NEW SERIES RELEASE MONETARY MALPRACTICE AVAILABLE NOW MONETARY MALPRACTICE: Deceptions, Distortions and Delusions MONETARY MALPRACTICE: Moral Malady MONETARY MALPRACTICE: Dysfunctional Markets
NOW SHOWING HELD OVER Currency Wars Euro Experiment Sultans of Swap Extend & Pretend Preserve & Protect Innovation Showings Below
FREE COPY... Current Thesis Advisory: CONTACT US
|
Wed. Nov. 20th , 2013 |
SEE VIDEO: The New Depression & The Corruption of Capitalism W/ Richard Duncan What Are Tipping Poinits? |
![]()
Reading the right books? >> Click to Browse << We have analyzed & included Book Review- Five Thumbs Up
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
"BEST OF THE WEEK " |
Posting Date |
Labels & Tags | TIPPING POINT or 2013 THESIS THEME |
HOTTEST TIPPING POINTS |
Theme Groupings |
||
We post throughout the day as we do our Investment Research for: LONGWave - UnderTheLens - Macro Analytics |
|||
FED QE - A DRIVER OF INEQUALITY |
|||
LEVERAGE LOANS - Now 55% "COV-LITE" versus 29% Prior to Financial Crisis As we warned two months ago, the bubble in credit markets (which if you ask anyone at the Fed, except Jeremy Stein, does not exist) is nowhere more evident than in the explosive growth of so-called cov-lite loans. While total volumes of cov-lite loans are already at record, as the FT reports, we now have 55% of new leveraged loans come in “cov-lite” form, far eclipsing the 29% reached at the height of the leveraged buyout boom just before the financial crisis. LBO multiples have reached record highs and demand for secutizations of these levered loans (CLOs) has surged on the back of the Fed's repressive push of investors into more-levered firms and more-levered instruments.
So wondering where the leverage is building this time? Well, record high margin debt in stocks and record high exposure to the riskiest (and least protected) credit structures once again... but it's different this time (as Moodys told us).
|
11-20-13 | ANALYTICS RISK |
1 - Risk Reversal |
THESIS & THEMES | |||
Where QE Cash Ends Up Tells Us Who Benefited 11-19-13 Zero Hedge One can debate whether QE has benefitted Main Street or Wall Street until one is blue in the face, even though five years later, the answer is perfectly clear to all but the staunchest Keynesians and monetarists (and if it isn't, just pay attention to the 3:30 pm S&P ramp every day). One thing, however, that is undisputed is what the market itself says about where the QE money ends up when it is being spent by its recipients. And that story is so simple even a Keynesian would get it. Stated briefly, luxury retailers such as Tiffany, Coach and LVMH are now up 500% since the Lehman lows, and about 30% above the prior cycle highs. On the other hand, regular retailers such as Macy's, Kohl's and JC Penney are barely up 100% from the crisis lows, and still more than 30% below the last bubble highs. And that, in a nutshell, is precisely how the money from QE has been distributed. Source: JPM
|
11-20-13 | THEMES | SOCIAL UNREST INEQUALITY |
MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - November 17th - November 23rd |
RISK REVERSAL | 1 | ||
JAPAN - DEBT DEFLATION | 2 | ||
BOND BUBBLE | 3 | ||
EU BANKING CRISIS |
4 |
||
SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] | 5 | ||
CHINA BUBBLE | 6 | ||
FAILURES - Market, Policy and Institutional The Capital-Flow Conundrum 11-08-13 Eswar Prasad Brookings In recent months, emerging economies have experienced capital-flow whiplash. Indications that the US Federal Reserve might “taper” its quantitative easing (QE) drove investors to reduce their exposure to emerging markets, sharply weakening their currencies and causing their equity prices to tumble. Now that the taper has been postponed, capital is flowing back in some cases. But, with little influence, much less control, over what comes next, emerging economies are still struggling to figure out how to protect themselves from the impact of a Fed policy reversal. When the Fed initially hinted at its intention to taper QE, policymakers in some emerging economies cried foul, but were dismissed by advanced-economy officials as chronic complainers. After all, they initially rejected the very policies that they are now fighting to preserve. But emerging-market policymakers’ criticisms do not reflect an inconsistent stance; in both cases, the crux of their complaint has been volatility. They have already attempted to erect defenses against the potentially destabilizing effects of advanced-country monetary policy by
But this approach fails to address the underlying issue – and misdiagnosing the problem could have far-reaching consequences, not only leading to ineffective solutions, but also possibly causing severe distortions for specific economies and the global financial system as a whole. In order to design effective remedies, it is useful to distinguish among three types of failures that impede financial-market functioning. The three types of failures that impede financial-market functioning. MARKET FAILURES First, there are market failures, which occur when, for example,
