As Bloomberg's Mark Gilbert notes, there's increasing chatter about the prospect of fiscal action from governments, which is shorthand for borrowing money to spend on infrastructure projects, thereby creating jobs, boosting growth and investing in the future. The U.S., the U.K., Japan and the euro zone are all being urged to ease up on austerity and open their pocketbooks.
The chatter, though, has become a roar -- which raises the uncomfortable prospect that speculation about fiscal action will lead to disappointment. Here's a chart showing how the hubbub has become louder and louder in recent weeks...
Here's UBS (emphasis ours):
"We believe we are witnessing the end of the credit cycle. Earnings growth rates are flat and the stock market impact has been increasing.
"Importantly, from a risk perspective, Systemic Risk is rising, and Economic Policy Uncertainty has hit all-time highs"
Here's the earnings chart, which is flatlining:
Vi närmar oss QE4 då Yield kurvan åter är alldeles för flack. Bankernas intjäning urholkas samtidigt som det är ett typiskt tecken på att inflationsförväntningarna är låga och en recession är runt hörnet.
At present, spreads have fallen 65-75% from 2011 peaks...and are rapidly gaining speed to the downside. The chart below shows the spreads based on the 30yr and 10yr Treasury's minus the 2yr.
The global economy is falling off a cliff. Global trade is contracting in ways not seen since the 2008 Crisis or 2001 Tech Crash.
Marc Faber: Tesla shares are going to $0
Peter Schiff: Just like Obamacare, the Fed's policies will fail
The commodities are rising fast as the decades long bond market bubble begins to deflate. This is going to translate into much higher prices for the stuff people need. Inflation… and ultimately hyperinflation as John Williams has predicted, is looking increasingly likely.
Comparing U.S. Debt 1929 vs Today
It’s quite interesting to see how much of a change has occurred since the Great Depression. While things were very bad for Americans in the 1930’s, the amount of U.S. public debt per person was very low versus today:
According to several sources, the U.S. population was 122 million in 1929 while total public debt was $16.9 billion. Thus, the average debt per American in 1929 was $139. Compare that to a population of 320 million and $19.4 trillion in debt at an average $60,625 per American today.
NOTE: A few readers suggested that I adjust for inflation in this example. So, if we take $139 in 1929 and adjusted for inflation today, it would be worth $3,288. So, the net difference would be nearly 20 times higher.
Hela systemet bygger på förtroende och FED tappar detta snabbt vilket innebär att vi närmar oss ett nytt monetärt system.
People had high confidence in Alan Greenspan for much of his tenure, but that confidence tailed off towards the end. Confidence in Ben Bernanke declined further, and confidence in Yellen is at or near record lows.
The following chart shows the shift in confidence under the last three Fed chairs.
Shift in Confidence
How much confidence do you have in Janet Yellen?
Marknadens förväntningar för en räntehöjning är nu tillbaka på samma nivåer som i våras trots fortsatt fallande ekonomi och en bond marknad som tror något helt annat
The gold to monetary base ratio is at an all-time low. And before anyone says monetary base growth is not necessarily bad if the economy is growing, the velocity of money is also at an all-time low.
The velocity of money is the rate that money is exchanged from one transaction to another. It measures how much money is used in a given period of time, usually calculated by dividing a country’s GNP by the total supply of money. The higher the number is, the more robust the economy is.
For the last eight years, the United States Government has been printing money at an unprecedented rate and just by looking at the chart, something has to give. It’s obvious the United States’ economy is not healthy, and cannot be propped by the Feds forever.
If the gold to monetary base ratio were to revert back to its median, using today’s money supply we calculate a gold price of $3,770 per ounce. Let’s go gold.
Den mycket begåvade James Grant är nu mycket orolig över vad som händer inom det monetära systemet och förordar starkt guld som hedge
James Grant, Wall Street expert and editor of the investment newsletter «Grant’s Interest Rate Observer», warns of a crash in sovereign debt, is puzzled over the actions of the Swiss National Bank and bets on gold.
