assets!

Credit-Default Swaps Are Back as Investor Fear Grows

Credit-Default Swaps Are Back as Investor Fear Grows 


by Smaulgld

Silver Institute Reports show multi year supply demand silver deficits, as the price falls.

Physical silver supply and demand numbers don’t add up.

Late last month, the Silver Institute, in conjunction with Thomson Reuters GFMS,released its “2016 Silver Market Trends” that tracks silver supply and demand trends. Also late last month, Thomson Reuters was involved in a masssive miscalcuation of the price of silver in conjuntion the CME Group.

Miscalculation of The Price of Silver

The price of silver is determined via COMEX futures silver trading and the LBMA Silver Price. Both price discovery mechanisms involve either Thomson Reuters and the CME Group, operator of the COMEX silver futures exchange. The prices emanating from the Silver Price and COMEX have little to do with the physical supply/demand dynamics of silver, at least not in accordance with the supply and demand numbers that the Silver Institute puts together with Thomson Reuters.
The price of silver is determined on the COMEX exchange, operated by the CME Group, via the trading of silver futures and options contracts of 5,000 ounces of silver (with a physical delivery option) and mini-futures contracts of 1,000 ounces of silver (without a physical delivery option). For an explanation of how COMEX operates, click here.
The LBMA Silver Price
In August 2014, Thomson Reuters along with the CME Group, won the right to replace the “Silver Fixing Company” that was established in 1897. Thompson Reuters and the CME Group, together with the London Bullion Market Association (LBMA) launched the LBMA Silver Price, an electronic auction platform on which the price of silver is calculated.
On January 28, 2016, the Silver Price “broke” in that it produced a silver price far below the spot price of trading on the COMEX.
Such a large and glaring mismatch in the silver price between the COMEX and the LBMA Silver Price rattled the markets and shook investor confidence in the pricing mechanism of silver.
SGT bullion and David Morgan recap what happen to the LBMA Silver Price in this podcast. Ronan Manly of Bullion Star provides further details here.
Reuters reported after the Silver Price debacle that Thomson Reuters and the CME Group were working to create new silver benchmark.
Thomson Reuters’, miscalculation of the Silver Price, spurred us to revisit the silver supply/demand numbers that they compile with the Silver Institute for possible miscalculations.
Something is amiss.

Miscalculation of Silver Demand

The Silver Institute includes in its demand components: jewelry and silverware, coins and bars and industrial fabrication. Determining jewerly/silverware and industrial demand can only be done by approximating demand. Silver coin demand, however, can be determined with a decent level of accuracy as each of the large sovereign mints like theAustrian, Canadian, Perth and United States Mints, publish their mintages.
Silver bar demand is more difficult to estimate as the numbers of silver bars and rounds produced by private mints are less readily available. Yet, an assumption might be made that if silver coin sales are up significantly, silver bar and round sales might also be higher.

Silver Bar Demand Undercounting

In the Smaulgld 2015 Silver Supply and Demand Report, based in part on the Silver Institute’s 2015 Interim Silver Market Review, we noted the Silver Institute projected silver coin demand to rise 21% in 2015 to 129 million ounces; and overall silver coin and bar demand to rise 1.4%.
In Silver Coin and Bar Demand 2015 we wrote:
We would estimate that if government mint coin demand demand is up 21% in 2015, privately minted silver rounds and bars would be up by at least that much.
The Silver Institute noted that during 2015 there was a “largely unexpected surge resulted in an unprecedented shortage of current year silver bullion coins among the world’s largest sovereign mints”.
During the great silver coin shortage of 2015, sales privately minted silver bars and rounds were also surging.
Demand for privately minted silver rounds and bars fell in 2015?
Yet, the Silver Institute 2015 projections do not include ANY increase in demand for privately minted silver bars and rounds in 2015 and reflect a stunning 21% drop!
According to the Silver Institute, silver coin demand in 2014 was approximately 107 million ounces of a total 203.5 million ounce demand for silver coins and bars. This means that in 2014, demand for silver products not produced by government mints was about 96.5 million ounces.
In 2015, the Silver Institute estimates that silver coin demand will increase to 129.9 million ounces up from 107.5 million ounces in 2015, but overall silver coin and bar demand will increase just 1.4% from 203.5 million ouces to 206.5 million ounces.
This means that, according to the Silver Institute, demand for silver bars and rounds is projected to fall 21% from 96.5 million ounces in 2014 to 76.6 million ounces in 2015.
We believe that if silver coin demand rose 21% in 2015, silver bar and round demand grew by at least the same amount.
In 2014, silver bars and rounds accounted 96.5 million ounces. A 21% increase in 2015 from 2014 would mean demand for silver bars and rounds would increase to 116.8 million ounces or a 40.2 million ounce difference from the 76.6 million ounces the Silver Institute projects.
Appendix I: Silver and Industrial Metal Revisited
If the Silver Institute underestimated 2015 privately minted silver round and bar demand, as we argue they did here, silver coin and bar demand would rise from a projected 206.5 million ounces to 246.7 million ounces and over all demand would rise from a projected 1,057.1 million ounces to 1097.3 million ounces.
Assuming no further adjustments, this would lift the silver coin and bar demand to 22.5% and reduce industrial demand to 52%.
silver demand by sector 2006

Silver coins and bars constituted just 5.2% of overall silver demand in 2006.

silver demand by sector 2015

Silver coins and bars are projected to constitute nearly 20% of overall silver demand in 2015.

silver demand by sector adjusted by smaulgld 2015

This chart is amended to assume that if silver coin demand grew by 21% in 2015, silver round and bar demand also grew by the same amount vs. the Silver Institute’s projection that silver round and bar demand declined by 21% in 2015.

