SENTIMENT - Extreme Levels of Complacency

Extreme Complacency Trumps Macro's Biggest 5-Week Plunge In Two Years 05-07-13 Zero Hedge

Of course, it doesn't matter (for now) but today's JOLTS data internals and Consumer Credit's miss just piled on to the misery and pushed Bloomberg's US Macro Surprise Index to its lowest in seven months. What is worse is the rate of collapse - the last five weeks have dropped faster than at any time since May 2011.

The current level of US macro data suggests the S&P should be over 200 points lower - but as the charts below show relative volatility levels are more complacent now than in the pre-crisis vinegar strokes in 2008.

US Macro data is anything but positive (no matter what your are told)...

Which suggests the equity market is a little rich... (which seems to be confirmed by Lumber prices - remember the housing recovery?)

But that does not seem to matter - as realized volatilities are now elevated in practically NO asset classes compared to 2008's exuberance where 84% of asset classes were at least showing some 'risk'...pre-crash

and nowehere is the total lack of concern about downside risk any more evident than in the distribution of returns that the options market current implies for the S&P 500. The following chart shows an extreme perspective that downside risk is being priced out of options prices to the same extent as it was in the previosu bubble peak in 2006...

As opposed to VIX (which merely tracks the perspective of market participants about volatility - two-sided risk), the chart above is a pure measure of the 'downside' risk and shows that complacency is at its highs...

Source: Bloomberg and Citi

RISK - Credit Bubble

1971 SUSPENSION OF GOLD EXCHANGE - The Triggering Event

Visualizing The Collapse Of Fiat Currencies 05-07-13 Zero Hedge

THE PROPAGANDA that came with leaving the Gold Standard

Listen Closely to how a flawed decison is sold to the American People.

FEDERAL RESERVE - A Flawed Financial Foundation

11 Reasons Why The Federal Reserve Should Be Abolished Michael Snyder of The Economic Collapse blog via ZH

#1 The Greatest Period Of Economic Growth In The History Of The United States Happened When There Was No Central Bank

#2 The Federal Reserve Is Systematically Destroying The Value Of The U.S. Dollar

#3 The Federal Reserve Is A Perpetual Debt Machine

#4 The Federal Reserve Is A Centrally-Planned Financial System That Is The Antithesis Of What A Free Market System Should Be

#5 The Federal Reserve Creates Bubbles And Busts

#6 The Federal Reserve Is Privately Owned

#7 The Federal Reserve Greatly Favors The "Too Big To Fail" Banks

#8 The Federal Reserve Gives Secret Bailouts To Their Friends

#9 The Federal Reserve Is Paying Banks Not To Lend Money

#10 The Federal Reserve Has An Astounding Track Record Of Failure

#11 The Federal Reserve Is Unaccountable To The American People

If the American people truly understood how the Federal Reserve system works and what it has done to us, they would be screaming for it to be abolished immediately.  It is a system that was designed by international bankers for the benefit of international bankers, and it is systematically impoverishing the American people.

The Federal Reserve system is the primary reason why our currency has declined in value by well over 95 percent and our national debt has gotten more than 5000 times larger over the past 100 years. 

The Fed creates our "booms" and our "busts", and they have done an absolutely miserable job of managing our economy.  But why do we need a bunch of unelected private bankers to manage our economy and print our money for us in the first place?  Wouldn't our economy function much more efficiently if we allowed the free market to set interest rates? 

And according to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures".  So why is the Federal Reserve doing it?  Sadly, this is the way it works all over the globe today.  In fact, all 187 nations that belong to the IMF have a central bank.  But the truth is that there are much better alternatives.  We just need to get people educated.

The following are 11 reasons why the Federal Reserve should be abolished...

#1 The Greatest Period Of Economic Growth In The History Of The United States Happened When There Was No Central Bank

Did you know that the greatest period of economic growth in U.S. history was between the Civil War and 1913?  And guess what?  That was a period when there was no central bank in the United States at all.  The following is from Wikipedia...

The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873.  The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.

So if our greatest period of economic prosperity was during a time when there was no Federal Reserve, then why shouldn't we try such a system again?

#2 The Federal Reserve Is Systematically Destroying The Value Of The U.S. Dollar

The United States never had a persistent, ongoing problem with inflation until the Federal Reserve was created in 1913.

If you do not believe this, just check out the inflation chart in this article.

