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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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 SEPTEMBER 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.
There is an old poker player adage: "when you look around the table and can't determine who the patsy with the money is, it is because it is you." MORE>> |
MARKET ANALYTICS & TECHNO-FUNDAMENTAL ANALYSIS |
 OCTOBER 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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DISPOSABLE INCOME - Bad Even in Nominal Terms
Hourly Earnings, Or The Lack Thereof 10-15-12 Zero Hedge
You know the drill: please point out on this chart, which shows the yearly change in average hourly earnings for all US private workers, just where is this so-called "recovery", which an additional $6 trillion in public debt, and 5 quantitative easing episodes, have allegedly created out of thin air. For those confused, like us, we bring attention to the fact that in the past two months we have seen the smallest Y/Y increase in avg hourly earnings. Ever.
Source: St Louis Fe |
10-16-12 |
CATALYST
DI
GMTP R12 |
7
7 - Chronic Unemployment |
DELEVERAGING - Defaulting Is the Operative Word
US Households Are Not "Deleveraging" - They Are Simply Defaulting In Bulk 10-15-12 Zero Hedge
Lately there has been an amusing and very spurious, not to mention wrong, argument among both the "serious media" and the various tabloids, that US households have delevered to the tune of $1 trillion, primarily as a result of mortgage debt reductions (not to be confused with total consumer debt which month after month hits new record highs, primarily due to soaring student and GM auto loans).
The implication here is that unlike in year past, US households are finally doing the responsible thing and are actively deleveraging of their own free will. This couldn't be further from the truth, and to put baseless rumors of this nature to rest once and for all, below we have compiled a simple chart using the NY Fed's own data, showing the total change in mortgage debt, and what portion of it is due to discharges (aka defaults) of 1st and 2nd lien debt. In a nutshell: based on NYFed calculations,
there has been $800 billion in mortgage debt deleveraging since the end of 2007. This has been due to $1.2 trillion in discharges (the amount is greater than the total first lien mortgages, due to the increasing use of HELOCs and 2nd lien mortgages before the housing bubble popped).
In other words, instead of actual responsible behavior of paying down debt, the primary if not only reason there has been any "deleveraging" at all at the US household level, is because of excess debt which became insurmountable, not because it was being paid down, the result of which is that more and more Americans are simply handing their keys in to the bank and walking away, and also explains why the US banking system is now practicing Foreclosure Stuffing, as defined first here, as the banks know too well, if all the housing inventory which is currently in the default pipeline were unleashed, it would rip off any floor below the US housing "recovery" which is not a recovery at all, but merely a subsidized bounce, as millions of units are held on the banks' books in hopes that what limited inventory there is gets bid up so high the second housing bubble can be inflated before the first one has even fully burst.
Naturally, two concurrent housing bubbles can not happen, Bernanke's fondest wishes to the contrary notwithstanding, especially since as shown above,
US households do not delever unless they actually file for bankruptcy,
and in the process destroy their credit rating for years, making them ineligible for future debt for at least five years. It is thus safe to say that all the other increasingly poorer US households (who are not getting paid more as we showed this morning with the chart showing Y/Y change in US household earnings) are merely adding on more and more debt in hopes of going out in a bankrupt blaze of glory just like everyone else: from their neighbors, to all "developed world" governments.
And why not: after all this behavior is being endorsed by the Fed with both hands and feet.
Source: NY Fed
Home Equity Loan Losses Surge 10-15-12 Citigroup Earnings
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10-16-12 |
INDICATORS
CONSUMPTION
GMTP R12 |
16
16 - Credit Contraction II |
CONSUMPTION - Doesn't Exist without "Seasonal Adjustments"
September Retail Sales: Seasonal vs Non-Seasonal - Spot The Difference 10-15-12 Zero Hedge
Just when we thought we may finally get one decent economic data point which even we could get excited about, we decided to look at the Non-Seasonally Adjusted September retail sales data. After all the $4.7 billion seasonal increase in headline retail sales was the second highest ever (in absolute terms, second only to 2004). Turns out our curiosity was an enthusiasm-dowsing mistake, as a number which on the surface looked good, was hardly validated by the Not-Seasonally Adjusted number, which plunged by $31.9 billion. How does this September sequential change compare to previous years? See the chart below and decide for yourselves if the massive NSA plunge in September 2012 merits the second best seasonally adjusted retail sales increase in history.
