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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: roguedolphin who wrote (17452)

12/11/2015 11:42:06 PM

From: roguedolphin

2 Recommendations

Recommended By
isopatch
John Pitera

Read Replies (1) | Respond to of 33421

Why There Will Soon Be a Riot in the Casino By David Stockman

Shrinking GPP (Gross Planet Product) is not even in the Fed’s vocabulary yet, and even when they do latch onto it, they won’t dare explain it honestly and cogently.

That’s because contracting GPP measures the abysmal failure of the two-decade long global experiment in massive central bank money printing, and the unsustainable credit fueled economic boom it enabled.

So the Fed will have some heavy duty splainin’ to do, but it will be hard-pressed to come up with words that comfort the casino, rather than spook it.

After all, for most of this century the Fed’s post meeting statements and minutes have been progressively degenerating into embarrassingly empty pablum; and its seemingly rock solid voting consensus was an artifact of being on the Easy Button 80% of the time.

In that environment there was little to debate and less to explain. They simply delivered an economic weather report and urged Wall Street to hang on for the ride.

But now the Fed must emerge from the shaded zone shown above for the first time on a sustained basis since the 1980s. Yet as it seeks to explain a macro-economic slump that it absolutely did not see coming, and confesses to its complete lack of policy tools to reverse the worldwide deflationary tide now lapping at these shores, its statements will be reduced to self-evident and self-contradictory gibberish.

Likewise, the 19 members of the Board will take to noisy public quarrelling right in front of the boys and girls on Wall Street for the first time in their lives.

The reason that there will soon be a riot in the casino, therefore, is not owing to the prospect of a 25 bps pinprick after all this time on the zero bound.

The hissy fit will happen because the Fed’s words and actions starting next week will not say “we have your back, keep buying.”

The message will be “we are lost and you are on your own.”

And that’s not “priced in.” Not even close.

Evidence that a completely new monetary policy ball game is commencing comes from John Maynard Keynes’ current vicar on earth himself, Larry Summers. Three days ago he penned a strange op-ed in which he apparently reminded himself that the business cycle has not been outlawed -- something most non-Ph.D.s presumably already knew:

“U.S. and international experience suggests that once a recovery is mature, the odds that it will end within two years are about half and that it will end in less than three years are over two-thirds. Because normal growth is now below 2% rather than near 3%, as has been the case historically, the risk may even be greater now.

“While the risk of recession may seem remote given recent growth, it bears emphasizing that since World War II, no postwar recession has been predicted a year in advance by the Fed, the White House or the consensus forecast.”

Well now. If you wait until month 78 of a business expansion to end the emergency policy, and then hesitate to venture more than a few basis points off the zero bound, you will indeed use up the remaining runway right quick.

That’s because the average of 10 business cycle expansions since 1948 have lasted but 61 months; and the only expansion that was appreciably longer than the present tepid affair was the 119-month stretch of the 1990s.

But let’s see. Back then the Fed’s balance sheet was $300 billion, not $4.5 trillion. The world had less than $40 trillion of debt, or about 1.4 times GDP. Not $225 trillion -- nearly 3 times global income.

And, most importantly, China was still a quasi-agrarian victim of Mao’s destructive experiments in collectivist economics and state generated famine, not today’s towering Red Ponzi.

That is, it was irrelevant then, but is now a bloated economic whale sinking under the weight of $30 trillion of debt and the most reckless spree of over-investment and mindless public and private construction in recorded history.

So as this domestic business expansion cycle get long in the tooth, the U.S. economy is confronted by a veritable engine of global deflation in the form of China and its EM supply chain. After a 20-year credit driven boom, it now payback time. All of these economies find their exports stalled, their exchange rates falling, and their debt service exploding higher.

What this means, of course, is that Wall Street’s “decoupling” myth will soon be on the scrap heap. US exports and imports are now crumbling, and even the standard measures of goods transit are cliff diving.

Likewise, today’s wholesale report for November was a red alert warning that a big recession inducing inventory liquidation is just around the corner. Even if Janet Yellen won’t find this chart on her dashboard of 19 lagging labor indicators, the message is unmistakable.

According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300 basis points. But even he admits it ain’t going to happen this time.

Even if were technically possible to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would take on a whole new level of crazy. The brutally treated savers and retirees of American would well and truly revolt:

“Historical experience suggests that when recession comes it is necessary to cut interest rates by more than 300 basis points. I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence and inhibit demand.

“Central bankers bravely assert that they can always use unconventional tools. But there may be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable. There are severe limits on how negative rates can become. A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.”

So if the clever word-splitter Summers can do no better than the above poorly disguised punt, can you imagine what blithering incoherence will be contained in the meeting statements as the recession gathers force next year?

