This Is What A Pre-Crash Market Looks Like

The only other times in our history when stock prices have been this high relative to earnings, a horrifying stock market crash has always followed. Will things be different for us this time? We shall see, but without a doubt this is what a pre-crash market looks like. This current bubble has been based on irrational euphoria that has been fueled by relentless central bank intervention, but now global central banks are removing the artificial life support in unison. Meanwhile, the real economy continues to stumble along very unevenly. This is the longest that the U. S. has ever gone without a year in which the economy grew by at least 3 percent, and many believe that the next recession is very close. Stock prices cannot stay completely disconnected from economic reality forever, and once the bubble bursts the pain is going to be unlike anything that we have ever seen before.
If you think that these ridiculously absurd stock prices are sustainable, there is something that I would like for you to consider. The only times in our history when the cyclically-adjusted return on stocks has been lower, a nightmarish stock market crash happened soon thereafter…
The Nobel-Laureate, Robert Shiller, developed the cyclically-adjusted price/earnings ratio, the so-called CAPE, to assess whether stocks are likely to be over- or under-valued. It is possible to invert this measure to obtain a cyclically-adjusted earnings yield which allows one to measure prospective real returns. If one does this, the answer for the US is that the cyclically-adjusted return is now down to 3.4 percent. The only times it has been still lower were in 1929 and between 1997 and 2001, the two biggest stock market bubbles since 1880. We know now what happened then. Is it going to be different this time?

This post was published at The Economic Collapse Blog on November 12th, 2017.

Forget the Bogus Republican “Reform”: Here’s What Real Tax Reform Would Look Like

The point is to end the current system in which billionaires get all the privileges and financial benefits of owning assets in the U. S. but don’t pay taxes that are proportional to the benefits they extract.
As has been widely noted, the Republicans’ proposed “tax reform” is not only just more BAU (business as usual, i.e. cut taxes for the wealthy), it’s also not real reform. At best, it’s just another iteration of D. C. policy tweaks packaged for PR purposes as “reform.”
You want real tax reform? This is what real tax reform would look like:
1. Shred the entire 2,700 page tax code and replace it with a 25-page code. As I explained in The Fetid Swamp of Tax Reform (November 10, 2017), the 2,700 page current tax code is a complexity thicket designed to hide tax breaks and subsidies for big political donors.
Politicos give lip service to simplifying the tax code for PR purposes, but no politico actually wants radical simplification because this would eliminate the biggest grab-bag of political favors available to pass out to big donors.
Though radical simplification is politically impossible, it’s the first and most important real reform.

This post was published at Charles Hugh Smith on NOVEMBER 12, 2017.

Great Voids Have A Way Of Filling

I feel compelled to keep documenting reality to raise awareness of the ever larger market dangers which keep lurking underneath the current bubble. Indeed I keep seeing a great void not only in awareness but also in price discovery that have propelled markets to current levels leaving investors and participants ever more lulled into a false sense of security by the current unprecedented phase of volatility compression.
Take these comments as part of an ongoing journey outlining building risk factors. You can read about additional updates/background in the Macro Corner, Market Analysis , NT Blog and the Market Analysis sections of the site..
Briefly to get everyone on the same page:
Two way price discovery, as a normal part of market functioning, has practically seized to exist. I’ve pointed out charts of this nature before, but I’ll use the quarterly $DJIA chart as an example to illustrate the point:

Several points to make here:
The $DJIA is on its 9th quarter of consecutive price appreciation. The last red candle was before the now almost $5 trillion in combined global central bank intervention since February 2016.
The $DJIA, as the $SPX, is now on its 4th consecutive quarter of not reconnecting with its quarterly 5 EMA. Such an extended disconnect has never occurred in the 100 year market history I reviewed. And believe me, I’ve looked:

This post was published at Zero Hedge on Nov 12, 2017.