POLICY FAILURES Second, there are policy failures, which occur when
INSTITUTIONAL FAILURE The third – and currently most problematic – failure is one of national or international institutions. MONETARY DEPENDENCY Using monetary policy to compensate for deficiencies in other policy areas constitutes an institutional breakdown: monetary policymakers are not necessarily getting it wrong, but they are constrained by the configuration of other policies. Domestic monetary policy has become the first and last line of defense against growth slowdowns and financial panics, enabling policymakers to avoid pursuing other important, but far more difficult measures. Using monetary policy to compensate for deficiencies in other policy areas constitutes an institutional breakdown: monetary policymakers are not necessarily getting it wrong, but they are constrained by the configuration of other policies. GLOBAL GOVERANCE FRAMEWORK The inadequacy of the current framework for global governance compounds the problem. The grim reality is that, with financial markets becoming increasingly interconnected, monetary-policy measures taken by any of the major economies have international spillover effects. An effective governance mechanism or reliable institution is needed to help emerging markets cope with these effects. The lack of effective global economic governance has important implications for capital flows. Emerging-market policymakers believe that they lack recourse to safety nets that would cushion the impact of volatile flows. Their efforts to “self-insure,” by, say, building up their foreign-exchange reserves, perpetuate global economic imbalances. So how can policymakers address these failures? There has been some progress at the international level on regulatory reforms aimed at addressing market failures, though such efforts have been limited by strident resistance from financial institutions. Solutions for policy failures are not difficult to discern.
Moreover, the functioning of emerging-economy financial markets should be improved, with policies aimed at
While the right policies cannot eliminate risk, they can ameliorate the cost-benefit tradeoff from capital flows. Fixing institutional failures is the most important – and the most difficult – step. Successful reform requires, first and foremost, finding the right mix of domestic policies. In the advanced economies, in particular,
In many of the troubled emerging economies, however, monetary policy has shouldered the burden of
This balancing act is difficult to maintain, leaving these economies vulnerable when the external environment turns unfavorable. In India, for example, increasing productivity and long-term growth require fiscal discipline and a raft of financial- and labor-market reforms. But the central bank is being asked to do all the heavy lifting. In other emerging markets, too, the main challenge is to ensure that all macroeconomic and structural policies advance common goals. At the same time, the governance structure of multilateral institutions like the International Monetary Fund must be reformed, in order to bolster their legitimacy in emerging markets. Otherwise, these institutions will remain ineffective in confronting collective problems related to macroeconomic-policy spillovers, and in providing insurance against crises. Policymakers in advanced and emerging countries alike should Focus on the underlying failures that destabilize their economies and impede growth, rather than trying to treat the symptoms by manipulating monetary policy or capital controls. Unless they are supported by strong institutional structures at all levels, such measures will prove futile in managing capital flows.
|
11-18-13 | GMTP A12 | 9 - Global Governance Failure |
LEADERSHIP - 'Value Transformer' Politicians are avoiding politics OR the voters are rejecting The Three Types Of Politicians 11-13-13 OfTwoMinds Charles Hugh Smith Solving profoundly structural problems by establishing a new foundation of values that most can embrace positively is the hallmark of leadership. CARETAKERS maintain the status quo, a task that boils down to throwing a fiscal bone to every politically powerful constituency and doing so in a manner that does not create career-threatening blowback. Either those with these leadership skills are avoiding politics or the voters are rejecting them in favor of caretakers who are incapable of challenging political powerful constituencies or finding common ground for desperately needed systemic reforms.
