More revolving door Washington to Wall Street

Employment agreements setting time requirements between leaving one position and moving to a competitor are the norm in business. The fact that there is none of this between government and big business is simply outrageous.

Ex-House Majority Leader Eric Cantor has joined a Wall Street investment firm.  Here is a direct video link.

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Sustainable food and the power of ‘we’ consumers

Omnivores DilemaA client who is a grass farmer recommended “The Omnivore’s Dilemma” to me this week. This presentation by the author Michael Pollan gives an excellent overview of the material.

The UC Davis Mondavi Center presents bestselling author and UC Berkeley journalism professor Michael Pollan. He explores the ecology of eating to unveil why we consume what we consume in the twenty-first century. Michael Pollan is the author, most recently, of The Omnivore’s Dilemma: A Natural History of Four Meals. Here is a direct video link.

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Sociopathic bankers so far still keeping their plunder

Bloomberg’s Max Abelson recounts his conversation with former Countrywide Chief Executive Officer Angelo Mozilo as he reacts to plans by the U.S. government to sue him in a civil case over subprime loans.  Here is a direct video link.

Sociopaths that make a half a billion dollars through the help and support of regulators and financial markets and the forbearance of prosecutors, have no reason to admit or acknowledge their predatory acts and harm inflicted. Mozilo is cocooned in a cozy club of bankers world wide who have made themselves mind-boggling sums at the expense of households, businesses, employees and taxpayers everywhere.

We, the people, continue to suffer and stagger under the weight of bad debts created in order for the financial executives to extract billions on to their personal balance sheets. Self-deluded to the end, the perpetrators have been allowed go free, keep the money and speak with indignation about the ‘unfair vilifying’ of the financial sector. Unless and until we are able to restore the rule of law on the banking sector we will continue to suffer the pain and cost of our largesse to them.

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Japan flounders afresh, endless stimulus schemes a bust

Word to central planners everywhere: the path to sustainable economic growth is not ‘get rich quick schemes’, more debt and monetary tricks. The solution is found in equitable societies governed by the rule of law, equal opportunity and strong households buoyed by wage growth, falling debt and strong saving rates who then feel optimistic and healthy enough to have children.

Japan photo “Despite ebullient forecasts that seemed to shrug off the effect of Japan’s sales tax rise, July’s economic figures from Tokyo have showed that the Japanese economy is continuing to struggle.”Most analysts expected a strong rebound in retail sales and household spending as stockpiles collected before the tax hike should have run out, but no such reality emerged. Instead, retails sales fell 0.5%, and household spending dropped 0.2%. Reevaluation of the data now shows that Japan is in an odd conundrum—inflation is both too high and too low. It is too high because the tax hike have had a legitimate curbing effect on household buying power, and too low, because at 1.3%, real inflation is still too weak to convincingly keep Japan out of a deflationary cycle. Wages have not risen along with this real and “imposed” inflation, so the bulk of Japanese are much worse off than when Abenomics started in April 2013. Part of the issue is that Japanese exports have not risen alongside the weakening of the Yen.

After 15 months, Japan seems essentially no better off than before its major stimulus. It is anyone’s guess how the dynamic duo of Abe and Kuroda will handle this situation.”

See:  Abenomics:  Japan Flounders  and Japanese Economy Flounders after sales tax rise.
Japanese GDPJapanese retail sales

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James Cameron on his latest film: Deepsea Challenge 3-D.

Just caught this segment on a replay last night. Understanding the oceans as critical life support for our planet is long-overdue. Here is a direct video link.

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“Equal and opposite move” likely to follow QE

Oops, CNBC is unlikely to be asking Abby back…(note the moans of the host at the end of the clip when she lays out the potential downside)…good for a giggle.

“Unfortunately, I think it could come on a crash similar to what happened in 2007,” the founder of Peak Theories Research said on “Squawk Box” a day after the S&P 500 closed above the 2,000 level for the first time ever. “It’s tough to know what the exact catalyst will be. But that’s the very nature of that kind of selloff. They start slowly and then happen very suddenly.” Here is a direct video link.

