Posts Tagged ‘Marc Faber’
18 Signs That Massive Economic Problems Are Erupting Everywhere
Monday, 03 June 2013 15:42
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Submitted by Michael Snyder via The Economic Collapse blog,

This is no time to be complacent.  Massive economic problems are erupting all over the globe, but most people seem to believe that everything is going to be just fine.  In fact, a whole bunch of recent polls and surveys show that the American people are starting to feel much better about how the U.S. (Read more…) economy is performing.  Unfortunately, the false prosperity that we are currently enjoying is not going to last much longer.  Just look at what is happening in Europe.  The eurozone is now in the midst of the longest recession that it has ever experienced.  Just look at what is happening over in Asia.  Economic growth in India is the lowest that it has been in a decade and the Japanese financial system is beginning to spin wildly out of control.

One of the only places on the entire planet where serious economic problems have not already erupted is in the United States, and that is only because we have “kicked the can down the road” by recklessly printing money and by borrowing money at an unprecedented rate.  Unfortunately, the “sugar high” produced by those foolish measures is starting to wear off.  We are going to experience a massive amount of economic pain along with the rest of the world – it is just a matter of time.

But for the moment, there are a lot of skeptics out there.

For the moment, there are a lot of people that are declaring that the problems of the past have been fixed and that we are heading for incredibly bright economic times ahead.

Unfortunately, those people appear to be purposely ignoring the economic horror that is breaking out all over the globe.

The following are 18 signs that massive economic problems are erupting all over the planet…

#1 The eurozone is now in the midst of its longest recession ever.  Economic activity in the eurozone has declined for six quarters in a row.

#2 Italy’s economy has now been contracting for seven quarters in a row.

#3 Industrial production in Italy has fallen for 15 months in a row.  It has now fallen to its lowest level in about 25 years.

#4 The number of people that are considered to be “seriously deprived” in Italy has doubled over the past two years.

#5 Consumer confidence in France has just hit a new all-time low.

#6 The number of unemployed workers seeking a job in France has hit a brand new all-time record high.  Many unemployed workers in France are utterly frustrated at this point…

“I’ve sent CVs everywhere, I come to the unemployment agency every day, for 3 or 4 hours to look for work as a truck driver and there’s never anything,” said 42-year old Djamel Sami, who has been unemployed for a year, leaving a job agency in Paris.

#7 Unemployment in the eurozone as a whole has just hit a brand new all-time record high of 12.2 percent.

#8 Youth unemployment continues to soar to unprecedented heights in Europe.  The following is from an article that was recently posted on the website of the Guardian that detailed how bad things are getting in some of the worst countries…

In Greece, 62.5% of young people are out of work, in Spain it’s 56.4%, then Portugal with 42.5%, and then Italy with 40.5%.

#9 Youth unemployment is being partially blamed for the worst rioting that Sweden has seen in many years.  The following is how the Daily Mail described the riots…

Sweden is reeling after a third night of rioting in largely run-down immigrant areas of the capital Stockholm.

In the last 48 hours violence has spread to at least ten suburbs with mobs of youths torching hundreds of cars and clashing with police.

It is Sweden’s worst disorder in years and has shocked the country and provoked a debate on how Sweden is coping with youth unemployment and an influx of immigrants.

#10 An astounding 10 percent of all banking deposits were pulled out of banks in Cyprus during the month of April alone.

#11 Economic growth in India is the slowest that it has been in an entire decade.

#12 Suddenly Australia is experiencing some tremendous economic challenges.  The following quotes are from a recent Zero Hedge article…

-“We’re seeing a much sharper contraction in the Australian economy than we’d anticipated four or five months ago”. Coffey MD, John Douglas. The engineering group has seen its shares, which traded above $4 in 2007, hit 10c last week.

-“By 10am, the Fitness First gym in the city is packed full of brokers who’ve had a gutful of sitting at their desk doing nothing – salary cuts are starting and next it will be jobs” Perth broker

-“Oh mate, the funding market is dead. You are now seeing a few deeply discounted rights issues for those that are reaching desperate levels ….. liquidity has completely disappeared” Perth broker

#13 The financial system in Japan is beginning to spin wildly out of control.  The Japanese stock market has now declined about 15 percent from the peak, and many believe that the yen will continue to get weaker and that interest rates in Japan will start to rise significantly.