There will be a riot in the casino. And then? Click here to see.

Regards,

David Stockman
for The Daily Reckoning

David Stockman was a two-term Congressman from Michigan. He was also the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street. He's the author of two books, The Triumph of Politics and The Great Deformation. He also is founder of David Stockman's Contra Corner.

To: roguedolphin who wrote (17452)	12/12/2015 9:21:00 AM
From: isopatch	3 Recommendations Recommended By 3bar John Pitera roguedolphin Read Replies (2) \| Respond to of 33421

To the thread: Almost nobody, alive today in America, has lived thru a massive debt deflation. Since WWII, all anyone has experienced is decades and decades of inflation punctuated by periodic recessions. Until 2008. The fact, that so few, even now, understand the enormous significance of this historic turning point is because so few have studied the economic and social history of prior centuries. One of many good books (right now, reading it for the 2nd time) worth reading is The Great Wave, by Fisher: amazon.com Others, dealing with the broader historical themes pertaining to the very long term process we see unfolding, are summarized in the book list I posted on my own thread in December 2007 If anyone is interested, can dig around and probably find that post. <Be careful out there> Isopatch < LIVING A LIE Posted on 11th December 2015 by Administrator in Economy “Above all, don’t lie to yourself. The man who lies to himself and listens to his own lie comes to a point that he cannot distinguish the truth within him, or around him, and so loses all respect for himself and for others. And having no respect he ceases to love.” – Fyodor Dostoyevsky, The Brothers Karamazov The lies we tell ourselves are only exceeded by the lies perpetrated by those controlling the levers of our society. We’ve lost respect for ourselves and others, transforming from citizens with obligations to consumers with desires. The love of mammon has left our country a hollowed out, debt ridden shell of what it once was. When I see the data from surveys about the amount of debt being carried by people in this country and match it up with the totals reported by the Federal Reserve, I’m honestly flabbergasted that so many people choose to live a lie. By falling for the false materialistic narrative of having it all today, millions of Americans have enslaved themselves in trillions of debt. The totals are breathtaking to behold: Total mortgage debt – $13.6 trillion ($9.9 trillion residential) Total credit card debt – $924 billion Total auto loan debt – $1.0 trillion Total student loan debt – $1.3 trillion Other consumer debt – $300 billion With 118 million occupied households in the U.S., that comes to $145,000 per household. But, when you consider only 74 million of the households are owner occupied and approximately 26 million of those are free and clear of mortgage debt, that leaves millions of people with in excess of $200,000 in mortgage debt. Keeping up with the Joneses has taken on a new meaning as buying a 6,000 sq ft McMansion with 3% down became the standard operating procedure for a vast swath of image conscious Americans. When you are up to your eyeballs in debt, you don’t own anything. You are living a lie. The lie was revealed as housing bubble burst and national home prices plummeted by 30%, resulting in millions of foreclosures, the worst recession since the Great Depression and homeowners equity falling to an all-time low of 38%. The Fed induced 2nd housing bubble has convinced millions to believe the lie again. The Fed easy money, Wall Street buy and rent scheme, with the FHA acting as the new purveyor of 3% down mortgages, has artificially boosted homeowners equity back to 57% just in time for the next housing collapse. Living a lie will result in more pain and suffering for those who didn’t learn the lesson last time. At least there is an asset capable of appreciation backed by the mortgage debt. Auto loans are backed by a rapidly depreciating asset, while credit card debt allows Americans to live above their means while living their lie, and student loans are the new subprime debt which will never get repaid. The country has been living a Big Lie since the day Nixon closed the gold window in 1971, eliminating any vestiges of constraint upon central bankers and politicians. The Fed has continuously debased the currency and politicians have promised voters freebies while waging never ending wars of choice, creating a warfare/welfare empire of debt totaling $18.7 trillion with unfunded promises of $200 trillion. The masses have been lied to by bankers and their mass media mouthpieces, while willfully buying into the lie of living for today and funding it with debt. An entire society bought into the fallacy that a country could transition from savings and investment to borrowing and consuming, with no adverse consequences. The mass delusion is clearly evident in the comparative consumer debt data from 1971: US population in 1971 – 208 million Total credit card debt 1971 – $8.5 billion ($41 per capita) Total auto loan debt 1971 – $40.5 billion ($195 per capita) US population in 2015 – 320 million Total credit card debt 2015 – $890 billion ($2,781 per capita) Total auto loan debt 2015 – $1.03 trillion ($3,219 per capita) The population of the US has grown by 54% since 1971, but the amount of credit card debt per person has grown by 6,782%, and the amount of auto loan debt has grown by 1,650%. Meanwhile, real median household income has grown by 8% since 1971. Replacing income with debt in order to give the appearance of wealth is nothing but a lie. It requires an ever larger amount of debt to generate an additional dollar of GDP. The