Our Giant Welfare State

We Americans pride ourselves on not having a ‘welfare state.’ We’re not like Europeans. We’re more individualistic and self-reliant, and although we may have a ‘social safety net’ to protect people against unpredictable personal and societal tragedies, we explicitly repudiate a comprehensive welfare state as inherently un-American.
Dream on.
Call it a massive case of national self-deception. Indeed, judged by how much of their national income countries devote to social spending, we have the world’s second-largest welfare state – just behind France.
This is not just conjecture. The Organization for Economic Cooperation and Development (OECD) – a group of wealthy nations – has recently published new figures on government social spending. Covered is unemployment insurance, disability payments, old-age assistance, government-provided health care, family allowances and the like.
By this measure alone, the United States is hardly a leader…

This post was published at Tea Party Economist on November 26, 2014.

The World is Flat – at the Transitional Divide

One of the side effects of the financial crisis was that growth cycles across the world that had converged leading up to 2008, became untethered in the ensuing aftermath. We recall listening to an economist in the summer of 2006 wax poetic about how the 66 largest economies in the world were enjoying a historic and synchronized expansion. Naturally, his takeaway was broadly bullish – implying a sturdy and broad foundation was extended beneath the markets. While that was exceedingly true at that time, his observation of the cycle resonated for us in a very different way. If everyone was expanding on the same growth wave, the inevitable contraction would be greatly magnified. We found the statement so poignant, it remained written across the top of a whiteboard in our office for several years.
These same wave principals are taught in your high school physics class as a phenomenon known as constructive interference. When two waves of identical wavelength are in phase, they form a new wave with an amplitude equal to the sum of their individual amplitudes. Conversely, when two waves of identical wavelength are out of phase, they cancel each other out completely. Often, it’s a combination of varying degrees of both destructive and constructive interference that determines the composite structure of the new wave – or in this case, the aggregate cycle of the largest economies in the world that had become highly synchronized. Needless to say, our greatest fears in the market were realized just two years later as momentum was translated and magnified sharply lower during the financial crisis.
Back in the spring of 2011, we created a video around this concept (see Here) – that also played on the interventive policies that the financial system were increasingly reliant on. For us, Constructive Interference took on new meaning – which was summed up with three progressive assumptions at the end of the video.
The current financial system requires Constructive Interference by the worlds major central banks – the Federal Reserve acting as the principal director of policy and practice. Consolidation within the financial sector (i.e. Too Big to Fail) in the last 30 years has enabled central banks with the infrastructure to administer reflationary policies efficiently and with greater efficacy during illiquid periods of contraction. The cumulative effects of Constructive Interference within the financial system has led to increased speculation, frequent financial bubbles and confidence within the monetary system to react (i.e. moral hazard

This post was published at GoldSeek on 26 November 2014.

Central Banks Made Lousy Jobs, Soaring Tax Collections, Bad For Most, Good For Bubble Markets

In this September 8, 2014 video for Radio Free Wall Street, I talked about why I thought the ECB programs would fail to boost its balance sheet or achieve its goals of boosting inflation or the European economy. I also about the central bank tag teams keep the markets afloat, about why jobs data doesn’t matter to the market trend, and finally what real time tax collections can tell us that lagged, manipulated economic data can’t.


This post was published at Wall Street Examiner on November 26, 2014.