#14 Global cash flow is declining at a rate not seen since the last recession.  This indicates that we could be headed for a global credit crunch.

#15 Real wages continue to decline in the United States.  Even though we are being told that the U.S. is experiencing an “economy recovery”, real weekly earnings have declined from $297.79 in 2010 to $295.49 in 2011 to $294.83 in 2012.  (The preceding calculation is based on 1982-1984 dollars)

#16 Wall Street is buzzing about the fact that “the Hindenburg Omen” appeared at the end of last week.  So exactly what is “the Hindenburg Omen”?  The following are the criteria that are used to determine whether it has appeared or not…

1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2. The smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.

3. That the NYSE 10 Week moving average is rising.

4. That the McClellan Oscillator ( a market breadth indicator used to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market)is negative on that same day.

5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs).

When the Hindenburg Omen makes an appearance, it supposedly means that the U.S. stock market is likely to experience a serious decline within the next 40 days.

#17 As I wrote about the other day, the SentimenTrader Smart/Dumb Money Index is now the lowest that it has been in more than two years.  That means that lots of “smart money” has been getting out of the market and lots of “dumb money” has been pouring in.

#18 Margin debt on the New York Stock Exchange has set a new all-time high.  The following is from a recent Market Oracle article…

Margin debt—that’s the amount of money borrowed to purchase stocks—on the New York Stock Exchange (NYSE) reached its all-time high in April. Margin debt on the NYSE registered at $384.3 billion as the key stock indices hit new record-highs. (Source: New York Stock Exchange web site, last accessed May 29, 2013.) The highest margin debt ever reached prior to this was in July of 2007, when it stood just above $381.0 billion. At that time, just like today, the key stock indices were near their peaks and “buy now before it’s too late” was the prominent theme of the day

Whenever margin debt spikes like this, a stock market crash almost always follows.  If you doubt this, just check out the chart in this article.

Wall Street has had a good couple of years, but it has been a “false prosperity” that has been pumped up by reckless money printing by the Federal Reserve.  Just like all of the other stock market bubbles that we have seen in recent years, this one is going to burst too.  And as Marc Faber recently pointed out, this bubble has been particularly beneficial to the wealthy…

The Fed has been flooding the system with money. The problem is the money doesn’t flow into the system evenly. It doesn’t increase economic activity and asset prices in concert.

 

Instead, it creates dangerous excesses in countries and asset classes. Money-printing fueled the colossal stock-market bubble of 1999-2000, when the Nasdaq more than doubled, becoming disconnected from economic reality. It fueled the housing bubble, which burst in 2008, and the commodities bubble. Now money is flowing into the high-end asset market – things like stocks, bonds, art, wine, jewelry, and luxury real estate.

 

Money-printing boosts the economy of the people closest to the money flow. But it doesn’t help the worker in Detroit, or the vast majority of the middle class. It leads to a widening wealth gap. The majority loses, and the minority wins.

The fact that the U.S. stock market has set new all-time record high after new all-time record high in recent months means very little.  At this point, the stock market has become completely divorced from economic reality.  When this current bubble bursts, the adjustment is going to be very painful.  Wall Street will likely whine and complain and ask for more bailouts, but they may find that authorities are not nearly as sympathetic this time.

Much of the rest of the world is already experiencing the next major wave of the economic collapse.  Reckless money printing by the Fed and reckless borrowing and spending by the federal government may have delayed the inevitable in the United States for a little while, but those measures have also made our long-term problems even worse.

There was one piece of advice that Ben Bernanke included in his commencement speech to students at Princeton recently that I thought was particularly ironic…

“Don’t be afraid to let the drama play out.”

Will he take his own advice when the next great financial crisis strikes the United States?

That seems very unlikely.

Unfortunately, things are not going to be so easy to fix this next time.

What happened back in 2008 was just a preview.

What is coming next is going to absolutely shock the world.