exponential increase in debt became unsustainable and the Wall Street lies resulted in a global conflagration in 2008. The desperate effort by the Fed to re-inflate the debt bubble through ZIRP and QE has resulted in pathetic economic growth, while leaving willfully ignorant consumers with a record level of debt. A recent report by Nerdwallet revealed the outrageous amount of consumer debt millions of Americans have chosen to take on in order to live the lives they feel they deserve. And Wall Street is only too willing to oblige them with credit, as they reap riches from the billions of interest paid each year by the debt slaves living on the plantation we call America. In addition to charging away their lives, Americans lie to themselves about how much debt they really have. It’s too painful to deal with reality, so they ignore it. The data in the report is frightening: The amount of credit card debt carried by the average household carrying this type of debt is $15,355.The amount of auto loan debt carried by the average household carrying this type of debt is $26,530.The amount of student loan debt carried by the average household carrying this type of debt is $47,712.The average household is paying more than $6,600 in interest per year, which means that roughly 9% of the average household’s income is being spent on interest alone.Credit card debt — one of the most expensive types of debt — costs consumers an average of $2,630 per year in interest, assuming an average APR of 18%.If you have the average amount of credit card debt ($15,355) and a 15% interest rate and only pay the minimum on that debt each month, it will take you more than 31 years to repay your debt and will cost you more than $18,600 in interest payments alone.The average amount of credit card debt peaked at $16,912 in 2008, fell by 14% to $14,539 by 2012 as Wall Street banks wrote off billions in bad debt, and has since risen by 6% as consumers have been lured back by the Wall Street propaganda machine.Consumers vastly underestimate or under-report how much debt they have. In fact, as of 2013, actual lender-reported credit card debt was 155% greater than borrower-reported balances.Americans are embarrassed and ashamed by their levels of consumer debt, but they can’t stop. A record number of new cars will be “sold” this year with the highest level of auto loan debt in history, the longest loan length in history, rising percentage of subprime auto loans, and an all-time high in percentage of leases. These people are underwater on their auto loan/lease the second they drive off the lot. But at least their neighbors and co-workers think their successful. Appearances are all that seem to matter in our society today. Dying in debt will be common place in the coming years. Fully 21% of Americans say they don’t think they will be able to pay off their debts — including their car, credit cards, student loans and mortgages — in their lifetime, according to a survey of more than 1,000 adults by CreditCards.com. Our debt addict society is dying of an overdose. The Fed’s master plan to revive the economy with massive doses of debt has failed. Main Street America is tapped out. Decades of minimal real wage growth, relentless inflation in the things we need to live (food, rent, energy, health care), and wasting money on Chinese produced consumer crap, has left the majority of American households with little or no savings and no disposable income. This is being reflected in the pitiful economic growth and plunge in retail sales since the end of QE3 in October 2014. Our system has become dependent upon exponential debt expansion, and as soon as the spigot is turned off, our economy crashes. Bernanke chose to not voluntarily abandon the Fed’s failed credit expansion policies in 2008. The end of QE3 and the upcoming interest rate increase by Yellen will usher in financial collapse part two. There is no avoiding a collapse brought on by decades of warped monetary and fiscal policies, and irrational behavior by bankers, corporations and consumers. Even if Yellen reverses course when the economy plunges into a deep recession, catastrophe cannot be avoided. “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” –Ludwig von Mises Our country has gone mad over the last few decades. We had a chance to come to our senses in 2008, wipe away the debt, liquidate the criminal Wall Street banks, prosecute the perpetrators, and reorient our economy and society back to one built upon savings and investment, rather than borrowing and consumption. It was not to be, as Bernanke and the Deep State decided their best interests trumped the interests of the people. The coming collapse hopefully will force Americans to come to their senses one by one. “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds, 1841> http://www.theburningplatform.com/2015/12/11/living-a-lie/

To: roguedolphin who wrote (17452)	12/16/2015 1:05:21 AM
From: The Ox	2 Recommendations Recommended By John Pitera roguedolphin Read Replies (3) \| Respond to of 33421

Certainly, this highlights a very difficult backdrop for the US and for the FED, if it views the US separate from the rest of the world..... The world’s nominal GDP has dropped 5% in dollar terms during the past year. That’s telling, because the world’s $225 trillion tower of debt is heavily denominated in dollars, or linked to it through exchange rates. The most important of these is the Chinese renminbi (RMB.) But unlike the short-lived recessionary dips of the past, the southward turn still has a long way to go. Brazil is plunging into its so-called hard landing, and China is not far behind -- along with its supply chain and developed-market (DM) materials exporters like Canada and Australia.