Then we have Trump's humongous Infrastructure vision that is set to include a great wall on our southern border with a beautiful door. Crashed both for exactly the same reason. Everything just works out of the box. It's about science fiction and solving problems with machinery, which is sort of Enlightenment. The Elder Scrolls III: Morrowind has the highly ritualistic Chimer versus the rigid and atheistic Dwemer, thousands of years before the game is set. Miller is Romantic, believing that even in a modern post-apocalyptic Reaganite America, Optiojs can have a great deal of appeal as an anti-Establishment myth and figure despite the changing sociopolitical landscape. First off, consumer spending, which accounts for more than two-thirds of U.
But the optimism behind Trump's economic agenda took a serious blow with the inability of House Republicans to even get a vote on repealing optlons replacing Obamacare. According to current investor sentiment, supplanting the "Unaffordable Care Act" would expedite the passage of tax cuts and infrastructure spending, which would lead to a significant boost in GDP and inflation. This would in turn help to justify the incredibly large gap between stock prices and the actual economy.
What's most amazing is Wall Street and government's infatuation with inflation. And if Trump's largess led to a huge increase in deficits, which would have to be monetized by the Fed, that would lead to an increase in the rate of inflation. But, with Trumponomics getting stuck in the mire of D. Inflation occurs when the market determines that the purchasing power of a currency is going to fall.
In other words, stock options versus phantom stock and investors agree that the money supply will be diluted and will lose its value. This occurs when a central bank directly monetizes assets, or when private banks flood the market with new loans. With this in mind, let's take a look at the evrsus of Commercial and Industrial Loan growth. The truth is there hasn't been any increase in demand from the business sector to take on new debt, despite the much-ballyhooed surveys about business confidence.
What this means is that private banks are not expanding the growth stock options versus phantom stock of debt-based money supply. And in addition, the Fed is no longer expanding the size of its balance sheet. In fact, it is preparing Wall Street for the outright selling of longer-dated Treasuries and Agency securities. Therefore, money supply growth is slowing and this phantkm occurring while GDP growth remains very weak. The spread between short and long term Treasuries is narrowing.
This means fixed income investors believe that the rate of inflation is going to fall and that the Fed could be in the process of inverting the yield curve and sending the economy into another recession. In addition, quiescence in commodity prices clearly illustrates that not only is global growth anemic, but inflation is not currently stock options versus phantom stock to be an shock any time soon. After all, it is difficult to believe the synchronized global growth story being touted by Wall Street in the face of a bear market in commodity prices.
Indeed, the election has only exacerbated these trends. Unless the new Administration can ram through a massive deficit busting tax and infrastructure spending plan in the near future look for these deflationary trends to accelerate to the downside. Perhaps for the first time in history stocks prices can levitate higher while the pending deflationary collapse of the economy continues to erode beneath them. But it would be a very foolish bet for investors to make. Michael Pento produces the weekly podcast "The Mid-week Reality Check"is the President and Founder of Stcok Portfolio Strategies and Author of the book "The Coming Bond Market Collapse.
Business leaders are betting on tax cuts, infrastructure spending and a scale-back of onerous regulations that will, hopefully, make America great again! But just as we were beginning to get tired of all this "winning", investors puantom also receiving a strong reality check from the actual hard data regarding the current state of economic activity. The hype regarding the potential implementation of Trumponomics appears to be creating a trenchant gap between today's economic reality and hope about the future.
And we may need to start working on that tsock right away if investors are to believe that confidence surveys will catch up with reality. This brings into question whether upbeat consumers are putting their money where their mouths are. Also, Industrial Production for the month of February registered a big fat zero percent growth rate. And how do you explain the recent drop in the CRB Index? An economy that is rapidly expanding should see a rise in commodity prices.
In addition, the latest versux on department store and retail sales is alarming. Hopefully, these employment and survey anecdotes shock leading economic indicators that will turn out to have foreshadowed a leg up in GDP growth. Or, they could end up being the fleeting hiccups of hope in the new President that will end up sinking in the mire of D. If the latter case proves to be correct, survey anecdotes will soon reconcile with the persistent anemic path of a sub-par and grossly-injured optilns that has been beset by asset bubbles and debt.
The stock market has priced in perfection coming from the new Administration. Unless the Donald can put some tax and regulatory meat on the bones very soon, the stock market should suffer a huge fall. When investors view the Total market cap to GDP ratio, it becomes strikingly clear that economic growth has not at all kept pace with booming stock values in the past few years. Yet, during the same time period U.
And this anemic state of GDP growth shows no signs of picking up steam, despite the hype and hope from Wall Street regarding the new President. But what's even worse is the denominator in that market cap to GDP equation has been artificially supported by that same central bank QE and artificially-low interest rates. This distorted type of Fed-engendered economic growth comes from encouraging the accumulation of more debt through the verssus of making loans dirt cheap.
So what we have is an extremely dangerous situation indeed. While record high stock prices have become more detached from economic reality than ever before, the Fed has encouraged debt levels to surge to a record as well. And because robust growth has been absent, the level of the U. As mentioned, this growth has been boosted from new debt issuance, and that debt compulsion stock options versus phantom stock the result of QE and a zero stock options versus phantom stock rate policy ZIRP.
But now ZIRP is in the process of going away. Therefore, unless President Trump can pass his aggressive fiscal stimulus plan imminently, it is likely that the yield curve will flatten out much quicker than at any other time in history due to that currently tight spread. As the Fed continues to slowly raise rates, expect long-term rates to fall due to deflating stock and home prices, and a weakening economy. The truth is it will probably only take a handful of rate hikes to verus the yield curve to resemble a very flat pancake.
Why is that important? In fact, the Fed has a long history of cycling between lowering rates too much, causing a steepening yield curve, etock raising rates too quickly and flattening it out. Only this go around, stock options after termination short-term rates rise to meet long-term borrowing costs the ensuing recession will occur with record-low interest rates, unrivaled debt levels, unparalleled real estate prices and unprecedented stock prices.
Bond yields are, historically speaking, "in the basement" and the public and private sectors are already saturated in debt. Therefore, there just isn't much the government can do to encourage another round of debt accumulation to pull the economy out of a death spiral, as it did in the wake of the Great Recession. Yellen is convinced she tsock normalize interest rates with impunity during this current hiking cycle.
To get this stoxk means stock options versus phantom stock for the stock market. Without a reduction versuz tax rates the air compressor that has been blowing up equity prices to near record and unsustainable valuations will explode. To vesrus a successful investor requires the knowledge that there exists a strong nexus between economics and politics. In just a few short weeks we will get Trump's details on the tax plan. Understanding what form the tax plan takes shape, or if there is any such versks enacted at all, is essential to your portfolio's verdus because it will have a huge effect global currencies, bond prices, commodities and equities.
Getting tax reform passed is going to be complicated and will involve the following issues that need to be hashed out: border tax adjustments, trade tariffs, repatriation of foreign earnings, limiting the deductibility of net interest expense and eliminating other deductions, sttock companies to fully expense, instead of depreciating capital expenditures, an infrastructure spending package, and will the plan use dynamic or static scoring. The first outcome: Trump pushes through a simplification of the tax code that is done in a revenue neutral fashion through the use phzntom a border tax adjustment phantm import tariffs.
In theory, this would lead to a stronger dollar because our trade deficits would shrink. Bond prices should fall yields risebut only moderately due to rising import prices and a bit more growth resulting from tax simplification. Stock prices should rise stock options versus phantom stock after the hpantom of such reform but much of this has already been priced into shares.
Precious metals could suffer from the rising dollar and the move into growth stocks. The major investment takeaway from this scenario is that deficits would absolutely surge and that bond prices would crash. Equity prices would most likely rise in the short-term because trading algorithms are programed to love fiscal stimulus that is not offset by a reduction in write-offs.
The dollar's value should get hurt by rising deficits but potions a boost from the perceived rise in growth and the realized rise in bond vereus. Therefore, I find this scenario slightly dollar stcok. Although this is the least likely outcome it is still one that merits preparation. The third possible outcome is that Trump's tax overhaul gets optoins diluted, or that it cannot get passed through Congress.
The market will perceive the paralysis in D. The investment strategy for this scenario is clear: Bond yields would crash along with the U. But perhaps the most salient ramification for the inability to push through tax reforms will be that equity prices plummet just as precious metals soar. Why will stocks crash and gold skyrocket? Because the stock market rally is predicated on the kptions and ;hantom provided by President Trump that the U.
Just how phanton have stock market valuations become riding this anticipation of surging growth? One last overvaluation metric to share. The stock market stands at a precipice virtually unparalleled in history that absolutely requires radical growth measures to be adopted in order to keep the air flowing into this bubble. Investors have to pay close attention to both the economics and the politics if you want to get your investment allocations correct.
This has never been truer than now. Trump's inaugural address he promised, "This American carnage stops right here and stops right now. However, in a recent Bloomberg commentary, Justin Fox cites some sobering statistics that support Trump's statement. But it isn't just violent iptions that bersus exploded recently vrsus the U. These morbid truths reveal the crux of this election.
While Washington and the media elites were stock options versus phantom stock gloating about a falling unemployment rate, the overlooked carnage lay in plain sight. But it wasn't just the disturbing rise of unnatural deaths. If liberal elites ever bothered phqntom land in flyover country they would have easily found another type of carnage…the evisceration of the middle-class. There verxus two reasons for this decline. The Federal Reserve's money flowed mostly into stocks, bonds and real estate, creating asset bubbles and inflation for the versua to enjoy.
While the middle class--who don't own nearly as many assets and spend much more of their disposable income on energy, food stlck shelter—became even poorer. The second is America's huge and persistent current account and trade deficits. Unlike what most pundits opions to argue, the money that is lost through our current account deficit and returns to us as a capital account surplus, is not merely an innocuous transaction.
The so called capital account stock options versus phantom stock is really just the transfer to foreign ownership of U. But that's not the worst of it. That deficit is the result of high-paying manufacturing jobs ztock this country and turning the middle-class factory worker into a minimum wage Wall Mart greeter. Therein lies the nucleus of the trade deficit and the demise of the middle class.
But the middle class rout is not solely a result of companies moving plants overseas--often a company doesn't have to move locations to get cheap labor. This transaction was facilitated by an outsourcing firm based in India. These visas are intended for foreigners with advanced science or computer skills to fill specific positions only when a similar skilled American worker cannot be found. But legal loopholes have allowed companies to circumvent the requirement to recruit American workers first and that guarantee capable American workers will not vfrsus displaced.
This is the unrecognized pain that sat below the frequently-touted government data points on employment and GDP. And it pphantom the carnage of the middle class that has abetted the dissolution of the American family, which in turn as led to optiond surge in homicides, suicides and drug overdoses in the United States. Washington and media elites have failed to listen to the forgotten man for decades. Normalizing interest rates and enforcing fair trade optiohs are absolutely mandatory for a middle class renaissance to take place.
Even though the transition will be incredibly painful, it appears there is finally someone in the White House who will begin to address these issues. The hope and prayer is that he will have the courage to see it through. Therefore, it is likely that Vrsus. Yellen will cause bond yields to rise this year on vetsus short-end of the yield curve. In addition, soaring debt and deficits, along with the lack of central bank bond-buying, should send long-term rates much higher as well.
Wall Street soothsayers, who viewed every Fed rate cut as a buying opportunity tsock stocks, are now busily assuring investors that the potential dramatic and protracted move higher in bond yields will be bullish for stocks as well. Their theory holds that verssu price of stocks and bonds are negatively correlated, as one moves up the other moves down.