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Vicious snakes and shrinking ladders

An aggravating feature of this central bank magnified game, is that each snake finds players older each cycle with less income and time to recover losses. This is the critical point that financial types rarely acknowledge since their business models depend on desperate players willing to play the game even in the midst of irrational, reckless odds.
Snakes and ladders

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The sucking sounds of extractive thinking

Think record corporate borrowing to buy back shares is “brilliant” business management? Think again. For an excellent assessment of the extractive thinking swallowing the c-suite today, see the September Harvard Business Review, Profits without Prosperity. Here is a sampler:

“Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into widespread economic prosperity.

The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.

The buyback wave has gotten so big, in fact, that even shareholders—the presumed beneficiaries of all this corporate largesse—are getting worried. “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” Laurence Fink, the chairman and CEO of BlackRock, the world’s largest asset manager, wrote in an open letter to corporate America in March. “Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.”

Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.

As a result, the very people we rely on to make investments in the productive capabilities that will increase our shared prosperity are instead devoting most of their companies’ profits to uses that will increase their own prosperity…”

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Low rates and financial suicide

“Artificially depressed interest rates punish savers and cause them to seek yield by channeling funds to more and more speculative areas of the economy, while encouraging already indebted borrowers to take on more debt so long as the debt can be serviced for now.” John Hussman, Broken Links, Aug 25 2014

Individual families have borrowed themselves into financial demise the past few years.  The evidence of stress and financial fragility is everywhere we look.  See:  Canadians are indebted and stressed about it, for the latest staggering statistics.

Americans are a little less indebted than Canadians today thanks to some US debt write downs and foreclosures over the past couple of years, but the latest report shows that the median net worth for Americans as a whole declined by 6.8 percent between 2000 and 2011.  See:  Wealth gap widened.

Trillions of reckless monetary injections by misguided central banks have purchased negative net worth gains for the bottom 60% of American households (between 2000 and 2011), and just a 10% increase (less than 1% gain per year) for the top 20% of the population, as shown in this chart.

housenetworth_0Meanwhile corporations have borrowed themselves into a perilous future as well.  With poor demand and weak growth prospects, companies have also been enticed to borrow unprecedented levels at low rates in order to buy back their own shares (buying high) to boast short-term earnings and corporate bonuses at the expense of financial stability and longer-term health.  Here’s where corporate debt sits now.

Corp debt Aug 2014

So borrowers have gone postal.  But so too have those with savings to lose as they have increasingly tossed it into the highest risk bonds and stocks in a desperate push for yield even while sacrificing the capital itself. With every asset now over-bought and over-valued, only the junkiest, junk is yielding more than 4% as shown here. And the risk-reward tradeoff is completely unattractive.
Yielding little

This is now officially the largest credit bubble the world has ever known.  Borrowers never do repay that which they cannot. There is no chance the debt can all be repaid, many zeros will be crossed off balance sheets before this mess is resolved. This means that indiscriminate lenders will be the biggest losers here.  Which brings me to this lucid quote from Charles Gave this month:

“The big central banks seem to believe that printing money creates wealth. What such policies, in fact, do is ensure a different distribution of wealth that increases leverage and favors not legitimate risk takers, but groups which are politically well connected such as the too-big-to-fail banks. As such, the current approach is a clear expression of a policy captured by a crony class, and needless to say it is defended by the same group. This is not to engage in conspiracy, or to claim malfeasance by particular individuals. But what cannot be doubted is that even as those closest to the money source have made out like Cantillon, the outcome for pretty much everyone else has been awful. Looking forward, this cannot go on and I would hence avoid financials everywhere.”

And with Federal Reserve debt that looks like this next chart below, there is no one to bail out the banks this time.  A crazy cycle in history is thankfully headed to a much needed end/cleanse.
Central bank balance sheet

It has been said that suicide is a permanent solution to a temporary problem. It is financial suicide to pile cash into assets at irrationally high prices in order to appear like one is making short-term gains. Better to wait for prices worth taking once more. They will come for those who are ready.

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Danielle’s weekly market update

Danielle was a guest today with Jim Goddard on Talk Digital Network, talking about recent trends in the world economy and markets. You can listen to an audio clip of the discussion here.

