Archives for August 2013

Japan Seeks to Hike Taxes then Waste Money on Stimulus to Make Up for Decline in Spending; Currency Crisis Awaits

Courtesy of Mish.

Politicians and economic illiterates frequently assume two wrongs make a right. Here is a case in point: Japan panel backs sales tax hike coupled with stimulus.

Japan’s government won backing for a controversial decision to raise the national sales tax in 2014 after influential members of a special advisory panel said the step would not threaten economic recovery or business confidence if it was coupled with other stimulus.

Prime Minister Shinzo Abe convened the panel to hear a wide range of views on whether to press ahead with a planned hike in the consumption tax to 8 percent from the current 5 percent in April. Unless Abe changes the plan, the sales tax will be raised to 10 percent in October 2015.

Advocates, including officials at the Ministry of Finance, say raising the tax would be an important first step in trying to lower public debt, which is the worst among industrialized countries at more than twice the size of Japan’s economy.

When Japan last hiked the sales tax from 3 percent to 5 percent in 1997, consumer spending tumbled by 13 percent in the quarter after the higher tax went into effect. That was followed by a recession.

Two Wrongs Don’t Make a Right

When you cherry pick a panel, and the panel has a pre-determined outcome, the answer always comes out the way you expect.

Thus Abe’s blue ribbon panel concluded tax hikes won’t hurt. And for good measure, if by some chance they do, the panel suggested wasting those tax dollars on stimulus.

Good grief!

Appearances of Success

 Appearances of success are not the same as success.

It is conceivable that such a preposterous plan might “appear” to work for the simple reason Japan’s two lost decades might have finally played out on their own accord.

However, that will not make the policy successful in any real sense. Raising taxes and then wasting the money are never good solutions to anything. Two wrongs don’t make a right….

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If You Want To Know Why Things Are Falling Apart, Look At Total Debt

Courtesy of Charles Hugh-Smith of OfTwoMinds

We are in a long-term trend where additional debt undermines the system as the positive returns on that debt turn negative.

Want to know why things are falling apart? Just look at our soaring systemic debt and the diminishing returns on that debt. Our Chartist Friend from Pittsburgh has assembled a comprehensive series of charts on systemic debt (called total credit market debt in FedSpeak) that starkly illustrates the diminishing return on more debt:
Take a look at total credit market debt and gross domestic product (GDP), year-over-year: notice the correlation? Recall that defaults and writedowns of bad debt remove debt from the ledger, so in an era of deleveraging, new debt must exceed the writedowns of uncollectible debt to actually increase total debt.
Here is total credit market debt and velocity of money, year-over-year: the velocity of money is a measure of how fast money changes hands. In a robust economy, for example 1987 – 1999, the velocity of money is high. In recessions, it is low as fiscally prudent people and enterprises hesitate to borrow and spend.
It's easy to confuse trends and cycles. The Keynesian Cargo Cultists believe that we're in a cyclical downturn that can be "cured" with more debt-based spending, i.e. worshiping their false god of aggregate demand. They cannot comprehend that we're not in a business-cycle recession, we are in a long-term trend where additional debt undermines the system as the positive returns on that debt turn negative.
I recommend studying the entire series of charts for more insight into this trend: If Cash Is King Then Credit Is God.

Wall Street Knows a Bad Trade When it Sees One

Wall Street Knows a Bad Trade When it Sees One

Courtesy of 

Wall Streeters are conditioned to know a bad trade when they see one. They tend to view most life decisions through the prism of risk and reward, just as they do buy and sell decisions each day at the office.

In today's New York Post, we learn that at least one political action committee made up of finance types in New York is backing away from their support of the anti-Eliot Spitzer candidate in New York City's comptroller race…

Terrified of “Steamroller” Eliot Spitzer, heavy hitters on Wall Street have abandoned their ambitious plan to inject millions of dollars into the race for city comptroller to help elect Scott Stringer, The Post has learned.

One group formed by the financial titans, Forward NY, has spent only a paltry $2,000 in “independent expenditures.” Forward NY was supposed to raise huge sums — up to $150,000 per individual — from corporate executives who abhor Spitzer for targeting them and their industry when he was state attorney general.

As it turns out, they fear Spitzer more than they hate him.

Spitzer garnered the reputation as the scourge of New York's investment banks when he nailed them to a cross for peddling fake research in exchange for i-banking fees during the dot com bubble fourteen years ago. He also managed to push AIG's then-powerful chairman Hank Greenberg out of the company during an unrelated investigation of the insurance companies. He's played that reputation up during this campaign (see the haunting commercial here).

Interestingly, the role of comptroller does, in fact, come with some oversight with regard to how NYC's enormous pension funds are allocated and managed. God help The Street if Spitzer believes in passive management and index funds – that's a lot of fees out the window.

Kevin Roose at New York Magazine gives you some idea of what's at stake for the investment pros who live off of this business:

Right now, there are five public city pensions — one for teachers, one for firefighters, one for police officers, one for Board of Education employees, and one for all other covered public workers. The comptroller is in official custody of all of these giant piles of money, whose assets currently total about $140 billion, but each of them is run independently. Each pays its own consultants, hires its own investment managers, and sits under its own board of trustees. There are about 60 trustees between the five pension funds and few professional investors among them.

Bottom line, Wall Street's big money guys can smell this losing trade from a mile away and they want no part of it. Antagonizing Spitzer right now  is simply an inefficient – and possibly disastrous – use of funds.

You might ask "But instead of backing down, why don't they just throw everything they've got at Spitzer's opponent to keep him out of power?"

The writing is pretty much on the wall that it won't do much good. Anyone willing to spend more than $4 million dollars of their own money to obtain a job paying $200,000 is clearly not going to be deterred. For Spitzer, one of the most determined human beings in New York political history, there is a lot more at stake than just a job. This is about redemption, it's about the restoration of his legacy. Remember, this is a man whose stated goal has always been to become President of the United States someday.

Nobody on Wall Street wants to take the other side of that trade, and with good reason.


The Single Change Eliot Spitzer Could Make to Improve NYC’s Pension System (New York Magazine)

‘Steamroller’ Spitz cows $kittish Stringer backers (New York Post)

Treasury Sucks While Fed Pumps, But Markets Go Limp

Courtesy of Lee Adler of the Wall Street Examiner

(My notes in italics and emphases in bold ~ Ilene)


The Treasury added more unexpected supply last week. (Much of the Treasury’s supply gets paid for by the Primary Dealers, leaving them with less money to buy stocks.) It has now sucked out all of the cash the Fed pumped into the market in its mid month round of MBS (Mortgage Backed Securities) settlements and then some. This has helped to create a hostile environment for stocks…. 