Miscalulation of the Silver Deficit

The Silver Institute noted that physical silver was in deficit for the third year in a row.They projected a deficit for 2015 of 42.7 million ounces which was offset by “net outflows from ETF holdings and derivatives exchange inventories” to 21.3 million ounces.
If however, we add the 40.2 million ounces from silver bar and round demand unaccounted for by the Silver Institute, the silver supply demand deficit rises to 82.9 million ounces or 61.5 million ounces when factoring in outflows from ETFs and exchange inventories.

Silver Demand Calculation Does Not Include ETF Demand

The Silver Institute does NOT include demand for silver that backs exchange traded funds (ETFs) in its demand equation. They show the amount of silver demand for ETFs below their surplus/deficit calculation. When silver ETF demand is included it makes the silver defict larger.
In recent years massive amounts of silver supposedly went to back silver ETFs. The Silver Institute estimates that from 2006 – 2014, 523.1 ounces of silver went to back ETFs.NONE of this silver is included in Silver Institute’s demand calculation.
Silver ETF holdings 2006 -2016

Over 500 million ounces are held in silver ETFS but not included in the Silver Institute’s surplus deficit equation.

Miscalcualtion of Silver Solar Demand

According to the Silver Institute, demand for silver from the solar industry is forecast to increase to 74.2 million ounces in 2015 or about 13% of industrial silver demand and about 7% of overall silver demand.
In our 2014 Silver Supply and Demand report we noted that the Silver Institute had projected 100 million ounces for use in the solar industry in 2015:
Solar manufacturers are projecting to ship a record amount of solar panels in 2014and the silver demand for the photovoltaic industry is expected to reach 100 million ounces in 2015.
Last year the Silver Institute cited a 100 million ounce estimate for 2015 on their solar energy page. They have revised their solar energy page to read “close to 70 million ounces of silver are projected for use by solar energy by 2016.”

Click here to see the Silver Institute’s solar energy page as it appeared on July 9, 2014, projecting over 100 million ounces required for use in the solar energy industry in 2015.

The silver required for solar demand was slashed in the Silver Institue’s interim report at the end of 2015 to 74.2 million ounces and just two months later in their 2016 Silver Market Trends upped silver solar demand to more “than the previous peak of 75.8 Moz (million ounces) set in 2011.

Miscalculation of Supply

The Silver Institute projects that silver supply will decline 5% in 2016. This is perhaps a reasonble projection based on current silver mining output. Mining bankruptcies and production cuts, however, may cause silver output to decline greater in 2016 than the Silver Institute’s 2016 estimates.
Silver In Deficit
The way the Silver Institute calculates supply and demand there will be a deficit again in 2016. The Silver Institute states that “larger deficit is expected to be driven by a contraction in supply” even though their report says that they also expect demand to rise in 2016.
The projected silver deficit in 2016, it would seem, would be driven by both decreased supply and increased demand.
The Silver Institute also projects that the 2016 deficit will be met from “drawing down from above ground stocks.” Yet the Silver Institute also notes “Scrap supply, which has been on the decline for several years, should further weaken in 2016.”
Other than scrap silver, the only other known above ground stocks of silver are the stockpiles held in the COMEX vaults (about 160 million ounces) and the silver ETFS (about 500 million ounces). Are we to infer excess silver demand will be met from these sources?
silver held in comex warehouses 2016

Silver held in Comex eligible warehouses as of February 11, 2016, was 157.59 million ounces.

Silver Institute Conclusion on Price

The price of silver has fallen the past several years despite demand outpacing demand. according to the Silver Institute. In the 2015 Interim Silver Market Review, the Silver Institute commented on the deficits and the price of silver: “While such deficits do not necessarily influence prices in the near term, multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods.”.
In 2016 Silver Market Trends the Silver Institute wrote: “The silver price is expected to find solid ground this year. As of January 26th, silver prices are up 3.7 percent from the end of last year. This price appreciation is on the back of increased safe haven demand amid volatile and weakening equity markets across the globe.”
It seems inconceivable in any supply demand analysis for there to be a significant and persistent shortfall in supply of an underlying commodity while the price falls consistently. There is either a miscalculation of the price of silver at the price setting mechanisms at COMEX and the LBMA Silver Price and/or a miscalcuation of the physical silver supply and demand dynamic.

'Shameless' airlines accused of profiteering for failing to pass on savings to fliers despite jet fuel prices plummeting 70%

  • Average cost of flight to United States has decreased 2% in two years 
  • Jet fuel has gone down from $986.50 to just $300 per metric tonne
  • Some airlines still include fuel surcharges on passenger fares
  • Industry spokesman says number of factors involved in determining price 

Airlines have been accused of charging 'rip-off fares' to passengers on transatlantic flights, despite the price of jet fuel falling a massive 70 per cent in the last two years.
By comparison, the average cost of a flight to the United States has dropped just two per cent over the same period. 
In September last year, the United Federation of Travel Agents' Associations (UFTAA) accused the industry of being 'shameless' for including fuel surcharges within their prices.
The airline industry has been accused of charging passengers 'rip-off fares'  at a time when jet fuel is cheaper
The airline industry has been accused of charging passengers 'rip-off fares' at a time when jet fuel is cheaper
These were originally introduced to compensate airlines when the price of fuel rose unexpectedly. 
Now consumer groups and MPs are calling on airlines to stop imposing fuel surcharges and pass on the savings to its customers with cheaper flights.  
Graham Stringer, a Labour member of the Parliamentary transport select committee, told The Sunday Telegraph that passengers were exposed to 'rip-off air fares'.
Similarly, Robert Flello, Labour MP for Stoke-on-Trent South, said: 'The price of fuel in the UK is not far off rock bottom, but all the way through the chain from oil producer to airline passenger or a person buying something delivered by a haulage company, customers are being ripped off pretty much at each level.'  