If anything, the 2012 spread of SA vs NSA retail change is most comparable to that from September 2007. As a reminder, this is 2 months before the 2nd Great Depression officially started.
Source: St Louis Fed |
10-16-12 |
INDICATORS
CONSUMPTION
GMTP R12 |
16
16 - Credit Contraction II |
CENTRAL BANKS - First Remove Gold Standard, Now Remove Debt
Will central banks cancel government debt?
10-14-12 Gavyn Davies, Financial Times
As the IMF meetings close in Tokyo this weekend, it is obvious that governments are struggling to find the correct balance between controlling public debt, which now exceeds 110 per cent of GDP for the advanced economies, and boosting the rate of economic growth. The former objective requires more budgetary tightening, while the latter requires the opposite. Is there any way around this?
One radical option which is now being discussed is to cancel (or, in polite language, “restructure”) part of the government debt that has been acquired by the central banks as a consequence of quantitative easing (QE). After all, the government and the central bank are both firmly within the public sector, so a consolidated public sector balance sheet would net this debt out entirely.
This option has always been viewed as extremely dangerous on inflationary grounds, and has never been publicly discussed by senior central bankers, as far as I am aware [1]. However, Adair Turner, the Chairman of the UK Financial Services Agency, and reportedly a candidate to become the next Governor of the Bank of England, made a speech last week that said more unorthodox options, including “further integration of different aspects of policy”, might need to be considered in the UK.
Two separate journalists (Robert Peston of the BBC and Simon Jenkins of The Guardian) said that Lord Turner’s “private view” is that some part of the Bank’s gilts holdings might be cancelled in order to boost the economy. Lord Turner distanced himself in public from this suggestion on Saturday. However, the notion will now be widely discussed. It is easy to see how the idea could appeal to a finance minister facing the need to tighten fiscal policy during a recession in order to bring down the public debt ratio.
Why is this such a radical idea? No one in the private sector would lose out from the cancellation of these bonds, which have already been purchased at market prices by the central bank in exchange for cash. The loser, however, would be the central bank itself, which would instantly wipe out its capital base if such a course were followed. The crucial question is whether this matters and, if so, how.
In order to understand this, we need to ask ourselves why governments finance their deficits through the issuance of bonds in the first place, rather than just asking the central bank to print money, which would not add to public debt. Ultimately, the answer is the fear of inflation. When it runs a budget deficit, the government injects demand into the economy. By selling bonds to cover the deficit, it absorbs private savings, leaving less to be used to finance private investment. Another way of looking at this is that it raises interest rates by selling the bonds. Furthermore the private sector recognises that the bonds will one day need to be redeemed, so the expected burden of taxation in the future rises. This reduces private expenditure today. Let us call this combination of factors the “restraining effect” of bond sales.
All of this is changed if the government does not sell bonds to finance the budget deficit, but asks the central bank to print money instead. In that case, there is no absorption of private savings, no tendency for interest rates to rise, and no expected burden of future taxation. The restraining effect does not apply. Obviously, for any given budget deficit, this is likely to be much more expansionary (and potentially inflationary) than bond finance.
This is not, however, what has happened so far under QE. Fiscal policy, in theory at least, is set separately by the government, and the budget deficit is covered by selling bonds. The central bank then comes along and buys some of these bonds, in order to reduce long-term interest rates. It views this, purely and simply, as an unconventional arm of monetary policy. The bonds are explicitly intended to be parked only temporarily at the central bank, and they will be sold back into the private sector when monetary policy needs to be tightened. Therefore, in the long term, the amount of government debt held by the public is not reduced by QE, and all of the restraining effects of the bond sales in the long run will still occur. The government’s long-run fiscal arithmetic is not impacted.
Note that QE under these conditions does not directly affect the wealth or expected income of the private sector. From the private sector’s viewpoint, all that happens is they hold more liquid assets (especially commercial bank deposits at the central bank), and fewer illiquid assets (ie government bonds). Because this is just an temporary asset swap, it may impact the level of bond yields, but otherwise its economic effects may be rather limited. (See pages 8-13 of this Fulcrum Research paper for a description of the debate over the size of these effects.)