Fake Money, A ‘Strong’ Dollar, And Gold Investing

This article is based on John Hathaway’s latest quarterly market letter. Mr. Hathaways is Portfolio Manager and Senior Managing Director at Tocqueville.
What the recent strength in the dollar index means:
The DXY index is not the dollar; it is a measure of the dollar’s relative strength. The principal components of the DXY index are the Euro (57.6 percent) and the Japanese Yen (13.6 percent). The balance (28.8 percent) consists of the Canadian dollar, British pound, Swedish krona, and Swiss franc. Therefore, the DXY index says absolutely nothing about the inherent virtues of the US currency. Instead, it reflects capital flight from yen- and euro-denominated assets from regions where the respective central banks have hatched well documented schemes to devalue those currencies as the antidote to economic weakness. There are many reasons why the dollar may remain strong against the core components of the DXY. However, whatever virtues others may see in the DXY’s ascendant pattern, we see the potential for monetary chaos.
The DXY is mute on the matter of the rapidly waning usage of the US currency to settle international trade. Deals to bypass the greenback seem to proliferate daily. The dollar has become an impediment to trade for even our closest and most important trading partners. Canada has just announced a series of deals to trade directly in renminbi, following similar actions by several Latin American countries. The Wall Street Journal (11/14/14) reports that Russia will ‘receive renminbi as payment for a significant flow of oil’ to China. Vladimir Putin commented, ‘we’re moving away from the diktat of the market that denominates all commercial oil flows in US dollars.’ As mentioned in our third-quarter investor letter, first-half trade cleared in renminbi totaled $18.3 billion, double the previous year. The institutional plumbing to circumvent the dollar is being put into place. Examples include the launch of the Shanghai Gold Exchange in September of this year, as well as the formation of the BRICs bank (in the second quarter), on the model of the World Bank, to facilitate non-dollar transactions.
In addition, Russia has announced that it is developing its own version of SWIFT, a network that enables financial institutions to communicate electronically in a secure fashion, which it expects to launch in 2015. The clear intent is to bypass Western financial institutions and conventions.
In our opinion, a world in which the dollar becomes increasingly marginalized as a reserve currency will look substantially different. As noted by Andrew Smithers in the Financial Times (11/12/14), the US is a massive hedge fund, ‘long equities and short debt,’ with an international net debtor position equivalent to 31 percent of GDP. As long as dollar reserves have utility, dollar-denominated assets can thrive. Utility is in large part a matter of perception and confidence, in our view, and the fundamentals underlying the notion of a strong dollar are sliding in the wrong direction. At the moment the long dollar trade seems extremely crowded, with CFTC speculative long exposure near record highs…

This post was published at GoldSilverWorlds on November 26, 2014.

SP 500 and NDX Futures Daily Charts – Miles Gloriosus

Stocks were drifting today in very light holiday trade, further dampened by foul weather in the NYC metro area.
The economic news this morning was quite poor, and lending some credence to the somewhat artificial nature of the GDP revision higher from earlier this week.
US markets will be effectively closed for the rest of the week, in observance of the Thanksgiving holiday.

This post was published at Jesses Crossroads Cafe on 26 NOVEMBER 2014.

Presenting Bubbleology: The Science Of Bubble Money

On the 12th November 2014 – some 10 years after it was launched – lander module Philae which accompanied the Rosetta spacecraft touched down on Comet 67P/Churyumov-Gerasimenko (67P) to begin extra-terrestrial scientific observations. The on-board telemetry communicated back to Earth some 28 light-minutes away revealed that the lander had bounced twice off the surface of 67P. The first bounce may have lasted two hours and over 1 kilometre and is considered the largest space bounce in history which we would put it on a par with the incredible bounces in the US and Japanese stock markets this past month!
Back here on Earth Japanese monetary policy has similarly taken a giant leap forward for mankind by conducting its own scientific experiment. On the 31st October 2014 Bank of Japan Governor Kuroda-san implemented an addition to his ‘Qualitative & Quantitative Easing’ (QQE) policy begun a year ago. The surprise event was less the timing and magnitude but the clear brazen coordination of monetary and fiscal policy using the conduit of the Japanese Government Pension Fund to implement it. The QQE drove stock markets into a frenzied rally.
Central banks have been conducting a seemingly coordinated financial program of unconventional monetary policy – assuringly scientific in its nomenclature of QE and QQE – media commentators marvel at the boldness (stupidity) of policymakers ‘to go forth where no man has gone before’ and eradicate the spectre of debt deflation.
Policymakers have been studying and implementing ‘Bubbleology’ – the science of bubble money. The impact of this earthly science on both economies and financial markets has been truly dismal. It is clear it is creating a divergence between economic and financial reality.
Far from eradicating the perils of debt deflation it is clear this program has merely initiated more fiscal and private sector balance sheet irresponsibility, as both continue to lever up. The capital (‘near money’) allocation of such leverage has resulted in rising asset classes, primarily housing stock, equity and bonds where the pursuit of yield has ignored all credit risk sensibilities. All this has occurred at the expense of daily living standards and the misdirection of capital.