    



 
Where Do We Stand: Wall Street’s View
Monday, 03 June 2013 07:39
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In almost every asset class, volatility has made a phoenix-like return in the last few days/weeks and while equity markets tumbled Friday into month-end, the bigger context is still up, up, and away (and down and down for bonds). From disinflationary signals to emerging market outflows and from fixed income market developments to margin, leverage, and valuations, here is the ‘you are here’ map for the month ahead.

 

Via Russ Certo of Brean Capital,

(Read more…)

Treasury yields surged to their highest level in more than a year last week with the 10yr note yield touching 2.22 bps mid-week vs. 1.60 yield as recent as May Day.  The 30 year mortgage rate rose above 4%.  Paul Volcker said benefits of buying bonds are “limited and diminishing” and that central banks are often late in removing stimulus. 

The S&P 500 ended the week off 1.14% as volatility returned across financial landscape, led by Nikkei which fell 5.73% on the week and over 12% in two week period.  It was also revealed that Euro-zone unemployment rose in April, to a new high of 12.2%, or 19.3 million people.  In this demographic the young are nearly three times as likely as older people to be out of work. 

The S&P 500 snagged its best month since January and stretched its string of consecutive monthly gains to seven, the longest since 2009. The Dow has risen in 17 of the last 20 months and is up 14.3% in 2013, scoring its best five month start to a year since 1997. 

As the week started, price action reflected investor enthusiasm regarding housing recovery as Case/Shiller housing price index showed prices spiked 10.9% in March from year ago period and ALL 20 metro areas measured posted gains for the third month in a row.  Although as we know, the week didn’t end with such enthusiasm as the Dow slid 208 points on Friday. 

As Barron’s notes this weekend, the climb in housing prices over the past year has added more than $1 trillion to the market value of single family homes, causing a “wealth affect.”  Consequently, consumer spending rose at the second fastest rate since Great Recession. Moreover, residential investment has grown over each of the past eight quarters. 

But the devil is in the details, government guarantees of home mortgages are at 91.6%.  VA and FHA have insured 46.4% of all mortgages, a huge increase from around 10% in 2007.  Most of the loans in this program have zero to 5% money down.  If mortgage rates were to rise to 6%, like 2006, from recent lows of 3.5%, monthly payments on a 30 year fixed mortgage would rise by a third, meaning the same -priced home would cost about one third more.  http://www.nytimes.com/2013/06/01/business/global/in-japan-a-hard-to-bud…

Regarding rates and in a relative sense, the bond selloff this month represented a 2% price drop in iShares Core Total U.S. Bond Market ETF (AGG).  In other words, a year’s worth of income was lost in a month.  We have made the distinction recently that this bears watching for technical reasons. 

The evolution of financial market structure and product engineering lends itself to the notion that fixed income products designed in the fund and ETF arena possess equity like NAV characteristics and as retail investors measure performance, negative as noted above, actual loss of principal on mark to market basis may be less than understood and digestible in the retail investment arena.

With month, quarter, and year to date negative total rate of return performance for broad swath of fixed ETF and fund asset class, performance, liquidations, and redemptions may drive sales of physical securities and BWIC in the actual capital marketplace.  I noted anecdotally last week, bonds ultimately mature, hopeful at par but funds don’t with an odd perpetual risk profile for investors.   

For example, the iShares Barclays 20+ year Treasury ETF (TLT) lost 7.7% in May and iShares FTSE NAREIT Mortgage Plus Index ETF, (REM) which tracks REITS cratered 11.8% in May.   Trading in the mortgage market was unruly last week marked with gaps in price action and vacuum of liquidity, resulting in the cheapest valuations on mortgage/Treasury basis in years. 

Sell in May and go away should have referred to bonds not stocks and this particular strategy was off to a rough monthly start prior to Friday.  S&P up 2.1% in May versus 6.3% decline in the month last year as most recently issued and auctioned in May refunding 30 year bond is down 9% in price similar to other fixed market declines above. 

Even worse or riskier from market profile is that leveraged bond funds that allow investors to amplify low yields and augment income now make up about 20% of all assets in intermediate and long term bond ETFs launched post crises.  Nearly 50 of these financially engineered funds have taken in $10 billion recently and now represent a formidable market of about $52 billion in the entire category. 