Now consider what would happen if the bonds held by the central bank were cancelled, instead of being one day sold back into the private sector. Under this approach, the long-run restraining effect of bond sales would also be cancelled, so there should be an immediate stimulatory effect on nominal demand in the economy. If done without amending the path for the budget deficit itself, this would increase the expansionary effects of past deficits on nominal demand, and would also reduce the outstanding burden of public debt associated with such deficits.
The central banks have now purchased so much government debt that the effects of such an action could be large. This is the situation in the UK, where the Bank of England holds 25 per cent of all outstanding government debt:
And this is the situation in the US, where the Fed holds 10 per cent of outstanding Treasury debt:
Furthermore, the effects would be increased even more if, instead of just cancelling past debt, the central bank were to co-operate with the government, agreeing to directly finance an increase in the budget deficit by printing money. We would then be genuinely in the world of “helicopter money”, with no pretence of separation between fiscal and monetary policy [2].
Outside of wartime, developed economies have not been normally been willing to contemplate any such actions. The potential inflationary consequences, which are in fact signalled by the elimination of central bank capital which this strategy involves, have always been considered too dangerous to unleash.
For me, that remains the case. But others are more worried about deflation than inflation. This genie might soon be leaving the bottle.
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Notes:
[1] Similar proposals have however been widely debated by economists in the past. This goes back at least as far as the works of Abba Lerner in the 1940s on “functional finance” and the role of fiat money. More recently, the Modern Monetary Theorists have reawakened Lerner’s ideas. See this explanation of MMT, and Paul Krugman’s rejection of the approach as being likely to lead to hyperinflation in the long run.
[2] Samuel Brittan makes the case that part of the budget deficit should be money financed in this column. Martin Wolf makes a similar case in this column. Both argue that money financing of deficits is preferable to “everlasting austerity and slump”.
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10-16-12 |
GLOBAL RISK
MONETARY |
CENTRAL BANKS |
ANALYTICS - Short Interest a Problem for the Fed
NYSE Short Interest Drops To 5 Month Low 10-15-12 Zero Hedge
It is by now well-known that the general level of the stock market no longer has any impact on retail flows in or out of stocks, having become a one way street out of equities beginning roughly six years ago, with the proceeds invested into fixed income (a paradox much to the chagrin of the Fed which keeps hoping positive equity dividend yields will prove a sufficient motive for investing in a world where interest income is now zero and has taken away $400 billion in purchasing power each year) and only institutions, mostly Primary Dealers and other entities "close" to the Fed's freshly printed money, and central banks are propping up the stock market.
However, one place where the S&P level still does have a modest influence is the number of shorts in the market, which are strategically used by repo desks and custodians (State Street and BoNY), to force wholesale short squeezes at given inflection points, usually just when the bottom is about to drop out. The problem is that even short squeezes are increasingly becoming fewer and far between, for the simple reason that the Fed has managed to nearly anihilate shorters as a trading class with its policy of Dow 36,000 uber alles. This was demonstrated with the latest NYSE Group short interest data, which tumbled to 13.6 billion shares short as of the end of September, or the lowest since early May, just as the market was swooning to its lowest level of 2012 to date.
Since the Fed desperately needs inexperienced, "weak-hand" shorts to reenter stocks to facilitate its "transmission mechanisms" (all of which can be summarized in two words: "stock ramps"), and since the only time shorts re-enter the market, even against their and everyone else's better judgment, is just after major market tumbles, expect the Fed to prepare for some more stock market acrobatics whose sole purpose is to get a fresh batch of shorts in, just so the squeeze trap can be replayed over and over, as it has been for the past 4 years. |
10-16-12 |
PATTTERNS |
ANALYTICS |
| MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK -Oct 14th- Oct 21st, 2012 |
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EU BANKING CRISIS |
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| SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] |
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| RISK REVERSAL |
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| CHINA BUBBLE |
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| JAPAN - DEBT DEFLATION |
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| BOND BUBBLE |
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| CHRONIC UNEMPLOYMENT |
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| GEO-POLITICAL EVENT |
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| TO TOP |
| MACRO News Items of Importance - This Week |
GLOBAL MACRO REPORTS & ANALYSIS |
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US ECONOMIC REPORTS & ANALYSIS |
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| CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES |
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| Market Analytics |
| TECHNICALS & MARKET ANALYTICS |
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PATTERNS - Consolidation or Topping Pattern?