The Federal Reserve systematically penalizes those that try to save their money.  Inflation is a tax, and the value of each one of our dollars goes down a little bit more every single day.

But over time, it really adds up.  In fact, the value of the U.S. dollar has fallen by 83 percent since 1970.

Anyone that goes to the grocery store on a regular basis knows how painful inflation can be.  The following is a list that shows how prices for many of the things that we buy on a regular basis absolutely skyrocketed between 2002 and 2012...

1. Eggs: 73%
2. Coffee: 90%
3. Peanut Butter: 40%
4. Milk: 26%
5. A Loaf Of White Bread: 39%
6. Spaghetti And Macaroni: 44%
7. Orange Juice: 46%
8. Red Delicious Apples: 43%
9. Beer: 25%
10. Wine: 60%
11. Electricity: 42%
12. Margarine: 143%
13. Tomatoes: 22%
14. Turkey: 56%
15. Ground Beef: 61%
16. Chocolate Chip Cookies: 39%
17. Gasoline: 158%

Even the price of water has absolutely soared in recent years.  According to USA Today, water bills have actually tripled over the past 12 years in some areas of the country.

So how can the Federal Reserve get away with claiming that we are in a "low inflation" environment?

Well, what Ben Bernanke never tells you is that the way that the government calculates inflation has changed more than 20 times since 1978.

The truth is that the real rate of inflation is somewhere between five and ten percent right now, but you will never hear about this on the mainstream news.

#3 The Federal Reserve Is A Perpetual Debt Machine

The Federal Reserve system was designed to be a trap.  The intent of the bankers was to trap the U.S. government in an endless debt spiral from which it could never possibly escape.

But most Americans don't understand this.  In fact, most Americans don't even understand where money comes from.

If you don't believe this, just go out on the street and ask regular people where money comes from.  The responses will be something like this...

"Duh - I don't know.  I've got to get home to watch American Idol."

This is why it is so important to get people educated.  I think that most Americans would be horrified to learn that the creation of more money in our system also involves the creation of more debt.

The following is a summary of money creation that comes from one of my previous articles...

When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.

Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.

The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.

So what does the Federal Reserve do with those Treasury bonds?  I went on to explain what happens...

The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.

But wait.

There is a problem.

Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.

So where will the U.S. government get the money to pay that debt?

Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.

But that never actually happens, does it?

And the creators of the Federal Reserve understood this as well.  They understood that the U.S. government would not have enough money to both run the government and service the national debt.  They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.

Men like Thomas Edison and Henry Ford could not understand why we would adopt such a foolish system.  For example, Thomas Edison was once quoted in the New York Times as saying the following...

That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.

Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.

But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.

Unfortunately, today most Americans don't even understand how the system works.  They just assume that we have the best system in the entire world.

Sadly, the reality is that the system is working just as the international bankers that designed it had hoped.  The United States has the largest national debt in the history of the world, and we are stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day in a desperate attempt to keep the debt spiral going.

#4 The Federal Reserve Is A Centrally-Planned Financial System That Is The Antithesis Of What A Free Market System Should Be

Why do we need someone to centrally-plan our financial system?

Isn't that the kind of thing they do in communist China?

Why do we need someone to tell us what interest rates are going to be?

Why do we need someone to determine what "the target rate of inflation" should be?

If we actually had a free market system, the free market would be the one "managing" our economy.

But instead, we have become so accustomed to central planning that any alternatives seem to be absolutely unthinkable.

For example, CNBC cannot possibly imagine a world where the Fed (or some similar institution) was not running things...

But suppose the law were taken off the books? The Fed's job—in simple terms—is to manage the nation's money supply and achieve the sometimes-conflicting tasks of full employment, stable prices while fighting inflation or deflation.

How would the U.S. economy then function? Something has to take its place, right?

Global markets would also need some sort of economic direction from the U.S. The Fed manages the dollar — and as the world's leading currency, a void left by a Fed-less America could throw those markets into chaos with uncertainty about who's managing U.S. interest rates and the American economy.

I've got an idea - let's let the free market "manage" U.S. interest rates and the American economy.

I know, it's a crazy idea, but I have a sneaking suspicion that it just might work beautifully.

#5 The Federal Reserve Creates Bubbles And Busts

Do you remember the Dotcom bubble?

Or what about the housing bubble?

By dramatically distorting interest rates and financial behavior, the Federal Reserve creates economic bubbles and the corresponding economic busts.

And guess what?

Now it is happening again.

When will the American people decide that they have had enough?

