Danielle was a guest today with Kerry Lutz on The Financial Survival Network talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.
A first hand account of the corrosive regulatory capture caused by the revolving door between token finance regulators and the financial firms that hire them as defence counsel and lobbyists once they leave office.
“The real world sees a pandemic of bank misconduct, but to the white-collar defense lawyers of Washington, the banks are the victims as they bow beneath the weight of regulators’ remarkably harsh punishments…” See: The Big Bank Backlash:
“These strategies have been employed to glittering success. The guilty pleas and admissions have been largely by subsidiaries or been rendered toothless. Entities have admitted to charges that were narrow or unspecific and did not open up them up to further private litigation. And, of course, no powerful individuals at any of the large, fine-paying companies — Credit Suisse, BNP Paribas, the banks in the rate-manipulation investigations, HSBC, Toyota, General Motors, BP — have been criminally charged. (And we aren’t even talking about financial crisis-related malfeasance.)
This is how power and influence work in Washington. Former top officials, whose portraits mount the walls, weigh in on matters of enforcement. Now working for the private sector, they assail the regulatory “overreach.” Sincerely held or self-serving, these views carry weight in Washington’s clubby legal milieu.
Financial firms led the fight against Eliot Spitzer, the hard-charging former New York attorney general. When the Bush administration issued a set of guidelines for prosecuting corporations that included some relatively tough procedures, the United States Chamber of Commerce and the white-collar bar revolted.
And now, just when corporate punishments are starting to prick the skin, the backlash is in full cry. Former regulators are the mouthpieces. And given what they say in public, one can only imagine what is happening behind closed doors.”
The picture of risk for the Canadian broad market: the financial sector is its most concentrated exposure (today 38% of the TSX) as the basket of shares (XFN) lept an outrageous 100% in the last 2 years of ‘QE-ever’ mania. Today rolling over once more at near-term resistance, a retest at short term support (marked below) seems likely.
For further thoughts on downside potential and ramifications for the Canadian market, see Canadian equity market: concentrated capital risk.
I am for the founding principles of democracy: one voice, one vote, self-initiative, self-reliance and individuals accepting personal responsibility for their decisions. I am for the rule of law–that rules must be transparent and applicable to everyone in the society regardless of station or association. I am for level-playing fields, hard work, self-discipline and fiscal conservatism that minimizes debt and encourages responsible spending and saving. I am against rigged markets and purchased political favor that affords a few great advantage, while tapping the public purse to prop up certain asset values and protect those few from their deserved financial losses.
It is not that anyone should expect income equality. A meritorious society naturally affords different compensation for different people and activities. It is the opportunity inequality which has become so extreme, systemic and self-defeating over the past 30 years. By multiplying debt to toxic levels, households, corporations and governments have all come to expect too much for too little. Now at the end of a 65 year debt Supercycle it is time for everyone, from the left to the right, to sober up.
Former Clinton labor secretary, Robert Reich joined Moyers & Company to discuss the 2013 documentary film, Inequality for All. Here is a direct link to the interview. Here is a direct video link to the “Inequality for all” film trailer in case you haven’t yet seen it.
Important discussion on Moyer and Co this month.
“Attorney General Eric Holder’s resignation last week reminds us of an infuriating fact: No banking executives have been criminally prosecuted for their role in causing the biggest financial disaster since the Great Depression.
“I blame Holder. I blame Timothy Geithner,” veteran bank regulator William K. Black tells Bill this week. “But they are fulfilling administration policies. The problem definitely comes from the top. And remember, Obama wouldn’t have been president but for the financial contribution of bankers.”
And the rub? While large banks have been penalized for their role in the housing meltdown, the costs of those fines will be largely borne by shareholders and taxpayers as the banks write off the fines as the cost of doing business. And by and large these top executives got to keep their massive bonuses and compensation, despite the fallout.
But the story gets even more infuriating, the more Black lays bare the culture of corruption that led to the meltdown.”
Here is a direct video link.
Jim Rickards, Chief Global Strategist at West Shore Funds, explains China’s gross domestic product figures. Here is a direct video link.
As markets swooned the past couple of weeks, central bankers began to panic and take to the
policy propaganda media channels talking about other stimulative tricks they could try. Of course with their policy rates already at nil and balance sheets already full of debt, talking and buying up more financial assets are the only tools they have left, and both are at best, temporary in effect.
