THESIS 2011: Beggar-Thy Neighbor -(OPEN ACCESS - 37 Pages of 217) >> GO

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SEPTEMBER 2012: GLOBAL MACRO TIPPING POINT - (Subscription Plan III)

STALL SPEED : Any Geo-Political, Economic or Financial Event Could Trigger a Market Clearing Fall

As we reported last month, Global Economic Risks have taken a noticeable and abrupt turn downward over the last 60 days. Deterioration in Credit Default Swaps, Money Supply and many of our Macro Analytics metrics suggested the global economic condition is at a Tipping Point. Though we stated "Urgent and significant actions must be taken by global leaders and central banks to reduce growing credit stresses" nothing has occurred even after the 19th disappointing EU Summit to address the EU Crisis. Some event is soon going to push the global economy over the present Tipping Point unless major globally coordianted policy initiatives are undertaken. The IMF recently warned and reduced Global growth to 3.5%. This is just marginally above the 3% threshold that marks a Global recession. This would be the first global recession ever recorded. The World Bank is "unpolitically'projecting 2.5%. The situation is now deteriorating so rapidly, as to be impossible to hide anylonger.

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AUGUST 2012: MONTHLY MARKET COMMENTARY (Subscription Plan II)

MONETARY MALPRACTICE : Moral Hazard, Unintended Consequences & Dysfunctional Markets - Monetary Malpractice has had the desired result of driving Investors into becoming Speculators and are now nothing more than low-odds Gamblers. There is a difference between investing, speculating and gambling. At one time these lines were easy to comprehend and these distinctive groups separated into camps with different risk profiles in which to  seek their fortunes. Today investing has become at best nothing more than speculating and realistically closer to outright gambling.

The reason is that vital information is either opaque, hidden or manipulated. Blatant examples such as: the world of off balance sheet debt, Contingent Liabilities, Derivative SWAPS, Special Purpose Vehicles (SPV), Special Purpose Entities (SPE), Structured Investment Vehicles (SIV) and obscene levels of hidden leverage make a mockery out of public Financial Statements. Surely if we get our ego out of this for a moment we can see that stockholders are now nothing more than gamblers? What is worse is that the casino is rigged. With Monetary Policy now targeting negative real interest rates, it is forcing the public out of interest bearing savings and investing, and into higher risk vehicles they would have shunned historically. They have no choice as the Monetary Malpractice game is played against them.

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MARKET ANALYTICS & TECHNO-FUNDAMENTAL ANALYSIS

AUGUST 2012: MARKET ANALYTICS & TECHNICAL ANALYSIS - (Subscription Plan IV)

The market action since March 2009 is a bear market counter rally that has completed a classic ending diagonal pattern. The Bear Market which started in 2000 will resume in full force when the current "ROUNDED TOP" is completed. We presently are in the midst of of a "ROLLING TOP" across all Global Markets. We are seeing broad based weakening analytics and cascading warning signals. This behavior is typically seen during major tops.  This is all part of a final topping formation and a long term right shoulder technical construction pattern.  - The "Peek Inside" shows the detailed coverage available this month.

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	PART I - Understanding FINANCIAL REPRESSION
	PART II - FINANCIAL REPRESSION in Europe
	PART III - FINANCIAL REPRESSION in the US & ASIA
	PART IV - Preparations for FINANCIAL REPRESSION

Password: macro

QE3 - First Addition At A Market High -- Extremely Questionable

If QE3 Happens, It Will Be Different Than QE2 And QE1 In One Significant Way 09-11-12 Doug Short via BI

GLOBAL RISK - Regional Analysis Suggests High Global Risks

Morgan Stanley's Guide To The 'Twilight Zone' Of The Global Economy 09-11-12 Morgan Stanley Research via BI

SECTOR POSITIONING - Morgan Stanley Research Goes Negative

Morgan Stanley's Guide To The 'Twilight Zone' Of The Global Economy 09-11-12 Morgan Stanley Research via BI

MARKET RISE - Policy, Production and Positioning

Why Have Markets Surged So Much? It All Comes Down To The 3 P's 09-11-12 BoAML via BI

INFLATION - Global Food Price Index

Jeff Gundlach's Eye-Opening Presentation 'Mirror, Mirror On The Wall' DoubleLine via BI

ECB - SMP 2.0 (OMT) Not Really True Sterilization

The Truth About The ECB's Plans To 'Sterilize' Its Purchases Of Government Debt 09-09-12 BI

DEBT JUBILEEES - Historically the Way Out

138 Years of Economic History Show that It's Excessive PRIVATE Debt Which Causes Depressions 09-09-12 George Washington via Zero Hedge

The National Bureau of Economic Research has published a new paper analyzing 138 years of economic history in 14 advanced economies, which proves that high levels of private debt cause severe recessions.