From multi-billion bond buying programs to negative interest rates and probably soon helicopter money: Around the globe, central bankers are experimenting with ever more extreme measures to stimulate the sluggish economy. This will end in tears, believes James Grant. The sharp thinking editor of the iconic Wall Street newsletter «Grant’s Interest Rate Observer» is one of the most ardent critics when it comes to super easy monetary policy. Highly proficient in financial history, Mr. Grant warns of today’s reckless hunt for yield and spots one of the biggest risks in government debt. He’s also scratching his head over the massive investments which the Swiss National Bank undertakes in the US stock market.
Jim, for more than three decades Grant’s has been observing interest rates. Is there anything left to be observed with rates this low?
Interest rates may be almost invisible but there is still plenty to observe. I observe that they are shrinking and that the shrinkage is causing a lot of turmoil because people in need of income are in full hot pursuit of what little of yields remains.
So what are investors supposed to do in these bizarre financial markets?
I’m very bullish on gold and I’m very bullish on gold mining shares. That’s because I think that the world will lose faith in the PhD standard in monetary management. Gold is by no means the best investment. Gold is money and money is sterile, as Aristotle would remind us. It does not pay dividends or earn income. So keep in mind that gold is not a conventional investment. That’s why I don’t want to suggest that it is the one and only thing that people should have their money in. But to me, gold is a very timely way to invest in monetary disorder.
This survey comes out every single week and is a poll of newsletter writers and investment advisors.
The red line is how many people are bearish and the green line is the number of people that say they are bullish on the stock market.
The bulls went up to over 56% last week and the bears down to 20%.
Now levels over 52% historically are extreme bullish readings for this survey.
Last year the bulls got to 60% and that only happened twice before in the entire history of the survey and the bears last summer reached a level not seen since before the 1987 stock market crash.
In February for a brief moment though people got scared and the bears went up to exceed the numbers of bulls.
Kina säljer dollar obligationer och viktar upp i fysiskt guld för dom har förstått att vi är i den största räntebubblan någonsin.
As another week comes to a close, we continue to wrestle with a market that remains detached from underlying economic data and clings to recent levels of over overbought, overextended and low reward/risk outcomes. Of course, in the final stages of a bull market, this is what has historically been the case.
1. The price/book ratio, which stands at 2.8 to 1: The book value dataset I was able to obtain extends only back to the 1920s rather than to the beginning of the century, but at 23 of the 29 major market tops since then, the price/book ratio was lower than it is today.
2. The price/sales ratio, which stands at an estimated 1.9 to 1: I was able to access per-share sales data back to the mid 1950s; at 18 of the 19 market tops since, the price/sales ratio was lower than where it stands now.
3· The dividend yield, which currently is 2.1% for the S&P 500: SPX, -0.14% . At 31 of the 36 bull-market peaks since 1900, the dividend yield was higher.
4. The cyclically adjusted price/earnings ratio, which currently stands at 27.2: This is the ratio championed by Yale University’s Robert Shiller. It was lower than where it is today at 31 of the 36 bull-market highs since 1900.
5. The so-called “q” ratio: Based on research conducted by the late James Tobin, the 1981 Nobel laureate in economics, the ratio is calculated by dividing market value by the replacement cost of assets. According to data compiled by Stephen Wright, an economics professor at the University of London, and Andrew Smithers, founder of the U.K.-based economics-consulting firm Smithers & Co., the market currently is more overvalued than it was at 30 of the 36 bull-market tops since 1900.
6. P/E ratio: This is the valuation indicator that is perhaps most-often quoted in the financial media. Nevertheless, according to data on as-reported earnings compiled by Yale’s Shiller, and based on S&P estimates for the second quarter, this ratio currently stands at 25.2 to 1. That’s higher than at 89% of past bull-market peaks.