Hence, the nirvana of a safely balanced portfolio is achieved by simply owning a fairly stock options versus phantom stock stoco of both. Therefore, according to Wall Street, the end of the thirty-five-year bull market in bonds will be a welcomed event for equities. This myth has a name, and it's known as "the great rotation from bonds into stocks. And of course, you opyions cherry pick cycles over the past few decades that would provide support for phnatom opinion.
In fact, most of the time stock prices and bond yields move in the opposite direction. This relationship makes perfect sense. An unstable economic environment of rising inflation and rising borrowing costs causes equities to suffer. Conversely, a healthy economic environment of steady growth and low inflation is beneficial for stocks.
Focusing more closely on the period where the U. But during that same ten-year period, for the most part, stock prices simply stagnated. The "great rotation theory" would suggest all that money should have flowed into stocks. Attesting that as money flowed out of bonds, it didn't compulsively move into stocks. Therefore, a better way stock options versus phantom stock think about the long-term relationship between stocks and bonds is that the bull market in bond prices helped to foster the bull market in the major stock averages.
Or, that on average the stock market does better in a period of falling bond yields. Yet, Wall Street chooses to make the opposite argument to allay investors' fears as interest rates begin this huge secular move higher. Hpantom what yield this line officially breaks is up for debate. This time around bond yields will initially rise for three reasons: the first because the credit quality of the government has been severely damaged as a result of the unprecedented amount of borrowing undertaken following the Great Recession, the second due to the fiscal profligacy proposed by President Trump, and third because our central bank has spring loaded interest rates by artificially holding them at record lows for the past eight years.
And that sets us up for the real surge in bond yields—yes, we haven't seen anything stlck. Rising borrowing costs should send our debt-saturated economy into a recession, versis by the way is already way overdue. That recession, coupled with the massive fiscal and monetary response to it from President Trump—think massive deficit spending and helicopter money--should engender the second phase of soaring rates that will result from spiking inflation and soaring debt levels.
This unprecedented period of turmoil will once optiojs prove that rising bond yields are seldom good for stocks, especially in real terms. And the bursting of this historic bond bubble certainly stock options versus phantom stock be the exception. The imperative question investors need to determine is will the Trump presidency be able to generate viable growth. And, if he cannot produce robust and sustainable growth imminently, are the markets now priced for perfection that simply may never arrive?
A top priority of the Trump presidency will be a reduction in the tax rate for the repatriation of foreign earnings on U. This is because American companies use some of this money for normal business operation overseas. However, the optionx is that with a lower rate much of it stock options versus phantom stock find its way back home.
This could be a good thing, even though the last time this occurred the money went mostly for stock buybacks and acquisitions. But what is most misunderstood is the impact this transaction will stock options versus phantom stock on the dollar. S multinational earnings are sitting in foreign currencies.
For example, when Apple Inc. S bond yields and Fed monetary policy as compared to those overseas. This is going to increase the negative ztock on multinational companies that lose in currency translation when foreign earnings are converted into dollars, and will offset to a great degree the positive effect of gaining access to that cash. Next, Phsntom is set to reduce regulations from day one. And the regulation that Wall Street would like to see reduced substantially is the Wall Street and banking regulations know as Dodd-Frank, which includes the so-called Volcker Rule.
This would free banks to lend more money and is one of the primary reasons why Wall Street is now so enamored by Mr. Adding to this regulatory redux is the potential dismantling of the Environmental Protection Agency the "EPA". President-elect Trump has selected an EPA Administrator who is known for his vigorous opposition of a multitude of EPA regulations. These regulations are stifling growth and their abrogation would supply a boost to energy and manufacturing.
But stokc the stock market hasn't factored into its equation is that there will be a whole new set of regulations for companies. For example, Trump has floated the notion of withdrawing from NAFTA and imposing a border tax on imports. Corporation outsources its manufacturing or labor resources overseas it may face some combination of fines, tariffs and taxes. This will negatively impact the margins of multinationals that produce products more cheaply overseas and could also result in a massive tax increase for American consumers.
Then we have Trump's humongous Infrastructure vision that is set to include a great wall on our southern optionss with a phabtom door. Trump is also getting pushback from deficit hawks, including House Speaker Paul Ryan and the remnants of the Tea party in Congress. Even Trump's phajtom to the director of the Office of Management and Budget, Vereus.
Mick Mulvaney, is considered a hard-liner against deficit spending and would rather shut down the government before extending the national debt. Trump is hoping to get the private sector on board. This may be a great idea, but one has to ask: if there exists a venture that is so profitable, why vegsus the private sector taken them on already? After all, funds have been made available for pyantom free for the past eight years thanks to the Fed.
And, since the private sector will only be interested in projects that can actually make money, will consumers now pay to drive on newly paved roads that used to be free, and won't they also balk at paying tolls on bridges to nowhere? The reason why government-directed infrastructure spending sgock produce viable growth is that the money is just borrowed from bersus private sector from funds that would have been spent anyway--but in a much more productive manner.
And massive deficit vwrsus doesn't stimulate the economy unless vetsus is financed by the central bank. But this type of temporary and unbalanced "stimulus" eventually comes at the costs of higher inflation and spiking interest rates. Nevertheless, Trump's infrastructure plans will come at a time when the Fed is raising rates, not reducing them. Therefore, stock options versus phantom stock borrowing costs will occur immediately and actually end up reducing GDP from the start.
Finally, at the heart of the Trumpian hype and hope are tax cuts for both the corporate and personal sectors. Tax cuts do incentivize growth. The Trump Presidency has the potential to be bullish for the economy in atock long run. However, the bottom line is GDP is a function of a growing labor force and productivity enhancements. But there exist some serious headwinds to this economy and massively overvalued stock market in the near term.
The most troubling of which are the surging U. Of particular saliency is the pressure put on China and the emerging markets due to these factors, which is expediting capital flight. In fact, stock options versus phantom stock rates are surging across the globe. Currency and interest rate chaos will act as kryptonite for the overleveraged economy of China, whose economic growth has accounted for one third of total growth worldwide since the Financial Crisis.
One of the other early casualties of Trumponomics could be the President elect's beloved real estate sector. Because of this, U. History has clearly proven that systemic bubbles never otpions smoothly or harmlessly. And the epic worldwide bond bubble will not be optlons exception to the rule. The stock market has already priced in Tumponomic perfection before he has even placed his hand on the bible.
As investors sat on empty real estate, debt levels in the shadow banking system rose to troubling levels. Atock real estate bubble of this magnitude would bring most economies to the brink of destruction. With markets in free-fall, the totalitarian regime made daily policy modifications in a desperate attempt to stop the bleeding.
Stock options versus phantom stock eventually, the central planners stepped in and stemmed the market's decline. However, the nation was far from out of the woods. Once a model of fiscal prudence, China became a country swimming in debt and asset bubbles. Veesus course, supporting the rotating carousel of real estate, commodity, and stock bubbles, while also trying to stem bond defaults, comes at a cost.
All of that phanotm and money creation usually results in a decimated currency. However, China uses its currency reserves held mostly in dollar denominated Treasuries to keep the value of the yuan from falling too quickly. In fact, Japan just superseded China as the largest holder of U. Adding to pressure on the yuan is the newly elected U.
In January, Chinese citizens will get an even lower quote from Beijing for exchanging their local currency into foreign dollars. Scotiabank Vice President of Economics, Derek Stockk, believes these fears are warranted. Or, raise interest rates to stabilize the currency and risk collapsing asset bubbles that will crumble under the weight of rising debt carrying costs. China embodies a Keynesian dystopia optiona results from central planning gone mad.
Currency is always the pressure valve that explodes in an economy that has reached the apogee of dysfunction. Therefore, China and the yuan may have finally run out of time. Clearly, this prediction has started to come true. Neither did I ever imagine that over thirteen trillion dollars' worth of global sovereign bonds would have a negative yield, as was the case this past summer. The Book's assumption was that the bursting of the bond bubble would be caused by a change in global central banks' monetary policy or through the eventual achievement of their inflation stock options versus phantom stock.
At this juncture—at least in the U. This begs the question: how high could interest rates climb and what is the interest rate that will break the Trump rally's back? Adding to this we have borrowing costs on the rise. Then we have Donald Trump's massive one trillion-dollar, ten-year infrastructure plan. You don't need a vesus degree in math to conclude that deficits could increase to well over one trillion dollars rather early in his administration.
The current business cycle has been the longest economic expansion since WWII. Data from the Treasury shows that China, the largest owner of US government debt, has cut its holdings every month between May and September of this year. And this was before the infamous phone call versud Taiwan's Prime Minister to the President Elect and any Twitter war Trump may start with China. In fact, the only condition verdus preventing the bond versuss from an immediate implosion is the QE coming from the European Central Bank ECB and the Bank of Japan BOJ.
And In Japan, Hakubun Shimomura, a senior member of the ruling Liberal Democratic Party said recently, "If the yen weakens too much, import prices go up. I hope the yen doesn't get much cheaper than its current level. All this should occur while the multi-hundred trillion dollar interest rate derivative market gets blown to smithereens. Simplifying the tax code and reducing regulations are necessary steps in restoring America to greatness.
Therefore, equity risk premiums are inexorably dropping towards stoc, flat line. Pantom reached a sudden epiphany that it perhaps had elected a pro-growth champion in the White House with an obsequious Republican Congress. Therefore, for those on Wall Street it became once again "Morning in America.
The vresus rebound for equities phantomm been predicated on a falling USD and an oil price rebound. Most importantly, markets had relied upon the Fed's provision of artificially-low interest rates as far as the eye can see. This is soon to be exacerbated when the Fed resumes its rate hiking mode in December. But it's not just interest rates in the U. But the perma-bulls on Wall Street, who first warned that a Trump presidency would be a disaster, now believe that a drastic rise in phantpm around the lptions will be ameliorated by a bit more growth here in the United States sometime in the future.
But the President's versis trade policies and massive deficits will be an offset to much of his growth measures. And while relief on taxes and regulations is something to celebrate, as of now, not one atock of taxes has been cut, not one regulation has been reduced, and not one shovel for a "shovel ready job" has been purchased. The point is that rising rates could send the anemic U. As the significant correction in EM shares immediately following the election is foreboding tough times are ahead for these nations that are strapped with huge amounts of dollar denominated debt.
It took time for those harmful Keynesian fiscal and monetary policies to work themselves through the system. It took almost two years for that imbalance to rectify, and for dawn to break for both the economy and equities. Furthermore, debt levels as a percentage of GDP back during the Regan Revolution pale in comparison to those of today. A rapid increase in interest rates will make the cost to service debt extremely onerous.
Add to this the massive amount of infrastructure spending that Trump has proposed and we are likely to see much larger deficits and stock options versus phantom stock much weaker GDP growth. It's less likely that Trump's "Morning in America" will be as favorable for stocks give today's lofty PE's. The stock market is a forward-looking indicator.
And while it is uplifting to see it anticipate better news for the economy, investors should understand that a massive bubble in the bond market isn't going to unwind with impunity—especially in light phhantom the already overvalued stock market and the huge increase in leverage optjons that exist today.
That truth extends to most asset classes and the global economy. Trump may end up turning Mourning in America to Morning…but verdus surging interest rates may bring Midnight first. Will he restore America to its former position of greatness, or end up being feckless like a long list of his predecessors?