We had an even bigger week than expected when the Treasury added another $25 billion surprise Cash Management Bills (CMB) resulting in net new supply of $79 billion, including the prior week’s TIPS offering. The Thursday settlement had $25 billion in net new supply, instead of the originally expected zero. $16 billion in new supply from the TIPs settled Friday, and $38 billion will settle Tuesday after Labor Day. 

Apparently the dealers and other buyers needed to liquidate stocks in order to pay for the new paper. After massive selling of Treasuries in the prior couple of weeks, they got a few “likes” last week, but yields were still well above the last round of note auctions in July. 

While the Fed did not settle any MBS purchases, it purchases and closes the usual $11 billion or so in Treasuries every week, and there may still have been some cash left over from the mid month MBS settlements. For whatever reason that cash went back into the Treasury market last week…

The two CMBs totaling $50 billion in recent weeks, along with the increase in the size of the 4 week bill from a forecast $45 billion to $50 billion over the past two weeks raised $60 billion in cash that the Treasury did not appear to directly need, at least at such a large level. The Treasury’s cash balances were running well ahead of this period last year, so it raised the issue of why the Treasury was pulling $60 billion in cash out of the accounts of financial market players when it didn’t need that much, if any of it. 

I posed the idea over the past two weeks that these Treasury draws may have been done in conjunction with the Fed for the purpose of old style reserve management. Between its MBS purchase settlements and weekly Treasury purchases the Fed pumped $100 billion in cash into the markets from August 12 through the end of the month. I believe that it has begun to worry about the asset bubbles that QE has caused and may have wanted to act to draw down the QE cash without unduly alarming the markets by pre-announcing a Taper. So it got the Treasury to do the dirty work while it pretended that “to taper or not to taper, that is still the question.”  (I.e., the Fed wants to taper but is scared of the stock market’s reaction, so instead the Treasury is selling more bonds which will have the same effect – taking money out of the hands of the Primary Dealers.)

On that basis, I’m guessing that a taper of around $25 billion is coming in September. However, I must add the disclaimer that I’m trying to guess what a group of insane people will do. Better to wait for the actual acting out, that attempting to anticipate what future irrationality will flow from their past insanity.


Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to the Wall Street Examiner.

Berlusconi Threatens to Topple Italian Government if Expelled From Senate

Courtesy of Mish.

Former prime minister Silvio Berlusconi, convicted of tax fraud, Threatens to Topple Letta If Expelled From Senate

Silvio Berlusconi threatened to bring down the Italian government if Prime Minister Enrico Letta’s Democratic Party votes to expel the three-time former premier from the Senate.

“We’re not available to keep the government going if the left decides to prevent the head of the People of Liberty from remaining in politics,” Berlusconi told a rally organized by the Army of Silvio supporters’ association late yesterday, according to a statement released by the group.

Letta is struggling to contain tensions that have strained his coalition government since Italy’s top court upheld Berlusconi’s tax-fraud conviction on Aug. 1. The Democratic Party, the biggest force in the coalition, has said Berlusconi’s expulsion from the Senate is required by an anti-corruption law enacted in December 2012.

Berlusconi softened his rhetoric today, saying he “didn’t issue an ultimatum” and that he wants the government to continue to govern. Yet in comments broadcast by SkyTG24, he said it’s “absurd” to assume that the People of Liberty would remain in Letta’s coalition if the Democratic Party forced his removal from the Senate.

What About Never?

Bloomberg notes “The process to strip Berlusconi of his Senate seat may take weeks or months before an eventual vote in the full chamber is called.”

The Letta coalition would immediately dissolve if  Berlusconi carried out his threat. The best way to make sure he doesn’t is to not have a vote. The second best way would be to have a vote and decide that tax fraud is insufficient grounds to expel someone from the Senate in spite of the law.

Either way, there is justice for politicians (and bankers), and there is justice for everyone else.

In general, this is the way it is everywhere, but most countries draw the line at conviction. Italy doesn’t.

Mike “Mish” Shedlock

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Why Google Glass Will Fail Miserably

Courtesy of Tim Knight from Slope of Hope

By now I imagine most of you have heard of the forthcoming Google Glass product. These are the eyeglasses which, when worn, allow a person to bark out commands and do things like take a picture or a video of what they are seeing, do a Google search, or help find their way around by way of Google maps. The ostensibly-spiffy thing about it is that the experience of issuing commands to a computer is executed by voice commands as opposed to a keyboard and the viewing is accomplished by what you are seeing projected in front of your eyeballs as opposed to staring at a monitor.

This is just a different form of mobile computing, which is clearly a wildly-successful sector. The press that Google Glass has received already been stunning, particularly considering there's hardly a person on the planet sporting a pair of these things on the bridge of their nose yet, but I've got a feeling that, like Google Wave (remember that? anyone? I didn't think so……….) it will be a flop. Here's why:

The Dork Factor – anyone wearing these things look like a dildo, plain and simple. It's just like the Segway, which confers instant dorkage upon the rider. Imagine Brad PItt. Smashing-looking fellow, right? Now put him on a Segway and send him off on an errand. He looks like an unmitigated dork, doesn't he? I rest my case.

The Hype Factor – very few successful high-tech products are preceded by breathless worldwide publicity. Google Glass' stunning media reception is, paradoxically, going to work against it, because expectations are so high. Let's return to the Segway example. Just before it came out, the Segway was heralded by luminaries as one of the most important inventions of the century. No less a man than Steve Jobs stated that entire cities would be built around the Segway transportation system. So how'd that work out? Well, chubby security guards use 'em, and that's about it. And the last thing a chubby security guard needs is an effortless way to zip from place to place, so even the one customer they've got is being harmed by it.

Good Enough – People seem perfectly happy with their mobile phones. They are powerful, feature-rich, take good pictures, are useful as GPS devices, and basically have reached the point of diminishing returns. There really isn't a problem to solve here. What we have is plenty good enough.