Best performing asset ignored
This asset is considered the best investment of 2016. It’s outperformed the S&P 500 and USD by 19% and 29%, respectively. It is also the only financial asset that is not simultaneously someone else’s liability.
That asset is gold. Up 26% year to date. However, as a percentage of global financial assets, it is near all-time lows.
Gold made up 5% of global financial assets in 1960. Today it is a meagre 0.58%.
If that figure returned to its 1980 figure of 2.74%, that would translate into an additional $2.5 trillion flowing into gold and gold stocks. That’s eight times the current market cap of the entire gold industry, which now stands at $324.4 billion.
With the current uncertainty, NIRP, and ZIRP, gold is once more seen as a hedge against inflation. Since the bear market began in 2011, demand for gold bullion and coins has increased. But investment demand has stayed low, until now.
Investment demand for gold rose 122% from Q1 2015–Q1 2016. Money flowing into Gold ETF’s jumped over 300%.
“The six months under review have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world.
We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30 per cent of global government debt at negative yields, combined with quantitative easing on a massive scale.
In times like these, preservation of capital in real terms continues to be as important an objective as any in the management of your company’s assets.”
Rothschild said to date quantitative easing has successfully driven stock markets higher, but he rightfully fears this will not go on forever. He adds that a number of headwinds could also derail markets – including the very uncertain geopolitical risk.
Det är nytryckta pengar och inte produktivitets förbättringar som driver marknaden vilket innebär att det är ett pyramidspel
While the relentless decline in Caterpillar retail sales has been duly noted here every month for nearly 4 years, now posting 44 consecutive declines, the latest, July data was downright depressionary.
According to the company, in the latest month - just when China was supposed to be rebounding and the US recovery getting "stronger" - demand took another sharp leg lower, as follows:
- North America machine sales down 20% after falling 12% in June
- Asia/Pacific sales July down 7% after falling 7% in June
- Latam sales July down 43% after falling 38%
- EAME (Europe, Africa, Middle East) sales July down 13% after falling 4%
This means that Caterpillar's rolling 3-month retail machine sales dropped by 19% in July vs the more modest 12% fall in June and May. It also means that, as shown in the chart below, in the past month CAT retail sales just posed the second largest monthly drop since the financial crisis.
What Are Kondratiev Waves?
Investopedia defines the Kondratieff Wave as, “A long-term cycle present in capitalist economies that represents long-term, high-growth and low-growth economic periods.” The initial study by Kondratiev was based on the European agricultural commodity and copper prices. He noticed this period of evolution and self-correction in the economic activity of the capitalist nations and felt it was important to document.
These waves are long cycles, lasting 50-60 years and consisting of various phases that are repetitive in nature. They are divided into four primary cycles:
- Spring-Inflationary growth phase: The first wave starts after a depressed economic state. With growth comes inflation. This phase sees stable prices, stable interest rates and a rising stock market, which is led by strong corporate profits and technological innovations. This phase generally lasts for 25 years.
- Summer-Stagflation (Recession): This phase witnesses wars such as the War of 1812, the Civil War, the World Wars and the Vietnam War. War leads to a shortage of resources, which leads to rising prices, rising interest rates and higher debt, and because of these factors, companies’ profits decline.
- Autumn-Deflationary Growth (Plateau period): After the end of war, people want economic stability. While the economy sees growth in selective sectors, this period also witnesses social and technological innovations. Prices fall and interest rates are low, which leads to higher debt and consumption. At the same time, companies’ profits rise, resulting in a strong stock market. All of these excesses end with a major speculative bubble.
- Winter-Depression: This is a period of correcting the excesses of the past and preparing the foundation for future growth. Prices fall, profits decline and stock markets correct to the downside. However, this period also refines the technologies of the past with innovation, making it cheaper and more available for the masses.
Accuracy Of The Cycle Over The Last 200 Years
The K-Waves have stood the test of time. They have correctly identified various periods of important economic activity within the past 200 years. The chart below outlines its accuracy.