This post was published at Zero Hedge on 11/26/2014.

EXCHANGE WAREHOUSE SILVER STOCKS: Large Declines Across The Globe

After experiencing a small build of inventory over the past few months, silver warehouse stocks at the Shanghai Futures Exchange are now back on the decline. Matter-a-fact, Shanghai Future Exchange (SHFE) silver stocks fell 11 metric tons today, nearly 10% in just one day.
Silver warehouse stocks at the SHFE bottomed in September at 81 metric tons (mt), and then slowly increased to a peak in November….. this can be seen in the chart below:

By the end of October, silver warehouse inventories at the SHFE increased to 120 mt and then peaked on November 11th at 138 mt. In just the past two weeks, 20 mt were removed from the exchange. The chart below shows the weekly change of silver inventory at the SHFE over the past two months:

This post was published at SRSrocco Report on November 26, 201.

“Now That’s What I Call A Bubble”

“But the truth remains that few ever recognise the early stages of exuberance as attention is typically being diverted the other way.”
Some food for thought from history…
At its peak Japan’s equity market constituted 42 per cent of global market capitalisation and Toyota was making more money from trading derivatives than selling cars.

Shares in the elite Industrial Bank of Japan rose sixteen fold between 1984 and 1989 to a price/earnings ratio of 170 times. It did not matter that IBJ’s free-float was just four per cent – a $130bn market cap ($250bn today’s money) transformed its appetite for risk.

This post was published at Zero Hedge on 11/26/2014.

Gold Daily and Silver Weekly Charts – Now Thank We All Our God

“A proud man is seldom a grateful man, for he never thinks he gets as much as he deserves.”
Henry Ward Beecher
The joyfulness of simplicity is a folly to the world, but the charism of a loving God to His people.
Gold and silver were both flat in lackluster trade today, as the US markets were simply going through the motions in holiday trade and ahead of a few real world events.
OPEC will be meeting this weekend to consider the dropping price of oil. It is clear that the Saudis are producing at a higher than usual manner, and as you may recall I have speculated that this is part of a ploy with the US to hamper Russia, but to also send a price gut check to the shale oil producing crowd.
The Swiss will be having their gold referendum on Sunday, 30 November and it will be interesting to see how that turns out.
And finally we are now switching to the December contract, and what may prove to be a more active month in the paper markets.

This post was published at Jesses Crossroads Cafe on 26 NOVEMBER 2014.

Stimulate This! Thoughts On Intergenerational Fairness

Since this is the season for giving thanks in the US, we might give some consideration to the unsung heroes who have been underwriting a big chunk of our economic recovery of late. Actually, we literally owe our future to them – in more ways than one.
We recently asked a bright young economics student from a prominent European university about the right role of government in an economy. And the answer, somewhat predictable: “well, to stimulate it!” When we then asked how the government pays for that stimulus, and what impact it will have on the economy at that point, there was silence.
Just as we would have stayed silent when we were in his shoes decades ago. This has been the dogma of mainstream economic thinking for many years: in its omnipotence, the government should always step in to correct deficiencies in aggregate demand, so as to smooth out the business cycle. Stated differently, the government is much better at spending your money than you, especially when you don’t want to spend it. And voil , less unemployed people – and more happy voters.
These expenditures need to be funded via taxes, which depresses current demand (in a way, representing your own stimulus foregone because the government decided to spend it for you); more debt, which will also depress demand but only when it needs to be repaid at some point in the future; or any combination of the two.

This post was published at Zero Hedge on 11/26/2014.