If you can believe it, there have been 10 different economic recessions since 1950.  And of course the Federal Reserve even admits that it helped create the Great Depression of the 1930s.

Perhaps it is time to try something different.

#6 The Federal Reserve Is Privately Owned

It has been said that the Federal Reserve is about as "federal" as Federal Express is.

Most Americans still believe that the Federal Reserve is a "federal agency", but that is simply not true.  The following comes from factcheck.org...

The stockholders in the 12 regional Federal Reserve Banks are the privately owned banks that fall under the Federal Reserve System. These include all national banks (chartered by the federal government) and those state-chartered banks that wish to join and meet certain requirements. About 38 percent of the nation’s more than 8,000 banks are members of the system, and thus own the Fed banks.

And even the Federal Reserve itself has argued that it is "not an agency" of the federal government in court.

So why is there still so much confusion about this?

We should not be allowing a private entity that is owned and dominated by the banks to make decisions that dramatically affect the daily lives of all the rest of us.

#7 The Federal Reserve Greatly Favors The "Too Big To Fail" Banks

Since the Federal Reserve is owned by the banks, should we be surprised that it serves the interests of the banks?

In particular, the Fed has been extremely good to the "too big to fail" banks.

Over the past several decades, those banks have grown tremendously in both size and power.

Back in 1970, the five largest U.S. banks held 17 percent of all U.S. banking industry assets.

Today, the five largest U.S. banks hold 52 percent of all U.S. banking industry assets.

#8 The Federal Reserve Gives Secret Bailouts To Their Friends

The Federal Reserve is the only institution in America that can print money out of thin air and loan it to their friends any time they want to.

For example, did you know that the Federal Reserve made 16 trillion dollars in secret loans to their friends during the last financial crisis?

The following list is taken directly from page 131 of a GAO audit report, and it shows which banks received secret loans from the Fed...

Citigroup - $2.513 trillion
Morgan Stanley - $2.041 trillion
Merrill Lynch - $1.949 trillion
Bank of America - $1.344 trillion
Barclays PLC - $868 billion
Bear Sterns - $853 billion
Goldman Sachs - $814 billion
Royal Bank of Scotland - $541 billion
JP Morgan Chase - $391 billion
Deutsche Bank - $354 billion
UBS - $287 billion
Credit Suisse - $262 billion
Lehman Brothers - $183 billion
Bank of Scotland - $181 billion
BNP Paribas - $175 billion
Wells Fargo - $159 billion
Dexia - $159 billion
Wachovia - $142 billion
Dresdner Bank - $135 billion
Societe Generale - $124 billion
"All Other Borrowers" - $2.639 trillion

If you will notice, a number of the banks listed above are foreign banks.

Why is the Fed allowed to print money out of thin air and lend it to foreign banks?

#9 The Federal Reserve Is Paying Banks Not To Lend Money

Did you know that the Federal Reserve is actually paying U.S. banks not to lend money?

That doesn't make sense.  Our economy is based on credit, and small businesses desperately need loans in order to operate.

But the Fed has decided to pay banks not to risk their money.  Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on "excess reserves" that U.S. banks park at the Fed.

So the big banks can just send their cash to the Fed and watch the money come rolling in risk-free.

As the chart below demonstrates, the banks have taken great advantage of this tremendous deal...

#10 The Federal Reserve Has An Astounding Track Record Of Failure

Over the past ten years, the Federal Reserve has been an abysmal failure when it comes to running the economy.

But despite a track record of failure that would make the Chicago Cubs look like a roaring success, Barack Obama actually decided to nominate Ben Bernanke for a second term as the Chairman of the Federal Reserve.

What a mistake.

Just check out some of the things that Bernanke said prior to the last financial crisis.  The following is an extended excerpt from an article that I published previously...

*****

In 2005, Bernanke said that we shouldn't worry because housing prices had never declined on a nationwide basis before and he said that he believed that the U.S. would continue to experience close to "full employment"....

"We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."

In 2005, Bernanke also said that he believed that derivatives were perfectly safe and posed no danger to financial markets....

"With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly."

In 2006, Bernanke said that housing prices would probably keep rising....

"Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."

In 2007, Bernanke insisted that there was not a problem with subprime mortgages....

"At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."

In 2008, Bernanke said that a recession was not coming....

"The Federal Reserve is not currently forecasting a recession."

A few months before Fannie Mae and Freddie Mac collapsed, Bernanke insisted that they were totally secure....