Bad Karma – as reported last week by the Wall Street Journal, it seems that multi-billionaire Google

I don't know about you, but Richard Branson is looking pretty good to me in this picture..
Brin's wife is the one without the beard. I don't know about you, but Richard Branson is looking pretty good to me in this picture..

co-founder Sergey Brin decided that the product manager of Google Glass was a lot more appealing than his wife and mother of his children, so he started boinking the former and ditched the latter. This is interesting on multiple fronts. First, it seems that fellow Google married multi-billionaire Eric Schmidt has women stationed in just about every port of call, so perhaps this kind of ethic is shared by Google senior management. Second, it appears that Brin experienced the same kind of "ummm, what exactly were you thinking?" event when he got married, which Mark Zuckerberg famously executed last year. In any case, it seems that the principal press the aforementioned product has received lately has had more to do with ass than glass.

Ms. Rosenberg, whom Mr. Brin is reportedly boffing.
Ms. Rosenberg, whom Mr. Brin is reportedly boffing. They both look like putzes with the glasses, wouldn't you say?

Although the product is irrelevant to Google's financial fortune (almost entirely built on one and only one thing, which is AdSense sales), I'll just mention here that I shorted GOOG last week, based on a pretty large topping pattern. I normally don't touch the stock, but I was seduced into the decision by all the kerfuffle happening at the company. I think Google is well past its prime.


Chart o’ the Day: Significance of 90% Down Days

Chart o’ the Day: Significance of 90% Down Days

Courtesy of 

Are we close to the end of a correction once the market prints a 90% down day (in which 90% or more of volume on the exchange is in declining stocks)?

My pal Jonathan Krinsky, chartered market technician and analyst at Miller Tabak + Co in New York has done a fair amount of work on this topic so far in 2013. His note from this morning shows that they mean we're at least getting close.

NYSE Volume in Declining Stocks Exceeds 90%
We mentioned above how 92% of NYSE volume was in declining stocks. Readings above 90% are quite rare, we have only seen 5 other instances in 2013 with closing readings of 90% or higher (arrows on chart below).

While all of these instances occurred near the lows for those prior corrections, it is important to note that each  time the initial instance was not THE LOW for the correction.

90 percent down day


Miller Tabak + Co

Michael Mauboussin on Crowded Trades

Michael Mauboussin on Crowded Trades

Courtesy of 

Michael Mauboussin's book about untangling the results we generate from skill and from pure luck lit up the investment biz upon its release last fall. Since then, his work has been widely referenced virtually everywhere people are seriously trying to understand results and randomness.

Quick shameless plug – Michael Mauboussin is a confirmed speaker at Barry's conference this October, we'll have more details in the days to come but you should save that date if interested…

Anyway, Shane at Farnam Street has a new interview with Mauboussin posted at his site, here's one exchange in particular I found interesting, about the diversity of thought among professional investors:

It seems that today, more than ever, people are going to Wall Street with very similar backgrounds. How do you see the impact of this?

For the last few decades Wall Street has attracted a lot of bright people. By and large, the folks I deal with on the Street are smart, thoughtful, and motivated. The key to robust markets and organizations is diversity of thought. And I don’t personally find such diversity greatly lacking.

There are a couple of areas worth watching, though. There does seem to be evidence that hedge funds are increasingly moving into similar positions—often called a “crowded trade.” This was exemplified by the trades of Long-Term Capital Management. Crowded trades can be a big problem.

Somewhat related is the world of quantitative analysis. Many quants read the same papers, use the same data sets, and hence put on similar trades. We’ve seen some hiccups in the quantitative world—August 2007 is a good illustration—and there may well be more to come.

Head over for the whole thing, it's a good interview.


Farnam Street

Read Also:

The Difference Between Skill and Luck (or why basketball > hockey) (TRB)

How One of Baseball’s Greatest Hitters Can Teach You To Make Better Decisions (TRB)

Did The Fed’s QE Really Drive Down Long Term Rates?

Courtesy of Lee Adler of the Wall Street Examiner

This video by Wall Street Examiner Productions answers the question.

If you are receiving this by email, click here to view.

Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to the Wall Street Examiner.

Mark Hulbert on Stocks in September

Courtesy of 

Mark Hulbert makes a nuanced point in his MarketWatrch column about the historical behavior of stocks during the month of September.

On the one hand, he finds that this is really and truly the cruelest month…

Let me first review the impressive statistics behind September’s terrible reputation. Since the Dow was created in 1896, it has lost an average of 1.09% during September. The average return during all other months, in contrast, has been a gain of 0.75% — a spread of 1.84 percentage points between September and all other months’ average.

That’s huge, from a statistical point of view.

Not only that, September’s dismal performance has been remarkably consistent. Consider what I found when I focused on all decades since the late 1800s: September’s performance rank relative to other months was 8th or below in all but one of those decades. In fact, the month was in last place in five of the decades, and in 11th place in three more.

These results are highly unlikely to be a mere random occurrence, according to the tests I ran on my PC’s statistical software.

However, he cautions readers from acting based on this knowledge, head over below for why.


Betting on September’s terrible odds (MarketWatch)

No one wants it, but we’ll have a little war anyway


Barack Obama is president now because he opposed a war, from the start. I imagine Ed Miliband knows this. I think he also knows that his Labour colleague Tony Blair is among the most reviled people in Great Britain, a nation that really knows how to revile. So Miliband, the leader of the U.K. opposition, blocked a vote in the House of Commons on using military force against Syria, enraging Prime Minister David Cameron and likely pleasing the majority of Britons who are opposed to action.

Cameron, or at least a Cameron spokesman, called Miliband a bunch of very mean names, but he should perhaps direct his wrath at Blair and George W. Bush. If the Western liberal interventionists can’t get their nice little humanitarian bombing mission through the democratic process, well, who do you suppose they have to blame? Maybe don’t spend a decade incompetently trying to remake Iraq and Afghanistan through force and then leaving both nations in shambles if you still want everyone to be gung-ho about military intervention. This is, all in all, a good argument for a parliamentary system — two presidential system nations now plan to go ahead with a strike without the support of the elected representatives of the will of the whole people — but just about everything in American politics over the last decade has been a good argument for a different system.

I don’t think there’s any doubt that if this were the 1990s, the entire Western community (Western Europe and us) would already be bombing by now, likely without much public or political outcry. But the Iraq nightmare, from the cooked intelligence to the shifting rationales to the horrific occupation to the inevitable slinking away in defeat, ruined the whole game. It’s a lot harder now to pretend that dropping bombs on far-off lands can ever be neat, “surgical” and strictly “humanitarian.” (And dear U.K. Defense Secretary Philip Hammond, this is not helping your case much.) Now the U.K.’s out, and if (when) the U.S. and France go at it, it will likely be without the approval of the United States Congress….