|
11-18-13 | GMTP A12 | 9 - Global Governance Failure |
POLITICAL FAILURE - The Consequences Of A Dysfunctional Political System The Consequences Of A Dysfunctional Political System 11-18-13 Marc Faber via The Daily Reckoning blog, As H.L. Mencken opined, 'The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, and intolerable.' It is no wonder that, according to a Gallup Poll conducted in early October, a record-low 14% of Americans thought that the country was headed in the right direction, down from 30% in September. That's the biggest single-month drop in the poll since the shutdown of 1990. Some 78% think the country is on the wrong track. Some readers will, of course, ask what this expose about the political future has to do with investments. It has nothing to do with what the stock market will do tomorrow, the day after tomorrow, or in the next three months. But it has a lot to do with the future of the US (and other Western democracies where socio-political conditions are hardly any better). I have written about the consequences of a dysfunctional political system elsewhere. In May 2011 I explained how expansionary monetary policies had favoured what Joseph Stiglitz called 'the elite' at the expense of ordinary people by increasing the wealth and income of the 'one percent' far more than that of the majority of the American people. I also quoted at the time Alexander Fraser Tytler (1747-1813), who opined as follows: 'A democracy cannot exist as a permanent form of government. It can only exist until voters discover that they can vote themselves largesse from the Public Treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the Public Treasury with the result that a democracy always collapses over loose fiscal policy, always followed by dictatorship'. Later, Alexis de Tocqueville observed: 'The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.' To be fair to Mr. Obama, the government debt under his administration has expanded at a much slower pace in percentage terms than under the Reagan administration and the two Bush geniuses. In fact, as much as I hate to say this, Mr. Obama has been (or has been forced to be) a fiscal conservative. However, what 18th and 19th century economists and social observers failed to observe is that democracies can also collapse over loose monetary policies. And in this respect, under the Obama administration, the Fed's balance sheet has exploded. John Maynard Keynes got it 100% right when he wrote: 'By a continuing process of inflation, Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some... 'Those to whom the system brings windfalls...become 'profiteers' who are the object of the hatred... The process of wealth getting degenerates into a gamble and a lottery... Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.' The Fed takes great pride in the fact that US household wealth has now exceeded the 2007 high. However, I was pleasantly surprised when I recently attended a presentation by Larry Lindsey, at my friend Gary Bahre's New Hampshire estate. He unmistakably showed, based on the Fed's own Survey of Consumer Finance and Flow of Funds, that the recovery in household wealth has been extremely uneven. Readers should focus on the last column of Table 1, which depicts the change in household wealth between 2007 and 2013 by wealth percentile. As can be seen, the bottom 50% of the population is still down more than 40% in terms of their 'wealth' from the 2007 high. (Lindsey is a rather level-headed former Member of the Board of the Governors of the Federal Reserve System, in which capacity he served between 1991 and 1997.) Besides the uneven recovery of household wealth among different wealth groups, a closer look at consumer credit, which is now at a record level, is also revealing. Furthermore, consumer credit as a percentage of disposable personal income is almost at the pre-crisis high. But what I found most interesting is how different income and wealth groups adjusted their outstanding total debt (including consumer credit, mortgage debt, etc.) following the crisis. Larry Lindsey showed us a table - again based on the Fed's own Survey of Consumer Finance and Flow of Funds data - which depicts total debt increases and decreases (in US$ billions) among these different income and wealth groups. I find it remarkable that the lower 40% of income recipients and the lower 50% of wealth owners actually increased their debts meaningfully post-2007. In other words, approximately 50% of Americans in the lower income and wealth groups who are both voters and consumers would seem to be more indebted than ever. A fair assumption is also that these people form the majority of the government's social benefits recipients. Now, since these lower income and wealth groups increased their debts post-2007 and enjoyed higher social benefits, they were also to some extent supporting the economy and corporate profits. But what about the future? Entitlements are unlikely to expand much further as a percentage of GDP, and these lower-income recipients' higher debts are likely to become a headwind for consumer spending. Simply put, in my opinion, it is most unlikely that US economic growth will surprise on the upside in the next few years. It is more likely there will be negative surprises.