"The GSEs are adequately capitalized. They are in no danger of failing."

*****

There are many, many more examples that could be listed, but hopefully you get the point.

And now it is happening again.  Bernanke is telling the American people that everything is going to be just fine and that no major problems are ahead.

Do you believe him this time?

#11 The Federal Reserve Is Unaccountable To The American People

What is the most important political issue to most Americans?

Survey after survey has shown that the American people care about the economy more than anything else.

So why do we allow an unelected, unaccountable entity that is privately-owned to make our economic decisions for us?

The Federal Reserve has become so powerful that it has been called "the fourth branch of government".  Every four years, presidential candidates argue about who will be best at managing the economy, but the truth is that it is the Fed that manages our economy.

We are told that the "independence" of the Federal Reserve is absolutely critical, but don't the American people deserve to have a say in the running of the economy?

Our system is broken.  It is a system that will continue to create more bubbles and more debt until the entire thing finally collapses for good.

Thomas Jefferson once stated that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing....

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.

But instead of banning government borrowing, we have allowed ourselves to become enslaved to a system where government borrowing actually creates our money.

We do not need to have a central bank.  There are much better alternatives.  We just need to get people educated.

AUSTERITY - Over in Europe Before it Was Every Implemented

France Declares Austerity Over as Germany Offers Wiggle Room 05-06-13 Bloomberg

French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies.

“We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said yesterday on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.”

Coalition lawmakers in Germany are pushing back against the two-year extension for France to meet European Union deficit rules floated by Olli Rehn, the EU economic and monetary affairs commissioner.

“We made it clear to our government, the chancellor and finance minister that in the case of France a one-year delay to 2014 to fulfill the euro’s deficit rules is the absolute limit for us,” Norbert Barthle, budget-policy spokesman for Schaeuble’s Christian Democratic Union, said in a May 3 telephone interview from his constituency in southwestern Germany. “France must show that it’s willing to tackle structural reforms.”

READ MORE >

Click to Read

QE - A 1142 Point SPX Market Distortion

This Is The S&P With And Without QE 05-06-13 Zero Hedge

For a while there, it seemed that even the densest of career economists who try to pass for stock pundits on financial comedy TV, were starting to get that without the Fed's (and the ECB's, and the BOE's, and the BOJ's) QE, the market would be much, much lower (whether 500 points lower as Gundlach suggested or much more, remains unclear). After all: by now it should have been clear to most that QE is doing nothing for the economy, and everything for the stock and bond market (here we certainly agree: there is a bond bubble, which by implication there is an even more massive stock bubble too - anyone who says the two are unlinked can be immediately put on mute).

This is why we presented this chart previously:

And is also why in January, we showed this update of the calendar days with and without QE:

And yet, judging by the roster of TV guests appearing on assorted cable stations, the confusion is back again.

So just to set the record straight, and make it so easy even Jeremy Siegel gets it, below is a chart showing the absolute performance of the S&P, starting with March 18, 2021 when full-blown QE1 was announced, and adding up all the S&P points "gained" under some QE regime: QE1 (2009-2010), QE2 (2010-2011), Operation Twist, QE3 and QE4 (2011 until today) on one hand, while subtracting all the S&P points "lost" when there was no QE or no advance notification of QE from the Fed, such as the period from the end of QE1 (March 31, 2021) until the QE2 announcement at Jackson Hole in August 2010, and from the end of QE2 on June 30, 2021 until the start of Operation Twist on September 21, 2011.

The chart below is sufficiently self-explanatory that not even career economists will need assistance to grasp it.

One final point: for all those who say the Fed's QE has "been successful", or the stock market is sufficiently strong and does not need any more forced liquidity injections, here is a simple suggestion: just end it.

Crickets.

CENTRAL BANKS - $10 Trillion In and $10 Trillion to Go

The "Price" Of Record High Markets: $10 Trillion In Seven Years 05-02-13 JPM Asset Management CIO Michael Cembalest via BI

By now everyone, even CNBC, admits that the only reason stocks are where they are is due to the G-7 central banks. What many may not know, however, is how we got here, and where we will be at the end of this year. The answer, as provided by JPM Asset Management CIO Michael Cembalest in the chart below, is at the dot in the top right. This will represent the addition of $10 trillion in liquidity, or alternatively the conversion of the "planetary nebula" of central bank balance sheet expansion, in the past seven years. And considering that, as we explained yesterday, there is another $10-11 trillion in scarce "quality collateral" that has to be injected into the financial markets via central banks collateral transformations, the number in yet another 7 years will be at $20 trillion if not exponentially higher, or higher than where US GDP will be.