Keep reading: No one wants it, but we’ll have a little war anyway –

GE is Exiting Retail Lending

By Kate Linebaugh, The Wall Street Journal

General Electric Co. is preparing to spin off one of its most important financial assets—the unit that issues store credit cards for 55 million Americans—as it retreats from one of the high-growth businesses that defined the modern conglomerate.

The decision to divest the business, amid concerns about the company's exposure to banking, marks an important moment in the evolution of GE and the country's three-decade long consumer credit boom. GE Capital expanded to the point that its portfolio of loans and other assets now would rank it as the country's fifth-largest commercial bank.

Preliminary work to separate the business through an initial public offering is under way, according to people familiar with the matter.

Keep reading: GE Set to Exit Retail Lending – Yahoo! Finance.

Stocks, Gold or Oil–Your Call

By Paul Price

Oil, Gold or Stocks? Only one beat inflation since 1980.

Middle-Eastern tensions have sent oil prices soaring. Worldwide Central Bank QE programs (money printing) have driven investors out of fiat-based currencies and into hard assets and commodities.

Did owning oil or gold work to protect real wealth since inflation got truly ugly in 1980? The charts shown below tell the story. Today’s constant-dollar price of oil is eerily similar to where it sat about 33 years ago. 


Ignore the costs of more than three decades of storage and maintenance. Pretend you would not have capitulated during the horror of holding through almost a 90% draw down in value. Congratulations, at the present elevated quote you are back to about where you started.

Gold Bugs will be quick to say you should have gone with precious metals in order to counter inflation. In fact, the constant-dollar, per-ounce price of gold is also about where it was at the mid-point of its surge to the old nominal peak of $857 during 1980.

Continue on Guru Focus.

Judge Disses CalPERS Lawsuit Hoping to Stop San Bernardino Bankruptcy; City Eligible “as a matter of law based on incontrovertible facts”

Courtesy of Mish.

In a common sense ruling sure to have union advocates howling, a Federal judge says San Bernardino, California eligible for bankruptcy

Judge Meredith Jury of the U.S. Bankruptcy Court for the Central District of California, said the city of 210,000, located 60 miles east of Los Angeles, was eligible for bankruptcy protection “as a matter of law based on incontrovertible facts.”

The tentative ruling came despite objections by the California Public Employees’ Retirement System, or Calpers. The $260 billion pension fund is the city’s biggest creditor.

San Bernardino filed for bankruptcy protection one year ago.

If the jury affirms the ruling, it would clear the way for the city to negotiate with its creditors and produce a final bankruptcy plan on which the judge will ultimately have to rule.

 The ruling also sets up a high-stakes battle between Calpers and other creditors, including Wall Street bondholders and insurers, over how they will be treated in the bankruptcy.

The preliminary ruling follows a similar judgment for the city of Stockton, California, which was found eligible for bankruptcy protection in April.

“I don’t think anyone in this courtroom seriously thought the city was anything but insolvent,” Jury said. A city must be insolvent and have proof to have negotiated in good faith with creditors to be eligible for Chapter 9 municipal bankruptcy.

Calpers argues that it should not be treated like other creditors and must be paid in full because of California state law. Bondholders argue that federal bankruptcy law trumps state statutes and say Calpers should be forced to fight with other creditors over how much they are paid under an exit plan.

The judge said the one creditor who wanted her to dismiss the bankruptcy was Calpers. But she said: “If Calpers gets all the money they want, under what they say is their statutory right, who isn’t going to get paid? All the employees? How is that going to help Calpers?”

If CalPERS gets stiffed and it should (and so should bondholders dumb enough to buy San Bernardino bonds), it will pave the way for cities across the nation to finally get out from under the unfair burden of preposterous union wage and benefit agreements.

This was a welcome ruling.

Mike “Mish” Shedlock

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When Printing Money Loses Its Magic

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The magic was the magnificent illusion that money printing increased wealth. It certainly looked that way, despite all the common-sense interpretation that would have you believe that it doesn't. But that's the beauty of a wonderfully performed magic trick. Something impossible seems to happen. You know it can't happen, but it looks like it did, and what's the harm in letting yourself believe? Assuming that the goal is reducing unemployment… it really was a wonderful 50 years.

Pumping out money increased the labor force participation rate from about 59% in 1960 to 67% by about 2000 by creating jobs in military procurement, lobbying, and (as we went through successive bubbles) brokerages and finance, government, home construction, real estate sales, retail, etc. Now the losses in manufacturing and primary wealth creation are overwhelming the jobs created in the FIRE economy, and the US looks to be heading back to the golden era of the 50s, with labor force participation back below 60%. Too bad they'll all be low-paying jobs.

Via The World Complex blog,

The Magic Ends…

In part 1 we looked at some examples of what happens when the audience can no longer suspend its disbelief in a currency.

What was the magic? The magic was the magnificent illusion that money printing increased wealth. It certainly looked that way, despite all the common-sense interpretation that would have you believe that it doesn't. But that's the beauty of a wonderfully performed magic trick. Something impossible seems to happen. You know it can't happen, but it looks like it did, and what's the harm in letting yourself believe?

The latest round of the great trick really began in the late 1950s. Spending by the US government increased the demand for labour by the millions, which allowed women to enter the workforce in large numbers.

Data source: Bureau of Labor Statistics (BLS)

The main uptick in the labour force participation rate began in the early '60s, but the real bottom (on this graph) was in the mid '50s. One obvious source of stimulus in the 1960s would have been the Vietnam War, on which the US gov't spent the equivalent of $738 billion, in 2011 dollars (pdf). That kind of money created a lot of jobs–mainly in the military industries, but also for lobbyists.

At the same time, the "Great Society" was in full swing. Lots of public works projects. The same thing happened up here in Canada, with a huge increase in universities, highways, and transit systems. All this spending created a lot of jobs. Nobody asked whether these jobs were really necessary. Would the public works projects pay off?

Certainly they appeared to make society more prosperous. But was it real prosperity or just a magic trick? Was it an illusion, or something more sinister . . .

A thief and a magician enter a convenience store. The thief says to the magician, "Watch this", and promptly places three chocolate bars into his pocket so smoothly that nobody else notices. He is just about to leave when the magician calls him back and says, "I've got a better trick." The magician approaches the shopkeeper, and asks if he'd like to see a trick. "I can make three chocolate bars disappear and reappear." He unwraps three chocolate bars and eats them. When the shopkeeper asks to see them reappear, the magician points to the thief and says, "They are in my friend's pocket."