As summarized by Business Insider:

Through a series of tests run on a sample of 14 advanced economies between 1870 and 2008, Mr Taylor establishes a link between the growth of private sector credit and the likelihood of financial crisis. The link between crisis and credit [i.e. private debt] is stronger than between crises and growth in the broad money supply, the current account deficit, or an increase in public debt.

Over the 138-year timeframe Mr Taylor finds crisis preceded by the development of excess credit, as in Ireland and Spain today, are more common than crisis underpinned by excessive government borrowing, like in Greece. Fiscal strains in themselves do not tend to result in financial crisis.

The study shows that excessive private debt is a much more accurate and consistent predictor of financial crisis than the amount of public debt. (However, high levels of public debt exacerbate the problems caused by massive private debt, since governments which are already “in the red” have little ammunition left with which to help out the economy.)

The NBER study validates what Steve Keen has been saying for years: excess private sector debt is the main driver of deep recessions and depressions. And yet Ben Bernanke and all other mainstream economists literally believe that the amount of private debt doesn’t matter and isn’t even important to quantify.

Angry Bear writes:

[Consumers certainly rang up too much debt.] But that ignores the really massive runup: financial corporations’ debts. Starting at a little over 10% of GDP in 1970, they hit almost 80% by 2000, and when the crash hit they were over 120% of GDP — a 10x, order-of-magnitude increase over 40 years.

The basic story is very simple. It goes like this (in my words):

• Banks (and shadow banks) make money by lending. Bankers have every incentive to increase their loan books, even by extending questionable loans, because bankers don’t personally bear the eventual, down-the-road losses from loan defaults — they’ve gotten their money already.

• When banks run out of real, productive enterprises to lend to — enterprises that can pay back loans and interest from the production and sale of real goods that humans can consume — they start lending to speculators (gamblers) who are buying financial assets in hopes that their prices will rise.

• That lending — extra money being pumped into the system — does indeed drive up the price of financial assets, far beyond the value of the real assets that (according to most economists you listen to) supposedly underpin those financial assets’ value.

• Eventually people realize that the value of financial assets far exceeds the value of real assets — and far exceeds the capacity of the real economy to service the loans that drove up those financial asset prices. Prices of financial assets plummet, borrowers default because there just ain’t enough real income to service the loans, financial-asset prices plummet some more, all in a downward spiral — with all sorts of collateral damage to the real economy.

There’s your (economy-wide) Ponzi scheme. Households and nonfinancial businesses definitely participate (the financial industry makes it almost irresistible not to), but it’s driven by the financial industry, and a huge proportion of the takings go to players in the financial industry.

We are in a bit of a pickle. As Keen warns:

[We’re going into] a never-ending depression unless we repudiate the debt, which never should have been extended in the first place.

What’s the solution? To remember history.

Specifically, we’ve known for over 4,000 years that debts need to be periodically written down, or the entire economy will collapse.

The ancient Sumerians and Babylonians, the early Jews and Christians, the Founding Fathers of the United States and others throughout history knew that private debts had to be periodically forgiven.

Debt jubilees are a vital part of the Christian and Jewish faiths. And the first recorded word for “freedom” anywhere in the world meant “debt-freedom”.

As some of the leading modern economists argue, forcing big banks, bondholders and other creditors to write down some of their bad debts is the only way out of our economic malaise.

Note:  If you want to know learn about Minsky’s economics, read Steve Keen, not faux Minskyian

GLOBAL EXPORT - First A PMI SLowdown, Now EXPORTS

These Charts About The Global Economy Will Give You Cold Sweats 09-05-12 BI

QEX - World Awash in Liquidity

Two Days Ahead Of More QE, JPM Finds That World Is Already "Drowning In Liquidity" 09-10-12 JP Morgan's Michael Cembalest via Zero Hedge

JPM says 77% of investors expect with be a NEW QE round (mostly MBS) between $200 and $500 billion in QE, the world is, also in the words of JP Morgan, drowning in liquidity. In other words, according to the central planners, not only is debt the fix to record debt, but liquidity is about to be unleashed on a world that is, you guessed it, already drowning in liquidity. The bad news: everything being tried now will fail, as it did before, because nothing has changed, except for the scale, meaning the blow up will be all that more spectacular.