Cembalest's take:

The planetary nebula of central bank balance sheet expansion (last chart), which we expect to hit $10 trillion later this year, is still the most important factor underpinning an uneven global recovery. It makes sense to have some patience right now. Global equities are up 8%-9% year to date, which is a pretty good return for a time when the profits expansion is slowing, global growth is closer to 3% than 5%, Chinese growth continues to cool down despite rapid increases in the use of credit, and when it is practically impossible to disentangle how much central banks are affecting asset prices. I read a research report that showed that returns on consumer staples stocks are now correlated 75% with the returns on Treasury bonds, by far the highest level since 1929. Usually, the correlation is close to zero.... Note to Fed: uh, congratulations?

Luckily, nothing bad happened in 1929.

The difference this time, as is now very obvious, is that in the event the central banks fail at preserving the perpetual growth of what may truly be the final bubble (yes, a preposterous assumption), the central banks are already all in, unlike all previous credit, risk-asset, and housing bubbles. So who becomes the "bad bank" to the central banks when confidence in the "lender of last resort" finally gives way? Full note here

PATTERNS - Crowded Trades Normally Tip the Boat

The Most Crowded Trades 05-06-13 BofAML Global Research via ZH

Herd-mentality, group-think, safety-in-numbers, or lemmings. When a trade becomes one-sided, we are often taught that contrarianism is the smarter position. When a trade becomes extremely one-sided, the market is at its most fragile. There are currently three trades that have become not just consensus, but are near record levels of extreme positioning - and with the help of leverage (and record margin levels) this all adds up to a risk-on market (since all the three trades are on the same side of the long central bank largesse, short safety view) that is over-prone to more significant corrections. Join the crowd or join the smarter money?

Crowded Trade #1 - US Equities.

Crowded Trade #2 - Short JPY

Crowded Trade #3 - Short Precious Metals

and it's at record-levels of margin...

Current levels of both Net Free Credits and Margin Debt indicate extremely bullish sentiment in the equity market, the implication is contrarian bearish.

But the 'smart money' is hedging...

Based on BofAML's exposure analysis, macro hedge funds continued to add to their shorts in risk assets including the S&P 500, NASDAQ 100 and commodities.

Charts: BofAML

SENTIMENT - "Don't Fight the Fed"

What Is Obvious About This Market? 05-05-13 OfTwoMinds Charles Hugh Smith

What is "obvious" to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum.

To a considerable extent what follows is an essay in stating what I take to be obvious. It is obvious that the social world situation is endangering the future of all life on this planet. To state the obvious is to share with you what (in your view) my misconceptions might be. The obvious can be dangerous. The deluded man frequently finds his delusions so obvious that he can hardly credit the good faith of those who do not share them.

SUPPLY EFFECT - Shortage of Investable Assets

There's A Major Shortage Of Assets To Invest In 04-28-13 Citi via Cullen Roche, Pragmatic Capitalism via BI

Fantastic chart and data here from Citi Research showing the issuance of various securities over the last 10 years in the Eurozone, US and Japan.  It’s interesting to note the surge in treasuries that has occurred since the collapse in the GSEs and the so-called AAA bubble in real estate.  It’s also interesting to note the decline in net issuance.  In other words, the supply of asset issuance continues to run at a level well below pre-crisis levels.  That might explain at least some of the broad upward pressure on assets in general.

Here’s more excellent commentary from Citi:

“The blue/grey bars quantify the net issuance of securities across broad asset classes on a rolling 4-quarter basis in the Eurozone, the US and in Japan. The orange bars capture the effects of central bank interventions. The red line is the net amount of issuance left after those interventions – in other words, it is a proxy for the change in the size of the universe of securities that investors can buy.

As you would expect, the chart shows a surge in net government debt issuance in 2009-10 as fiscal deficits ballooned. These have fallen back over the last couple of years but remain significantly higher than before the crisis.

The surge in corporate issuance of bonds since 2007 is perhaps less intuitive, considering that companies have generally run their balance sheets very conservatively, cutting capex and M&A. However, a big shift from loan to bond funding has more than compensated for that. Net equity issuance remains a relatively small component. There was a brief flurry of equity issuance in 2009-10, but as leverage has come down corporates have reverted to the more normal pattern of retiring shares on a net basis.