|
11-18-13 | GMTP A12 | 9 - Global Governance Failure |
TO TOP | |||
MACRO News Items of Importance - This Week | |||
GLOBAL MACRO REPORTS & ANALYSIS |
|||
US ECONOMIC REPORTS & ANALYSIS |
|||
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES | |||
FED POLICY - The Unintended Consequiences of it all
The Unintended Consequences of ZIRP 11-16-13 John Mauldin Yellen's coronation was this week. Art Cashin mused that it was a wonder some Senator Essentially the papers make an intellectual and theoretical case for an extended period of We are going to start with an analysis by Gavyn Davies of the Financial Times. He writes
Yellen said as much in her testimony. In response to a question about QE, she said, "I The Fed have painted themselves into a corner of their own creation. They are clearly very But rather than let the market deal with the prospect of an end to an easy monetary policy
The new ideas that Bridgewater and everyone else are looking for are in the papers we are
This concept is key to understanding current economic thinking. The belief is:
The Misperception is:
Back to Davies:
Read that last sentence again. It makes no difference whether you and I might
On a side note, we are beginning to see calls from certain circles to think about also Off the top of my head I can come up with four ways that the proposed extension of ZIRP 1. The large losses from the continued FINANCIAL REPRESSION of interest rates on savers and pension funds Simply put, ultra-low interest rates mean that those who have saved money in whatever A new report from the McKinsey Global Institute examines the distributional effects of McKinsey estimates that households in the US have lost a cumulative $360 billion. This loss of household income requires tightened spending by retirees and means that those ZIRP means that the pension funds and insurance companies responsible for your annuities Most public pension funds work with some variation of the traditional 60-40 portfolio, that The next three graphs show what happens if interest rates are held near zero for three more
There is no question in my mind that many of my friends in the hedge fund and investment So the very policy of encouraging investors to move out the risk curve in fact reduces the returns on the risks taken, especially for the average investor who can't take advantage of the financial engineering available to sophisticated investors. Wall Street makes a bundle, and Main Street gets stuck with higher risks and lower returns. This is simply a trickle-down monetary policy by another name. The Federal Reserve
3. What happens when the VELOCITY OF MONEY turns around? We have no credible idea what drives movement in the velocity of money. As the chart shows below, it topped out in the '90s and has been dropping rather precipitously ever since. Charts that estimate the velocity of money back to the beginning of the 20th century show that we are close to all-time lows. One of the things we do know is that the velocity of money is mean reverting. It will begin to go back up. The fact that it is been dropping has allowed the Federal Reserve to print money in a rather aggressive fashion without stimulating inflation. When the velocity of money starts back up, inflation could become a problem rather quickly. I have no idea when that might happen or why it would start to happen anytime soon. But one day it will happen. That's just the way of things. Central banks that might be comfortable with 2-3% or even 4% inflation will find themselves dealing with much higher inflation than they had anticipated. Janet Yellen told us she would be capable of raising rates to fight inflation if need be, just as Volcker did. Let's hope she doesn't have to prove it. 4. The misallocation coming from rates being held below the natural rate of interests I have written on this in the past. When interest rates are held lower than the "natural rate Psst, Buddy, Would You Like to Buy a Model? As Jonathan Tepper and I write in Code Red, the Fed has elaborate models of the economy, Think about that for a minute. We are about to base our monetary policy once again on The best and the brightest assure us they have the situation under control. How's that As investors and money managers, we have no choice but to play the cards we are dealt. Demanding new cards is not an option when you don't own the dealer or make the rules of the |