Conservative MP Martin Vickers, who sits on the Transport Committee, added: 'I suspect that many transport companies are similar to energy companies and rather reluctant to pass on the falls as quickly as they pass on the increases.'
In February 2014, aviation fuel cost $986.50 per metric tonne. Two years on, that price has dropped to $300, giving an overall decline of 70 per cent.
But air fares have not decreased at the same rate.
In 2013, an average flight to the United States cost £688. Two years later, the cost was £671.
At present, some airlines still also include a fuel surcharge or a 'carrier imposed charge'.
Virgin Atlantic, British Airways, American Airlines, and Delta fares all included an additional £143 for such charges.
British Airways does not apply a fuel surcharge, but  includes a £143 carrier imposed charge within its fares
British Airways does not apply a fuel surcharge, but includes a £143 carrier imposed charge within its fares
European destinations saw greater reductions in price over a two-year period, varying from six per cent for flights to Portugal, to 25 per cent for flights to Ireland.
But the average price of flights to Spain actually rose by 10 per cent over the same two years. 
Chris Goater, spokesman for IATA, the International Air Transport Association (IATA) said there were a number of factors involved in the pricing of air fares and was not singularly linked to the price of jet fuel.
Other factors include the fluctuating price of the dollar and operational expenses, including staff wages and equipment. 