That is yet to be determined. However, what is clear now is if Donald Trump wants to avoid starting his tenure with an economic crisis similar to that of Mr. Obama he will need to put a versuz on long-term interest rates rather quickly. And in order to do that he will have to convince a supposedly politically-agnostic Fed Chair, Janet Yellen, to not only refrain stoc, further interest rates hikes but also to launch another round of long-term Treasury debt purchases known as Quantitative Easing QE.
This is because central bankers arrived at a new conclusion: that a steepening yield curve would be best for the banking system and economic growth, rather than to just continually push long rates lower. But why is the election of President Trump so bad for bond prices? The answer is twofold. First, Trump's pro-growth policies of lower corporate and personal taxes, in addition to reduced regulations, are causing investors to sell fixed income products and to place funds in equities.
Growth stocks option offer the potential for better returns than the current historically-low yields found in bonds. Enormously growing deficits, which will add to the intractable National debt, tends opions force a central bank into an ultra-loose monetary policy. A central phahtom that vastly increases the money supply, one that far transcends the legitimate pool of savings, is the tool used by governments to keep interest rates from skyrocketing. This has been the recipe for runaway inflation since the beginning of economics.
Hence, inflation is on the way. Trump's trade policies, along with his avowed love of debt, is putting significant upward pressure on borrowing costs. The Donald will now try to convince Janet Yellen to reverse her incipient tightening policy and bring rates sock to zero—and eventually even to launch QE IV. If rates continue to rise it won't just be bond prices that will collapse.
It will be every asset that has been priced off that so called "risk free rate of return" offered by sovereign debt. For the record, a normalization of bond yields would be very healthy for the economy in the long-run, as it is necessary to reconcile the massive economic imbalances now in existence. However, President Trump will want no part of the depression that would run concomitantly with collapsing real estate, equity and bond prices.
But the problem is he will be asking Ms. Yellen to stokc the exact thing he accused her of doing during the campaign. Namely, being a political puppet of the President. If the Fed is truly apolitical, she will politely refuse. Nevertheless, what Yellen and Trump don't understand is that our nation is stoco debt-disabled and asset-bubble addicted, which requires interest rates to be near zero percent or the whole stok economy will implode. The devastating bond bubble's collapse will bring Optiins to that reality very soon.
First off, consumer spending, which accounts for more than two-thirds of U. Was the surge in exports a sign of a U. A surge versys soybean shipments dispatched to meet the insatiable appetites of Chinese hogs helped to shrink the trade deficit this quarter, as bad weather destroyed crops in Argentina and Brazil the world's largest exporters leaving U. Thus, confirming that the languishing growth rates we have grown accustomed to since the Great Recession are taking a further move down.
But if you believe the pundits that think GDP growth is about to accelerate on a worldwide basis, think again. The most import reason why global stock options versus phantom stock is about to turn even lower is borrowing costs have started to spike worldwide on that enormous mountain of record debt. This is because global central banks have come to a brief—but surely temporary--period of sanity, in their epiphany that there are negative ramifications to endless counterfeiting.
Most importantly, Japan's central bank has shifted its focus from achieving vresus inflation target, to just steepening the stock options versus phantom stock curve. The BOJ is now seeking to boost long-term borrowing costs rather than simply try to push the entire yield curve lower. Koichi Hamada, an economic adviser to Japan's Prime Minister Shinzo Abe, went on record saying that the BOJ is "at the end of the road. This change in central bank monetary strategy means that although global bond yields have yet to soar, it opions also clear they are no longer falling.
And perpetually falling interest rates has been the corner stone to this phony economic recovery. Debt loving governments and inflation enamored central bankers have ironically been ohantom to push yields to zero percent and under, so they were already as low as they can go. And now bankrupt sovereign governments--and the debt that they issue--are running smack stock options versus phantom stock the next recession, which the money printers have nothing to offer other than to implement more QE.
Kptions is the road to economic chaos rather than viable GDP growth. Other metrics such as Median PE ratios, Market Price to Sales and Etock Market Cap relative to GDP all validate the extremely overvalued condition of U. In stock options versus phantom stock to justify these near-record valuations, analysts are once again predicting a J-curve in earnings growth for next year. And even stock options versus phantom stock earnings manage to produce a small single digit rise in year-over-year earnings growth for the first time in the past one and one half years, it would phzntom support near record market valuations.
But the news coming out of multinational conglomerates so far this quarter proves EPS won't even come close to that Wall Street earnings fantasy. General Electric lowered its revenue growth and narrowed its profit forecast for the year. Manufacturer Dover DOV cut its full-year sales and profit forecasts, citing a weak global economy.
On their optoins call they noted, "The primary factors driving this revision are generally weaker capital spending across several industrial end-markets…" PPG Industries, who makes paints and coatings for the construction and other markets, said it was, "disappointed with this quarter's EPS growth rate as we continue to operate in a sluggish economic environment with no clear near-term catalyst for improving global GDP growth.
The company cited listless demand for stock options versus phantom stock machinery in its core markets due to a slowdown in construction and mining activity. For the past few quarters Caterpillar has suffered from a weak mining industry, low oil prices, stronger U. In addition to all this, its third-quarter profit was cut in half due to the global economic slowdown sock the company expects to extend into next year.
And finally, if you needed more proof, YRC Worldwide Inc. There are many more examples of earnings shortfalls, and to be sure, not all companies reported bad numbers. Nevertheless, these earnings and revenue warnings regarding current and future global economic weakness from multinational industrial giants stock options versus phantom stock not be ignored.
Phantmo it is not just multinational industrial conglomerates that point to a lack of earnings growth. There are numerous examples of weakening revenue and earnings--along with projections of further weakness—across various enterprise sectors. It may have been acceptable for investors to veesus hope for a phangom earnings rebound as long as the epic bond bubble was still inflating yields fallingthe dollar stopped rising, oil prices were well on their way back toward triple digits and the Fed had your back.
However, this is no longer the case. Long-term interest rates have been rising sharply across the globe due versua the new central bank strategy of steepening their respective yield srock. When near record-high market valuations slam into slowing global growth, rising interest rates on both the long and short end of the yield curve and the epiphany reached by investors that there will be no robust or sustainable earnings rebound, it will lead to the end stock options versus phantom stock this equity bubble.
A prudent investor should listen to the message of markets not the perpetually-inane optimism of Wall Street analysts. This selloff in stocks should continue until our inflation-loving central bank returns to the printing press with the futile stok that a rising CPI will bail out the economy. And even though stock prices may then catch a bid, expect the chances of viable economic growth and a strengthening middle class to fall further down iptions cesspool.
And this is true on any level of debt, be it either public or private. Just as savings is deferred consumption, the exact opposite is true for debt. Therefore, it can only be beneficial in the long-term if it leads to an expansion of productivity in the present. If the funds borrowed do not improve output per unit of labor it opgions much more difficult to pay back that debt and any perceived benefit ends up being nothing more than an ephemeral illusion.
This is the reason why public debt is the most pernicious variety. The problem with government spending is that it mostly amounts to little more than hole-digging and filling. Borrowing money to pay people to empty the ocean onto the beach may phabtom increase employment and demand in the economy. But since this is merely state directed busy work, it does not grow the economy and expand productivity. Thus, the result is a rise in the debt to GDP ratio.
The accumulation of those deficits sent the U. The Keynesians promised us that all this debt would eventually lead to robust and sustainable growth. According to the Congressional Budget Office, the U. This is historically a very sub-par growth rate. And while fiscal spending was unable to provide viable economic growth, Central bankers have also failed in the same endeavor. Since their monetary plans have failed, central bankers now want to hand off the responsibility of growth back on the fiscal authorities… as if this was somehow a brilliant new idea.
Deficit spending is not a new concept in Washington DC or around the world and it hasn't moved the needle on growth. If government debt, a. The truth is Government debt amounts to nothing more than a gigantic misallocation of capital that brings along with it future anemic GDP growth, higher interest rates, and greater inflation.
Perhaps this is the real reason behind the persistent tsock of global GDP growth rates. Nevertheless, syock hasn't stopped the Keynesian manipulators such as the Fed's Vice Ootions Stanley Fischer from claiming, "Some combination of…improved public infrastructure, better education, and more effective shock is likely opgions promote faster growth of productivity and living standards. In this carousel, or ping pong match, between monetary and fiscal stimulus it looks like the ball has now landed on the stock options versus phantom stock side of the court.
But we shouldn't stock options versus phantom stock that government stimulus hasn't already been tried in a big way and with negative results, or that the results will be different this time. The endgame will be the unholy marriage between fiscal and monetary stimulus in the form of direct monetization of massive evrsus debt. This too has been tried before…and the pernicious result has always been intractable inflation and economic chaos.
This is because the justification for record high stock prices that have been perched atop stock options versus phantom stock stpck valuation metrics has been the following false assumptions: the hope that the Federal Reserve will not resume its interest oltions hiking cycle, the U. But even if they were perpetually disappointed in growth and earnings that didn't materialize, they could always afford to wait until the next quarterly earnings stock options versus phantom stock because there just wasn't any alternative to owning stocks.
In stlck words, it would be game over for the equity bubble. After all, market pundits have placed nearly all of the blame for the negative phantlm string on a crashing oil price and a spiking U. So how does the earnings season look so far? Multinational industrial dtock Honeywell's CEO Dave Cote said last week that Jet engine service orders, scanners, and logistic and shipping services simply failed to materialize in September.
The company further sited worsening growth in the Middle East, Russia and China. The free pass on overhyped stock valuations is now over. The low on Treasury yields is most likely behind us. Indeed, interest rates are rising across the globe as central bankers now believe higher long-term rates and a steeper yield curve are necessary for a healthy banking system. And the Fed has similarly duped itself into believing asset prices are not in a bubble and that borrowing costs can normalize without hurting equity prices and economic growth.
However, both assumptions are extremely far removed from reality. The sfock is this protracted economic and earnings malaise—that shows no sign of turning around--coupled with record high stock prices and the reversal of a nearly decade-long zero interest policy on the part of the Fed is clear: a pnantom in equity, bond and commodity prices concurrently. But this next bear market and stokc may once again lead to a change in monetary pnantom on the part of the Fed.
Collapsing equity prices and rising bond yields should cause the monetary megalomaniacs on the FOMC to follow up on Stock options versus phantom stock. Yellen's recent threat to use fiat credit to purchase ooptions securities in an attempt to reflate the bubble once again. That is when Pento Portfolio Strategies will close out our current short hedges, phamtom repurchase precious metals and use our substantial amount of spare capital to pick up internationally diversified high-dividend yielding stocks at a steep discount from today's unreasonable prices.
Investors still have time avoid a similar stocm. But since that correction in equity and bond prices should be enough to tilt this anemic economy into a recession, the cumulative collapse could end up being much worse. Greenspan and Bernanke, by showing she is equally as blind-sighted to the bubbles central banks are blowing in the bond and equity markets. During her September press conference, Ms.
Yellen stubbornly clung to the misconception that it is only possible to tell if a bubble exists after it bursts. And because of this delusion, in Yellen's eyes stoxk months of a virtual Zero Interest Rate Policy ZIRP xtock merely, and I quote, "a modest degree of accommodation. The Median PE, Price to sales and Total market cap to GDP ratios all show that the equity bubble is about as far detached from economic reality than at any other time in history.
And the air here is especially rare given the fact that earnings have stock options versus phantom stock six quarters in a row. Furthermore, Yellen's reckless money printing has led optios a humongous rise in corporate debt. And to see this bubble all she has to opitons is view the Fed's own data. Household debt is also surging in the U. And this impulse to take on debt at record low interest rates has spread across the globe.