11-19-13 | US MONETARY | CENTRAL BANKS |
Market Analytics | |||
TECHNICALS & MARKET ANALYTICS |
|
||
COMPLACENCY - VXV / VIX Ratio Sending A Clear Signal BofAML Warns "Don't Get Complacent" 11-17-13 BoAML In the near term, BofAML's Macneil Curry warns "we are growing a bit cautious/nervous, as US equity volatility is flashing a warning sign of market complacency that has often preceded a correction or a pause in trend." This 'red flag' is asterisk'd appropriately in the new normal with "to be clear, the balance of evidence is still very much US equity positive, but the near term downside risks have increased." Via BofAML's MacNeil Curry, We are bullish stocks, with the S&P500 targeting 1844 into year end [ZH: which sounds awfully close to an extraplotaed protjection of where the Fed's balance sheet implies year-end target]. However, in the near term, equity volatility warns of complacency and the potential for a correction lower. Specifically, the VXV/VIX ratio (VXV is the BBG ticker for 3m SP500 Volatility) has reached levels that have often led to a market pause/correction. While such a pullback would ultimately be corrective, Be Alert! |
11-18-13 | STUDY LIQUIDITY |
ANALYTICS |
CURRENCIES - Near Term $ Weakness on Euro & Sterling Strength & Yen Cross Weakness Dollar Remains Fragile 11-16-13 Marc To Market via ZH US$ WEAKNESS The US dollar looks vulnerable to additional losses. Generally speaking, the technical outlook for the greenback has soured and, in fact, warn of some risk accelerated losses in the period ahead. Nor can participants count on the economic calendar to stem the dollar's rout. The US has a slate of economic reports next week as the government catches up with the delay from the shutdown, but nothing to put the tapering back into December. EURO STRENGTH At the same time, while there is some expectation the ECB may do something more in a few weeks, following up on the recent repo rate cut, it is still far too early to expect the ECB to adopt what we have dubbed as "nuclear options", such as
Since it just
The euro's resilience in the face of the repo rate cut is demonstrated by its 1% rise on a trade-weighted basis, which is the key metric of its potential economic impact. EONIA is essentially unchanged (about half of a basis point lower) since the rate cut (which is one should have expected, as EONIA trades closer to the zero deposit rate than the repo rate). The euro has recorded higher lows for six consecutive sessions It tested the $1.35 in the second half of last week, but did not manage to close about it. This corresponds to a retracement objective of the nearly 5.5 cent decline beginning Oct 25. Assuming this level is convincingly breached, we see scope for the euro to rise 1% next week toward $1.3630. A move below $1.34 would weaken the outlook, but it probably requires a close below the 100-day moving average, which held on this basis, despite some intra-day penetration recently. It is near $1.3365 now. STERLING STRENGTH Sterling made new highs for the month ahead of the weekend and now seems poised to re-challenge what appeared to have been a double top made in Oct near $1.6260. Sterling had gone through the neckline (~$1.5890) early in the week, though not on a closing basis and the quickly rebounded, thanks to a favorable employment report and more optimistic BOE. Its resilience was reflected in the speed at which the market shrugged off the weak retail sales report (-0.7% rather than flat as the consensus expected). USDJPY The dollar did rise to two month highs against the yen and finished the last week with two consecutive closes (of the North American session) above the JPY100 for the first time in four months. Contrary to the general assertion, it cannot be simply attributed to Fed tapering ideas. The yen's 1.1% loss against the dollar occurred as the US premium over Japan (10-year interest rate differential) actually fell roughly 9 bp last week, slipping lower in three consecutive sessions