From JPM's Michael Cembalest:

It has been a strange year. If you were concerned about the global economy this year, you were right:

• Leading indicators of manufacturing, such as new orders, are weakening just about everywhere
• Chinese, Korean and Taiwanese exports are slowing sharply; China may be growing at only 6%
• European growth is ~0%, with the periphery in recession. Germany business surveys also fading
• Last week’s US jobs report was weak across the board (payrolls, work week, labor force participation and wages)
• US capital spending trends are slowing (e.g., capital goods orders ex-aircraft)
• Countries like Brazil are showing signs of industrial fatigue due to an overly strong currency in 2010-2011
• The US election does not look like it will bring clarity to the US fiscal/debt ceiling divide (polls show Democrats keeping the White House and Republicans keeping the House of Representatives)
• US housing is staging a modest recovery, but it’s not a game-changer given its smaller contribution to employment
• Corporate profits are high, but the trend in EPS revisions is negative and profits growth is slowing

However, global equity markets have done well, up 13% so far in 2012. The bottom line: with the world drowning in liquidity, the right portfolio moves this year have been to take advantage of low equity valuations, look through all the economic weakness and expect that continued monetary stimulus will  eventually bear fruit. We have done some of that but not as much as we might have, and as things stand now, global equity markets have outperformed what I had expected. The world’s Central Banks have made it clear that inflating their way out is preferable to the alternatives, an environment that is conducive to risky assets that are priced very cheaply, until and unless they lose control of inflation.

For those confused, Cembalest only added "unless" out of political courtesy, because as even the Fed itself admitted last night, first via St. Louis Fed's James Bullard and soon everyone else, the Fed has finally been exposed as being nothing but a puppet tool of politicians, who in turn have always been sponsored muppets of Wall Street (Who can possibly forget Chuck Schumer telling Bernanke to "get to work Mr. Chairman"). In other words, we now know politicians run not only fiscal, but monetary policy. How to hedge against this apocalyptic proposition? Simple. Cue Kyle Bass: "Buying gold is just buying a put against the idiocy of the political cycle. It's That Simple."

It's Different This Time: PMIs And Global Stocks 09-10-12 UBS via Zero Hedge

The fundamental backdrop, in the shape of economic lead indicators and earnings momentum, has been deteriorating: manufacturing PMIs for the US, China, Japan, Korea, the Euro zone, and the UK are all now sub-50, and consensus earnings growth estimates for 2012 have been halved in recent months. What has this meant for Global Equities? Well, as UBS notes, in the last three months, very little. The MSCI AC World index is up more than 12% from the 4 June low. That markets have rallied while fundamentals have deteriorated in this manner is unusual. Historically, equity market rebounds have tended to coincide with a trough in PMIs and earnings momentum – that is, when PMIs have stopped going down and the pace of earnings downgrades slows (waiting for PMIs to recover to 50 or for earnings momentum to turn positive is usually too late). Markets now appear to be taking their cues from central bankers: potential policy actions are becoming a sort of ‘lead indicator of the lead indicators’, if you will. Given the recent rally, in addition to underlying macro weakness, policy action - and effective action at that – has become increasingly important for investors. Without it this recent rally could end up looking more like a false start than a head start.

UBS: PMIs and Global Equities…

We have taken a long-run series of selected manufacturing PMIs from around the world (US, Euro zone, China, Japan and Korea). The vast bulk of the early history comes from the US, with some countries’ data not starting until the 1990s or even later. We have simply weighted by current GDP weights – this will only give us an estimate, but our composite measure does seem to move closely with the US ISM over the last decades.

We have circled the nine periods that we think were major turning points in the indicator since 1973 (trying to reduce some of the noise in mid-cycle volatility).

Historically, the trough in Global Equities performance has tended to coincide with the trough in the PMIs (chart 2).

But this time round the rally has occurred ahead of the turn (chart 3).

And earnings momentum has been sharply negative (and worsening) over the last three months as markets rallied. June, July, and August all saw deteriorating momentum (Chart 6),

the result of which has been a near-halving of 2012 consensus earnings growth estimates (Chart 7).

