Juggling Dynamite

CNBC says it is trying to tell the ‘good news’ about lower oil prices for the US economy today. As the host puts it: “The story we are trying to tell this hour Larry, is not some dire story, not bad news, the American economy is still doing great.”

Oops, this oil man was not helping their thesis…

Larry Oldham, Former President & CEO, Parallel Petroleum, discusses the impact of low oil prices on all segments of the Texas economy. Here is a direct video link.

Meanwhile, oil rigs shuttered to date, are not yet putting a damper on gushing supply in America.  This on top of record high inventories already.  Where in world to store it all?
Chart courtesy of zerohedge.com

The financial fabric of the world is in tatters. That much is clear. An appearance of liquidity to date, has been simulated through a toxic web of debt, debt derivatives, and misplaced confidence in central bank powers. This weekend a terrified and tortured Greece faces the end of its credit lines once more. And it seems that in the past few days, the Germans (who with France, are the largest holders of Greek bonds) may be softening their previous ‘no restructuring’ stance. After all the Germans have the most to lose financially if Greek bonds default and weak countries like it begin to exit the shared currency.

A rocket higher to a more Deutschmark-concentrated Euro would be a sharp adjustment for what has been the highly lucrative German export machine since its adoption of the common currency in 2002. But even if the Greeks do get to an emergency bridge loan (from the EU, or other potential lenders they have mentioned like China, Russia or America), math will not change: the Greeks cannot pay back what has already been piled onto their tab by lenders to date.  As shown here, 89% of all the ‘bail-out’ money advanced to Greece since 2010, actually was paid directly to its lenders in one scheme or another.

What is needed is a debt write-down-off as well as structural reforms within Greece that focus on collecting reasonable levels of tax revenue, downsizing government expenses and getting Greek workers back to self-sustaining employment.  That almost certainly means no more extend and pretend schemes and a return to an independent, floating Drachma.

In the meantime, all the focus on band-aid negotiations in Europe and conflict resolution in Russia, are glossing over some larger issues with the global economy and financial markets as we move into 2015.  Demand is evaporating week over week, and supplies of pretty much everything are mounting at a remarkable rate.  The following chart of the business inventories to sales ratio, captures yet another in a long list of historically relevant indicators suggesting recessionary forces are afoot in America as we write, even as the talking heads prattle on about a US decoupling.  Most recently at 1.33, this ratio (as shown below) is now higher than in the opening months of the great financial crisis and bear market of 2008.

At the same time, as shown below in red, reckless financial speculation on borrowed money (margin), that peaked in February 2014, has since been rolling over in the long overdue, yet inevitable, mean reversion that preceded the stock market collapse of both March 2000, July 2007, and every other speculative frenzy in market history.  There is no question the process has been elongated this time compared to other market tops.  But as shown in blue at the bottom of the chart, the S&P 500–that has made no real (inflation-adjusted) gains since the tech peak in 2000 (when central bankers of the world went full nut bar promoting debt creation schemes)–is once more set up for (at least) a halving from here.  Sooner or later, facts must be faced, and mal-investment punished.

This is long overdue, predatory lending has been mercilessly preying on the working poor and other financial desperates the past few years. New regulation out of the US Financial Protection Bureau is one of many critical curtailments needed on socially destructive credit-sellers.

The $46 billion payday lending industry is about to suffer a big blow. The Consumer Financial Protection Bureau’s release of new payday lending regulations is imminent. The new rules could crack down on high-fee short-term installment loans, like the kind doled out by car-title and payday lenders, according to the New York Times.

Here is a direct link to a video report.

Also see: Investment riches built on subprime auto loans to the poor. Clearly all those ‘record’ car sales over the past couple of years, are not the financial ‘good news’ the bulls would have us believe.

On a related note, a friend was complaining to me this week, that she had accompanied her 20 something daughter to the bank recently for a mortgage application. Her daughter and spouse are recently graduated and employed in new careers. They had done a financial review and self-determined that they could afford a $300,000 home given their down-payment and debt tolerance. When they reviewed the same numbers with the woman at the bank who was titled “Financial Advisor”, the bank employee asked why they were setting their bar so low: “You qualify for a million dollar home,” she gushed to the newly weds, “why wouldn’t you look for one of those?”

My friend said she was revolted by the mindless drivel coming out of the debt-seller’s mouth, as they sat surrounded by glossy marketing materials on ‘peace of mind’ and the ‘trustworthy’ nature of the bank and its employees. Moreover, she was alarmed to think of all the people who do not know better, and have been acting on such so called ‘advice’ from the financial sales crowd the past few years.

Then I reminded her, that even individuals who have made sober personal choices to date, now stand part of the collective taxpayers, who have been pledged to underwrite 100’s of billions of these federally insured housing (and student) loans sold by banks. We will continue to pay, and banks will continue to harm us all, unless and until we reign in the runaway finance sector.