Quick responsible note: guessing large percentage of this genre is retail based and decidedly less of institutional representation which could also adversely impact understanding and stickiness of assets or commitment to the sector, flighty.  Even worse than that and magnifying the prospective imbalances in markets is the advent of a newer brand, low volatility ETFs, which have proliferated and grown even faster, by 1,000% this year.  http://online.barrons.com/article/SB500014240527487048953045785033621346…

In fact, in a surprisingly short period as many players lulled by months/years of low volatility were looking to Memorial Day summer kick off have  been met with some of the most interesting price action in years, just as the “lack of volatility” fund products and expressions have become one of the fastest growing asset classes.  The above shellacking wasn’t just limited to risk free rate core sovereign markets, it was also manifested in other high yielding interest rate sensitive proxies like utilities, energy master limited partnerships, dividend payers in equity space, and even commodities, bit coins, and emerging market space.   Maybe, that’s what Barron’s was asking this weekend, “Is the Low-Beta Bubble Deflating”?  http://online.barrons.com/article/SB500014240527487048953045785034731891…

It’s not clear whether investors should appreciate value of declining prices in fixed income, consider further declines or contemplate exposures or imbalances more in the equity space as margin debt in the U.S., money borrowed against securities in brokerage accounts, as measured this week, has risen to its HIGHEST level ever. The $384 billion surpassed the previous peak set in July 2007. 

Side-note:  relative to the size of the economy, 2.25% of GDP, margin debt is far from record but has climbed to these levels relative to economy only twice in half century.   In each previous case the increase came during bull markets (technology bubble and housing boom) that ended with rapid falls in share prices. 

In each case there were double digit increases in share prices during the year before margin debt got to that level.  In both instances, the stock market decline began WHILE margin debt was at a high level, and accelerated as debt levels fell, presumably because investors were liquidating securities that were losing money.  Kind of an anecdote and aside, the FAMED Hindenburg indicator gave off a positive signal last week, suggesting imminent decline in equity prices.

Rising margin debt generally viewed as an increase in speculative fervor used to be controlled by the Federal Reserve.  But the last time the Fed adjusted margin rules was in 1974, when it reduced the down payment required for stocks to 50% from 65%.  That came during a severe bear market.  It is reasonable to consider that the Fed utilizes a suite of other tools to manage perception of speculative excesses.  This is a debate that continues to be active in the critical community.  http://www.nytimes.com/2013/06/01/business/economy/shades-of-prerecessio…
 
Record margin and what it represents for markets should also be considered in the context of record cash and futures volumes in the U.S. Treasury market in the latest week.  Record futures volumes have been  noted to be reflected or partially distorted in large calendar rolls but by a variety of measures the animal spirits in these markets seem to have awoken from a long hibernation. 

These risk expressions are also coincident with the volatile performance of high beta asset classes around the world.  Generally the recipient of capital formation seeking growth opportunity, emerging markets were reflective of this global retreat of risk as investors pulled back meaningfully from the developing world.  In fact, generally benign optics of U.S. equity bourses has NOT reflected far more risk reduction around the rest of the emerging world. 

The Brazilian real hit four year lows against the USD this week. This is despite the fact that the Brazilian Central Bank on Friday FAILED to stop the weakening with a foreign exchange swap whereby the bank swapped $877 million reals.  In addition, the Turkish lira traded to a 17 month low to the USD on Friday even after the Central Bank governor, Basci, jawboned the bank may take additional steps to defend the lira.  Investors pulled 2.89 billion out of emerging-market equity funds on the week. 

Flows appear to be reversing in far stretching markets South Africa, Thailand, Indonesia and even Mexico.    Mexico, one of the U.S. largest trading partners and mutually beneficial symbiotic geographical relationship, cut its 2013 growth forecast earlier this month to 3.1% from 3.5%, contributing to a more than 6% fall in the peso in May.  