States where the middle class is dying

(Alex Kent)  Despite the country’s unemployment rate falling below 5% in January for the first time since 2008, and the Federal Reserve’s decision to raise interest rates for the first time since 2006, concerns about wage growth — particularly among middle earners — remain. Since 2010, as the country began to recover from the Great Recession, income of the top 20% of households grew 3.7% from 2010 through 2014. During that time, incomes of the middle 20% of households declined 0.7%.
Based on income earned before taxes by the third quintile — the middle 20% of earners in each state — middle class incomes in Rhode Island declined the most in the country. Incomes among middle class Rhode Island households fell by 3.1% from 2010 to 2014, while income among the state’s fifth quintile, the top 20% of state households, grew by 4.5%. Based on an analysis of household incomes among America’s middle class, these are the states where the middle class is suffering the most.
Consumption is by far the largest component of GDP. Because middle income families typically spend large shares of their income on goods and services, America’s middle class is expected to drive up consumption — and by extension, GDP. While high income households are able to spend enormous sums of money, there is often only so much an individual can spend, even on luxury goods.
These are the states where the middle class is dying.
1. Rhode Island
> Middle income growth 2010-2014: -3.1%
> Fifth quintile income growth 2010-2014: 4.5% (18th highest)
> Fifth quintile share of income: 51.2% (10th highest)
> Middle class household income: $55,414 (19th highest)
Middle class households in Rhode Island are among the worst off compared to the highest earning households in the state. From 2010 through 2014, middle class household incomes shrank 3.1% to $55,414 a year. Over the same period, incomes of the top 20% of households grew by 4.5%, one of the largest income growth disparities between those cohorts in the country. Consequently, the state’s Gini coefficient increased nearly four times as fast as the nation’s comparable figure from 2012 through 2014. Additionally, the state’s labor market is far from healthy. Nearly 8% of the state’s workforce is unemployed, the third highest unemployment rate in the country. And while the state’s unemployment rate has fallen 3.5 percentage points since its peak in 2010, the decline is due largely to a 2.4% contraction in the state’s labor force.
2. Georgia
> Middle income growth 2010-2014: -2.7%
> Fifth quintile income growth 2010-2014: 2.7% (22nd lowest)
> Fifth quintile share of income: 51.3% (9th highest)
> Middle class household income: $49,285 (18th lowest)
Household incomes of the top 20% of earners in Georgia grew by 2.7% in the five years through 2014, slower than the 3.7% income growth among that cohort nationally. While the income growth in the top quintile of households was modest over that period, incomes of middle class households declined dramatically. Income from Georgian households in the third quintile fell by 2.7% over that period, more than 2.0 percentage points faster than the 0.7% decline in middle class incomes nationwide.
Union membership, which can help strengthen a state’s middle class, is low in the state with just 4.3% of workers belonging to a union, considerably less than the 11.1% of the American workforce with a union membership
> Middle income growth 2010-2014: -2.2%
> Fifth quintile income growth 2010-2014: 6.0% (11th highest)
> Fifth quintile share of income: 49.3% (20th lowest)
> Middle class household income: $49,250 (16th lowest)
Unlike most states where the middle class is falling behind, income in Maine is relatively well distributed. However, the income gap in Maine is widening faster than in the nation as a whole. Average incomes among the wealthiest 20% of households in the state grew by 6.0% between 2010 and 2014, one of the faster growth rates and much faster than the comparable national figure of 3.7%. Incomes earned by middle class households, on the other hand, declined 2.2% over that time. While more income has been shifting faster to the state’s wealthiest residents, both Maine’s unemployment and poverty rates have been lower than the respective national rates.
4. North Carolina
> Middle income growth 2010-2014: -1.8%
> Fifth quintile income growth 2010-2014: 3.3% (25th highest)
> Fifth quintile share of income: 51.0% (11th highest)
> Middle class household income: $46,677 (11th lowest)
North Carolina’s unemployment rate dropped 4.8 percentage points from 2010 to 6.1% in 2014, just below the national unemployment rate of 6.2% that year. Despite the improvement, however, income inequality has been getting worse in the state. The highest earning 20% of North Carolina households have an average income of more than $166,000, up 3.3% since 2010. Meanwhile, the income of a typical middle class North Carolina household fell by 1.8%, more than twice the comparable national income decline of 0.7%.
Union membership, which is often associated with middle class health, fell 1.3 percentage points to 1.9% in 2014, the lowest share in the country. Low union membership can often make it more difficult for workers to organize and advocate for themselves. North Carolina has resisted workers’ demands to raise the minimum wage above the federal minimum of $7.25 per hour, which many argue would help mitigate income inequality.
5. Tennessee
> Middle income growth 2010-2014: -1.8%
> Fifth quintile income growth 2010-2014: 3.8% (22nd highest)
> Fifth quintile share of income: 51.5% (7th highest)
> Middle class household income: $44,635 (6th lowest)
In 2010, middle class households in Tennessee earned 14.7% of all income in the state, a slightly higher share than that earned by middle class households nationwide. By 2014, that share had dropped to 14.2%, nearly twice the comparable decline across the country. In fact, the share of income controlled by the bottom 95% of Tennessee households contracted between 2010 and 2014, with all income gains going to the top 5%. Those gains contributed to a 7.1% increase in incomes among the top 5% of households, larger than the 6.1% growth for that cohort nationwide.
At 7.0%, Tennessee’s sales tax is among the highest in the country and may contribute to declining middle class incomes. A sales tax causes poorer residents — roughly 18.3% of Tennesseans live in poverty — to pay a larger share of their income in taxes compared to wealthier residents.
To determine the states where the middle class is suffering the most, 24/7 Wall St. used data on the average pre-tax income earned by each income quintile from theU.S. Census Bureau’s 2014 American Community Survey (ACS). We defined middle class as the third quintile, or the middle 20% of earners. We examined the growth in average incomes in the third and fifth quintiles between 2010 and 2014 to identify income trends in the middle and upper class. The final list is composed of states where middle class incomes fell by more than 0.8% and fifth quintile incomes rose by more than 2.5%. Because ACS income data reflect pre-tax levels, they may overstate the degree of income inequality in the poorer quintiles. However, it is unlikely that the tax burden of the third quintile is significant enough to skew the data.
We also looked at data on the share of aggregate income by quintile from the ACS, and how that share changed between 2010 and 2014. Also from the ACS, we reviewed poverty rates and the Gini coefficients. The Gini coefficient indicates the degree to which incomes in an area deviate from a perfectly equal income distribution. Scaled between 0 and 1, a coefficient of 0 represents perfectly equal incomes among all people. All data are from 2010 to 2014. From the Bureau of Labor Statistics (BLS), we looked at annual unemployment rates from 2010 through 2014. The percentage of non-agricultural employees who identify as members of a union came from Tax data came from the Tax Foundation, and reflect sales tax rates as of January 1, 2016.
More on states where the middle class is dying:
Despite being essential to economic growth, middle class incomes have suffered from wage stagnation. According to the Economic Policy Institute, an economic and social policy think tank, one reason that middle class incomes have remained flat for decades is the divergence of productivity and wage growth. Just after World War II — a time many have called America’s golden age — productivity and wages both increased more than 90%. Since 1973, productivity has continued to climb, increasing 74.4%. Meanwhile, however, wages have increased by less than 10%. This means owners and investors, many of whom comprise the wealthiest 20% of households, have by and large reaped the benefits of the greater productivity. The workers, on the other hand, have not seen comparable wage increases.
Wealthier households have also benefited from the strong stock market performance in recent years. Despite weak returns in 2015, all three major U.S. indices hit all-time highs during the year, allowing those with money invested to earn even more. With the rich holding a disproportionately large share of money in the stock market, their incomes have recovered to their pre-recession levels much faster than those of middle class workers.
In all 10 of the states where the middle class is suffering, the share of total income earned by the bottom 80% of households fell from 2010 through 2014 and was redistributed to the highest quintile. The top 20% of U.S. households held more than half of total income in 2014, up 1.08 percentage points from 2010. Even among top earners, income was not evenly distributed. During that five-year period, the top 5% of households accounted for more than 85% of income gains for the top 20% of earners.
Declining union membership may also have contributed to the suffering of the middle class. In 1979, 24.1% of American workers belonged to a union. Today, just 11.1% of Americans are unionized. The decline of union membership has largely mirrored the shrinking of middle class incomes.
A state’s tax environment can also sometimes exacerbate income inequality. A 2015 report by researchers at the Federal Reserve Board of Governors found that federal taxes tend to minimize inequality. States taxes on gas and goods, however, can have the opposite effect. And since these are consumed by rich and poor alike, poorer households tend to pay greater shares of their income on these taxes. In all but one of the states where the middle class is suffering, consumers are required to pay sales tax.