Nevertheless, the past three days have seen a reflex rally in risk assets and we could easily see a 2/3rds style recovery of the prior decline before the next overhead resistance level is tested.
The following chart of the Canadian TSX offers a big picture view on the decline since September, the present rally and where we could see the next overhead test in the 14700 to 15100 area marked in the orange band below. Big interim rallies are par for the course in corrective cycles. But unless they break above prior resistance peaks the downward trend remains in place. Stay tuned.
China joined the World Trade Organization in December 2001 and global trade entered an era of unprecedented reciprocity. Chinese workers made goods cheap and the west bought trillions by increasing debt at every level from households to corporations to governments.
Each time debt levels approached rational limits, ‘genius’ investment bankers conspired with politicians and product-sellers to conjure fresh tricks to move debts ‘off-book’ and package them into derivatives that made liabilities look like assets. The effect was truly unprecedented and the add debt and stir potion enabled more global consumption than any other period in human history. Until of course, the bubble inevitably burst in 2008 and slumped the world economy into the deep, long pay back period that persists today. Global growth has been coming in at less than half the rate it was in the debt building period to 2008.
As US debt accelerated, the value of the US dollar plunged by 36% in just 7 years between 2001 and 2008 and commodities priced in US dollars soared. Few indicators reflected the consuming on debt/falling dollar story more than copper.
In this long-view chart of copper since 1980, we can see the sideways range from 1980 all the way to 2005, and then the blow off top from 2005 to 2007 as the property bubble peaked and burst in America and the US dollar bottomed.When consumption fever broke at last, realty prices and demand plunged into the great recession of 2008. In response central banks rushed in with ‘liquidity’ backed by taxpayers to rescue the investment bankers and speculators that had enabled the bubble and bust.
At the same time, price fixing and illegal manipulation by ‘market makers’ became a widespread practice across a range of asset markets. As a result, over the past 4 years, even as global demand weakened and copper inventories piled up, copper prices– historically monitored as a global growth barometer–managed to magically levitate north of $3.00 a pound. Last week this changed with copper closing below $3.00 a pound for the second time in 2014, and being the first year it has done so since it rebounded out of the 2008 recession-lows (see above).
For those who think that a breach below $3.00 a pound is surely fleeting, we point out that the pre-credit bubble range of 1.00 t0 1.50 a pound is long-term support, and still some 50% lower than current prices. Food for thought.
With the equity mongrel horde still calling for higher interest rates and insisting that bonds are for dummies– even though the total return on treasuries has outperformed the total return on stocks by 5.7 x since 1982 (well how’s a devoted risk-seller to make outrageous commissions if people insist on owning the lowest risk deposits for heaven sake?)– here’s a thought: what if US government bond prices were only just started into their next leg of ascent?
I have written many times about higher yielding North American treasuries being relatively attractive when compared with other developed country bonds and in an era of strong deflationary forces caused by a global debt overhang and aging demographics. See: North American Treasury yields: how low can they go? for more context.
As shown in the chart below, each time the German 10-year yield has taken another leg lower during the economic ‘recovery’ over the past 6 years, the US 10-year has not only followed, but actually made a lower low (ie., US treasuries have increased in price by more). With the German 10-year yield today at .84%, the US 10-year yield is now looking downright fat at 2.19%. Could this time be different? Or could US 10-year yields actually move below 1% in risk-averse months ahead (as per dashed blue line) and racking up further capital gains in the process? The answer seems to be yes. Of course, don’t look for the investment sales monkeys to see that one coming…
Danielle was a guest today on Talk Digital Network with Jim Goddard, talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.
Traditionally the Canadian dollar has tracked global demand for the nation’s rocks and trees.
As shown in the chart below, the connection between Canadian exports and the strength of its currency historically reflected in a correlation between Canadian resource-based venture companies (CDNX Index) and the loonie. In 2011 as central banks went full nut-job with herculean promises of monetary power, the resource sector remained unconvinced and followed global manufacturing output lower, while the C$ weakened to a lesser extent.
Over the past couple of months, the loonie has rejoined the resource sector’s trajectory but with a glaring gap now evident between the two. This morning wildly volatile, the Canadian dollar index has now broken below cyclical support that had held out of the 2009 recovery. Further downside to at least the last recession bottom in the .80 range seems probable, with further declines possible into the .70′s after that.