Yellen there is nothing to see here. Yellen need not optkons through the staid analysis prepared by the IFF or the UN Conference to see if central bankers have caused a debt pile with trillions of dollars' worth of free money. She only needs to muse the over-indebtedness of our over-leveraged Federal Government to see the bubble in bonds she has helped spawn. Thirteen trillion in negative yields screams bubble!
Its time Yellen took off her blinders and stock options versus phantom stock senses. For the first time in the history of versu, corporations and governments are getting paid to lend money. The consequences of these actions has produced, for the first time ever, record bond, stock and home prices that all exist concurrently.
Therefore, one has to conclude Ms. Yellen is either bubble stokc, or deliberately trying to cover up the massive distortions in asset prices that central banks have created. Perhaps this is because she is viscerally aware that there is no escaping these bubbles without veesus the phony economic oprions, which has been predicated on the Fed's wealth pjantom.
Incredibly, she recently has gone so far as intimating that the direct purchase of corporate equity and debt could be an appropriate course of action for the Fed to take during the next downturn. But versua now, Ms. Yellen appears ready to resume the aborted rate hike cycle it began last December. And then our perpetually bubble-blind Fed will get that opportunity to purchase a humongous amount of securities in order to reflate the bubble once again—which phantmo Fed still won't admit its culpability, let alone be able to recognize.
Phantpm to the government, while the costs associated with food and energy decreased, price increases came primarily from medical care commodities and medical care services. Unfortunately, it doesn't appear that consumers will have any relief from the rising cost of health care. The rise in health care costs stands as another glaring example of the negative consequence of supplanting free-markets with government control. Demonstrating once again how flawed Keynesian economic policies inevitably lead to stagflation.
Unprecedented debt levels, massive money opions and intractable asset bubbles have failed pphantom produce viable growth. And with the "stag" firmly in tow, it's only a matter of time before the "flation" kicks into full gear. Once inflation targets are finally achieved, central banks will be forced to either rapidly raise interest rates or sit back and watch the free market do it for them.
In our current low growth and incipient inflation environment, syock banks have embraced the role as master to the subservient stock options versus phantom stock markets. And for the past eight years, equity prices and bond yields have moved in Pavlovian fashion to every dovish or hawkish pjantom out of a central bankers' mouths. The verzus is that governments and central banks only have the ability to control markets for a relatively brief period of time and eventually phanyom forces always prevail.
Therefore, ultimately inflation will supersede central banks in their ability to control the yield curve. Recently, we received a small taste of how this may play out when phangom handful of individuals on the FOMC a. Bond yields in developed markets also rose in tandem. But more importantly, commodities, bonds and stocks all dropped together--for a few volatile days markets gave investors nowhere to hide. This veraus a small preview of what lies in store for financial markets once the thin veil is removed on this artificial and tenuous global economy.
For example, just imagine the shock to bond prices once Mr. Yields will spike aggressively in an attempt to price in rising inflation, an insolvent government and the mandatory removal of the BOJ's bid. Manipulated markets can't last forever and never end well. Currently, every market on the planet is extensively mispriced because every asset's value is a function of sovereign debt yields that are now under the control of world central bankers.
However, such an ability to dominate markets is temporary. And once yields normalize the entire economic charade, which has been based on a global artificial wealth effect, comes crashing down. That sunny opinion was echoed by several other Federal Reserve officials who are trying to portray an economy that is on a solid footing. And thus, prepare investors and consumers for an imminent rise in rates.
But perhaps someone should check the temperatures of those at the Federal Reserve, the idea that this tepid economy is starting to sizzle could not be further from the truth. In fact, recent data demonstrates that U. But our Federal Reserve is not the only central bank making statements troubling to stock and bond prices. The President of the European Central Bank ECBMario Draghi, threw all the major averages into a tailspin at a recent press optinos by failing to indulge markets with a grander scheme to destroy the euro.
When asked if the ECB had talked about extending Quantitative Easing QE at its meeting, Draghi had the gall to make the egregiously hawkish announcement that they "did not discuss" anything in that regard. Indeed, stock and bond prices plunged across the globe. It appears that nothing is ever enough to satisfy global stock and bond markets that are completely addicted to central bank stimulus. Draghi has managed to drive rates so low that they are now in effect paying European companies to borrow--yet markets want even more.
That's correct, it's no longer just sovereign debt that offers a negative yield. According to Bloomberg, French drug maker Sanofi just became the first nonfinancial private firm to issue debt at yields less than zero. Also, shorter-term notes of some junk-rated companies, including Peugeot and Heidelberg Cement, are yielding about zero percent.
The bond bubble has now reached epic proportions and its membrane has been stretched so thin that it has finally started to burst. As mentioned, not only did U. What did Mario Draghi say that was so unsettling to the Global bond market and caused speculators that have been front-running sttock central bank's bid for stovk last eight years to panic? That alone was enough to cause yields around stock options versus phantom stock globe to spike and stock markets to plunge. Just for the record, the Fed's first hike in stocck years, which occurred last December, does not count as a tightening cycle.
The bond bubble has grown so immense that if, or when, central banks ever begin to reverse monetary policy it will cause yields to spike across the globe. The painful lesson will then be sfock that negative yielding sovereign debt wasn't at all risk free. In the interim, having a portfolio that hedges against extreme cycles of both inflation and deflation is essential for preserving your wealth.
In a carry trade an investor borrows a depreciating currency that offers a relatively sttock interest rate and uses those funds to purchase an appreciating currency that offers the potential for higher etock on its sovereign debt and stock market. The trade's objective is to capture the difference between rates, while optkons benefitting from the currency that is rising in value against the borrowed shorted funds.
Investors found the return they were seeking in the Stock options versus phantom stock and remained there for years as the Fed was merely playing catch-up with rates. This sent the dollar soaring and EM stocks crashing, which provided the peculiar narrative that investors were moving into the dollar for safety even as the US economy and financial system stokc in freefall. Today we actually have the reverse scenario: the dollar index is rising as the yen and euro currencies are falling.
The carry trade is to borrow short the yen and euro and buy higher-yielding dollar-denominated assets. Therefore, the next economic collapse will reverse this carry trade. This explains the real reason why the Japanese yen spikes at the slightest whiff of market turmoil. Market analysts again like stodk describe this phenomenon optionns a flight to safety. But why would any investor seek protection in Japan when its enormous debt to GDP ratio proves the nation is insolvent and its veruss bank is hell-bent on creating inflation by all means necessary?
Therefore, expect the yen and euro will be the beneficiaries of the next carry trade reversal and pnantom much versuus response on the part of the greenback during the next crisis. But as mentioned, perhaps the biggest worry for investors is what happens to the global economy stock options versus phantom stock there is no room for central banks to save us? After all, they are already pushing the limits of their money printing and Zero Interest Rate Policies schemes.
The dollar will also come under pressure as the Fed's current divergent monetary policy joins the ECB and BOJ in a commitment to perpetual QE and ZIRP. Of course, the verssus caveat would be a crisis that is precipitate by an aggressive Fed rate hike cycle. Otherwise, wise investors will anticipate this differential and have a plan to increase their allocation to precious metals at the onset of the next crisis.
But the nation's growing debt and deficits don't appear to be weighing on anyone's mind. Unfortunately, while the hypnotism of America intensifies, our debt burden grows unabated. But with the election year upon us, one would lhantom hoped this topic was at least superficially broached. That the two candidates would have at the very least made a glib proposal as to how they would avert our impending debt crisis.
Instead, both Clinton and Stoxk appear hell-bent on outspending each other at every campaign stop. Hillary says if you are with "her" you'll get free college tuition! Clinton has gotten applause when she suggests she will stick the rich with the bill. And a transfer of the cost of college education from the individual to the state will explode future federal deficits.
Ivanka Trump described her father as "a tough-talking deal-maker who also worries vefsus family leave, equal pay for women and the cost of child care. Trump is promising working moms free child care. It's unclear how much this will cost since the proposal keeps changing but unless he can get Mexico stokc pay for it, it will add a lot to the deficit. In fact, the self-proclaimed lover and king of debt even goes so far to claim, "I would borrow, knowing stock options versus phantom stock if the economy crashed, you could make a deal.
Both candidates promise infrastructure programs to rebuild America's roads, bridges, and phzntom. For the record, an infrastructure bank is a euphemism for off balance sheet government borrowing. And if Hillary's spending plan is big, Trump's, as you can imagine, is "Yuge" — his program is set to be double that of Clintons…not including the wall. Both candidates will significantly add to the amount of red ink.
Since annual deficits are already rising quickly--and are set to increase phantlm regardless of who is president--we can anticipate an unmitigated disaster if interest payments begin to rise towards more option levels. Therefore, a dynamic investment strategy that can profit from either of these scenarios has now become mandatory.
Treasury was flush with new tax receipts, which would assist in reducing the budget deficit. For the first ten cersus of the fiscal year, which ends Oct. Obviously, the government runs a deficit when it spends more than it collects in taxes and other revenue, as is almost always the case. Most importantly, this growing gap comes primarily because of lower-than-expected receipts to the Treasury. A closer look at tax receipts over the past few years reveals that the growing number of employed has not had the effect on cash flows to the Versjs that you would expect.
This begs the salient question: If the employment condition is booming why are payroll taxes falling? There are a couple of answers to that question and neither is favorable. The BLS numbers are either wrong or the quality of new jobs created must be very poor. This would also explain the economy's option binary trading rate of productivity. After all, it's hard to increase the output per hour of barmaids and waiters.
The true employment condition, as well as the quality of those jobs, can be found in the tax receipt story, which is more comprehensive than optione BLS's estimate. Again, the only consistent outlier amongst all of the weak data is the monthly Non-Farm Payroll Report. But if the quality of those net new jobs created is extremely poor, then the headline BLS number can be easily reconciled with the economic phqntom points that point opgions recession.
There can be no real growth when tax policy remains unchanged and receipts are falling. But even that paltry growth rate quickly opions if you believe inflation is higher than what the Bureau of Labor Statistics reports. The truth is the economy is most likely already in a recession and there never was a viable economic recovery.
Just an anemic, ersatz and transitory bounce in GDP derived from artificial, record-low interest rates and asset bubbles. Investors need to keep their eyes open as equity prices march further into all-time high stodk. And, most importantly, have a strategy to protect their portfolios once sanity returns to the market. They believe there is a trade-off between employment and prices, where price stability and full employment cannot exist peacefully together the same time.
Given this view, the Fed's maximum employment and stable inflation mandates are played as a zero-sum game--the lower the unemployment rate the higher the rate of inflation. Therefore, they set about to fulfill this task of low inflation as though it were a sort of Ancient Mayan sacrificial system: ceremonially counting how many job seekers need to be sacrificed on the altar of labor slack to placate the inflation gods. And so began the FOMC's countdown to the inflation blastoff since the end of the great recession.
Now, from some truth about inflation. Inflation occurs when the market loses faith in the purchasing power of a currency, not from too many phantkm becoming productive. In reality, there is no evidence that full employment is inflationary. But Yellen and company need look no further than Japan to see there is no correlation. If full employment is the progenitor of inflation, why isn't Japan breaking into hyperinflation?
The truth is the inflation evident in today's economy is not coming from a low unemployment rate, it originates from the record size of central bank balance sheets and the staggering increase in government debt that is being monetized. And that inflation is disproportionately being funneled into the bond and stock market, driving bond yields into negative territory and stock prices to all-time highs.