US to Import Inflation from Japan, China, South Korea

Even from Japan – whose export producer prices are soaring.
The oil price collapse that started in 2014 pushed down input costs that companies – the ‘producers’ – faced. And producer price indices, which measure inflation further up the pipeline, plunged. But this is over. And the biggest export powerhouses in Asia that have ballooning trade surpluses with the US, show how.
The Producer Price Index in Japan – the ‘Corporate Goods Price Index,’ as it’s called there – jumped 3.4% in October compared to a year ago, after already climbing an upwardly revised 3.1% in September, the Bank of Japan reported on November 13. It was the tenth month in a row of year-over-year gains and the highest annual rate since September 2014, by which time the collapsing energy prices were mopping up any inflationary pressures (chart via Trading Economics):

This post was published at Wolf Street on Nov 12, 2017.

“How To Forecast Markets”: A Departing Top JPMorgan Strategist Reveals What He Learned After 30 Years

One of the most popular JPMorgan analysts, traders and commentators, Jan Loeys, head of global asset strategy and author of the weekly “The JPMorgan View” piece is moving on (to a different, non-client facing part of the company), and is using his last weekly address to JPM clients to recap the main lessons he has learned over his 30 year career.
For those carbon-based traders who still trade on the basis of fundamental analysis, inductive reasoning, and discounting, and forecasting the future – instead of merely relying on the fastest laser-based algos to react to the news or hoping for central bank bailouts – we have excerpted the entire piece, and are excited to note that while Loeys may be leaving, he will be replaced by two of our favorite JPM analysts and commentators, Nikos Panigirtzoglou and Marko Kolanovic, who under John Normand will take over as JPM’s new Cross-Asset Strategy team.
So, without further ado, here is the latest, and last, from JPM’s Jan Loeys, explaining “What have I learned?” after 30 years of doing this…
What have I learned?
How to forecast markets?
The theory and empirical literature of Finance are the best starting point as they deal directly with asset prices. Next are macro economics and statistics. Markets are not Math or Engineering, but a forever learning and adapting system with all of us observing and participating from the inside. Quantitative techniques are indispensable, though, to deal with the complexity of financial instruments and the overload of information we face. Empirical evidence counts for more than theory, but you need theory to constrain empirical searchers and avoid spurious correlations.

This post was published at Zero Hedge on Nov 12, 2017.

Technical Scoop – Weekend Update Nov 12

Weekly Update
‘Buy when it snows, sell when it goes’
– old stock market proverb
November traditionally marks the start of the best six months of the year for stock markets. At least, that is what the record shows. The Dow Jones Industrials (DJI) has since 1950 had an average gain of 0.6% from May to October vs. an average gain of 7.5% from November to April. The period November to May has had over three times as many up periods as it has had down periods vs. the period from May to October which had only 1.5 times advantage in ups to down.
Of course, the strategy doesn’t work all of the time. Double-digit returns for the May/October period have occurred eight times since 1950. The most recent was the period just completed from May 1, 2017 to October 31, 2017 when the DJI jumped 11.6%. The best one was a 19.2% gain in 1958. In 2009, the May/October period gained 18.9%. But that was following one of the worst ever November/April periods that saw the DJI fall 12.4%. The November/April period has seen only three occurrences where it lost more than 10%. The most recent was the above-mentioned 2008 period where the DJI fell 12.4% while the other two occurred in 1969 and 1973. Interestingly enough, the first November/April period in 1969/1970 saw the Cambodian invasion while the 1973/1974 period was the OPEC oil embargo and the Watergate crisis.
Since we are just coming off a May/October period that saw double-digit returns it is interesting to look at what happened in the ensuing November/April period. As we noted there have been eight occurrences of double-digit returns for the May/October period. We summarize in the table below.
As can be seen from the table there were no occurrences of the DJI falling in the November/April period following double-digit gains in the May/October period. On five occurrences, the gains were also in double digits. On average, the November/April period saw gains of 14.6% following the May/October period that saw average gains of 14.5%. What all of that suggests is the coming six months could see double-digit gains once again for the DJI and the stock market as a whole.

This post was published at GoldSeek on 12 November 2017.

