Cory's Chart Corner
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If only the riggers could maintain control of markets indefinitely, then we could all go to sleep and enjoy the ride to riches beyond belief without any risk of loss. In reality of course, their control is an illusion that is destined for a rude awakening. So far this year however, the magic of Tuesdays has been impressive indeed.
Gallup’s April 3-6 Economy and Personal Finance poll, finds that the majority of Americans continue to enjoy saving money more than spending it, by 62% to 34%. The 2014 saving-spending gap is the one of the widest since Gallup began tracking Americans’ preferences in 2001. Here is the chart.
Aspiring to save rather than spend is progress over the mindless ‘spend your way to bankruptcy’ model led by Greenspan from 2003 to 2007. But the longing to save is not necessarily a reflection of reality since saving rates have in fact been dropping again over the past 2 years. Still struggling to pay down high debt levels amid stagnant wage growth, the masses have developed a keen sense of their financial vulnerability–they feel it in their bones. At the same time, their best interests and wise urge to build up savings stands in direct conflict with Central Banks’ and their preoccupation with enticing people to continue borrowing and spending in order to buoy bank profits and force consumption.
“On a macro level, economists would typically view increases in personal consumption as a positive sign of an improving economy. But if the increases in spending are occurring out of necessity, not desire, and Americans take on more debt or deplete their savings, the picture may not be quite as rosy. Data from the U.S. Department of Commerce show that the 2013 average personal savings rate was 4.5%, the lowest since 2007 and low historically. The U.S. average personal savings rate in the 1970s was 11.8%, 9.3% in the 1980s, and 6.7% in the 1990s.
Stagnant wage growth and the overall sluggish recovery from the Great Recession perhaps have contributed to decreasing personal savings. While Gallup data indicate a stronger preference to save than to spend, in reality Americans seem to be having difficulty putting together a safety net. This has more than likely contributed to the lingering pessimism about the U.S. economy.”
For all the hype and hope chorus of “global growth getting stronger any day now”, so far Q1 earnings and revenue numbers are f’ugly, with 1/3rd of S&P companies missing earnings targets (even though they had aggressively guided expectations lower throughout the quarter) and most indicatively, 51% have, so far, missed their sales forecasts.
Perhaps this is why commodity currencies like the Canadian loonie remain out of favour in FX markets, with less buying interest today than at the last interim low in the fall of 2011 (see green circles on chart below). Lower on the week, today the Canadian dollar is at the same level as in June of 2009 when the world was struggling for traction out of the great recession–it still is today.
No wonder then, that corporate cash is not being deployed into capital expenditures, workers or business expansion. Rather management are using soaring stock valuations (buy high!) as an opportunity to hoover up company shares on the open market while continuing to sell their personal holdings of the same shares at a record pace in a brilliant financial strategy otherwise known as the pump and dump aka “get while the goin’s good”.
Goal Zero started as a penniless nonprofit, but it’s now the ninth fastest growing company in America. Here is a direct video link.
As financial markets race up and down on the rudderless barrage of high frequency robots again this week, an excellent article from Germany’s DER SPIEGEL offers a thoughtful update on the erroneous and now eroding belief that central banks are in charge, able to drive growth or control stock markets.
In fact whether it be Janet Yellen, Mark Carney(ex-Goldman Sachs) or Mario Draghi(ex-Goldman Sachs), the relentless obsession with Central Bank circus reminds of how far away from productive, intelligent financial decisions the world remains, now 7 long years since the financial crisis first broke.
The following graphic captures the cost of 7 years of Central Bank hubris and political chaos, as policymakers continue to toss trillions into grotesquely bloated and recklessly governed investment banking conglomerates. In short: a flurry of foolish sound and fury, accomplishing nothing, while setting meaningful reforms and recovery further behind.
Read the whole excellent article here: Out of Ammo? The eroding power of central banks:
That’s because much of the money flowing into the financial sector did not reach the private sector in the form of credit, as central bankers had expected. Instead, banks are pumping it into the stock market, where prices have reached dizzying highs in recent months. Values are now approaching levels similar to those before Black Friday in 1929 and the bursting of the dotcom bubble 70 years later.
Part of the blame lies with politicians in Washington, who are unable to agree on the federal budget. Companies don’t invest as long as they don’t know how their tax burden will look in the coming years, and as long as they don’t invest, the economy will remain sluggish. The central bank’s fuel isn’t reaching the engine, [Dallas Fed Richard] Fisher warns, adding that it is bubbling in a giant gas tank that could explode at any moment.
If that happens, how can inflation be prevented, Fisher asks? How should the monetary watchdogs react if [when] the markets collapse? And how will citizens respond to the losses that the central bank will inevitably incur if treasury securities lose value? Will they accept this without complaint, or will they bend to the will of politicians on the fringes of the left and right, who argued in the last presidential election that the Fed should be placed under government control?
While ending this period of reckless policies will be a relief and a necessary step to recovery, none of it will be able to make whole on the trillions wasted and savers who will be further decimated in the next round of market losses.
Meanwhile even the much celebrated (and exorbitantly paid) Mr. Carney (“The Star” as Der Spiegel sardonically dubs him) is deservedly losing his luster in England–an inevitable outcome when one over-promises and under-delivers so much:
“…the newcomer’s aura has faded considerably. As the British pound strengthens and real estate prices rise to worrying levels in several regions, Carney is coming under growing criticism. Many are beginning to notice that the Bank of England’s balance sheet is still completely bloated, because England’s monetary watchdogs bought large amounts of government debt during the crisis.
“I suspect,” says Martin Weale, a member of England’s Monetary Policy Committee, “people might be expecting a bit too much of (central banks).” In the end, he explains, a central bank has only one central instrument: the interest rates. “You can’t deliver four or five different things with it.”