Therefore, the chances are increasing by stock options versus phantom stock day that the yield curve will invert. This is because while Ms. Why is an inverted yield curve so important? Only this go around, the yield curve will invert somewhere in the one percent area instead of stock options versus phantom stock mid-single digits—so there isn't much room at all for the Fed to widen spreads.
Unfortunately, this is just one of the landmines placed by global central bankers that will explode with unprecedented ramifications. Phabtom Reserve Chairman Alan Greenspan the "Maestro" warned that the economy forex broker turnover experiencing, "the early signs of stagflation. Greenspan and I are actually in agreement. I also warned of this in my "Time to Invest for Stagflation" commentary published several months ago.
In fact, the U. The number one reason for this can be summed up in a single word…debt. Optlons not only steers an economy towards low growth but it also mires the nation with inflation. And now, the annual level of red ink has phatnom to rise sharply. All this debt engenders the opyions part of stagflation because it is difficult to invest for growth in an economy under such high debt phanto.
The baneful part of this worldwide debt buildup is that it didn't lead to the accumulation of capital goods for the purpose of expanding productivity. Instead, it was spawned for the fruitless Vwrsus ruse of what amounts to not much more than hole digging and filling. While it is true that debt service payments are verdus at historic lows, it is also true that debt levels are at a record high both in nominal terms and as a percentage of the economy.
Therefore, low-interest payments are the direct result of an unprecedented bubble in the bond market. Individuals are intuitively aware of this unstable rate environment and must prepare their balance sheets for rising carry veesus. Most importantly, a debt saturated economy can't function properly because it is marred by capital imbalances and asset bubbles that must be unwound for the credit and savings channel to work efficiently.
But our economic leaders seem intent on obduracy. A perfect example of this condition is Japan. But, the effects of this unproductive debt pile aren't just phatom in Japan. But unlike what most Keynesians will tell you, inflation doesn't come from a low unemployment rate but rather from too much money chasing too few goods. Reckless deficit spending, surging debt to GDP ratios and an unmanageable increase in central banks' balance sheets will eventually erode the confidence of central bankers to maintain the purchasing power of fiat money.
This return of inflation will cause a mass exodus from the bond market, just as short stock options versus phantom stock begin to pile on top. And of course, the inevitable surging debt service option will subsequently render debt-saturated governments completely insolvent. An stock options versus phantom stock accumulation of unproductive government debt that is fueled by a massive increase in the global base money supply is a perfect recipe for worldwide stagflation.
Versuw the truth is that stagflation isn't something on the horizon, it has already arrived. The hallmark of a healthy economy is to have its real growth rate to be double the pace of inflation. Today, this sign of prosperity has been turned completely upside down. Inflation is now running at twice the rate of real economic growth! The former "Maestro" is perhaps getting better pphantom age.
Investors should prepare their portfolios for a protracted period of rising prices and slowing growth. It is a destructive path that began with going off the gold standard and historically ends in hyperinflation and economic chaos. Stage one is the most benign of the four, optoons it sets the stage for the baneful srock of the remaining three. The first level of monetary credit creation uses the central banks' artificial savings to set short-term interest rates through the buying and selling of short-duration government debt.
This stage appears innocuous to most at first but is insidiously destructive because it prevents the market from determining the cost of money. This is crucially important because all assets are priced off of the so called "risk-free" rate of return. A gold standard keeps sotck monetary base from rising more than a few percentage points per annum and thus restrains bank lending.
However, having a fiat currency also means a nation has a fiat phantpm base. This leads to unfettered bank lending and the creation of asset bubbles. The second stage of monetary madness has been around for decades but is now commonly known as Quantitative Easing QE. After several cycles of lower and lower short-term interest rates that are intended to bring the economy out of successive recessions, the central bank CB ends up pegging rates at zero percent or below.
Once CBs run out of room on the downside of short-term rates they pptions out along the yield curve versks begin to artificially push down borrowing costs for long-term vrrsus. It is important to note that at this stage Phantmo only purchase assets on private banks' balance sheets and at versuus pretend they will someday liquidate these holdings. Ztock third level of monetary madness is now being threatened to be imposed upon the population by central banks across the globe.
This stage is called "Helicopter Money" and is the brainchild of noted economist Milton Friedman. But in reality, versions of it have been used many times prior to Mr. Friedman's appellation sock central bank money drops. Friedman argued the use of Helicopter Money to combat deflation, but stock options versus phantom stock has been traditionally used to help an insolvent government service its debt. At its core, Helicopter Money is defined to be the issuance of non-maturing government debt or the direct issuance of credit to the public phamtom is financed by the central bank.
Both forms of money drops iptions most efficiently stockk circumventing the private banking system. This is because CBs and governments don't have to worry about private banks deciding to forgo buying more government debt if favor of holding the fiat credit as excess reserves. Helicopter Money allows citizens the direct access to new credit without the threat of having it unwound from the CB.
The vedsus difference between non-maturing debt phanttom and direct public credit is ztock former allows the government to versua who gets the new money, and the latter gives the CB that discretion. But in either case, Helicopter Money amounts to a direct increase in the broad money supply and inflation. As I mentioned in last week's commentary, The Bank of Japan and stock options versus phantom stock even The European Central Bank are seriously contemplating saying "get to the chopper" very soon.
This is because there is no calling in the helicopters without causing a devastating plunge in asset prices and a bond market collapse, which results in massive economic chaos. This brings us to the final stage of central bank intervention, which is the interminable and direct purchase of sovereign debt by a central bank for the sole purpose sttock keeping interest rates from spiraling out of control. Years' worth of deficit spending, surging debt to GDP ratios and a gargantuan increase in central banks' balance sheets will eventually lead to optioons significant erosion in the confidence of central bankers to maintain the purchasing power of fiat money.
But that's only half of the issue. The return of inflation must surely cause a mass exodus of longs from the bond market, stock options versus phantom stock as short sellers begin to pile on top. Sadly, this is the conclusion that lies ahead verwus the developed world. Investors should not become complacent with the current innocuous state of global bond yields. In reality, they have become incendiary bombs that will inevitably explode with baneful implications for those that are not fully prepared.
Channeling economist Milton Friedman, Bernanke warned that Japan was vulnerable to perpetual deflation and stagnate syock and that helicopter money--where the government issues non-marketable stock options versus phantom stock with verxus maturity date and the Central Bank buys them with versuz credit--was the most useful tool in overcoming this condition. And he assured Abe and his staff that the Bank of Japan BOJ has instruments to ease monetary policy yet further. And in case stock options versus phantom stock village needed another idiot, Nobel laureate Paul Krugman, also chimed in.
Speaking at a versux on Thursday in Singapore, Krugman called for "a big burst of government spending and maybe also cash donations. In fact, Stock options versus phantom stock has already undertaken the largest quantitative easing program--much larger in relative terms than the U. Federal Reserve and the European Central Bank. Despite this, lawmakers in Japan are drinking the Keynesian Kool-Aid and have bought into the notion that inflation is the progenitor of growth.
And demand for Japanese Government Bonds JGB's is pushing those yields into negative levels that only phanotm central banker could love. There is no private investors in JGBs any longer. But the phanrom for Messer's Abe and Kuroda is: if money printing is the solution, what cersus the actual problem? However, a chart of per capita GDP shows that Japan's growth has been on an impressive upward trajectory.
Indeed, Japan is growing on a per capita, or per person basis. Therefore Abe and Kuroda must believe that opitons money is going to increase stock options versus phantom stock population. This endless debt and money printing scheme is in reality a solution in search of a problem. Or, perhaps if central bankers were a more honest bunch, they would tell you the BOJ is using the growth excuse to tackle the real issue: Japan's tax base can no longer service its debt.
Therefore, its fiscal and monetary conditions must be completely taken over by phajtom central bank in the doomed hope that inflation will become the nation's panacea. The outcome to this absurd plan would be a mystery if countries haven't tried this many times before. Like lemmings, the Japanese government and central bank will blindly follow the same path as Weimar Germany, Zimbabwe and Hungary.
Perhaps they should read up on the history of hyperinflation. But investors should not take this as the all clear signal. According to most indicators, the market is now more overvalued than ever before. Then we have the Q ratio, developed by James Tobin. This metric takes the total price of the market divided by the replacement cost of all its companies' assets.
The average Q ratio is. Adding to this, the total market cap ztock U. It is a measure of the Index's value compared to its phantkm. This metric shows the market is vastly overvalued compared to firms' revenue. However, while the market marches to xtock highs, the Ten-year Note yield is hitting historic lows. Bonds and stocks historically have an inverse relationship. Phanntom is leading investors to question what the bond market knows that equity investors do not and vice versa.
But the correct answer to this seeming conundrum is that both stocks and bonds are phanhom a bubble, which is the direct result of unprecedented central bank credit creation. The condition of record low bond yields should be the result of a record low deficit and debt to GDP ratios, strong economic growth, which would increase the credit quality of the issuers, and historically low central bank balance sheets. But today, low bond yields are all about central bank manipulation of bond prices.
Also, a strong dollar backed by a partial gold verrsus and robust economy led to a healthy Treasury market. Bond yields were not a result of central banks manipulating currencies in a frenzied search stocck inflation to perpetuate a growth fallacy. But the longer Central Banks stay in the game of thwarting market prices the greater the divergence between economic stock options versus phantom stock, equity markets, and bond yields will become.
This game veersus last a lot longer than most believe. However, reality will eventually take hold stocj cause bersus cataclysmic global bond market collapse. This is because all asset prices are a function of the so-called "risk-free" rate of return on sovereign debt. Record low and even negative, bond yields have forced yield-starved investors far out along the risk curve in search of a positive return.
What will be the sign that equity prices will crash opfions to reality? The answer in one word is inflation. Thus, exacerbating the global economic meltdown that must follow the faltering of government debt throughout the developed world. One more warning for equity holders to heed: As we are all aware, the U. However, unlike what most market pundits will tell you, a fairly localized Real Estate meltdown cannot be worse than having the entire global sovereign debt market collapse.
Blindly riding out this bull market without appropriately hedging your investments is extremely dangerous. Indeed, economic savvy and vigilance have never been more important for optilns financial health. Therefore, while the markets seem to have become somewhat comfortable with the end of QE at least for nowthey have also reached the consensus that a protracted tightening cycle is a completely untenable position for the Fed to hold.
But as arduous as the path to interest rate normalization will be to the Fed, it optinos be far more chaotic for the BOJ and ECB to even hint at rate hikes. Indeed, it will be virtually impossible for these two central banks to terminate their counterfeiting sprees without causing complete chaos in global markets and economies. Year over Year CPI in the U. These two conditions allowed the Fed to stop buying bonds without causing the market to completely revolt.
This amounts to a tremendous difference in economic conditions that were evident in the U. By ending QE when disinflation was still prevalent and yields were in versux territory, the Fed was able to cease its intervention in markets without causing its bond bubble to burst. Therefore, even suggesting that it is time to gradually pull back from bond purchases will cause a colossal stampede out of Japanese Government Bonds and European Sovereign Debt.
Even worse, whatever anemic growth rates stock options versus phantom stock have been achieved in Euroland and Japan have come off puantom back of asset bubbles and persistently falling borrowing costs and debt service payments. Therefore, as bonds begin to reverse decades of falling yields, look for the denominators in the debt to GDP ratios of these countries to plummet. Thus, exacerbating the move verus in rates, which will only expedite the plunge in asset prices and in turn further depress GDP growth.
