Important read: “Where’s the Growth?”

John Mauldin’s latest weekend missive, “Where’s the Growth?” is an important read this week.

Just as the Catholic Church convicted Galileo as a heretic for pointing out that the earth rotates the sun and not the other way round as the church insisted, the economics and finance status quo directing global policy today is similarly wrong, entrenched and intolerant in its insistence that more and more monetary ‘stimulus’ is the solution to an already toxically-indebted global economy.

In the same way that unlimited steroid-use eventually degrades the health and viability of athletes, so relentless and wrongheaded monetary stimulants are degrading our economy. After 24 years of ‘stimulus’ experiments in Japan, followed by now 15 years of reckless easing and debt-schemes in the rest of the world, the results are quantifiable and undeniably devastating for real households.

And yet, those who dare to say so are systemically excommunicated from policy directing institutions and mainstream media all around the world. It is long past time for fresh thinking that works with the facts rather than tortured academic theories that have long been proven wrong and incredibly damaging. Getting new decision makers into the self-deluding monetary circles now running global policy is a critical next step in the recovery back from financial disaster. The critical steps are as always: admit, repent, reform, recover. So long as those who led into the crisis remain at the helm, there will be no admit and no repent, and thus no meaningful reform and recovery.

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Canadian TSX: lies your broker sold you

Good value at current levels? Just over six years and now back to 2008 valuations again (the same level that after the crash in 2009, the consensus said was “clearly an unsustainable credit/stock/commodity bubble.”) You are six years older and much worse for the wear. Now what’s the plan?

TSX Sept 22 2014

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Yoga for a youthful life

Joseph Encinia gave a seminar in our hometown on the weekend.  His story of using the practice of Yoga to treat childhood arthritis and kick prescription meds is inspiring. Yes we can.

Here is a direct video link.

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More Friday afternoon fun: S&P 500 and CRB Index

Further to the re-coupling-after QE theme, the large cap S&P 500 (top green line) would also need to fall 50% if it were to retrace and rejoin in its long-standing historical correlation with the CRB commodities index (bottom orange line) as shown below.  Just like the Venture Exchange in the previous post, the CRB Index is today back where it was in late 2009.  Over to you Janet.
CRB and S&P 500 Sept 2014

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Cdn Venture Index warns on Russell 2000 downside

In the time before the double-down pump and dump scheme released as “Q’Ever” in 2012, small cap resource companies that trade on the Canadian Venture Exchange Index used to move in strong correlation with the US based small cap Russell 2000 Index.

Russell and Cdn Venture Seot 2014 copyAs shown above, this historically positive correlation went negative over the past 2 years, as the Russell (top line) disconnected from the Venture (bottom line) and the real economy, and levitated along with large cap indices.  But then the plot thickens:  over the past 3 months, the Russell decoupled from the large caps once more, and is now negative year to date.  If the Russell were to recouple with its Canadian cousin from here, the downside for US small caps is about -50%.  At that point, they are much more likely to present some value worth owning.

 

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Rage of the clueless, now in full bloom

Wide-eyed teleprompter readers, most of whom have little savings to lose in the first place, nor any expertise or clue about how to protect and grow money, are having a heyday at the moment hammering anyone with actual investment discipline who is expressing concern about downside risk.

The fact is that those who have their own established rule set, don’t need to insult or belittle the approach of others or convince them to abandon their discipline and follow the crowd. Only those who are lost with no plan themselves, do that. This clip is actually comical in a pathetic sort of a way. Here is a direct video link. Bill maintains civility pretty well in the circumstances.

It is always the same. When the downturn hits, the same crowd will blab on about how no one saw it coming. Many of them will lose their jobs as shows get cancelled, hosts shuffle stations and strategists try to obliviate their capital-devastating track record by rotating to other firms. In the land of the blind, the one-eyed man is king.

Marc Faber has also been getting slammed the past few months for continuing to express facts about the outrageous risk in current asset prices. He managed to get in some good points in this clip.

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Global billionaire stats

In 2014 there are 2325 billionaires worldwide, 609 of them based out of North America…

The billionaire ranks are growing rapidly in many countries. Here is a direct video link.

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Meanwhile on the other side of the universe…

As some humans queue overnight to buy the latest iPhone…

Scientists have made a surprising discovery: A dwarf galaxy with a supermassive black hole at its core. The finding provides clues about other black holes in the universe. Here is a direct video link.

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Danielle’s weekly market update

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

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Scottish referendum explained for non-brits

An animated explanation of some fundamental questions prior to the referendum on Scottish independence on Thursday. Where is Scotland, what is Scotland and what does it mean to be Scottish? And what is the history of Scotland’s relationship with England? But the real question is, will Scotland be better off as an independent country? Here is a direct video link.

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Print less but transfer more to households?

Trillions pumped into the banking system since 2008 have only bought more treacherous asset bubbles and debt. New thinking is desperately needed. The idea of giving stimulus cash to households rather than bankers may seem problematic, but it couldn’t be worse than the monetary policies repeatedly tried to date. A recent paper Print Less but Transfer More offers some perspective and an overview of the math. You can also listen to an audio reading of the paper at the same link.

