This clip this morning from Bloomberg underlines the glaring disconnect today between the reality of the real economy and households and those working on the sell side in finance.
Completed dental follow up appointments in the US have retraced to the lows of the 2008 recession. But not to worry, Wells Fargo sell side “Equity Strategist” Gina Martin Adams offered a bullish take on this presently bearish indicator. Adams cheerfully explains that she has been so busy helping her firm sell IP0′s–risky investment-products-at record-valuations–to Joe Public the past couple of months, that she just can’t get to the dentist. Poor Gina: oblivious, clueless and in need of a cleaning. Hard to not feel painfully embarrassed for her. Here is a direct video link.
The same group were also discussing with some alarm the throngs of homeless people that are now living on the streets of New York. Two of the guests said they were life long New Yorkers and had never seen so many street people in lower Manhattan. More evidence of the economic hardship that has grown from the financial crisis and great recession. Shades of the 1930′s. Of course the bankers, who created the debt bomb and then were rescued from their deserved financial demise by the taxpayers, remain mystified as to why this is all happening…
The Wilshire 5000 is generally seen as the best measure of the entire U.S. stock market. The below chart plots the broad Wilshire 5000 (brown) and the S&P 500 (blue), today near all time highs, as against the Canadian Venture Exchange (red) since 2005. While historically correlated, the disconnect the past 3 years since Q’Ever was promised has been extreme.
Today at 838, the Venture has confirmed its secular bear promise, mean reverting below the most recent June 2013 low at 859 and now within striking distance of the 678 bear market bottom of 2009.
For the broad markets to recouple their usual positive correlation with the Venture and close this gap, the implied downside is about -57% from present highs.
Easier done than most would imagine…
Former Boston Celtics basketball player Antoine Walker explains how he lost $110 million. Here is a direct video link.
Geithner has testified to Congress on these matters in the past, but cross-examination by highly skilled opposing counsel in this law suit is more likely to ferret out some truth about what happened, than a finance-deferential room of politicians…
Bloomberg’s Peter Cook recaps former U.S. Treasury Secretary Timothy Geithner’s testimony on the government’s bailout of AIG as he prepares to return to the stand for a second day. Here is a direct video link.
Danielle was a guest today on The Financial Survival Network with Kerry Lutz talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.
It’s back… Here is direct video link.
Apparently a high profile British banker pled guilty today in a London court as part of his “deal” with prosecutors. A gag order so far prevents the press from releasing his name or further details. This could mark some progress in the road back to personal accountability in the finance sector and away from the outrageous pattern the past 6 years of having corporations plead guilty to rampant financial crimes with no directing minds having to admit any fault.
The first guilty plea in the Libor investigation is a “milestone” says David Enrich, European banking editor at the Wall Street Journal, adding that the senior banker’s identity is to be protected. Here is a direct video link.
In the US we also learn that the the Justice Department is preparing a fresh round of legal actions against the world’s biggest banks:
“With evidence mounting that a number of foreign and American banks colluded to alter the price of foreign currencies, the largest and least regulated financial market, prosecutors are aiming to file charges against at least one bank by the end of the year, according to interviews with lawyers briefed on the matter. Ultimately, several banks are expected to plead guilty.”
In a related story, we see that former New York Fed president and Treasury Secretary “Tiny” Tim Geithner is on the stand today answering questions about the AIG bailout. Here is a direct video link.
No doubt the popular executive “I don’t recall” card will be heavily played by all…
As we warned that it would, the strong U.S. dollar is posing a triple threat to U.S. earnings. Here is a direct video link.
Most importantly for stock prices, this is coming at a time when S&P earnings have been above trend for the past 4 years (not because of robust sales but mostly because of cost cuts in the 2008 recession and because corporations have been spending 90%+ of their net income to buy back their own shares to prop up earnings). As we saw at all previous cycle peaks and most recently in 2000 and 2008: mean reversion in earnings is inevitable and hard on over-valued investment markets.
Actually the time for “big changes in banker pay” came years ago back in the 2008 collapse, but we will take the changes as soon as we can get them… After 6 years of token gestures and tinkering at the edges of needed reforms, this latest talk from the IMF has the smell of progress. See: IMF: time as come for big changes in banker pay.
It doesn’t take 2000 pages of legislation to change the incentives that have bankrupted the financial system, just 4 simple large strokes:
- cut the line of credit between taxpayers (gov’t) and risk taking at financial firms by restoring Glass Steagall,
- pay banker bonuses in bonds of the companies they manage, not in equity,
- hold the executives personally accountable for the breaches of the corporations under their management,
- claw back executive pay where they are found to have broken rules.
Financial system solved. Then its back to work on the global issues that are actually worthy of all our time and attention like energy, health, education, water, sustainable biosphere…
Gary Shilling’s monthly missive “The Robust Buck” (subscription only) takes a detailed look at the forces that have been strengthening the US dollar since 2008 and the negative effects this is having on commodity prices, exports and US corporate profits. Shilling also explains why the rising greenback is likely to continue for the foreseeable future based on its relative advantage in 6 key characteristics that have historically defined the dominant global currency:
- Rapid growth in the economy and GDP per capita
- A large economy
- Deep and broad financial markets
- Free and open financial markets and economy
- Lack of substitutes (Bitcoin anyone? -70% in past 8 months, -20% in past 2 days.)
No one is saying America does not have some large financial issues to address. But in a world of captive capital and a global debt bubble, the contest is always “relative” to other options.
The chart below gives a 34-year long-term view on the Canadian dollar (purple) and the US dollar (red) since 1980. The C$ continues to look expensive.
A reader recently reminded me of an interview I did with Alasdair MacLeod at the Hard Assets show in New York in May 2012. Here is a direct audio link. Commercials have been inserted in the clip in a couple of spots, but one is able to click ‘Skip Ad’ to by-pass quickly and continue.
At the time of our discussion on May 16, 2012, metal prices had just begun to roll over from their 2011 all-time-highs. The show was teeming with precious metal promoters predicting that the US dollar was collapsing. I was a rare non-believer and received regular hate mail for my views. After the past 2.5 years of extend and pretend policies in the finance sector, I think that our conversation on sober next steps remains relevant.
One is reminded of all the people who wrote and spoke so passionately about why gold and silver could only go higher…another sad example of buying a story without understanding the capital cycles driving it.
Today the headline ‘strong US jobs report’ gives the Fed further justification to continue on their desired and politically necessary retreat from ‘Quantitative Easing’. This is supportive for the dollar. Now through the 86 resistance line (far right below), the 100 level is the next test area ahead.
A rebounding dollar will continue to translate US multinational earnings lower (the reverse of what helped push S&P 500 earnings well above historic norms as the dollar fell). It will also hamper US exports and intensify deflationary effects in other export-focused economies who are all battling each other to make their goods cheap for foreign consumers. It is also likely to continue driving metal prices lower for a while longer: gold is -9% over the past year, and -38% from the 2011 peak, silver is -24% over the past year and -65% since 2011.
As the long term chart of gold shows below, now hovering just above previous support at 1180, a failure to hold this level suggests a retest into the 700 to 1000 orange band last tested in the 2006- 2008 liquidity crisis.
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.