Irrational Exuberance – Descriptive Superlatives Exhaustion Point Is Reached

Positioning Indicators at new Extremes We are updating our suite of sentiment data again, mainly because it is so fascinating that a historically rarely seen bullish consensus has emerged – after a rally that has taken the SPX up by slightly over 210% from its low. Admittedly, a slew of such records has occurred in the course of the past year or so, and so far has not managed to derail the market in the slightest – in fact, since 2012, only a single correction has occurred that even deserves the designation ‘correction’ (as opposed to ‘barely noticeable dip’).
While a number of positioning and survey data show a bullish consensus that easily dwarfs anything that has been seen before, this consensus is not reflected in expressions of exuberance by the broader public. ‘Anecdotal’ sentiment seems more cautious and skeptical than the quantitatively measurable kind. Most likely this is because the vast bulk of the middle class has been so thoroughly fleeced in the last two boom-bust sequences that it finds itself in dire straits in spite of the reemergence of major asset bubbles across a wide swathe of assets. This includes by the way an astonishing revival of the bubble in real estate prices – see e.g. this 330 square foot shack in San Francisco, which recently sold for $765,000:
Moreover, with the broad US money supply (TMS-2) having nearly doubled since 2008 and other major central banks inflating their money supply as well at breakneck speed, there has been more than enough ‘tinder’ provided the world over to drive asset prices higher. This by the way makes a complete mockery of the constant refrain of central bankers that we are allegedly threatened by ‘deflation’. The inflationary effects of their monetary pumping are simply showing up in asset prices rather than consumer goods prices – ceteris paribus, a rapid inflation of the money supply always leads to prices rising somewhere in the economy.

This post was published at Acting-Man on November 26, 2014.

3 Things Worth Thinking About (Vol. 19)

Data And Surveys Continue To Part Company
Last Friday, I discussed the growing gap between economic reports particularly when they measure the same basic areas of the overall economy. For example, how can the Markit Manufacturing PMI Index be negative for three months while the ISM PMI has surged higher during the same period. Both cannot be right.
Well, the same thing happened yesterday with the release of the Chicago Fed National Activity Index (CFNAI) which is arguably one of the most important economic indicatorsavailable. While the recent release of the Philidelphia Fed manufacturing survey surged to its highest level in years, the CFNAI fell to .14 from .29 last month.
(Note: The Chicago Fed National Activity Index (CFNAI) is a monthly index comprised of 85 subcomponents that provide a broad measure of economic activity nationwide.)
More importantly, while the Federal Reserve and ISM surveys have been showing strong increases in recent months; the production, income and consumption and housing components of the CFNAI have declined. The chart below shows the CFNAI index broken down into the 3-month average of supply (production, income, employment) and demand (consumption, housing, sales).

There are TWO very important things to take away from the chart above. First, supply and demand have had an extremely tight correlation prior to the financial crisis. However, since the last recession demand has underperformed supply to a significant extent which confirms the weak economic underpinnings for the majority of the country.

This post was published at StreetTalkLive on 24 November 2014.

IT’S ALL GOOD, RIGHT?

It really isn’t hard to connect the dots and see the real economy in the real world, outside Wall Street, is a disaster and getting worse by the hour. Below are a bunch of dots that have been issued in the last 24 hours. Here are the facts.
Real disposable income has risen at a 1.8% annual rate over the last four months. Meanwhile, real consumer spending has increased at a 2.4% annual rate over the last four months. I thought all those jobs Obama talks about should result in wages. Why is disposable personal income so pitiful if the unemployment rate is really 5.9%? And of course, these figures are based upon a fake inflation rate of less than 2%. We all know it is 5% or higher.
If things are going so well, why are unemployment claims surging to the highest level in 3 months? Shouldn’t the wonderful holiday season be resulting in massive retail hiring to service all the well off citizens buying more shit they don’t need, with money they don’t have? Consumer debt outstanding will surely hit a new high in December.

This post was published at The Burning Platform on 26th November 2014.

Central Bank Credibility, The Equity Markets, And Gold

Central bank credibility is at all-time highs. As a consequence, we suggest, equities are near all-time highs too while gold is scraping multi-year lows. A change though may be in the offing with all three. Not today, nor tomorrow. But perhaps sooner than most think.
Here’s how we see it…
In the context of five plus years of the most unconventional monetary policies the world has ever seen, there is a near universal belief that a group of Keynesian/Monetarist schooled, largely academic economists have got it all figured out; namely, that super-sized, well-orchestrated, easy money policies – zero even negative benchmark interest rates, a smorgasbord of essentially free lending programs and of course mega-size asset purchase programs (QE) – can produce sustainable, economic growth. In other words, central bank credibility and the efficacy of their policies are in the heavens.
No central bank is more revered in this regard than the Federal Reserve. As we discussed here, the Federal Reserve, it is said, is ‘pulling it off.’ Because of its heroic, unconventional, all-in easy money policies, the Federal Reserve is said to have ‘saved’ America from an almost certain depression and then, because of its continued easy money policies, is the driving force behind America’s now accelerating economic growth. Just look at the economic numbers, say the pundits. The Federal Reserve’s monetary policies are working. Yes, not as fast as we would like, but going in the right direction. Only one task left – a well-calibrated, data-driven exit from these unconventional policies. The strengthening economy can take it, they say. In fact, the exit should be welcomed because it signals a strong and growing economy, one that will no longer require any Federal Reserve support.