before the weekend. The key test for the dollar is awaiting closer to the JPY100.60, the September high, which is just below the high from the second half of July set near JPY100.85. A break of this would bring into view the early July high near JPY101.55, which is the high posted since the decline from the year's high set in May (~JPY03.75) to the early June low (just below JPY94). Support has been established around JPY99 and it may require a break of that to signal a high is in place. YEN WEAKNESS Yen weakness is more pronounced on the crosses than against the dollar. Indeed, the yen's weakness appears to be, at least in part, not a dollar story. It has fallen nearly 2% on a trade-weighted basis so far this month. Sterling is trading a multi-year highs against the yen and euro is testing the year's high. The New Zealand dollar is testing the JPY84 level that held in both Sept and Oct. The Canadian dollar is at two-month highs against the yen. With the third arrow of Abenomics still apparently a work in progress, any appearance of relying on currency depreciation may face criticism by the US and Europe. Chinese official silence on the issue is noteworthy. Perhaps, its refrains from criticizing so as not to encourage criticism of its exchange rate policy, though that doesn't stop the PBOC from time to time of being critical of the US (market determined) exchange rate stance. US$ INDEX Turning to the dollar-bloc, from a technical perspective the US dollar is set to fall further. The head and shoulders topping pattern we discussed last week proved for naught. Even though the $0.8200 neckline was violated on Nov 12, there was no follow through selling and the Kiwi rebounded smartly (almost 2%) to vie with the euro as the strongest of the major currencies on the week. It seems that the rule here, and in sterling, is play the range until convincingly violated. If applied to the yen, it would seem to warn against playing the break out. AUSTRALIAN DOLLAR IN A RANGE BOUND BASING PROCESS The Australian dollar was largely range bound for most of last week, but this is increasingly looking like a base, rather than a pause before the next leg lower. The key may be the downtrend line drawn off the Oct 23 high near $0.9760 and Nov 6 high near $0.9545. It comes in near $0.9400 on Monday, though falls toward $0.9325 by the end of the week. Technically, a move above $0.9400 could spur another 1.0-1.5 cent advance. CANADIAN DOLLAR WEAKENESS The move above CAD1.05 on Nov14 appeared to have exhausted the USD bulls. A break now of CAD1.0430 (where a retracement objective and 20 day moving average lay) would confirm a near-term greenback high), and ideally CAD1.04, would suggest a move toward at least the lower end of the 5-month trading range (~CAD1.0250-CAD1.03). MEXICAN PESO The Mexican peso's 1.75% rise last week edged out the South African rand as the strongest of the emerging market currencies. The US dollar's decline brought it within a spitting distance of the uptrend line drawn off the Sept and mid- and late-Oct lows. It comes in near MXN12.91 on Monday. A break may signal another 1% decline in the dollar. Observations from the speculative positioning in the CME currency futures:
|
11-18-13 | CURRENCIES DRIVER$ |
ANALYTICS |
COMMODITY CORNER - HARD ASSETS | PORTFOLIO | ||
COMMODITY CORNER - AGRI-COMPLEX | PORTFOLIO | ||
SECURITY-SURVEILANCE COMPLEX | PORTFOLIO | ||
THESIS Themes | |||
2013 - STATISM |
|||
2012 - FINANCIAL REPRESSION |
|||
2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
|||
2010 - EXTEND & PRETEND |
|||
THEMES | |||
NATURE OF WORK -PRODUCTIVITY PARADOX | |||
GLOBAL FINANCIAL IMBALANCE - FRAGILITY & INSTABILITY | |||
CENTRAL PLANINNG -SHIFTING ECONOMIC POWER | |||
SECURITY-SURVEILLANCE COMPLEX -STATISM | |||
STANDARD OF LIVING -GLOBAL RE-ALIGNMENT | |||
CORPORATOCRACY -CRONY CAPITALSIM | |||
CORRUPTION & MALFEASANCE -MORAL DECAY - DESPERATION, SHORTAGES.. |
|||
SOCIAL UNREST -INEQUALITY & BROKEN SOCIAL CONTRACT | |||
CATALYSTS -FEAR & GREED | |||
GENERAL INTEREST |
|
||
TO TOP | |||
|
Tipping Points Life Cycle - Explained
Click on image to enlarge
TO TOP
![]() |
YOUR SOURCE FOR THE LATEST THINKING & RESEARCH
|
TO TOP