In an expensive big media world paid for by sponsors, getting important issues covered in a balanced and thoughtful way is not easy. Some argue that today’s media-drenched, distracted public has no appetite or patience for detailed, weighty discussions…but is that true?
Videos first came online nearly twenty years ago. They were tiny, low-quality, and barely worked, thanks to dial-up. Conventional wisdom said: make videos short – nothing over a minute or two.Users would be lucky to download anything at all. Flash forward to 2014. Homes are on broadband. Everyone seems to have a smartphone. But even now, many believe that video should be short, funny and hopefully viral. Even with fast Internet and fast devices, no one — especially not young people — will watch more than a few minutes. Long form video just doesn’t do well online.
Except that it does. Long form video journalism can be hugely popular online, and potentially very profitable. Here is a direct video link.
Good discussion on the many ways in which high frequency trading firms collude with brokers, exchanges and data services to “queer the market casino in their favour”. And no, its not just in the US stock markets…we see daily evidence of rigging and scamming in most markets in the world today as unethical actors hide behind computers and speed largely imperceptible to the human eye.
Brad Katsuyama never aspired to be on Wall St. but ended up as a Wall St. trader for RBC. Disturbed by the undeclared advantages of high-frequency trading, he refused to join in the secrecy and has now become a revolutionary in the world of high finance. Micheal Lewis shares Brad Katsuyama’s excellent adventure and what should be done to undo the rigged market. Here is a direct audio link
And here was Brad Katsuyama in his own words on CBC last week. Here is a direct video link.
Antonio Vivaldi’s “Summer” is the setting for a musical competition. Salut Salon stage an acrobatic fight with a lot of humor – a classic of the Hamburg quartet. Here is a direct video link.
When this ridiculous stock market implodes once more, strategists will be scampering to explain how some unexpected event caused losses that “no one could predict.” That of course will be just as false then as it was in 2000 and 2008. The below chart offers a reality check for anyone wishing to stay awake and ahead of the curve.
Data source see: Factset
If I had a fresh veg-smoothie for every “guru” I have heard hyperbolising about China and its “insatiable” demand for commodities and resources the past 8 years, I would be well nourished for the rest of my life. Hopelessly unrealistic and greed-blind, a great many people were predictably–dead wrong. See this excellent slideshow for a pictorial update on the massive real estate overbuild and credit crisis now plaguing China.
It is helpful to recognize that human behavior on credit steroids is consistent across borders and generations.
From 2003 to 2008, China’s growth was fueled by demand courtesy of the consumer debt bubble in the west (Greenspan’s Fed pushed rates to 1% after the dot-bomb and investment banks engineered and sold reckless debt with wild abandon). Since that bubble burst in the west, over the past 6 years, China’s growth has been driven by domestic debt-fueled spending, especially on real estate and transportation. See: Housing Trouble Grows in China
“If all the developers here stop building right now, there’s still enough apartments to last the local and migrant populations for another six to eight years,’ said a discouraged Changzhou sales agent.”
“Local developers say at least three large projects together totaling more than two dozen 20-story apartment buildings have been abandoned due to low sales and won’t be completed unless the city figures out a way to revive them.”
Once the frenzied bidding and building of a bubble ends, participants and economies are left drowning in debt. China is no exception. Next comes the long hangover of sluggish growth and low monetary velocity, where adding more non-productive debt to the banking system merely weighs down demand and the economy further. See: Giving credit for China’s slowdown
After the fever of credit mania, participants sober up en masse and start focusing on practical needs like food, sustainable energy, shelter, health and cash in pocket. No surprise then that gold is losing its luster. See: China is losing its taste for gold.
This gold statute of Mao Zedong, valued at about $16 million, at an exhibition last year in Shenzhen is a lasting testament to how unproductive and misdirected human aspirations have been over the past few years. Hopefully the pain of loss will leave a lasting memory in some for a few years to come. If that happens, then at least some of this foolish period will have been productive.
Thanks to a regular reader in the Netherlands who sent me this link tonight. It is worth watching. Now Senator Elizabeth Warren–then a commercial/bankruptcy professor at Harvard Law School–gave this lecture in 2007 on the trends behind rising bankruptcy and financial stress in the middle-class (“UC Berkeley Graduate Council Lectures”). As households continue to struggle under record debt levels in 2014, the socioeconomic trends outlined by Ms. Warren remain relevant in North America and beyond.
In order to rebuild the middle class, we need to first understand what ails it. Despite spending less today on food, clothing and appliances, Warren identifies 5 fixed costs that have surged since 1970: housing, healthcare, auto costs, child care and household taxes. She also explains why two income families today have less disposable income than one income families in 1970. They also face greater financial risk with much less buffer to absorb life’s shocks. This weakening of the middle class masses is a weakening of our entire economy. Here is a direct video link.
Matt Taibbi talking about his book The Divide: American Injustice in the Age of the Wealth Gap on Real Time with Bill Maher. Here is a direct video link.
Sensitive readers beware: the clip includes some profane language.
Bloomberg’s Bob Ivry describes how Wall Street’s practices can be adapted to the seven deadly sins and how they impacted markets and the United States economy. Here is a direct video link.
The downfall of regular people, democracy and the real economy the past 30 years, has been widespread complacency and tolerance for the financial cartel’s repeated disregard and abuse of existing laws and ethics. The world continues to pay a heavy cost.
Alas scorpion investment bankers continue to sting and incapacitate the global economy because even as they relentlessly jab and cripple the host, governments and policy makers have repeatedly backstopped and saved them from their deserved demise.