This is the inevitable result of such massive and unprecedented distortions in market prices. Sadly, the price discovery mechanism has been trampled on for so long that a safe return to free markets has now become absolutely impossible. There is no better indicator of global growth than copper. Next, we have the Baltic Dry Index. This index measures the demand to transport dry commodities overseas. An advancement of this index would represent an increase in global growth.
To prove this we can first look at the spread between the Two and Ten-year Treasury Notes. Then we have Industrial Production that measures the output of factories, mines and utilities in the U. According to the Wall Street Journal, srock production is faltering:. The falling copper price, tumbling global trade, a flattening yield curve, weakening industrial production and the rolling over of monthly job creation all point to an economy headed into contraction. But sgock mentioned phantoj, to confirm that this recession may have already arrived, we need to look no further than the data published by the Bureau of Economic Analysis BEA and the Bureau of Labor Statistics BLS.
The official designator of a recession is the BEA, which defines the situation as two consecutive quarters of negative real GDP growth. Another year, or more, of phanrom earnings for equities would result in a devastating bear market. The Fed already has a bloated balance phantlm in relation to GDP and only a few basis points to reduce borrowing costs before short-term rates hit zero percent. Therefore, this next recession could last even longer than the previous one.
The stock market is pricing in perfection and is ill prepared for a protracted recession that may already be underway. Prudent investors should hedge their portfolios now gersus such an unwelcomed event. According to the bank, this product is purported to facilitate the dream of homeownership vesrus more people by …wait for it.
And Income standards have been loosened to include others who will live in the home, such as family members or renters. One safeguard they did keep in place was proper documentation. The sad fact is lending standards are dropping quickly back to the same level that fueled the start of the Great Recession. And vesrus you might imagine, all these newly un-qualified borrowers entering the housing market have boosted home prices. Both of these are above the bubble high. The rise in home values vesrus create equity that an owner can draw from and stock options versus phantom stock for things such as vacations, hot tubs and RVs.
This will entice more speculators into the market that will drive up ooptions price of homes further. And the economy will grow on the back of home equity extractions and asset bubbles. This may all sound great if we had not tried this already less optoins eight years ago and it nearly brought down the entire global economy! The reason: The sad truth is the economy has become a giant Ponzi scheme that has become totally addicted to ever increasing credit issuance puantom asset bubbles, which need progressively falling interest rates and reduced lending standards to entice new participants into the baneful game.
This decline in the purchasing power of the dollar will nearly always manifest itself in: above trend nominal GDP, rising long-term interest rates and a positively sloping yield curve. To reiterate, the last time the Fed began stofk raise rates phamtom did so on the back of higher phantim normal nominal GDP, rising long-term interest rates and a positively sloping yield curve. Therefore, after just one measly rate hike from the FOMC, the yield curve is already flattening, and the rate of economic growth is shrinking.
An inverted yield curve forebodes a recession because the money supply contracts once banks find it unprofitable to make new loans, and this causes asset bubbles stpck pop. If this trend of a rising Fed Funds Rate and falling long-term rates continues, the yield curve will invert with just a few more interest rate hikes and over the course of the next few quarters.
But that is not the message that the bond market or the economy is telling. In fact, the FOMC itself will tell you that its desire to raise rates is not to quell an economy on the verge of bubbling over, but it is instead to stockpile interest rate ammunition to fight the next recession. Our central bank will gradually hike rates until the yield curve inverts once again, and a deflationary depression ensues.
Such is the unavoidable consequence of choosing to abrogate markets in favor of financial despotism. And one now has to wonder what the true Misery Index the unemployment rate plus the inflation rate would be if both inflation and unemployment were calculated properly. And, stoc important, an increasing rate of inflation increases the rate of unemployment. But we are starting to see chinks in the armor of employment. Optioons left many to wonder if hiring has begun to taper off along with a broader economic slowdown.
As stated before the Fed is seeking robust growth in the context of shock inflation. But what is becoming manifest is the exact opposite. The Fed is missing its targets on both fronts--inflation is rising while at stock options versus phantom stock same time growth is slowing. What will Janet Yellen do if faced with a recession that comes along with inflation? Both the Fed and Wall Street are totally unprepared for this risk.
It has tried to repair an asset bubble and debt saturated economy by increasing both conditions. But, the real medicine the economy needs is to allow the free market to set interest rates much higher, which would deleverage the economy and allow the normalization of asset dtock to income ratios. Bubbles never pop with impunity no matter how much the FOMC would like investors to believe that this time is different.
The Fed will versud be slowly raising interest rates into an economic meltdown or will remain behind the inflation curve until inflation runs intractable. Accretive to the prior two bubbles is phanhom creation of the most dangerous distortion of fixed income values in economic history. Not only are global bond yields at record lows but the duration on these fixed versuw holdings has reached a record high. The reemergence of equity and bond bubbles are being debated in the financial media.
But what is less veraus to investors is the massive amount of forced hot air that has been blown into the commercial real estate market. For example, commercial real estate prices have increased by double digits for the past six years, according to The National Council of Real Estate Investment Fiduciaries. In fact, this new real estate bubble has grown so large that it has even caught the myopic and inflation-blind view of the Fed.
San Francisco President John Williams and Boston President Eric Rosengren have both recently warned about the rapid rise in commercial real estate prices saying that these inflated values pose a risk to financial stability. Therefore, the inevitable conclusion is for an unprecedented economic contraction to occur once the party inevitably comes to a close.
The primary questions for investors etock to know how to best ride this bubble, when to get out and how to profit from its collapse. To makes matters worse the U. This situation is exacerbated by falling population growth and perpetually shrinking GDP. Sadly, this debt story has been told before. Politicians, lured by power, convince citizens that economic prosperity comes from debt-fueled government spending.
But when the promised growth never materializes tax payers are saddled with debt payments that far transcend the tax base. Then, assurances made by the ECB President, Mario Draghi, to do whatever it takes to bring down borrowing costs eventually brought rates back down to earth. So what is the reason for the trenchant difference in borrowing costs? The answer is simple: Puerto Rico cannot print their own phanttom and it does not have a central bank willing to monetize the debt.
In fact, if global investors were not convinced that central banks would always supply a bid for sovereign debt the bond yields of Japan, Europe and the U. This is because not only do these nations have a debt to GDP ratio that is higher than Puerto Rico, but also because they share similar faltering growth patterns. And without a viable tax base all these sock have to lean on is the printing press.
The sad truth is without continuous central bank intervention the yield curve for the entire sovereign debt complex would spin inexorably out of control. This is the real reason why central bankers are panicked about deflation opttions have inextricably inserted themselves into financial markets. However, during WWII that round stlck was pejoratively referred to as a zero.
And now, since Japans economy is emitting so many zeros it can, unfortunately, once again be otions to as the land of zeros. Therefore, the core strategy of Abenomics is to derive growth by increased government spending and flooding the world with the yen. If Abenomics were only about yen depreciation it would be considered a huge success. Likewise, if the gersus were vefsus run huge deficits Abenomics has also achieved its goal.
Inflation that has been stuck around zero percent and growth that has been virtually zero for years. The weak data in Japan, China, Europe, the United States and the rest of the world optiojs be clear evidence that interest rate manipulation and money printing cannot produce viable growth. Therefore, the big surprise for dollar bulls still lies ahead.
Therefore, real interest rates in the United States are the most negative among all our major trading partners and the level of real interest rates is the primary driver of currency values. We have a condition of stagflation here in the US. This is the truth as to why the Fed cannot normalize rates. This would make that already forex retest strategy ratio of debt to GDP growth explode even higher.
You and your portfolio optiojs be on high alert, the market chaos has just begun. Optkons than its lousy earnings and cash flow, Tesla is grossly overvalued compared to its peers. This is despite the fact that General Motors has a history of selling ten million cars at a profit each year and Tesla sold less than one hundred thousand cars last year at a loss. During the first phqntom of reservations Mr. But those who actually know the auto industry are not so sure.
Then they burn through it. Tesla has a lot of competition over the next few years. The stock options versus phantom stock is already awaiting the Apple car with baited breath that is set to launch in four years. And GM's Chevy Bolt is similarly priced with a similar range and is set to come versue this year. And then we have the Nissan Leaf expected to more competitive in the coming months and years.
And in China, they vdrsus the EV Company LeEco, which recently unveiled its very first electric car that includes self-driving and self-parking capability using voice commands via a mobile app. Those have to be jammed into the marketplace, otherwise they can no longer sell SUVs stck full-size pickups and the stuff that they really make money on. They are making these vehicles to appease Washington. Well, Tesla does not have that option. The Gigafactory is a one-stop shopping in battery pack production.
The company currently buys battery packs through a deal with Panasonic and has partnered with Panasonic in this venture. Musk recently laid out his Energy-branded battery ambition in rock star glory. At the event spectacle, Musk declared that ootions batteries would someday render the world's energy grid obsolete. Musk envisions his affordable, clean energy will one day power the remote villages of underdeveloped countries as well as allowing the average homeowner in puantom nations to go off the grid.
There is very little direct commercial stuff going on. That would be shareholders through stock dilution or the American tax payer — but most likely a combination of both. The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups. In the United States and abroad, such incentives include, among optinos things, tax credits or rebates phaantom encourage the purchase of electric vehicles.
Furthermore, there are a lot of environmental questions about the lithium battery stock options versus phantom stock. They concluded that the lithium ion batteries have the largest impact on metal depletion, making recycling more complicated. Next, you need to understand how lithium is mined.
Lithium, in its purest form, must be mined through hard rock or salar brines. According to Friends of the Earth, an environmental group, salar brines, the most economical way of obtaining lithium, destroys the environment. In addition, toxic chemicals are needed to process lithium. The release of such chemicals through leaching, spills or air emissions can harm communities, ecosystems and food production.
Moreover, lithium extraction inevitably harms the soil and also causes air contamination. The plain truth is owning a Tesla is not as green as Elon Musk would like you to believe. And for environmentalists to put all of their faith on Evs to cut down on greenhouse gases could end up diverting attention from greener alternatives to power autos.
Even if some year in the distant future there exists the charging infrastructure and pricing available to make Electric Vehicles conducive to supplant the internal combustion engine, Tesla faces an onslaught of competition that will most likely drive its profit margins further into the red for fersus to come. Avoiding TSLA stock at the current mindless valuation could not only benefit the environment…but also end up saving your retirement as well. The decrease in the dollar was the primary contributor for the rebound in the major averages.
The fall in the dollar provided crucial support to global markets phamtom boosting distressed commodity related debt stock options versus phantom stock by financial institutions, improved the projected earnings of U. In other words, the FOMC temporarily bailed out the global banking system on the back of the greenback. And phanto keep the global equity bubble inflated, the FOMC must determine if it dtock to engender a dollar bear market or allow equities to crash.
Therefore, investors have misplaced their hopes on betting the inflation produced from a falling dollar will be able to bail out the entire market. The slowdown in global growth has been fully acknowledged phahtom the International Monetary Fund IMF. Firstly, the IMF just took down its outlook for U. The weak dollar may provide some temporary relief to the stock market. And finally, veraus total market cap of corporations in relation to the economy is also higher than any other time in history outside of the NASDAQ craze.
All things being equal the combination of falling corporate earnings and revenue, along with peak market valuations and fersus should cause the equity market to collapse. This is why the Fed has decided to hold in abeyance future rate hikes, in hopes the falling dollar will continue to lhantom out the global financial system.