'Look out, we are heading for a crash again', warns William White, the central banker who predicted 2008 crisis

  • World faces a crunch that could see a collapse in London property prices
  • Despite 2008 crisis being caused by debt, the levels have since risen
  • Overall debt has gone from 200% of global GDP in 2007 to 250% now 

The world is facing a new crisis caused by an explosion in debt. So warns William White, the central banker who famously predicted the crisis of 2008.
As financial markets reeled last week and fears of a fresh recession or even banking crisis sparked panic, White was more than willing to issue yet another prophecy of doom.
The world is now facing a crunch that could see a collapse in property prices, including those in London; a new global banking crisis; waves of cheap commodities savaging Western industrial centres; and the need for debts to be written off on a grand scale.
Predictions: The world is facing a new crisis caused by an explosion in debt. So warns William White, the central banker who famously predicted the crisis of 2008
Predictions: The world is facing a new crisis caused by an explosion in debt. So warns William White, the central banker who famously predicted the crisis of 2008
Rather than being better placed to survive, the world is actually worse off than it was in 2008, he argues.
‘At each stage what’s been happening is the imbalances in the global economy have been getting worse and worse.’

White issued his first warning to central bankers in 2003 at their regular meeting at America’s Jackson Hole. At the time White was economic adviser to the Swiss-based Bank of International Settlements – often dubbed ‘the central bankers’ central bank’.
White now works part-time at the equally prestigious Organisation for Economic Co-operation and Development, but Britain has played a significant role in his life.
Although Canadian-born, he attended the University of Manchester and his first job was as an economist at the Bank of England.
And the 72-year-old has particular warnings for the UK, notably on its property market and the risk to British industries such as steel. But the picture he paints is of a fresh global crisis.
Cheap money has led to an explosion in debt, taken on by governments, households and companies – and despite the 2008 crisis being caused by too much debt, the levels have risen since, he says.
Pressure: White says China’s overcapacity in steel is deflationary
Pressure: White says China’s overcapacity in steel is deflationary
‘Overall debt has gone from 200 per cent of global GDP in 2007 to 250 per cent now. The deleveraging hasn’t happened,’ he said, by which he means companies, households and governments have not paid back enough debt to be ready for the next crisis.
Britain – and London in particular – could be vulnerable in relation to house prices.
‘Property prices particularly in some bigger places like London, Sydney and Paris would be deemed on the rich side.’
His own son, he says, has just moved from Vancouver in Canada to Victoria because he can no longer afford the property prices.
‘I would consider all of these financial and real assets where they have risen to historically high levels, to be vulnerable.’
At the very least he expects the world to ‘hunker down’.
‘The banks are going to say the whole world has got very risky. They will be biased against lending to anyone who isn’t a number one credit. Consumers are going to say I may have a job today, but maybe not tomorrow and they will focus on repaying debt. Everybody tries to save at the same time,’ he warns.
He worries too about a wave of deflation from China, arguing the world is facing an oversupply of things it does not need.

3 Stories That Prove the Markets Have Changed Forever

We're in a new reality, and unless we get to work making it into a reality we actually want to live in we're going to be in a lot of trouble.

February 13 2016, By James Corbett

Toto, I have a feeling we're not in Kansas anymore. Heck, we're not even on the map.
    In case you haven't noticed, things are starting to get crazy out there. Not just economically (with another global contraction already well under way) or financially (with teetering European banks leading global stocks into volatile territory) or monetarily (with the global currency war reaching a rate-slashing crescendo) or geopolitically (with new Iranian/Iraqi/Russian cooperation in Syria throwing the NATO powers off balance), but even socially (with a sea change taking place in the American electorate, not to mention Europe, Latin America and elsewhere).

Let's take a look at three stories that show clearly that this craziness isn't just a bit of turbulence, but a sign that we're moving into a new paradigm altogether.

1) Negative interest rates
    This week Sweden's Riksbank became the latest central bank to surprise people with a negative interest rate slash. But this time, they weren't going from a positive rate to a negative rate, but from a negative rate (-0.35%) to an EVEN MORE negative rate (-0.5%).
    Welcome to the new normal, where banks have to pay money to park their reserves at the central bank. And where Japan can assure the world that they have no plans to go negative...right before going negative. And where a Spanish bank which had pegged its mortgages to the (now negative) Swiss Libor had to pay customers for borrowing from them. Or where the Fed insists they're not planning to go negative...even while secretly stress testing banks for the possibility and confronting the (il)legality of such a move.

    For those still trying to wrap their heads around this idea, here's the skinny: central banks lower rates to encourage people to borrow (and money to circulate) when the economy is stagnating or contracting. So what do you do when you've been at or near zero percent interest for years (or, in Japan's case, decades) and you're still stagnating? Well there's only one way to go: negative!
    Or at least that's the official line. But as you might have guessed there is a deeper agenda at work here, and you don't have to dig very hard to find it.

    As Washington's Blog recently pointed out, Richard Werner, the economist who coined the term and the concept of quantitative easing, argues that negative rates are about driving small banks out of business and eliminating cash:

    As readers know, we have been arguing that the ECB has been waging war on the ‘good’ banks in the eurozone, the several thousand small community banks, mainly in Germany, which are operated not for profit, but for co-operative members or the public good (such as the Sparkassen public savings banks or the Volksbank people’s banks). The ECB and the EU have significantly increased regulatory reporting burdens, thus personnel costs, so that many community banks are forced to merge, while having to close down many branches. This has been coupled with the ECB’s policy of flattening the yield curve (lowering short rates and also pushing down long rates via so-called ‘quantitative easing’). As a result banks that mainly engage in traditional banking, i.e. lending to firms for investment, have come under major pressure, while this type of ‘QE’ has produced profits for those large financial institutions engaged mainly in financial speculation and its funding.

    The policy of negative interest rates is thus consistent with the agenda to drive small banks out of business and consolidate banking sectors in industrialised countries, increasing concentration and control in the banking sector.