In the earliest part of my education I recall, we were fed the belief that it was right for women to enter the workforce, and it followed that once women wanted to work, all these jobs opened up for them. Millions of them.

Why can't it happen now?

Look at the unemployed–the real unemployed. Their numbers are reflected in a massive increase in duration of unemployment not to mention the increase in the reported unemployment rate.

I thought the unemployment rate was supposed to drop when interest 
rates were low. Data from BLS.

Don't the unemployed want jobs? Why don't jobs magically appear for them like they did in the 60s?

Impressive job creation from the 1960s until about 2000. 
It stalled briefly during the Volcker high-interest-rate period
of the early 80s. Data from BLS.

The trouble is similar to what our magician friend in the story above might face if the shopkeeper suddenly demanded a repeat performance, this time with meat pies. The magician can only perform a trick like that so many times. Perhaps he becomes too engorged with chocolate bars and meat pies. Perhaps there aren't any that can "appear" in his friend's pocket. Or maybe the shopkeeper simply won't be fooled any more.

That's funny. All that money of yours that disappeared was 
supposed to reappear in my hand. Errrm, sorry?

At least is isn't as bad as Siegfried and Roy's last trick with the tiger.

What does the rest of the world think?

Too lazy to update this. Sorry. To mid 2011. But I doubt it's gotten better.

It looks like the rest of the world started to lose faith in the US dollar in the '90s. Remember the Strong Dollar Policy under Clinton? Looks like somebody thought it was a selling opportunity.

But the problems with the money-creating approach became apparent by 1970. Nixon kept the system going a bit longer with his trick of taking the dollar off the gold standard, so the US would not have to exhaust its stored gold redeeming green coupons. The system ran out of gas again at the end of the 70s, but Volcker's trick of raising interest rates gave the US 20+ years of slowly falling interest rates, which allowed the audience to keep believing the illusion.

But even then, it should have been clear that something was up. GDP as it was defined at the time was climbing, but some of its ancillaries were not keeping up.

Data from Handselbanken Capital Markets.

It is difficult to imagine just how the economy grows without similar increases in the use of copper and zinc, both of which are tough to replace. One comment wondered if we replaced copper and zinc with plastics. Some piping maybe. But not much wiring.

As I proposed earlier, what really happened in the late 1970s was a contraction in the economy, which was hidden by fudging reported GDP. If real GDP is tied to demand for copper and zinc, then I would say that (from the above chart) world GDP was overstated by approximately 80% as of 2005. It's hard to imagine that that number has gotten smaller subsequently. Either that, or the "value" of lawyers bills, lobby groups, US medical expenses, overspending on military wonder weapons, financial charges and skimming, and other less than productive enterprises now constitutes just under 50% of the world "economy". I hope it makes you feel rich.

With lower demand came lower exploration expenditures–at least for base metals.

Source here (pdf)


I think this graph shows the change in mindset from the past to the present. Don't mine base metals; mine money (gold). And this established the precedent for today's industrial ideal: don't make products, make money. And so the business model changed: from producing real products, which improved lives and increased the wealth of everyone; to making money through methods including outsourcing and speculation, which improved the lives and wealth of only a few.

Back to jobs.

After the little scare in 1980, we had 20 years of lower interest rates, during which the US labour force participation rate increased to its highest level in history. After the internet bubble popped, the US Fed shoved interest rates down, igniting a nice housing bubble, which created a lot of construction, real estate, and retail jobs. Unfortunately, these only matched the losses of manufacturing jobs–until about 2007. More recently, the number of full-time jobs is falling.

The magician has pulled all the rabbits there are out of the hat.

If money printing can't create jobs anymore, the pain that is to come will dwarf the pain already felt. The labour force participation rate will fall to the level of the 1950s unless there is another rabbit in there somewhere.

Too bad they'll all be low-paying jobs.

Oil, Gold, or Stocks – Your Call

By Paul Price

Oil, Gold or Stocks? Only one beat inflation since 1980.

Middle-Eastern tensions have sent oil prices soaring. Worldwide Central Bank QE programs (money printing) have driven investors out of fiat-based currencies and into hard assets and commodities.

Did owning oil or gold work to protect real wealth since inflation got truly ugly in 1980? The charts shown below tell the story. Today’s constant-dollar price of oil is eerily similar to where it sat about 33 years ago. 


Ignore the costs of more than three decades of storage and maintenance. Pretend you would not have capitulated during the horror of holding through almost a 90% draw down in value. Congratulations, at the present elevated quote you are back to about where you started.

Gold Bugs will be quick to say you should have gone with precious metals in order to counter inflation. In fact, the constant-dollar, per-ounce price of gold is also about where it was at the mid-point of its surge to the old nominal peak of $857 during 1980.

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Freedom Fries are Out – French Fries and French Toast Back In

Courtesy of Mish.

UK Will Not Join War Against Syria

Yesterday UK Prime Minister David Cameron Lost House of Commons Vote on Syria.

Western efforts to co-ordinate action against the Assad regime in Syria over charges of chemical attacks against civilians were dealt a blow on Thursday night when UK prime minister David Cameron lost a vote in the House of Commons on the issue.

After the vote Mr Cameron said: “It’s clear to me that the British parliament and the British people do not wish to see military action; I get that, and I will act accordingly.”

Mr Cameron had already had to backtrack on his initial plan to secure parliamentary approval for intervention on Thursday in the face of widespread opposition.

Financial Times Warmongers Pounced Quickly

Today, the Financial Times warmongers and interventionists whined The Syria vote brings to an end decades of delusion

This week’s events will have an impact. They will strengthen a rising US perception that Britain is an ally pulling back from the world. Mr Cameron’s decision to call a referendum on EU membership fits this picture. Why would Britain weaken itself further by disengaging from Europe?

There lies the danger. It is one thing for Britain to confront reality. In its own way, the US has been doing the same by rationing its interventions in the Middle East. But, even as a diminished power, Britain still has something worthwhile to offer in helping to sustain global order.

There were good arguments for, as well as against, acting to deter Mr Assad’s regime from using chemical weapons. For all the cuts, Britain still has a sizeable military, a first-rate diplomatic service and a permanent seat on the UN Security Council. To leave behind the delusions that were the legacy of empire should not be to pull up the drawbridge against a dangerous world.