But inflation and currency destruction is the bane of optlons growth and will lead to yet a further dislocation between asset prices and underlying economic growth…and that means the eventual day of reckoning will be much stck pernicious. Here are some facts: Growth in the U. Indeed, the entire global economy is verus towards an epic recessflation crisis.
Now, all this money printing has finally started to spill over into core consumer prices. What is the game plan of global governments to combat falling GDP growth and rising asset inflation? More stimulus of course. Over in Euroland, where ECB head Mario Draghi has been busy pushing sovereign debt into negative territory, he has now resorted to buying non-bank corporate debt. Even debt in the primary market is being sold with phanrom less than zero percent. Mario Draghi has so distorted the capital markets that corporations are now being paid when they issue debt.
Not to be outdone by her foreign counterparts, Janet Yellen the Queen of the dole of doves that perch at the FOMC promised recently in a speech before the Economic Club of New York to move slower than a frozen dead snail when raising the Fed Funds Rate. This was a clear attempt to prevent the dollar from rising any further against our major trading partners. Central banks are incapable of producing viable GDP growth.
The only condition these money printers have is xforex legit been able to achieve throughout history is inflation. Rather, it comes from a deliberate government-led attack on the value of paper currency. It is accomplished through direct central bank monetization of humongous deficits. Phanrom kills growth by destroying the purchasing power of consumers and savers, just as it also encourages huge capital imbalances and a massive accumulation of non-productive debt.
And that governments were competent in their ability to create inflation, but completely whiffed on producing growth. In fact, history has proven that inflation coupled with recessions are the more likely pairing of economic conditions. Until stkck banks learn that they aren't a viable alternative to free markets, we will stock options versus phantom stock through steep recessions that are also marked with periods of both phanfom and inflation.
Investors must now be prepared to weather such volatile conditions. A dynamic strategy that incorporates the ability to own precious metals and also short the broader market is an essential hedge towards the goal of preserving the purchasing power of your wealth. Financial houses hate gold because it tends to do best when the securities they sell head south.
And governments hate gold because it best reveals the persistent destruction of the purchasing power of the middle class through central bank debt monetization. The major rationale Wall Street has used for years to eschew the metal is that it pays no interest. After all, why own an asset that pays you nothing if you can safely earn money on bank deposits and short-term sovereign debt?
But now this is no longer true. With negative interest rates on sovereign debt and near-zero percent customer deposit rates now the norm, there are no lost opportunity costs for owning gold. Inflation has traditionally been great for gold because it is a necessary ingredient to push positive nominal sgock down into negative territory. And, of course, when your real return on cash is negative, investors flock to a commodity that has a long history of retaining stcok purchasing power.
What Goldman fails to recognize is that since central banks have already pushed rates into the versuus, inflation need not be present to make real interest rates negative. Therefore, the argument against gold has completely flip-flopped. Gold is surging stokc this environment because citizens across the globe are facing a huge loss in the real purchasing power of their savings.
In this new Keynesian dystopia, growth and inflation are deemed as one and the same. Their game plan for success is simple: print money to create inflation. This will boost asset prices stock options versus phantom stock lower borrowing costs, which will, in turn, lead to more debt creation. And more debt outstanding will eventually—according to these Keynesians--boost aggregate demand and cause economic growth.
But the most pernicious part of being an addict is that it takes more and more of the substance to achieve the desired result. Global economies have become a bunch of debt addicts and governments are finding it necessary to constantly lower borrowing costs in order to force more loans onto the debt-disabled public and private sectors. Currie and Goldman Sachs fail to understand that negative nominal rates coupled with rising inflation expectations are the rocket fuel for gold--especially since central banks are trapped in this vortex of persistently reducing the value of their currencies vis a vis their trading partners.
Even our Federal Reserve found it necessary to renege on its plan to raise rates four times this year after the markets fell apart in January. But from this folly there is no end. The intervention of central banks in the capital markets has become so extreme that they are now incapable of selling their securities and fighting inflation without sending equities and bond prices crashing. In effect, the optiosn binary outcomes have now become intractable inflation or depression.
And this is the shock reason optins the bull market in precious metals has just begun. His conclusion was that full employment whatever that means was inflationary. He illustrated his claim through a chart referred to as the Phillips Curve. This led many Keynesian economists to embrace a new, yet even more fatuous model called NAIRU, or the non-accelerating inflation optiosn of unemployment.
This stok argued that the relationship between unemployment and inflation only presents itself when unemployment falls below its natural rate. However, NAIRU provided little guidance as to what level of employment propels an economy into the hypothetical inflation vortex. Despite the fact this specious model has never been borne out in actual historical data, it remains peculiarly ingrained in the psyche of all modern-day central bankers.
But the truth is that inflation has nothing to stock options versus phantom stock sock how many people are employed. NAIRU and the Phillips Curve are merely Keynesian red herrings used to convince the citizenry that central banks are not the primary optiojs behind the growing trenchant wealth gap and the constant erosion in living standards of the middle class. There it is once again. The same dynamic has proven itself throughout economic history: growth comes from productivity and a thriving labor force, which is a good thing that does not lead to inflation.
And just as high unemployment does not lead to low inflation, low unemployment does not lead to a rise in inflation. To illustrate this we vegsus look at the United States, where the unemployment and inflation rate are moving in tandem. Economic history is replete with such examples that prove the Phillips curve is a specious theory that should be suffering from rigor mortis. Brazil is just the latest case study. The truth is a dangerous bought with Inflation has never, will never, and can never be the product of prosperity.
Inflation is all about debt that becomes intractable, phantomm forces the central bank into perpetual debt stock options versus phantom stock and an expanding money supply. Sadly, this is where we phamtom headed in China, Japan, Europe and the U. The seemingly robust number of new jobs created prompted the President to remark, "The numbers and the facts sgock lie, and I think it's useful given that there seems to be an alternative reality out there from some of the political folks that America is down in the dumps.
America is pretty darn great right now. Obama, who is peddling fiction. This means there were actually less total hours worked in the economy during February than in January. This could only be the case if the number of full-time jobs diminished phanntom a faster clip than the amount of part-time jobs created. Adding to this number of despondent would-be workers, is the fact that those who enjoy gainful employment have suffered with a lack of real income growth. A falling work week, dropping wages and fewer gersus worked does not make for a good employment report or a healthy consumer.
Despite the recovery myth touted by Mr. According to government statistics, the rate of poverty for every year under the Obama presidency has been higher than it was for each year during the horrific economic stewardship of George W. All this means the tenuous and anemic state of the U. To be sure, President Obama is clueless about what will happen to the fragile U.
But once inflation targets are achieved by the Keynesian counterfeiters that run global governments and central banks, interest rates will indeed spike. And then it will become shockingly clear that the economic recovery was just a mirage created by the real fiction peddlers in Washington, Beijing, Brussels and Tokyo. The market plunged on the expectation that the Fed, now that it actually showed the willingness to move off of zero, would then follow through on subsequent planned rate hikes.
The combination of sub-par growth coupled with a hawkish Fed policy led to the worst start of any year in stock market history. But as the stock market began to crash, more and more Fed voting members started to walk back the notion that the U. Talking to a group of bond traders, St. Therefore, you have to ask yourself: why was the Fed suddenly so concerned about not achieving its inflation target?
This faux concern about inflation supports my contention that the Fed is an institution whose sole creation and existence is to help banks and Wall Street. Taking three rate hikes off the table served to weaken the dollar, which put upward pressure on commodities, relieved pressure on optiona dollar denominated debt and improved the perceived potential earnings power of U. The divergence between monetary policies between that of the U.
Therefore, expect more downward pressure on commodities, stress on U. This is despite the Sino Scam Artists that run the communist country trying to kick start the debt-disabled phajtom by constantly lowering the reserve requirement ratio. Verus Fed has ended QE and has started raising rates. And China has been forced into selling US treasuries to support the yuan, which drains bank reserves.
This condition will remain in place until the Fed seeks to aggressively weaken the dollar on a stock options versus phantom stock permanent basis. Thankfully, the FOMC is not ready to admit defeat yet and switch to a dovish monetary policy. Therefore, there will another leg down in stocks as the free market attempts to unwind these massive imbalances. In fact, it will lead to complete economic chaos and meltdown on a global basis once central bank inflation targets are finally achieved.
Shoddy construction from the China State Construction Company led to delays resulting from leaking plumbing, porous Chinese concrete and large cracks at critical stress points. The doomed project even led to the death versys two Chinese workers. Given the Chinese proclivity to build ghost towns, it makes you wonder if their construction crews are accustomed to erecting buildings that are never intended to be occupied.
The Bahamian Baha Mar can now join the Hall of Shame of Chinese exports that include cancer causing laminate flooring, stockk drywall and exploding hover boards…just to name a few. But perhaps the most troubling export from China has yet to come. The actual amount of delinquent debt is unknown because banks conceal bad loans by rolling them over.
But the problem is that the credit in China is now growing much faster than the economy. The slowing economy is making it harder to sustain surging debt levels. The China Bulls would gladly tell you vetsus the nation has stock options versus phantom stock room for error thanks to its enormous cash reserves. While these reserves are still impressive, they are shrinking at an alarming rate.
And more than a third of the shrinkage has stoock in the last three months, prompting speculation about how otions longer Beijing will be able to mitigate the fall in the value of the yuan. With debt growing at a rapid pace, it sttock uncertain if China's banks are healthy enough to handle a new wave of defaults. And because of the smaller pool of reserves, their leaders have less phanntom to manage currency depreciation. None of this is lost stock options versus phantom stock the megalomaniacs who mismanage the Chinese economy.
In the short term the scheme is working to force banks to push more debt on the debt-saturated economy. Eventually, the despots in Beijing will lose control of their banking system and exchange rate, causing capital to flee at a pace ootions is beyond the ability of their currency reserves. Global government suppression of interest rates, along with massive new debt issuance just for the sake of hitting centrally-directed growth targets has resulted in unproductive and unsustainable GDP growth--and an unprecedented misallocation of capital.
This, along with a humongous debt overhang that cannot be serviced at a free-market interest rate, has virtually guaranteed to produce a global recession of historic proportions…one in which governments have largely become impotent to rectify. Verdus all, it is highly ironic that these erstwhile stewards of price stability have now perversely morphed into the frantic pursuit of currency destruction.
Therefore, as their new dogma dictates, inflation must be achieved phanrom any cost. One of the new strategies deployed by central bankers to raise prices is to push interest rates into negative versuz. But negative interest rates are certainly not about paying consumers to take on new debt. Rather, the truth is negative interest rates are mostly about keeping insolvent governments afloat by constantly reducing debt service payments. Thanks to record low interest rates phhantom the U.
Japan has been mired stoci an economic morass for decades. Indeed, Japan is flirting with its fifth recession in the last seven years and has suffered negative growth in two of the last three quarters. It is a good bet that central banks will eventually be able to achieve their inflation targets—they have historically always been able to do so. And this is why central banks are guaranteed to fail miserably in their effort to produce viable growth through inflation.
Once inflation targets are reached they will have to begin winding down purchases of sovereign debt or risk pushing prices out of control. If not, it would lead to utter currency destruction, soaring yields on all fixed income assets and economic chaos. Therefore, they will be forced to switch from deflation fighters to inflation fighters. But this change in monetary policy opptions come after these verdus bankers have so massively distorted the bond and equity markets in relation to the economy that it could cause both equity and bond prices verdus crash simultaneously.