    It also serves to provide a (false) further justification for abolishing cash.
    Conspiracy theory? Nope, just conspiracy fact. As Zerohedge notes, Morgan Stanley'
s head of EMEA equity, Huw van Steenis, recently gave a presentation which contained the following quotation attributed to an unnamed "policy-maker" at Davos this year:

    "We should move quickly to a cashless society so that we could introduce negative rates well below 1%."
    Cripple the banksters' competition and stop the difficult-to-track and hard-to-control cash economy all in one step? You betcha. Hence we have central bank after central bank turning rates negative or about to turn them negative for the first time in history.
    But wait, there's more...

2) End of the petrodollar
    I've been talking about the breakdown of the petrodollar system for some time at The Corbett Report, both in the pages of this column and in my various interviews and radio appearances. But it's one thing to hear it from me, it's another to hear it from the (Rothschilds') horse's mouth: the revered Financial Times.

    "The petrodollar age is no more but with it go old certainties" blares the dramatic headline over top of a no less dramatic op-ed from Philip Stephens, associate editor and chief political commentator for the City of London's favorite salmon pink news rag. In it, Stephens points out that not only has conventional wisdom about the economic boon of falling oil prices and turmoil in the Middle East propping up prices been upended in the current downturn, but a third rule (that prices may fluctuate but will always trend upwards) is also being broken:

    The accumulating evidence points to a structural shift that will keep prices relatively low. During the century before the great price shock of the early 1970s the real cost of a barrel of oil was between $10 to $40. Economists at Llewellyn Consulting in London make a convincing case that this trading range offers a rough template for the future.

    What is happening with this current oil price plunge, many argue, is no mere blip on the radar, but a fundamental shift that is taking place in the oil markets now. And as we've talked about before, that's not merely significant for the oil companies but the entire monetary system, which for the last few decades has been propping up the international monetary order via the "petrodollar." With America moving from a net importer to a net producer of oil and the Saudi-American axis in the Middle East showing signs of strain, it is entirely possible that we are about to see a severing of the Saudi petrodollar recycling system that has helped to undergird the US dollar since Nixon took the country off the gold standard.

    So what does this mean, exactly? No one knows...yet. But given the machinations that Kissinger undertook (at the behest of his boss, David Rockefeller) to create the petrodollar system in the first place, it would be naive to think that some new system isn't being devised right now. It would also be naive to think that whatever system comes along to take its place will be founded on peace, harmony and happiness.

    So the average Joe Sixpack and Jane Soccermom may have no idea what's going on in the international oil markets or its relation to geopolitics, but they do know something's wrong, which means...

3) The old political order is collapsing
    That we are heading into a new political order should not be surprising to followers of this column. Heck, it's becoming difficult for even the most brainwashed of the brainwashed to deny that a fundamental sea change is taking place in American politics, or European politics, or Latin American politics, or East Asian politics, or...

    But once again it's one thing to hear about this change from James Corbett of The Corbett Report, it's quite another to hear it straight from the horse's mouth. Or the horse's pollsters, as it were.

    Last week The Huffington Post published a remarkable piece by Patrick Caddell, a top Democratic pollster and strategist, and Bob Perkins, a top Republican strategist. The subject of their post? The results of the Iowa caucuses.

    You might be able to guess that old establishment party hacks would be a bit confused, perhaps even perturbed by the rise of populist forces in this election cycle and the dead-on-the-vine nature of "presumed nominees" Jeb "cold tuna sandwich" Bush and Hillary "exciting as a glass of warm water" Clinton, but that doesn't even begin to explain the tone of this piece. They start by quoting an exchange between Louis XVI and one of his ministers where the king asks if the storming of the Bastile is a revolt and the minister replies it is a revolution. Things only get gloomier from there.

    "Gloomy" from the perspective of the two-party duopolists, that is:

    "The upheaval and the explosion of discontent that have provided a launch-pad for outsider candidates from Donald Trump and Ted Cruz to Bernie Sanders are not, as so many establishment pundits suggest, just another episode in the long history of ad-hoc populist moments of discontent sure to fade away. Our survey data shows that the United States is in the midst of an evolving political revolution of historic proportions. In fact, this election could mark the beginning of the end of two-party duopoly in the United States."

    They then go on to back up that assertion with a series of data from a half dozen surveys that have taken place over the last three years. The result of those surveys a nothing short of startling:

84% of Americans believe political leaders are more interested in protecting their power and privilege than doing what is right
75% believe that powerful interests, from Wall Street to unions to interest groups, have used campaign and lobbying money to rig the system for themselves.
72% blame the stagnation of the American economy on corruption and crony capitalism in Washington
67% hold that the US government is not working in the interests of the people
78% agree that both parties are too controlled by special interests to create meaningful change
75% agree that the two party system is flawed and it's time to vote in new political parties with new ideas

    Now, none of these statements should be at all surprising or controversial to my regular readers. If anything, they're a bit weak in their critique of the current system. But the startling thing is that this is not a poll of International Forecaster readers or alternative media acolytes. This is a poll of Americans of all stripes across the meaningless left/right party lines.

    It is becoming more and more apparent by the day that the lie that we've been sold for decades -- that we're a marginalized, fringe minority and will never be taken seriously -- is just another lie that's been sold to the public through the PR vehicle of the mainstream news. In fact, the vast majority of Americans are completely fed up and are looking for fundamental change. Suddenly Sanders and Trump don't seem like minor blips on the political radar so much as the expression of a growing resolve by the American people to change the way the game is played.