Bonds denominated in these rapidly depreciating currencies are vulnerable or reflect newfound value pending on your disposition.  For instance, yields on peso denominated 10 year government bonds rose to 5.36% on Friday, versus an all-time low of AT THE START OF THE MONTH of 4.5%. http://online.wsj.com/article/SB1000142412788732441260457851665379431557…

Are markets sensing a removal of accommodation by the Fed and other central banks, not so, in above markets?  Or global final demand decline?  As a prospective harbinger of demand for global products and services, LOW Chinese demand contributed to a decline of 7.2% in Cotton prices in May.  With its warehouses brimming with Cotton, due to excess capacity and slack demand, estimates are for imports to be 35% LOWER next season.  China possesses 63% of the world’s cotton stocks and one should take note when there is slack.  The U.S. incidentally exports 75% of its cotton overseas.  This is a residual China slowdown story even though the Barron’s piece this weekend speaks of micro-specifics. http://online.barrons.com/article/SB500014240527487048953045785034922569…

In fact, commodity softs loosely represent “stuff in the ground” and to some extent like all commodities reflect the nuances of final industrial and/or consumer demand.  Cotton is a soft and the softs at large have been getting OBLITERATED.  Look at coffee in the world of $4 lattes.  Sugar…  This particular group was and has been sending off warning signals BEFORE the varied and myriad widespread distinguished selloff expressions reared their ugly risk expression heads in global retreat.    Please ask for the chart that was compiled for me by our friends at Business Insider which called attention to this anomaly WHILE most global risk expressions like credit spreads and equity bourses were charging to new all-time high valuations.  This “soft” asset class is really making a statement, even last week with broad impressive further declines.

Of course, China is the manufacturer of last resort of all sorts of demand side products and commodity usage to the rest of the world and Euro-Zone jobless rate, as aforementioned, hit a record of 12.2% last week.  This is the highest rate for the Euro-zone since records began in 1995 and may reflect why Chines manufacturing warehouses are loaded with excess capacity, like cotton.  http://online.wsj.com/article/SB1000142412788732441260457851677098794816…

Asian buyers shun U.S. Wheat:  Demand, liquidity, monetary tidings, and trade.  http://online.wsj.com/article/SB1000142412788732468220457851698061154892….

Thomas Donlan in Barron’s editorial frames that “a brief victory in a currency war is likely to produce a long defeat” as applied to Japan. 20 years of zero rates and rising national debt of 225% of GDP, 10 year $2.4 trillion infrastructure projects and with borrowing costs of less than 1% IS consuming a QUARTER of all NATIONAL tax revenues.  He crystallizes the obvious, a currency war for trade.  http://online.barrons.com/article/SB500014240527487045093045785153824443…

Japan:  Vending machines in Japan have become a stubborn barometer of the country’s struggle against deflation.  Many vending machines in Japan sell soft drinks for prices lower than they were in the 1980s.  http://www.nytimes.com/2013/06/01/business/global/in-japan-a-hard-to-bud…

Ironically, Chinese yuan achieved a record level against the USD last week and was signified by $7.1 billion acquisition interest in Smithfield Foods, hogs to feed the people.  Bringing home the bacon: http://online.barrons.com/article/SB500014240527487048953045785034722419…

Marc Faber is not left out of the discussion as Barron’s featured a weekend interview.  His perspective of the broad consequence of world finance characterized by years of money printing are well known.  He details that stocks, bonds, art, wine, jewelry, and luxury real estate are all the beneficiaries of monetary tidings.  Hampton’s property prices rose 35%, condos in Manhattan selling for over $100 million, record art sales, and 60 gains in the Nikkei. But central bank policy not reaching the worker in Detroit.   He claims China’s “huge credit bubble” as not going to end well.   Provocative article titled, “Bubble, Bubble, Money and Trouble.”  http://online.barrons.com/article/SB500014240527487045093045785115611945…

Which brings us back full circle to the Fed and global central bank policy.  On Friday, a key gauge of inflation fell in April to the LOWEST LEVEL ON RECORD, a drop that could take pressure OFF the Fed to wind down its asset purchases.  Core prices in the deflator rose 1.1% from a year earlier.  For the 17 countries that share the Euro, consumer price inflation in May was 1.4%.  In Japan, core consumer prices fell .4% in April.  http://online.wsj.com/article/SB1000142412788732468220457851744394663002…

This Friday consensus estimates for May nonfarm payrolls is a gain of 175,000 with jobless rate constant at 7.5%.  Some suggest less is more and more is less from a central bank policy prerogative point of view.  Weaker number, more stimuli in form of reduced tapering of Fed purchases, steroid juice to ailing markets.  Strong number,  reduced asset purchases, removal of liquidity and animal spirits.