France Stands Firm

France 24 News reports France stands firm on Syria despite shock UK vote

France has not changed its position on a possible military intervention in Syria, President François Hollande said on Friday, following a vote in Britain’s parliament against the motion.

Hollande told French daily Le Monde in an interview that he supported taking “firm” punitive action in response to a Syrian chemical weapon attack he said had caused “irreparable” harm, adding that he would work closely with France’s allies to punish Syrian President Bashar al-Assad’s regime.

Mercy! Freedom Fries are Out.
The White House will again serve French Fries and French Toast.

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The Crisis, the Causes, the Aftermath

Courtesy of Jaime Falcon.

John Titus, who created the movie BAILOUT, contacted me last week to discuss a new project that he is working on. The question he is tackling is, “How is it that 1075 elite executives were imprisoned following the S&L crisis, and not one was even charged following our more recent crisis?”

While the past few months of my life have been dominated by caring for my infant son, the question above is one that I spent enormous time investigating, pondering, and discussing.

John and I are going to speak about this in a few days, but I thought I would write out a brief synopsis of my own conclusions to refresh my memory and to crystallize my thoughts on the matter.

When I initially started writing about the crisis, I was bewildered by what seemed to be a sudden and complete abandonment of rule-of-law in America. After all, it was just a few decades ago, during the Reagan administration, that CEO’s of S&L’s went to prison for almost identical crimes to those committed leading up to our recent crisis.

The more I wrote and the more I studied the history of the American political economy, the more I became convinced that the investigations and prosecutions following the S&L crisis were the aberration. It was a tremendous stroke of luck that William K. Black happened to be a regulator at the time. He and his team fought the Reagan administration to pursue those investigations. And they fought the Keating Five and Alan Greenspan to pursue those investigations. The establishment wanted it swept under the rug. They did everything possible to make that happen. By chance, we had in place a pit bull of a regulator who refused to back down.

This time around we had the opposite of a pit bull; we had a lap dog. Instead of regulators, we had Hank Paulson, Ben Bernanke, and Tim Geithner. Followed by Obama’s team which also included Robert Rubin and Larry Summers. Rubin and Summers had been key players on the architectural team that had created the dynamic that enabled the crisis to come about. There are few people more conflicted and compromised than that team of apologists and enablers. They all sprang into action to accommodate the whims of the banks, doing little to nothing to protect the interests of taxpayers and citizens.

So which was the aberration? The successful prosecutions following the S&L crisis, or the lack of meaningful investigations following the bank-manufactured crisis of 2008?

One thing that is certain is that the cronyism that protected executives this time around has been in place for a very long time – arguably since the very beginning. When James Madison, in 1787, stated that it was necessary to protect the minority of the opulent from the majority, he was arguing for something inherently undemocratic; he was planting the seed for the kind of impunity enjoyed by the most wealthy and powerful in this country.

Anyone who has been involved in our justice system is aware that money changes almost everything. The wealthy are able to float above a system that is tyrannical and oppressive. The lawyers that you can afford largely dictate what the outcome will be. This is true both on the civil law side, and on the criminal law side.

But being able to hire super-attorneys at $1,000 per hour is theoretically available to all. Most people cannot afford it, but it’s available. What’s not available to the vast majority of Americans, is the ability to change laws, determine who is electable, capture regulators, and to use the revolving door in Washington to ensure that individuals friendly to industry are put in key positions in order to effect policy and decide what is pursued and what is not pursued.

This was true during the S&L crisis, but it has become much more pervasive and much more entrenched over the past 30 years. Alan Greenspan and his prodigy are high up in the hierarchy of those responsible for allowing private sector interests to dominate policy, law, and oversight when it comes to our financial system. They have promoted a system that privatizes profit and socializes risk. Greenspan was chosen for his blinders and heavily influenced the evolution of compromised neo-liberal ideology in government and academia in the USA and around the world.

There will, one day, be another bank-led crisis. It will be worse than the last one. And given the current dynamic in Washington DC, those who lead us to crisis will have taken every step necessary to ensure they are not subject to basic legal sanction. In fact, crises are opportunities for elite power circles in this country. When properly harnessed, a serious crisis represent an opportunity to scare citizens and the politicians into accepting policy that would be unpalatable at any other time – policy that makes them more wealthy and more powerful while undermining democracy, rule-of-law, and basic justice, for everyone else.

The powers that be have insulated themselves to the point that change from within is practically impossible. They bankroll politicians, decide what policy is acceptable, write legislation, capture regulators, determine what constitutes mainstream academia, and dictate what message is disseminated by mass media. Citizens must do what they can to exercise their democratic rights. Unfortunately, voting for Democrats or Republicans is not an effective way to do so. The Republican party exists to reinforce corny capitalism. And the Democratic party is not far behind in that regard. Neither of them is interested in fighting the system that keeps them in control of the wealthiest and most powerful country on earth.

Bill Black testifies before the House Financial Services Committee on April 20, 2010:


Wal-Mart is not Costco; So Why Should it Pay Like Costco?

Note: Costco also collects yearly fees, Walmart does not….

Courtesy of Mish.

President Obama, the unions, and Democrats in general are attempting to force Wal-Mart to raise its minimum wage.

In Seattle, there is an absurd push by activists to raise the minimum wage to $15 per hour for fast food workers, retail clerks, baristas and other minimum wage workers.

Venture capitalist Nick Hanauer said there's no time to waste. What the nation needs is money in the hands of regular consumers. "A higher minimum wage is a very simple and elegant solution to the death spiral of falling demand that is the signature feature of our economy".

Trader Joe's Lesson

Sophie Quinton for The Atlantic says The Trader Joe's Lesson: How to Pay a Living Wage and Still Make Money in Retail

Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe's, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity.

"Retailers start with this philosophy of seeing employees as a cost to be minimized," says Zeynep Ton of MIT's Sloan School of Management. That can lead businesses into a vicious cycle. Underinvestment in workers can result in operational problems in stores, which decrease sales. And low sales often lead companies to slash labor costs even further. Middle-income jobs have declined recently as a share of total employment, as many employers have turned full-time jobs into part-time positions with no benefits and unpredictable schedules.

QuikTrip, Trader Joe's, and Costco operate on a different model, Ton says. "They start with the mentality of seeing employees as assets to be maximized," she says. As a result, their stores boast better operational efficiency and customer service, and those result in better sales. QuikTrip sales per labor hour are two-thirds higher than the average convenience-store chain, Ton found, and sales per square foot are over 50 percent higher.