    And this is by no means a solely American phenomenon. The migration crisis in Europe is causing a similar seismic shift in political discourse and sentiment across the continent. Merkel has gone from "Person of the Year" to fighting for her political life in record time. The inevitable reaction to political correctness and enforced pan-European multiculturalism is taking place right now and unleashing populist forces that are threatening to decimate the political order in Europe and perhaps the European Union itself.

    Latin America has likewise seen a profound shift taking place in recent months with the disintegration of what was left of the Chavez regime in the Venezuelan meltdown, the swing to the right in the Argentinian presidential election and the destabilization of Rouseff in Brazil. In fact, with the Middle East even more of a tinderbox than usual and the Asia-Pacific continuing to heat up along new economic and political fault lines, it's difficult to find an area of the globe where the political order is not at risk of being upended.

    Now this in and of itself is neither good news nor bad news. When the towers of the existing political order are toppled, revolutions tend to revolve back to the same spot one way or another and the "populist" forces that are being released have more than a slight stink of authoritarianism to them. All it takes is the right strong man to come along and galvanize public opinion for the political order to coalesce into something even more tyrannical. And in such revolutionary moments there is always the specter of the New World Order from chaos which has always been part of the plan of the globalists.

    But that this revolutionary moment is here is becoming more and more difficult to deny. The old political order is dissolving. The only question is what will take its place.

    No, we're not in Kansas anymore, but we're not over the rainbow, either. There's no Good Witch of the North to help us on our way and no Ruby slippers to whisk us back home. We're in a new reality, and unless we get to work making it into a reality we actually want to live in we're going to be in a lot of trouble.

BOJ Goes Negative, 2 Down 1 To Go !

Fed Is Trying Everything They Can to Delay the Day of Reckoning

They are finally introducing Peter much more correctly…

The Windy City Has Reached the Boiling Point

by Rodney Johnson
In the 1890s Charles Dana, editor of the New York Sun, referred to Chicago as the “Windy City.” Chicago was one of many cities competing to host the World’s Fair, and clearly the writer intended the double entendre to apply to the city’s weather as well as its mouthy politicians.
When it comes to Chicago’s weather, anyone who has visited “Chi-town” (as the city is known in CB-lingo) can attest to the screaming wind off of Lake Michigan. It howls for what seems like days at 40 mph, carrying with it sub-zero temperature in the winter.
As for Chicago’s politicians, spouting hot air just happens to be a trait common to people in that profession.
But now it might be time to paint some more of them with that broad brush.

Chicago Schools Are Dead Broke

There you have it. The Chicago Public School system (CPS) is broke. Even after Mayor Rahm Emanuel took a knife to the CPS budget last summer, cutting away almost half a billion in spending, the system still faces a $500 million shortfall.
District officials have come up with the brilliant solution to fund their operations by issuing bonds, as if that will bring in more tax revenue or lower their expenses. Bond buyers would have the promise that CPS will use its “full faith and credit” to repay the bonds.
There’s only one problem. It’s a lie, and the district officials know it.
The term “full faith and credit” means that a borrower will use all assets available to repay a debt. But Chicago’s school system, in the footsteps of Detroit two years ago and now Puerto Rico, has no intention of foregoing other expenses to pay bondholders.

Hook, Line, and Sinker

Their plan, just like Detroit and Puerto Rico, is to con whomever they can into giving the system cash. They have one goal: hold off bankruptcy just one more day, until there’s not another sucker willing to take the bait.
In this case, the bait is pretty tempting. The Chicago Public School system is offering an 8.5% yield on a municipal bond, which equates to a 12.3% taxable yield at a 35% tax rate.
With property as valuable as Chicago’s backing such an offering, Chicago’s school system is counting on investors to give into greed, rather than the fear of non-payment. Many of them will. But just as I warned investors away from Puerto Rico’s last bond offering, they should stay away from this piece of kryptonite.
The sad part of the situation in Chicago is that it didn’t have to happen. The sadder part is that the same story is unfolding around the country.

The Likely Suspects

The tale starts like so many others: with pensions. Many years ago the Chicago school system granted generous pension benefits to its employees. But then the city, which operates the school system, didn’t keep up with its end of the funding.
From 1995 to 2004, the city of Chicago didn’t contribute one nickel to the school district’s pension system, even though it is responsible for a portion of contributions in addition to what employees put in.
In the mid-2000s the city got back on track, but by that time the system had a significant shortfall. Then the financial crisis of 2008 hit, crushing the value of the pension and also weighing on the city’s ability to make its obligatory payments.
To give itself some breathing room, the city granted itself a “pension holiday” from 2011 to 2013, allowing for smaller payments than it should have made. Today the city of Chicago must contribute about $700 million to the CPS pension system, an amount that’s increasing by roughly 7% per year.
For a school system that is running half a billion dollars in the red, that’s simply an unworkable number.

Failed Attempts

The city tried to cut pension benefits (a mixture of lower payments, longer vesting, and higher employee contributions), but a judge found that the changes violated the state constitution.
According to that document, any state contractual benefit, such as pensions, that has been earned or offered in the future, can’t be reduced. This leaves employees like teachers and administrators in a strong legal position to demand every cent they were promised.
But the city can’t pay. So it has turned to the state.
Governor Rauner won’t write a blank check to Chicago’s public school system. He’s willing to bail it out, but only if the city turns over control and the legislature agrees to let the school system and the city of Chicago declare bankruptcy.
In a nutshell…
The CPS has zero chance of paying its pension obligations.
The city won’t raise taxes high enough to make good on its debts.
The state will come in only if these entities can declare bankruptcy and discharge at least some of their debts. Typically that means reduced bond payments instead of harming employees or retirees, just like Detroit.
And yet the school system wants to sell new bonds backed by its “full faith and credit.