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Bonds break faith with central banksters

Long bond yields are headed south pretty much all around the world today. Whether it be consumers and businesses pulling in on travel, trade and spending because of Ebola, ongoing conflict in the Ukraine, or the middle east, the world’s major economies were teetering on economic contraction in the first half of 2014, and the second half is now looking weaker still.  The Fed needing to raise rates soon to pull in accelerating growth and inflation?  In their dreams.

The US bond curve has flattened to just 1.50% of additional yield in 30 year treasuries over 5 year treasuries. This is the flattest the curve has been since January 2009 when the world was last in global recession and suggests that the bond market sees slower growth ahead.  Normally, this would also mean that central banks would be expected to cut short rates as the economy slows.  This time, of course, they are already at zero.  There is no cavalry left to come.  Stocks have yet to comprehend.

The chart below of the 30 year treasury yield shows that year to date, there has been a decisive break down of the rising yield trend that had been in play since Q’Ever spurred rabid accelerated growth hopes in late 2012.
30 year Aug 22 2014
But wait, Mad Mario says he’ll keep rates lower for longer in the EU even if the US Fed were to start hiking in 2015…but then real rates have already been negative for the past several years as shown in his chart here.

Real rates Euro and US

And still unemployment has soared since 2008 in the Eurozone as shown here.

Unemployment Euro and US since 2008







How does one push a gas pedal that is already fully down, through the floor-board and out the other side? Not to worry though, Mario says he’s “confident” stimulants are working. Any day now.

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More fun with Mario and Janet…

As the press builds up the second coming of Janet at Jackson Hole today (“The Oracle speaks at 10!!). The ECB’s Draghi will be layin’ it all down at 2:30! Stay tuned.  What will the great magicians propose next.

A client sent me this link today to a Vera Lynn song he remembers as popular after World War II. For me the song expresses a rather eerily naive sentiment for after the war, and for our present times as well. Here is a direct audio link.
Janet stay the course cartoon
Meanwhile the fruit of central bank handiwork: serial asset bubbles, massive malinvestment, destructive capital incentives and ominous systemic risk continue to rot the global economy from the inside out.

Global consensus growth 2014
Chart source:

wage growth bbg

But I know, let’s not let facts get in the way today…All eyes on Janet.

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The endless potential to learn

Khan Academy is on a mission to unlock the world’s potential. Most people think their intelligence is fixed. The science says it’s not. Here is a direct video link.

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Bubble songs to start another day in Fed-land

Thanks to a reader for sending me a link to these cute Preschool Bubble Songs, that seem so perfectly applicable to our present times:

Bubbles EverywhereFed_bubbles_cartoon_07.09.2-14_large

Bubbles, bubbles everywhere,
Gently flowing through the air,
Bouncing around without a care,
Bubbles, bubbles everywhere.

Bubbles in the Air

Bubbles, bubbles up in the air,
Bubbles, bubbles you’re everywhere;
Bubbles, bubbles happy are you,
Bubbles, bubbles we are happy too!

The Bubble SongGreenspan bubbles

One little, two little, three little bubbles,
Four little, Five little, Six little bubbles,
Seven little, Eight little, Nine little bubbles,
Ten little bubbles go pop, pop, pop, pop, pop,
Pop those, pop those, pop those bubbles,
Pop those, pop those, pop those bubbles,
Pop those, pop those, pop those bubbles,
Ten little bubbles go pop, pop, pop, pop, pop.

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Stocks at cyclical highs while global economy slumps

This morning we see more confirmation that the much banked on rebound in the Chinese and European economies is not materializing.  What!! The stock market discounted this expected rebound months and months ago! You mean these cheques might not clear the bank??!! See:  Manufacturing slows:  from Europe to China on trade risks.  Heaven forbid one should be bearish of course, but stocks back at 6-7 year highs while growth continues to slump…

U.K. stocks may have passed their peak bringing an end to a five-year bull market, according to Michael Franklin, chief investment strategist at Beaufort Securities Ltd. He says investor sentiment is “quite fragile” due to geopolitical tensions in Gaza, Ukraine and Iraq. Here is a direct video link.

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