Forget 666; 808 Is The Number Of This Market's Beast 10-13-12 ZH
Presented with little comment, except to say - it seems, as Boaz at EminiAddict points out, that the S&P 500 likes to travel around 808 points from swing low to swing high. Extending the analog suggests a drop to 565 on the S&P 500 by mid-2014.
and using EminiAddict's channel projection... suggests a 565 swing low to come...
Click to read annotations |
10-15-12 |
PATTERNS |
ANALYTICS |
ANALYTICS - Topping Signals Starting to Show
Percent Buy Index (PBI) Gives Sell Signal 10-12-12 Decision Point - Carl Swenlin
This week our Percent Buy Index (PBI) for the S&P 500 dropped below its 32-EMA and generated a sell signal. The PBI tracks the percentage of stocks in a given index that are on intermediate-term buy signals, and it is one of many indicators that we follow. The PBI does not currently affect our primary timing model (which is still on a buy signal), but it does offer an early warning of possible problems ahead.
The chart below shows the SPX PBI over a three-year period. Obviously, its crossover signals are not infallible, but downside crossovers at overbought levels are generally bad news. Additionally, notice the negative divergence -- lower PBI tops against higher price tops.
For the Nasdaq 100 Index, the PBI sell signal was generated over two weeks ago, and the negative divergence is much more severe. This reflects that the smaller-cap stocks in the index are fading and that larger-cap stocks are holding the index aloft. This is not a good thing, but it can persist longer than we might think.
It is possible that prices will behave indecisively (move sideways) until after the election, but the PBIs are giving signs that, no matter who wins, the market is likely to head lower. |
10-15-12 |
PATTERNS |
ANALYTICS |
ANALYTICS - Major Contrarian Warning Signal
UH-OH: Check Out The Cover Of The New Barron's 10-13-12 Barron's via BI
Stock market veterans will tell you that the market tends to do the opposite of what is suggested by a cover story on a widely circulated business news publication.
Famous examples include BusinessWeek's 1971 cover story "The Death of Equities" and the Financial Times' similar story "The Death of Equities?" Indeed, both stories were followed by big rallies.
Today, Barron's goes out on a limb again with a bullish cover story titled "Almost There" in reference to the Dow Jones Industrial Average being 6 percent from an all-time high.
Here's a sample of what author Andrew Bary says:
The Dow Industrials are more reasonable now than at the 2007 peak, when the index traded for 16 times the then-current 2008 earnings estimates. That projection turned out to be way too high, as did even more bullish 2009 projections at that time, as the financial crisis and recession savaged earnings.
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It's bullish that U.S. stocks have done well without much participation by retail investors, who continue to prefer bonds despite historically low rates on Treasuries, mortgage securities, high-grade corporate debt, and junk bonds. The average junk-bond yield of 6% is only three percentage points higher than dividend yields on scores of high-quality, dividend-paying stocks. Junk bonds probably can't go much higher, although they could go a lot lower. If retail investors ever warm to stocks, the Dow could go much higher.
Bary's story includes quotes from Jim Paulsen of Wells capital Management and Blackstone's Byron Wien who both point to a stronger-than-expected U.S. economy.
"With a bevy of reasonably priced stocks, the Dow industrials look poised to set a new record, if not this year then next, and investors can get a nice 2%-plus yield along the way," writes Bary.
Read the whole story at Barrons.com.
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10-15-12 |
RISK On-Off |
ANALYTICS |
RISK - Bearish Signals Indicating a Short to Intermediate Correction / Consolidation
Bullish And Bearish Trend In The Stock Market Right Now 09-27-12 RBC Capital Markets via BI
Bearish: The volatility index (VIX) is extremely low, signalling complacency in the markets
Bearish: Sentiment among active Investors
Bearish: Around 80% of the S&P 500 stocks are above their 50-day moving averages
Bearish: The Put/Call ratio is historically low, which means very few people are worried about prices falling
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10-15-12 |
PATTERNS |
ANALYTICS |
| COMMODITY CORNER - HARD ASSETS |
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| THESIS Themes |
FINANCIAL REPRESSION |
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| CORPORATOCRACY - CRONY CAPITALSIM |
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| GLOBAL FINANCIAL IMBALANCE |
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SOCIAL UNREST |
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CENTRAL PLANNING |
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STATISM |
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CURRENCY WARS |
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STANDARD OF LIVING |
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| GENERAL INTEREST |
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