What’s Really Scary…

While the situation in Chicago is close to a boiling point, the same factors are percolating in school districts, cities, counties, and states across the country.
Just look at this top 10 list of the states with the most underfunded pensions.
10 States With the Most Underfunded Pensions
The state that tops the list is Illinois, home of the Windy City itself. As of 2014, only two states have fully solvent pension systems: South Dakota and Wisconsin.
That’s why it’s so important to research potential bond investments extensively before you put your money down. You don’t want to end up relying on the “full faith and credit” of the next Detroit.
Follow me on Twitter @RJHSDent

Scumbag Stefan Molyneux Refutes 9/11 Truth - Compares It To FLAT EARTH!

 The 9/11 Conspiracy Debate! Yes, Really - Flat Earth & Fake NASA Conspiracy COMPLETELY Debunked into Oblivion - C...

SUNDAY INVESTMENT ANALYSIS: the 3% run out of things to blame, the CBs run out of tricks, and Gold is climbing.

It’s hard to see anything more than more of the same

The great thing about Sundays once the kids quit the nest is that it can revert to being a time for cool reflection. I include this next chart not to be a wiseass (I am that man, after all, who hung onto bear notes for a year too long) but to act as an antidote to the denialist bollocks we’ve been getting from the 3% for the last three weeks. It looks at what has happened to the FTSE index since its peak in early May 2015:
The drop between then and now is from 7080 to 5400 – a plunge of nearly 24%, or just over a quarter. Many commentators haven’t noticed, but that’s actually a sharper fall than the Shanghai composite has suffered.
I removed my SIPP pension from market exposure last March; add to that a bit of pension trust bank account interest, and I’m 25% better off in terms of drawdown income than I was a year ago.
Thinking of the above as a seismograph, the correction to bear market (blamed on China) began last August; this year so far – just six weeks in – we’ve had three further corrections (blamed first on China, then on an oil glut, then on stupidity) which almost exactly doubled the correction. But even before August (with no China data on the radar) the trend was downwards.
The one-liner here is small drops, medium rallies, huge shock, medium rally, medium shocks, medium rallies.
Following Yellen’s Fed evidence – and with some good tech and blue-chip results – Friday began another rally. I think my interpretation fits the facts better than the Davos Dancers, in that
  1. The oil glut story is only a half-truth; as I showed 11 days ago, there is bigtime storage going on both pre and post refinement. Demand for oil has been falling since mid December. World trade has been off for nearly a year.
  2. Bank stocks are dragging the indices further down. After 2008, the markets no longer fall for the banker balm about solidity and capitalisation. I don’t call this stupidity, I call it wising up.
  3. It’s now obvious to traders and analysts that the Central Banks, having run out of ideas, are into ‘one more heave’ mode in the shape of negative interest rates. Markets are nervous because monetarist tricks haven’t worked, and there are no further tricks up the conjuror’s sleeve. Nirp, they feel, is a mad idea….and probably unconstitutional in the US.
So, what would one expect to happen next? My gut-feel common sense says that, with no more intervention and nerve-stroking due now until March 10th – and no credible good news on the horizon – nerves based on profound doubt will continue. My sense is that what they doubt is the fitness for purpose of monetarism…but I could be wrong: at the minute, the doubt is being – openly at last – expressed as “seems like the Fed has run out of ammo”.
OK, now let’s assess what the bad news might be.
First stop, ClubMed. There are bond spikes popping through the terrain again – most noticeably in Portugal, but also in Greece and Italy. Predictably, this is being blamed on valotivvedee again, but there’s more to it than that. As I’ve been wittering on about for 18 months or more, when the Italian Fibbing and Banking scandal breaks properly, all Hell will break loose….and austerity – another dimension of BB and Berlin monetarism – has left Greece a shamefully overtaxed disaster area.
Portugal is small but more interesting. Investors were shaken by the Novo Banco bail-in – and wary of the Government’s inability to sell it. Its ties to Brazil are another concern; and the controversial 2016 budget – submitted over three months late to the EC – reversed public wage cuts implemented by its Troika-poked predecessors. The word in Brussels is that the budget only just squeaked through….and Dijesselbloem is already saying it “needs to be tightened”. Jeroan does not, however, seem to have grasped that his policies halved th expected growth in Portugal last year. But such is only to be expected, as the man looks and sounds like a sociopathic version of Mr Bean.
Next, the Shanghai reopens later tonight. After the gungeefachoi break, will the traders – back at their desks after ten days – do what the West did after its New Year…that is, suffer eyes minus scales syndrome? Well, off-piste the Shangheisters are buying every ounce of gold they can lay their severely burned fingers on. This does not suggest a surge in confidence about equities.
Oddly enough, both the US and Canada are closed tomorrow…so if China starts to panic, things could get interesting on Tuesday in New York.
I leave you to your Sunday lunches with two final (and to me, significant) signs of real market sentiment.
First, Gold is looking bullish again, and this time the optimism looks more settled than at any time since 2013. This is the latest 30-day chart:
As for the real thing, there seems little doubt among the US, UK and Asian retailers that the stuff is flying off the shelves. So one big fundamental seems to be returning…with potentially disastrous results for stock markets if a real gold-rush starts.
And finally, you may have noticed the banker excuses being dusted off and readied last week: regulation has starved us of capital, Zirp is killing us, but fear ye not because we have complied, lowered our leverage ratios and as for complex derivatives, haha, what complex derivatives?
If ever there was a clincher about things being mammories skywards, that one is it.