Juggling Dynamite

It took years of focused effort to seduce retail investors back into harm’s way.  They were hurt so badly in 2000-02 and 2007-09, it was hard to get them back.  But now, finally, after 6 long years of pumping and talking it up, little people have let down their guard once more and levered themselves up to buy stocks with the most borrowed funds in history.  Battered and broke, desperate and hopeful; dreams of striking it rich and winning, have won them back to the craps table.  Brutally short on cash, they have now literally run margin loans to the max to buy back in.  Broker/dealers are scalping the margin interest, gloating over the ‘low hangin’ fruit’ of their ‘distribution channels’, selling their customers’ order flow so that high frequency trading machines can frontrun the little people’s naive dreams of financial freedom.  All in a day’s work.

Just when bankers were worried more greater fools could not be found, they pulled them in again.   Banker/brokers are back on top, pumping and dumping, and all the while confident that the government will hold them harmless the next time it all blows up as well.  As for the little folks…well, thanks for playing.  Better luck next time.

Fredric Tomczyk, TD Ameritrade CEO, weighs in on the pulse of retail investing, and which stocks clients are buying. Apple is our most widely held stock, says Tomczyk. Here is a direct video link.

‘Millennials’ is the term for the cohort of people now age 18 to 34. There will be 75.3 million American millennials in 2015, compared with 74.9 million baby boomers between ages 51 to 69. In terms of economic impact, it is important to appreciate that the ongoing debt bomb and financial crisis are having a lasting effect on the millennials as they struggle to get an economic foothold. Millennials are under-employed and indebted with little savings.  This is bad news for economic growth, the tax base, pensions and social programs. It’s also bad news for boomers looking to fund their retirement by selling financial assets and real estate at high prices to younger buyers.

“The birth rates for women in their 20s saw a 15 percent drop from 2007 to 2012, the Urban Institute report released Tuesday found. The decrease contributed to falling birth rates for women overall, after more than three decades of relative stability…

“This is really quite big,” said Nan Marie Astone, one of the report’s authors.

However, because the big plunge in the birthrates coincided with Great Recession and the following years, “it’s hard to think that [the economic decline] wasn’t the reason,” Astone said.

Still, while every previous major economic decline has also been followed by a decrease in the birthrate among young women, “it’s not been this big” as the one identified by the new study, Astone said”.

See: Baby bust! Millennials’ birth rate drop Here is a direct video link.

Massive credit-bubble fueled, multi-year booms in capacity, production and inventory don’t clear in a few months, especially when suppliers continue to increase output as demand falls. This chart of iron ore gives its April rebound some context.

See, Iron Ore heads towards its next cliff. Oil bulls should take note:

“One of the crueler aspects of a hangover is how you can occasionally fool yourself into thinking you have recovered even though many hours of crushing misery remain. The 2.1 billion-metric-tons-a-year iron-ore market is actually dealing with two related hangovers.

First is the slowdown in China, the economy that consumes about 60% of iron ore and is coming off a stimulus-fueled construction boom. Second is the massive expansion in supply predicated on China’s fascination with building never abating.

From the start of 2011 to the beginning of this month, benchmark iron-ore prices fell from almost $200 a metric ton to less than $50. Yet for much of April, iron ore staged a rally. By the time Cliffs Natural Resources beat expectations with quarterly results late Tuesday, prices had jumped 27% from their low point.

This relief is ephemeral, as Wednesday’s 4.6% drop in iron-ore prices emphasizes. Optimism had sprung, in part, from a 5% jump in Chinese crude steel production in the first 10 days of April. That, coming alongside signs of monetary easing by Beijing, stoked hopes of better demand growth. But structural headwinds in the form of China’s desire to pivot away from fixed-asset investment and need to deal with bad debt remain.”

Even producers who have managed to engineer earnings in recent quarters have talked about the need for production cuts across the supply chain. But no one is wanting to actually implement cuts when most are desperate for cash flow. And so the global glut mounts: “The only thing worse than a hangover is relying on a fellow sufferer to help fix it.”