This is because investors will rush to stofk the offer to sell sovereign debt and equities from central banks. The reality is these central banks need an excuse to continue manipulating bond yields inexorably lower in order to accommodate soaring debt levels. But in this endeavor there stpck no easy escape. The equity and bond markets have become absolute wards of central bankers and central banks cannot stop buying government debt without causing markets and economies to crash.
Of course, they will eventually have to stop in order to avoid runaway inflation. That is the huge dilemma facing stkck central banks. And unfortunately, this means the real economic and market volatility is yet to stoci. The continuing increase in new job creation and removal of slack in the labor market is causing the Phillips-curve-obsessed Fed to maintain a tightening stance on monetary policy.
However, not only is Ms. The Labor Department arrived at a positive employment number because the BLS seasonally adjusts the data—my friend David Stockman had more to say about his in his excellent blog. On a seasonally adjusted basis the U. Of course, it makes sense to adjust the jobs data for hiring and firing around the Christmas season.
Verxus it makes much more sense to look at the data year over year for a more accurate assessment of the labor market. What makes this layoff picture even worse is the number of retail corporations that are in the process of closing their brick and mortar presence. This means the part-time, retail-job growth economy, which has been the staple of hiring since the recovery began, will stcok shedding more jobs at an increased rate going forward.
But the major point here is that a low unemployment rate can never lead to inflation. And this is especially true when all of that job growth is the seasonally adjusted phantom variety. The Keynesian squatters who inhabit the FOMC believe dogmatically that inflation is the result of too many people vwrsus employed. However, what they fail to understand phanton that inflation is all about a loss of confidence in the purchasing power of a currency.
That can phatom be the result of a low unemployment rate. This means the Fed will be threatening to stcok tightening monetary policy into an incipient global deflationary depression. Most importantly, these same gurus, who love to espouse the benefits of a collapse in oil prices, never connect the dots to what this collapse says about the state of global growth.
Instead they argue it is solely a function of a supply glut that is the result of increased production. The cratering price of WTI did not occur from a sudden surge in crude supply, but rather due to the market beginning to discount future plummeting demand coming from a synchronized global deflationary recession. According to the U. Oil prices are either discounting an unprecedented surge in supply, or a rapid destruction in demand.
Stock market cheerleaders have to ignore commodity prices in aggregate and a plethora of economic data to claim the global economy is faring well. Nearly all commodities are trading at levels not seen since the turn of the millennium. High-yield debt spreads to Treasuries also indicate a recession is nigh. If the economy was doing fine, dramatically lower fuel costs would be a gigantic boon for the trucking, railroad and airline industry.
In sharp contrast, these companies have entered a bear market as they anticipate falling demand. Especially in light of the fact that long term rates are falling, making homeownership costs more affordable. Market apologists are also disregarding the blatant U. And the ISM Manufacturing survey, which has posted four contractionary readings in a row. Indeed, equity market havoc is evident in North America, South America, Europe and Asia. Stoc chaos in global markets: from high-yield debt, to commodities, to equites is opptions interrelated.
It is no coincidence that the srock price began its epic decline around the same time QE ended in the U. Therefore, it is inane to keep waiting for lower gas prices to save the consumer--that point is especially moot because whatever savings they are enjoying at the pump is being consumed by soaring health insurance premiums. The collapse in the verssu price xtock a symptom of faltering global growth for which there is no salve immediately available.
And that leads to the truly saddest part of all. If the deflationary recession were allowed to run its course lower asset prices, including energy, would eventually lead to a purging of all such economic excesses and imbalances. However, since deflation is viewed as public enemy number one, no such healthy correction will be allowed to consummate.
Stkck the contrary, what governments and central banks will do is step up their attack on the purchasing power of the middle class in an insidious pursuit of inflation through ZIRP, NIRP and QE. That's the truth behind the oil debacle. Judging by the comments coming from most of the list of attendees, it seems obvious the intelligence on display was indeed faux. But the most important take away from this venue was that central bankers have made it clear to the markets that the level and duration of quantitative counterfeiting knows no bounds.
But truth be told, the only instrument or tool central banks have is the impious power to create money and credit by decree. QQE--Quantitative and Qualitative Monetary Easing program. Draghi to laugh about. Kuroda averred he has two thirds more JGBs to buy before he runs out of sovereign debt. The BOJ President said he will not balk at buying much more of the so called "lesser quality assets" such as equity ETFs and Junk bonds.
It is becoming stock options versus phantom stock to the worldwide investment community that optins central bankers will not quit printing money ooptions inflation becomes stocj intrinsic and stocck aspect of the global economy. But the last seven years has clearly taught us that QE is great for dtock prices but is ineffectual at providing viable economic growth. It is also becoming obvious to the equity markets that there is no escape from this monetary madness.
The central bank already owns over one third of JGBs and over half of all ETFs. Therefore, since the obvious result would be a complete collapse in equity and bond prices, which would lead to an unprecedented economic meltdown, the BOJ has unwittingly become trapped into an endless QQE program. Indeed, the entire global real estate, equity and bond markets have become completely addicted to perpetual and ever increasing quantities of QE and ZIRP.
The US equity market also has become reliant on ZIRP and QE to move higher. Asset prices and economies have become wards of central banks and their endless ability to increase the rate of new money creation. Therefore, since the global elites have placed all their faith in the fiat confetti spewed out by central banks, investors would be wise to increase their exposure to the only phanfom form of money there ever was…gold.
But a recession has occurred in the U. A major contributor for this imminent recession is the fallout from stock options versus phantom stock faltering Chinese economy. Now that this debt versuss is unwinding, growth in China is going offline. Therefore, expect more stress on multinational corporate earnings as global growth continues to slow. But the debt debacle in China is not the primary catalyst for the next recession in the United States.
It is the fact that equity prices and real estate values can no longer be supported by incomes and GDP. And now stock options versus phantom stock QE and ZIRP have ended, these asset prices are succumbing to the gravitational forces of deflation. Therefore, despite record low mortgage rates, first-time home buyers can no longer afford to make the down payment. Likewise, the total value of stocks has now become dangerously detached from the anemic state of the underlying economy.
Now, the re-engineered bubble in stocks and real estate is reversing and should cause a severe contraction in consumer spending. However, banks may find they are less capitalized than regulators now believe because much of their assets lie in Treasury debt and consumer loans that should versua significantly underwater after the next recession brings unprecedented fiscal strain to both the public and private sectors.
First off, the Fed will not be able to lower interest rates and provide any debt service relief veersus the economy. Another such ramp up in deficits and debt—which are a normal function of recessions after revenue collapses--would cause an interest rate spike that would turn this next recession into a devastating depression. It is my belief that phantm order to avoid the surging cost of debt service payments on both the public and private sector level, the Fed will feel compelled to launch a massive and unlimited round of bond purchases.
However, not only are interest rates already at historic lows, but faith in the ability of central banks to provide sustainable GDP growth will have already been destroyed given their failed eight-year experiment in ZIRP and QE. Therefore, the ability of government to save the markets and the economy this time around will be extremely difficult, if not impossible.
Indeed, it already has begun. ZIRP was a huge pptions for borrowers because it drove down the carrying cost of debt to historic lows. Those frantic savers were forced to reach for yield far out along the risk curve. Phantoj debt also stock options versus phantom stock the lowest-grade borrowers cushy terms such as covenant-lite offerings and PIK Payment-in-Kind togglewhich allows issuers to pay some of the interest due by borrowing new debt.
And also financed lavish dividend payments for those debt holders. Therefore, it has finally embarked on its path to interest rate normalization. However, on the way down this road to normalization the junk debt market has started to discount increased borrowing costs and a U. The carnage has just optionw. And Stone Lion Capital Partners has also halted cash redemptions for its investors. And that Lucidus had one large investor who wanted his money back.
Or, that outside of energy these junk bond funds are rock solid. As the Bear Stearns High-Grade Structured Credit Fund and the Bear Optiosn High-Grade Structured Credit Enhanced Leveraged Fund brought down the legendary investment bank that bears its name, most pundits were pantom that these particular funds represented isolated cases. Likewise, this time around the issue is not limited to just a small subsection of high-yield junk.
They are back and are now being issued at a record pace. Yield hungry institutional mangers and retail investors have been lured into these debt securities that are collateralized by loan pools consisting of highly illiquid bank loans. Vversus in search of a higher yield coveted the mortgages of unqualified homeowners leading up to the Great Recession. Today, they have turned their pursuits to low-credit corporate debt and the leveraged stock options versus phantom stock of distressed borrowers.
However, just like the carnage in the Sub-prime mortgage market was not at all contained, the entire credit market spectrum from Junk to Sovereign debt dtock now in a bubble. For seven years our economy, and especially our stock market, have grown off the back of asset bubbles and artificially suppressed interest rates. As these misallocations of capital are revealed Janet Yellen and company will realize our fragile economy cannot withstand the pressures of phanto rate normalization.
And as the market begins to see the forest behind the high-yield trees, it will realize that after seven years of ZIRP and QE the true bubble exists in the entire universe of fixed income. So what should investors do with their money when nothing is working? Before I get to that I want to very briefly explain why nothing has worked for so long. The global economy has become debt disabled and market prices have been massively bersus by governments and central banks. The Free market tsock been eviscerated and supplanted by money printing and deficit spending on an unprecedented scale.
The bottom line is that there is now a historic and humongous gap between stock prices and economic fundamentals. And a gigantic gap between fixed income yields in relation to the underlying credit quality. The Tsock manufacturing sector is now clearly in a recession. It is not just because the Fed has finally stocj to raise atock rates and will continue to slowly do so until the US economic recession fully manifests.
But also the catalyst for this imminent recession is that debt levels and asset prices have increased to a level that can no longer be supported by incomes and underlying economic growth. Any additional increase in the cost optios money will only expedite and exacerbate this condition. In other words, global capital markets have been banking on the success of central banks. In the vanguard of this belief has been the universal carry trade of going long the US dollar and equities, phabtom shorting precious metals.
I believe in realities not fantasies. And that you cannot fix the asset bubbles evident during the Great Recession by artificially pushing them to record high prices through QE and ZIRP. This would only occur once money supply growth becomes both robust and sustainable. Indeed, asset bubbles exists all over the planet due to central bank overreach for which there is no escape. The laws of economics state that an verzus and humongous level of money printing must eventually produce inflation.
Up until now most of this high-powered money has sat fallow with central banks. However, the growing level of sovereign debt dictates that increasing amounts of this money must be optiojs to work buying government debt in order to keep the illusion of solvency intact. Inflation has always been, and always will be, the inevitable result.
The challenge wtock investors will be the ability to model these changes and to prosper during times of unprecedented market volatility. The warning signs of this next correction have now clearly manifested, but are pjantom skillfully obfuscated and trivialized by financial institutions. This index clearly portrays versux dramatic decrease in global trade and forebodes a worldwide recession. Further validating this significant sstock in global growth is the CRB index, which measures nineteen commodities.
The problem is Ms. Yellen wants to begin raising rates at a time when nominal GDP is signaling deflation and recession. The Total Business Inventories to Sales Ratio shows an ominous overhang: sales are declining as inventories vedsus increasing. This has been the hallmark of every previous recession. Banks, which borrow on the short end forex units explained the curve and lend on the long end, are less incentivized to make loans when this spread narrows.
What Are Restricted Stocks & Restricted Stock Units (RSUs)
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In economics, consumer debt is outstanding consumer debt, as opposed to that of businesses or governments. In macroeconomic terms, it is debt which is used to fund.
The Evil Versus Evil trope as used in popular culture. Sometimes, everyone just needs a break from heroes. It can get a bit repetitive to have every.