A Different Model

Yes, Ton, you are exactly correct. QuikTrip, Trader Joe's, and Costco do have a different model and it would behoove someone at MIT's Sloan School of Management to figure out differences in that model, and why retail sales at Trader Joe's beat those of Wal-Mart by 50% on a square footage basis.

Why Wal-Mart Will Never Pay Like Costco

Bloomberg writer Megan McArdle hits the nail on the head with her analysis of the situation in Why Wal-Mart Will Never Pay Like Costco.

Wal-Mart is trying to move into Washington, a move that said local housing blog has not enthusiastically supported. Hence, we’ve been treated to a lot of impassioned reheatings of that old standby: “Costco shows it’s possible” for Wal-Mart to pay much higher wages. The addition of Trader Joe’s and QuikTrip is moderately novel, but basically it’s the same argument: Costco/Trader Joe’s/QuikTrip pays higher wages than Wal-Mart; C/TJ/QT have not gone out of business; ergo, Wal-Mart could pay the same wages that they do, and still prosper.



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The Biggest Wall Street Banks Are Doing Fine, Set To Beat 2009 Pay Levels

The Biggest Wall Street Banks Are Doing Fine, Set To Beat 2009 Pay Levels

Courtesy of Jesse's Cafe Americain

Not bad for a small set of TBTF Banks that are still being heavily subsidized by the sacrifice of the public.

But they work really hard, and have a lot of very important expenses with which to maintain their lifestyles.

"When his Golden House was finished in its ruinously prodigal style, Nero would say nothing more about it in way of appreciation except that he could at last begin to live like a human being."


There is something particularly indecent about a society in which the heavily subsidized, pampered princes of finance can spend more on a redecorating a single office than the average family can afford to spend on the health and education of their family over a lifetime.  And this after ruining the national economy by engaging in massive control frauds, for which none have ever been punished.


Wall Street bonuses to top 2009
By Stephen Gandel

"The nation's five biggest banks are on track to pay out $127 billion in total compensation, including at least $23 billion in bonuses, this year. That's up from the $114 billion the banks shelled out to their employees in 2009. It translates to $149,472 per full-time employee for 2013, and is roughly triple the pay of the average American. The figures come from financial filings and the calculations of a top Wall Street compensation consultant.  [That average pay is somewhat misleading because pay is highly skewed to the top.  Jesse]

In an article in Tuesday's New York Times, [Hank] Paulson said he was disappointed by the size of the bonuses banks paid in the wake of the financial crisis and subsequent bailout. The former Treasury Secretary says he was dismayed about the timing of the large 2009 bonuses. He believes the payouts turned the public against the government's Wall Street bailout, but I don't think it was ever that popular, bonuses or not…"

Read the rest here.


"Experience should teach us wisdom. Most of the difficulties our Government now encounters and most of the dangers which impend over our Union have sprung from an abandonment of the legitimate objects of Government by our national legislation, and the adoption of such principles as are embodied in this act.

"Many of our rich men have not been content with equal protection and equal benefits, but have besought us to make them richer by act of Congress. By attempting to gratify their desires we have in the results of our legislation arrayed section against section, interest against interest, and man against man, in a fearful commotion which threatens to shake the foundations of our Union. 

"It is time to pause in our career to review our principles, and if possible revive that devoted patriotism and spirit of compromise which distinguished the sages of the Revolution and the fathers of our Union. If we can not at once, in justice to interests vested under improvident legislation, make our Government what it ought to be, we can at least take a stand against all new grants of monopolies and exclusive privileges, against any prostitution of our Government to the advancement of the few at the expense of the many, and in favor of compromise and gradual reform in our code of laws and system of political economy."

~ Andrew Jackson, Veto of the Second Bank of the United States

Age-Related Forgetfulness Tied to Diminished Brain Protein

Typical age-related forgetfulness and Alzheimer's disease follow distinct courses involving different neural circuits. Not much is yet known about natural, age-related memory loss. 

In a Science Translational Medicine article, Memory Protein Fades With Age, researches reported on a gene that reduced its expression by about 50% with age in both human and rodent tissues. The gene codes for a protein, called RbAp48, which regulates gene expression in the dentate gyrus, a region of the hippocampus. The dentate gyrus is involved in normal memory decline. A separate region of the hippocampus, the point of onset for Alzheimer's disease, showed no differences in the expression of RbAp48.

The protein RbAp48 might play a role in the functioning of synapses between neurons that faciliate learning and memory. It is not known why its production declines with age.

Exercise has been shown to improve the function of the dentate gyrus and to slow memory loss.

Source: Memory Protein Fades With Age


Commentary by Elizabeth Lopatto, Bloomberg:

Age-Related Forgetfulness Tied to Diminished Brain Protein

Age-related forgetfulness may be due to a deficiency in a brain protein that helps form memories, a study found. Targeting the gene that produces that protein could lead to new therapies, the researchers said.

Scientists identified the protein, called RbAp48, in human brain cells and showed that inhibiting it in mice made the animals forgetful while raising the protein improved their memories. That suggests that age-related memory loss may be reversible, researchers said.

“All of us are living longer, and we want to stay engaged in a cognitively complex world,” said Scott Small, a study author and neurologist at Columbia University in New York. The mouse studies show that that too little of the protein is causing memory loss, he said.

The findings also confirm that age-related memory loss is different from the deficits seen in Alzheimer’s disease. The research is published today in the journal Science Translational Medicine.

The researchers took the postmortem brains of eight people ages 33 to 88 who were disease-free, and examined the function of 17 genes in a part of the hippocampus, an area that is involved in memory. That section, called the dentate gyrus, has been shown before to change with age. The strongest changes were found in a gene that expressed RbAp48, which declines in function as brains age.

Keep reading: Age-Related Forgetfulness Tied to Diminished Brain Protein – Bloomberg.

Celebrating Life: Greetings From Germany

Courtesy of Mish.

Greetings from Munich and Rothenburg ob der Tauber,  in Germany.

Actually, I am now back in the states, having returned from a fantastic European trip with Liz, on a delayed honeymoon following our June wedding.

Click on any image below for a larger, sharper view.

Rothenburg ob der Tauber is rated as the best preserved medieval town in Germany.