Of course, if policymakers do follow through with drastic actions that reduce Euro zone break-up risk or drive an acceleration in US or Chinese economic growth, then PMI and earnings stabilisation will follow. If this is the case then equity markets will have gotten a nice head start in the last few months. However, given the recent rally, in addition to underlying macro weakness, policy action - and effective action at that – has become increasingly important for investors. Without it this recent rally could end up looking more like a false start than a head start.

Source: UBS

CANARIES - PE'S Disconnected

Do You Believe In P/E Miracles? 09-10-12 Zero Hedge

Since The Dreme (Draghi Scheme) began shortly after the EU Summit, the P/E multiple on the S&P 500 has risen by a faith-defining 2x. This is the largest three-month rise in this indicator-of-indifference-to-reality since the initial burst rally off the March 2009 lows. Meanwhile, the actual earnings consensus is being marked down further, heading for an earnings recession as we pointed out last week. It seems investors are too afraid not to believe in P/E miracles or perhaps it is just faith that central banks have it all under control and their 'promises' are as good-as-gold.

The S&P 500 seems 'managed' to a certain level - no matter what that means for EPS or P/E multiples, the spice must flow market must rise... (a 2x multiple increase since Draghi's initial utterances post EU Summit

As if the divergence was not enough, the 3 month rise in the S&P's P/E ratio (lower pane) is its highest since the initial V-bottom recovery in 2009...

Charts: Bloomberg and JPMorgan

CANARIES - Particpation Index Suggests Consolidation or Pull Back Ahead

Participation Climax 09-07-12 Swenlin at Decision Point

Specifically, a debt problem cannot be solved until the debtor begins running a budget surplus that allows him to begin retiring the debt. Period. Printing money ain't going to do it, but the geniuses who run the world know better. So the market is constantly on edge, waiting for the next bright idea for ending the crisis with no pain. The news comes, triggers a brief rally (a lot of short-covering). Then reality sets in again. On the chart below we can see the effect these swings between fantasy and reality have had on price.

On Thursday we got a nice market rally, and the Participation Index-UP reached climactic levels. The Participation Index (PI) measures short-term price trends and tracks the percentage of stocks pushing the upper or lower edge of a short-term price trend envelope. The PI has no breadth or volume component -- it is strictly derived from price movement. In this article we will only be addressing Participation-UP.

Climactic activity on the PI is generally in the 60 to 80 range, and climaxes generally signal that the immediate advance is ending and that there will be a period of consolidation or correction -- a pause to refresh, so to speak. There are instances where price just keeps rising after indicators climax, but that kind of price power is normally associated with the beginning of a new bull market. Thursday's climax is more likely a signal that the news-induced advance is nearly over.

Conclusion: The S&P 500 has advanced about 13% since the June low, but it has been a choppy ride because the news suffered from a lack of sustainability. Climaxes of the Participation-UP have been occurring at or near short-term tops, and I think that will prove to be the case this time as well.

CANARIES - Hong Kong Profit Warnings & US Market Volume Tell the Story

So Much For The Benefits Of College In America's "New Normal"? 09-09-12 Zero Hedge

Continuing with the theme of the secular shift in the labor pool (not cyclical, as the Fed still mistakenly believes: it will take it at least one more year to understand it has been wrong about this aspect of the New Normal economy too, just as it was wrong for decades about the Flow vs Stock debate), it is not only men who are fresh out of luck. As a reminder, we observed earlier that the labor force participation rate for men has just dropped to an all time low. It turns out there is another class of workers whose participation rate is at the lowest in series history: that of "25 year olds with a Bachelor's degree and higher", i.e. college grads. At 75.5%, it is the lowest since this data has been kept by the BLS. But not all is abysmal in America's labor force. While the share of workers with a college degree has plunged to all time lows, a bright spot can be found when observing the labor force participation rate of those who never bothered with college, and for whom high school was their last known degree-granting institution. At 59.9%, the participation rate is well of its 2012 lows of 59.0% and steadily rising, in fact, to borrow a term from the housing bulls, it may well have "bottomed". Now there is some truly great news for the future of America's highly educated workforce.

None of the above, however, matters to hordes of young, impressionable wannabe college grads for whom college is the only hope out there, no matter the cost. Sadly, the cost is rising exponentially, and as we showed recently, total Federally-funded student loan debt outstanding is now at all time highs.

Luckily, the cost of the debt is at record lows. Sadly, the principal will still need repayment, as cohort after cohort of unemployed students will soon find out, and also find out that there is no discharge of student debt in bankruptcy: it is, indeed, the proverbial gift that keeps on taking.