    



 
Marc Faber: “People With Financial Assets Are All Doomed”
Saturday, 01 June 2013 17:18
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As Barron’s notes in this recent interview, Marc Faber view the world with a skeptical eye, and never hesitates to speak his mind when things don’t look quite right. In other words, he would be the first in a crowd to tell you the emperor has no clothes, and has done so early, often, and aptly in the case of numerous investment bubbles. With even the world’s bankers now concerned at ‘unsustainable bubbles’, it is therefore unsurprising that in the discussion below, Faber explains, among other things, the fallacy of the Fed’s help “the problem is the money doesn’t flow into the system evenly, how with money-printing “the majority loses, and the minority wins,” and how, thanks to the further misallocation of capital, “people with assets are all doomed, because prices are grossly inflated globally for (Read more…) and bonds.” Faber says he buys gold every month, adding that “I want to have some assets that aren’t in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable.”

Excerpted from Barron’s:

On the error of the Fed’s ways:

The Fed has been flooding the system with money. The problem is the money doesn’t flow into the system evenly. It doesn’t increase economic activity and asset prices in concert. Instead, it creates dangerous excesses in countries and asset classes. Money-printing fueled the colossal stock-market bubble of 1999-2000, when the Nasdaq more than doubled, becoming disconnected from economic reality. It fueled the housing bubble, which burst in 2008, and the commodities bubble. Now money is flowing into the high-end asset market – things like stocks, bonds, art, wine, jewelry, and luxury real estate.

 

Money-printing boosts the economy of the people closest to the money flow. But it doesn’t help the worker in Detroit, or the vast majority of the middle class. It leads to a widening wealth gap. The majority loses, and the minority wins.

 

…

 

The neo-Keynesians would argue that if the Fed hadn’t flooded the system with money, things would have been much worse. That might be true, but they would have been worse for a shorter period of time.

On the Bubble:

I am suggesting that in the fourth year of an economic expansion, near-zero interest rates will lead to a further misallocation of capital. I thought the U.S. market would have a 20% correction last fall, but it didn’t happen. I also said the market might explode to the upside before the correction occurred. We might be in the final acceleration phase now. The Standard & Poor’s 500 is at 1650. It could rally to 1750 or even 2000 in the next month or two before collapsing. People with assets are all doomed, because prices are grossly inflated globally for stocks, bonds, and collectibles.

On China:

There has been a huge credit bubble in China, and it isn’t going to end well. Its economy officially grew 7.7% in the first quarter. In reality, it is growing 4% a year, at best. Figures on Chinese exports to Taiwan, South Korea, Hong Kong, and Singapore don’t agree with the import figures of those countries. In each case, reported exports are much larger than reported imports.

On wealth divides and Social Unrest:

Again, the economy of the rich is booming. There has been huge wealth accumulation in Asia in recent years. But the middle class has experienced diminishing purchasing power. Throughout history, growing wealth inequality has been corrected either peacefully, through taxation and wealth redistribution, or by revolution, as in Russia.  I am not sure we will have a revolution in the Western world, but I can see European voters turning against the arrogance of the bureaucracy.

On Europe:

Investors don’t fully comprehend what happened in Cyprus. In the event of future bailouts, bank depositors will lose a percentage of their money. Money in the bank isn’t 100% safe anymore.

On Gold:

Gold is down 30% from its 2011 peak of $1,921, but has far outperformed financial assets since 1999. A correction was overdue. I have about a 25% allocation to gold and buy some every month. I want to have some assets that aren’t in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable.

 

Gold is easier to carry than a Lamborghini.

 

Most of my gold is in a safe-deposit box in Switzerland, but I am shifting it to Asia.