Very few cycles in history are as accurate as the Kondratiev waves.
The Wave Is Being Pushed Ahead But The Mood Confirms A Kondratiev Winter
A closer study reveals that the cycles are being pushed forward temporarily. Any intervention in the natural cycle unleashes the wrath of nature, and the current phase of economic excess will also end in a similar correction. The K-Wave winter cycle that started in 2000 was aligned with the dot-com bubble.
The current stock market rise is fueled by the easy monetary policy of the global central banks. Barring a small period of time from 2005-2007 when the mood of the public was optimistic, the winter had been spent with people in a depressed social mood. The stock market rally from 2009-2015 will be perceived as the most hated rally and the one most laden with fear.
Every dip of a few hundred points in the stock market starts with a comparison to the Great Recession of 2007-2009. The mood exudes fear and disbelief that the efforts of the central banks have not been successful and are unable to thwart off the winter, as predicted by the K-Waves. The winter is here and is reflected in the depressed social mood.
How To Weather Out Brutal Winter
In the last phase of the winter cycle, from 2016-2020, which is likely to test us, the stock market top is in place. Global economic activity has peaked, terrorism further threatens our lives, geopolitical risks have risen, the current levels of debt across the developed world are unmanageable, and a legitimate threat of a currency war occurring will all end with the “The Great Reset.” Gold will be likely to perform better during this winter cycle. Get in love with the yellow metal; it’s the blanket which will help you withstand the winter.
Cycles are generally repetitive forces that give us an insight into the future so we can be prepared to face it and prosper. Without excessive intervention, nature is very forgiving while correcting the excesses. But if one meddles with nature, it can be merciless during the correction. The current economic condition will end with yet another reset in the financial markets. Prices will not rise forever, and a correction will take hold eventually. Until then, we follow and trade accordingly. I will suggest the necessary steps to avoid losses and prosper from market turmoil when it unfolds.
Core CPI ligger över FEDs mål vilket dom inte är nöjda med då det är minst 3-4% som ä det nya inofficiella målet
USAs industriproduktion visar fortsatt nedgång och det är service ekonomin som håller USA borta från en recession.
Alasdair Macleod från GoldMoney om LIBOR räntan som fortsätter upp och den ökade utlåningen från bankerna vilket kan innebära att FED hamnar på efterkälken då det gäller inflationen
The Fed’s monetary policy is a mess. It is a little known fact that bank lending in the US is increasing, and the closest thing we have to free market interest rates, USD LIBOR, is signaling that demand for money is now driving the rates. Higher LIBOR confirms the growth in bank lending, and you can see how LIBOR is moving in the chart below.
This is scary, because it confirms that bank lending, which is broadly the difference between M2 and M1, is shooting out of control. The Fed should raise rates immediately, but it won’t, for the simple reason it doesn’t believe it has a problem, and it’s more worried about economic growth. But anyone with long experience of markets knows that this is the Fed falling behind the curve, and it will only raise interest rates too late and then by not enough.
This Caused The Price Of Gold To Skyrocket In The Hairy 1970s
The point about the increase in bank lending going into the economy is it will drive the rate of price inflation higher. The similarity with my memories of the 1970s, when central banks were slow to raise rates is becoming apparent. Last time it led to near-hyperinflation, and drove the gold price up from $100 to over $800, before Volcker raised the Fed Funds Rate to over 20%.
The difference today is the amount of debt. Volcker’s move was dramatic, but today’s Fed can only raise rates to somewhere between 2-3%, before setting off a debt mega-crisis. That’s not too far from where the 3-Month LIBOR rate is taking us. And by the way, 12-Month LIBOR is already over 1.5%.
In the next chart we look at different iterations of Gold against foreign currencies. The top plot is the same version shown above while the middle plot shows Gold against the US$ trade weighted basket. The bottom plot shows Gold against emerging market currencies. In every case Gold remains firmly in bull market territory and stronger than Gold in US$’s.