Stone Walls Surrounding City of Rothenburg ob der Tauber

Rothenburg Entry Point Tower Known as the “Burgtor”

Rothenburg ob der Tauber – Markusturm Hotel (where we stayed)

Rothenburg ob der Tauber – Flowers and colorful buildings

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Here’s Why First Time Claims Support Fed Tapering and A Hostile Environment For Stocks

Courtesy of Lee Adler of the Wall Street Examiner

Initial claims for unemployment compensation declined at an annual rate of 11.3% last week, which was slightly faster than last week’s 10.1% rate and better than the average of the past two years. The data continues to allow the Fed an excuse to taper QE in September.

Stocks remain extended and vulnerable relative to the trends indicated by unemployment claims even after the recent pullback.  QE has pushed stock prices higher but has done nothing to stimulate jobs growth. The rate of change in claims hasn’t changed since 2011 whether the QE spigot was turned on or turned off.

The Labor Department reported that in the week ending August 24,  the advance figure for seasonally adjusted initial claims was 331,000, a decrease of 6,000 from the previous week’s revised figure of 337,000 (was 336,000). The consensus estimate of economists of 331,000 for the SA headline number was close to the mark. Forecasters have had clear crystal balls lately (see footnote 1).

The headline seasonally adjusted data is the only data the media reports but the Department of Labor (DOL) also reports the actual data, not seasonally adjusted (NSA). The DOL said in the current press release, “The advance number of actual initial claims under state programs, unadjusted, totaled 277,359 in the week ending August 24, a decrease of 2,959 from the previous week. There were 312,542 initial claims in the comparable week in 2012.”  [Added emphasis mine] See footnote 2.

Initial claims as a percent of total employed have recently declined to levels last seen during the housing bubble (see chart addendum at end of post).

The advance weekly report on fist time claims is usually revised up by from 1,000 to 4,000 in the following week when all interstate claims have been counted. Last week’s advance number was approximately 1,300 shy of the final number for that week posted today.  For purposes of this analysis, I adjusted this week’s reported number up by 1,500 to 279,000 after rounding.  It won’t matter that it’s a thousand or two either way in the final count next week. The differences are essentially rounding errors, invisible on the chart.

Initial Unemployment Claims - Click to enlarge

Initial Unemployment Claims – Click to enlarge

The actual filings last week represented a decrease of  10.8% versus the corresponding week last year. The prior week was down 10.1%.  There’s usually significant volatility in this number but over the past 4 weeks the rate of decline has been right around 10-11%. The average weekly year to year improvement of the past 2 years is -7.9%, with a range from near zero to -20%.

The current weekly change in the NSA initial claims number is a drop of 1,500 from the previous week after adjustment and rounding. That compares with an increase of 700 for the comparable week last year and an average change of a decrease of 3,000 for the comparable week over the prior 10 years.

To signal a weakening economy, current weekly claims would need to be greater than the comparable week last year. That hasn’t happened. The trend has been one of steady improvement.  The fact that the latest week was down 10.8% from last year is impressive given that these comparisons are now much tougher than in the early years of the 2009-13 rebound. The data suggests that the economy is still on the same track it has been on since 2010.

Real time federal withholding tax data (which I update weekly in the Treasury Report) showed some weakening in employment in July with a break of the trend of improvement that had been under way all year.  But withholding has been improving in August, returning to the trendline of the past year.  There’s little evidence of material slowing in the trend.

Cliff-Note: Neither stopping nor starting rounds of QE seems to have had an impact on claims. Nor did the fecal cliff secastration. The US economy is so big that it develops a momentum of its own that policy tweaks do not impact. Policy makers and traders like to think that policy matters to the economy. The evidence suggests otherwise.

Monetary policy measures may have little impact on the economy, but they do matter to financial market performance. In some respects they’re all that matters. We must separate economic performance from market performance.  The economy does not drive markets. Liquidity drives markets, and central banks control the flow of liquidity most of the time. The issue is what drives central bankers.

Some economic series correlate with stock prices well. Others don’t.  I give little weight to economic indicators when analyzing the trend of stock prices, but economic indicators can tell us something about market context, in particular, likely central banker behavior. The economic data helps us to guess whether the Fed will continue printing or not. The printing is what drives the madness.  The economic data helps to predict the central banker Pavlovian Response which is, when the bell rings —> PRINT! Weaker economic data is the bell.

There was no ringing of the bell again this week. The Fed still has an excuse to begin tapering QE in September.

I plot the claims trend on an inverse scale on the chart below with stock prices on  a normal scale. The acceleration of stock prices in the first half of 2013 suggested that bubble dynamics were at work in the equities market, thanks to the Fed’s money printing. Those dynamics may have ended in July. Tapering by the Fed would not make the environment for stocks any friendlier.  I address the specific potential outcomes in my proprietary technical work.

Initial Unemployment Claims and Stock Prices - Click to enlarge

Initial Unemployment Claims and Stock Prices- Click to enlarge

More charts below.

Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to the Wall Street Examiner.

Reflections on Peak Oil, India, Asia, and Global Growth; What’s the Mathematical Outcome?

Courtesy of Mish.

In response to Currency Lessons: Think a Sinking Currency is Always Good For Manufacturers? my friend "BC" pinged me with a few comments.

  1. India has a trade deficit of 10% of GDP.
  2. 70% of India electricity generation is from fossil fuels.
  3. 100% of India oil consumption is imported.
  4. 20% of India natural gas consumption is imported.
  5. India's Domestic crude oil and natural gas proven reserves are equivalent to 4-5 and 11-12 years of consumption at the 10-yr. trend rate.
  6. India is a disaster of national and regional instability in the making and not far behind Turkey and MENA [Middle East and North Africa].
  7. The ongoing economic decline or collapse and social disintegration in MENA, Turkey, Pakistan, Indonesia, India, and parts of China, will make the economic, social, and political landscape increasingly difficult, if not impossible, for most of us.

What's the Mathematical Outcome?

India wants to maintain 6% growth. China wants to maintain 7.5% growth. The US wants to maintain growth. Europe desperately wants to resume growth. Every country on the planet wants to increase exports relative to inports.

Ignoring Turkey, Indonesia, Pakistan, Africa, and the Mideast, the wants and needs of India, China, Europe and the US are mathematically impossible. That every country on the planet wants to increase exports relative to imports is mathematically impossible in and of itself.

History suggests that War is the inevitable outcome of such tensions, and clearly tensions are building.

Mike "Mish" Shedlock

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