“In the decades following World War II, Japan’s economy grew so quickly and for so long that experts came to describe it as nothing short of miraculous. During the country’s last big boom, between 1986 and 1991, its economy expanded by nearly $1 trillion. But then, in a story with clear parallels for today, Japan’s asset bubble burst, and its markets went into a deep dive. Government debt ballooned, and annual growth slowed to less than one percent. By 1998, the economy was shrinking.

That December, a Princeton economics professor named Ben Bernanke argued that central bankers could still turn the country around. Japan was essentially suffering from a deficiency of demand: interest rates were already low, but consumers were not buying, firms were not borrowing, and investors were not betting. It was a self-fulfilling prophesy: pessimism about the economy was preventing a recovery. Bernanke argued that the Bank of Japan needed to act more aggressively and suggested it consider an unconventional approach: give Japanese households cash directly. Consumers could use the new windfalls to spend their way out of the recession, driving up demand and raising prices.

As Bernanke made clear, the concept was not new: in the 1930s, the British economist John Maynard Keynes proposed burying bottles of bank notes in old coal mines; once unearthed (like gold), the cash would create new wealth and spur spending. The conservative economist Milton Friedman also saw the appeal of direct money transfers, which he likened to dropping cash out of a helicopter. Japan never tried using them, however, and the country’s economy has never fully recovered. Between 1993 and 2003, Japan’s annual growth rates averaged less than one percent…”

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Reckless derivative speculation still backed by public purse

When we don’t learn, we are doomed to keep suffering…the investment banks are still backed by the public purse today and are now bigger and bolder in concentrated risk bets than ever before.

“In the past five years, the firm that took the largest U.S. bank bailout of the financial crisis increased the total amount of derivatives on its books by 69 percent, surpassing most U.S. peers and closing the gap with the market leader, JPMorgan Chase & Co. (JPM) At the end of June, Citigroup had $62 trillion of open contracts, up from $37 trillion in June 2009, company filings show. JPMorgan trimmed its holdings 14 percent to $68 trillion.

Citigroup is expanding as regulators try to rein in instruments that helped fuel the 2008 credit contraction. The third-largest U.S. lender has amassed the largest stockpile of interest-rate swaps, a type of derivative that can swing in value when central banks raise rates. More than 92 percent of the bank’s derivatives don’t trade on exchanges, making it harder for regulators to spot dangers in the market.”

See: Citigroup embraces derivatives as deals soar after crisis

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Scotland referendum: inside the Yes camp

The National travels in Scotland to get the pulse of the independence movement just a few days ahead of a historic vote to determine the country’s future course.

Those pushing for a Yes vote in Thursday’s referendum are motivated by a variety of reasons, she finds, and they are getting their message across in a number of creative ways.Here is a direct video link.


One overwhelmingly positive bonus of a “yes” win is that many of the financial rats that extorted billions in taxpayer bailouts over the past 6 years have promised to flee leave the country if Scotland secedes: “Royal Bank of Scotland, Lloyds of London and several other banks have already signaled they plan to move their headquarters if Scotland votes for independence.” Decentralized power is harder for bankers to control.

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IMF warns investors taking “excessive risks” in markets

First we had the OECD warn on Monday that current market bullishness appeared “at odds” with the “intensification of several significant risks.”

This morning we have the International Monetary fund, the world’s watchdog for financial and economic stability, warning that the global economy faces a growing risk from highly levered financial market bets that could “abruptly” unravel on geopolitical disruptions or a shift in U.S. interest rate policy. (So a shift like the +450% increase in policy rates that the US Fed sees themselves making in the next 12 months?) See: IMF warns: investors are taking excessive risk in the markets

And yet, the number of financial ‘experts’ voicing concerns has never been lower. As shown below, there are far more bulls today than at the suicidal market peaks of 2007 or 2000. (For important perspective, note below how few bulls there were at the cyclical market bottoms in 2002 and 2009 when investment opportunities were the most attractive in decades).

Investor intelligence

The internet and multinational financial and media conglomerates have made for unprecedented global consensus building behind misguided beliefs around central bank powers and economic strategies today. The heads of all the major central banks and financial conglomerates went to the same schools and worked at the same sell side firms before moving into present positions of influence and leadership. Not surprisingly then, they have recommended and implemented the same disastrous policies and ideas all over the planet. This has made the scope and scale of the present financial bubble and coming bust, the largest and most devastating the world has ever faced to date. At the same time, for individuals who are in their later working years or retirement, the room for error has never been lower and the capital too lose never higher.

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Fed expects to raise funds rate 450% over next 12 months

Tightening on steroids…from .25% today, the Yellen-led Fed says they expect to raise the funds rate to 1.375 (+450%) by the end of 2015 and to 3.75% (+1400%!) by the end of 2017. See: Fed officials predict Fed funds rate to rise to 1.375% by 2015-end.

That oughta put a little crimp in some bank profits. Behold the horror of the zero bound: all moves up will feel relatively monstrous.

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