This post was published at Zero Hedge on 11/26/2014.

“This Is Madness”

Despite near-record Treasury short speculative-positioning, 30Y Treasury yields just hit a 2.93% handle – in line with the yield at the Bullard lows in mid-October. The S&P 500 is 200 points higher… Discuss…
The S&P 500 is now trading 200 points rich to Treasury markets (or 30Y Treasury yields should be 55bps higher – despite world GDP expectations plunging as fast as oil prices)

This post was published at Zero Hedge on 11/26/2014.

Google vs. Sun vs. France: Too Big, Too Powerful, Too Free

I happen to like the sun. By definition, the earth would not even be a planet without the sun. No one on earth would be alive without free sunshine.
I happen to like Google. I could survive without Google, but like the sun, much of what Google provides is free.
Free Google Things
Free internet services including the best search engine in the world Free Gmail Free research on self-driving cars Free research on other robotics Free blog software Free hosting and storage for blogs Free ads on my blog (and those ads make me money) For a discussion of the implications of a self-driving car, please see Google Unveils Self-Driving Car, No Steering Wheel, No Accelerator, No Brake Pedal; Self-Driving Taxi Has Arrived. Who, other than city bureaucrats with their taxi licensing scheme will not want lower taxi fares?
For a discussion of other Google robotic research, please see More Robots: Google’s “Atlas” Robot Mimics “Karate Kid”; Flying Defibrillator “Ambulance Drone” Unveiled; Fed Has No Answer.
Green Energy Handouts vs. Google
Unlike “green energy” parasites that could not exist without government subsidies (taxpayer dollars), Google, like the sun does what it does for free. Google does not ask for money from the government to promote autonomous cars, robots, or anything else.
Instead, Google research has created thousands of very high-paying jobs. Those job-holders pay taxes.
What’s not to like?

This post was published at Global Economic Analysis on November 26, 2014.

19 US Shale Areas That Are Suddenly Endangered, “The Shale Revolution Doesn’t Work At $80″

Despite the constant blather that lower oil prices are “unequivocally good” for America, we suspect companies working and people living these 19 Shale regions will have a different perspective…
Drilling for oil in 19 shale regions loses money at $75 a barrel, according to calculations by Bloomberg New Energy Finance. Those areas pumped about 413,000 barrels a day, according to the latest data available from Drillinginfo Inc. and company presentations.

This post was published at Zero Hedge on 11/26/2014.

Stocks Close At Recordest Highs Ensuring ‘Confident’ Black Friday, Despite Macro Massacre

The S&P 500 closed at new record-er-est highs (a record 29th day above the 5DMA) providing just the right amount of confidence-inspiring ‘wealth creation’ to ensure you spend, spend, spend this weekend all those gas price savings (despite 9 of 9 macro data misses today). Dow and Trannies underperformed today as Nasdaq surged on AAPL strength. The USDollar fell for the 3rd day (first time in a month) and Treasury yields tumbled (down 5-8bps on the week) near 18 month closing lows. VIX traded briefly with an 11 handle and lost its inversion (1st day in 6). Gold prices flatlined for the 3rd day (as EURCHF fell) ahead of the Swiss gold referendum this weekend. Oil tumbled to fresh 4-year lows as OPEC hinted at no cuts and copper slipped to fresh 4 year closing lows. Late-day shenanigans sent stocks ripping higher… in a totally rational manner. Turkey prices are at $1.67/lb and have been remarkably stable over the past few years.
This happened…

This post was published at Zero Hedge on 11/26/2014.