The biggest shift has been the drop in net issuance from financials and GSEs (like Fannie Mae and Freddie Mac). Having dominated securities markets before the crisis, their net issuance has dwindled to next to nothing in recent years.

Adding up the bars (still ignoring CB interventions in orange) shows that the growth in the investible universe has slowed from around $3.5-4tn annually before the crisis, to less than $2.5tn over the last couple of years. In other words, the rate of expansion of financial securities has slowed by more than $1tn. That’s a pretty penny, when you think about it.

When the effect of central bank interventions (quantitative easing and LTROs3) in orange is subtracted, the reduction in the supply of new assets available to financial investors becomes even more dramatic:

Apart from a brief period in H1 2011 (where markets incidentally did not perform particularly well), the investible universe of financial assets has grown by less than $2tr per year over the last three years – half the run-rate that we were used to. In fact, in some quarters net issuance of securities been virtually zero.  We think this ‘supply effect’ on financial markets of central bank interventions is widely underestimated.”

LEVERAGE - Elevated Levels

S-t-r-e-t-c-h-e-d! 05-02-13 Diapason Commodities via ZH

Things in the 'economy' must be good - investors are nearing their most levered long to US equities ever. As Sean Corrigan notes, Net Margin (defined as NYSE Margin Debt minus Mutual Fund Liquid Assets) is within a hair of its all-time record high and relative to the March 2000 peak in the Wilshire 5000 (broadest US equity market cap), we are rapidly approaching 'peak' exuberance levels.

Indicatively this should make sense since the market is at all time highs, but it is so because of central banks, not because of individual investors. So why would the investors themselves be just as stretched as the global central banks, and how does this leverage upon leverage unwind in the end?

Source: Diapason Commodities

FINANCIAL REPRESSION - Negative Real Rates

The Potemkin Rally 05-06-13 David Rosenberg via Lance Roberts of Street Talk Live blog,via ZH

The real fed funds rate is very negative.

The last time this occurred was when Author Burns was Fed chairman. The following two decades were not kind.

Furthermore, negative real rates in the past...

...have always led to asset bubbles.

CORRUPTION - Revenue Reporting In Question

SURVEY: Company Bosses Around The World Are Lying About Revenue 05-06-13 Ernst & Young via BI

LONDON, May 7 (Reuters) - Hard-pressed company bosses across much of the world are under so much pressure to deliver on growth that many have resorted to cooking the books, Ernst & Young says in its latest Fraud Survey published on Tuesday.

• One in five of almost 3,500 staff quizzed in 36 countries in Europe, the Middle East, Africa and India said they had seen financial manipulation in their companies in the last 12 months, the accounting and consultancy firm said.
• In addition 42 percent of board directors and top managers surveyed said they were aware of "some type of irregular financial reporting".
• And despite scandals and regulatory failures in the wake of the credit crunch, almost a quarter of top financial services staff surveyed said they were aware of manipulation and almost 10 percent of all staff said their companies had understated costs, overstated revenues or used unprincipled sales tactics.
• Meanwhile, almost half of the sales staff surveyed across all sectors did not consider anti-corruption policies to be relevant and more than a quarter thought it acceptable to offer personal gifts or services to win or retain business.

In India, over a third felt justified in offering cash - triple the number in western Europe.

"Our survey shows that to find growth and improved performance in this environment, an alarming number appear to be comfortable with or aware of unethical conduct,"

David Stulb, head of E&Y's fraud investigation and dispute services practice.

In Spain, ranked alongside Russia and just below Nigeria and Slovenia, 61 percent of staff believed companies often exaggerated results, compared with only 7 percent in Finland.

And E&Y said the vast majority of managers from Norway to Nigeria and Russia to Greece were feeling the pressure to deliver a good financial performance over the next 12 months, despite little optimism that business conditions would improve.

They were now forced to balance the risks of expanding into rapid-growth markets, where winning contracts can go hand-in-hand with corruption, cutting costs further and piling pressure on staff or suppliers - or distorting results, the firm said.

E&Y warned multinationals based in mature markets they could be more vulnerable to the risks of unethical behaviour. One quarter of those asked thought watchdogs in rapid-growth markets focussed more on the behaviour of foreign businesses.

The consultancy called on managers to ask more robust questions, focus on key risks, such as poor due diligence accounting checks of intermediaries and associates, and punish unethical behaviour.