Kevin Brady: “House Will Not Accept Total Elimination Of SALT Deduction”

Three days after the Senate Finance Committee shocked many of their colleagues in the House this week by unveiling a tax reform proposal that featured more than a few notable deviations from the House plan, Ways and Means Chairman Kevin Brady told Chris Wallace on ‘Fox News Sunday’ that he would not accept the total elimination of the state and local tax deduction, a provision that has become one of the most – if not the most – controversial elements of the Trump tax reform package.
‘We want people to keep more of what they earn regardless of where they live, including in these high-tax states,’ he said.
Brady’s doubling-down on preserving at least some of the SALT deduction – a position he has maintained since 20 blue-state Republicans voted against the GOP budget to protest the planned removal of the SALT deduction – comes as the House plans to bring its plan for a vote this week. If the bill passes, it would mark an important milestone in the Trump administration’s battle to push through the first ‘comprehensive’ tax reform legislation in 30 years. The vote could come as soon as Thursday or Friday, what would be a week since Brady’s influential committee approved the bill.

This post was published at Zero Hedge on Nov 12, 2017.

FX Weekly Preview: Is The USD Correction Done Yet?

USD correction done yet?
After a number of weeks of painfully tight ranges, there is little on the horizon which looks potent enough to warrant a break out. Has the apathy in global stocks spread into FX? It looks like it, especially when looking at the carry trade. Watching USD/JPY has been nothing short of tortuous as we currently remain hemmed into a 113.00-115.00 range. We have been getting used to watching EUR/USD as the benchmark rate to spark off fresh activity across the currency spectrum, but despite the open ‘ended-ness’ of the APP come Jan 2018, the pair is now in a fresh stalemate as bids in the mid 1.1500’s have only served to limit the correction which was so evidently needed once we had reached the first objective at 1.2000. For USD/JPY, the market is pinning hopes for tax reform to take off, but the chinks are starting to show again with the corporate rate tax cut to 20% set to be delayed until 2019. As we saw in the aftermath of president Trump’s victory, there seems to be little concern over how these tax cuts are going to be paid for and perhaps move significantly greater concern as to how much they will add to GDP if/when implemented.
Scepticism set in earlier this year once we had pushed above the 116.00 mark, and while the extension stretched into the 118.00’s, calls for 120.00 soon fell flat. After the move down into the 107.00’s, we have since moved back into the upper end of the 2017 range, but still looking for a move above 115.00. There was little data to feed off in the US last week, but we have inflation and consumer data in the week ahead which will shed more light on whether the USD run is truly exhausted or not. Little correlation with rates at the moment, with the 10yr US benchmark backing off 2.50% in recent weeks, but to little effect, but 2.30% has held since then.

This post was published at Zero Hedge on Nov 12, 2017.

NFL Boycott Intensifies On Veterans Day Weekend After Goodell Announces No Change To Anthem Policy

The NFL announced Saturday that there isn’t going to be any change to its national anthem policy, despite an escalating boycott of games over Veterans Day weekend.
The Facebook page ‘Boycott the NFL’ has asked all its followers to celebrate Veterans Day weekend by refusing to watch NFL games ‘in solidarity with veterans around the country,’ given that players are still engaging in national anthem protests and NFL policy remains the same, The Washington Times reports.

This post was published at Zero Hedge on Nov 12, 2017.

Anyone Else Want To Call For A Market Crash?

Hindenburg omens. Market valuations. Record low volatility. And, I am only scratching the surface of all the reasons paraded before investors as to why this market is, in their opinion, ‘too high.’
So, is this time different? Have we finally conquered the business cycle and the stock market will rally on forever?
Absolutely not.
But, when article writers suggest that their old methods of market evaluation have failed them, and then conclude that we need to prepare for a market crash, it makes me question the logical if/then perspective of their analysis.
I mean, how does one theorize and conclude that ‘if’ your analysis method is not working, ‘then’ you must prepare for a crash?
First, if you are using a method that consistently produces wrong results over multiple years, maybe it is time to actually question the usefulness of the method, and not conclude that it must mean we are going to crash.

This post was published at GoldSeek on 12 November 2017.

“This Is Unprecedented”: JPMorgan Slams “Stunning” $8 Billion Damage Verdict Against It

Here’s a live transmission from the Texas courtroom where JP Morgan Chase & Co’s lawyers are asking a judge to throw out one of the largest punitive judgments in legal history…
…Instead, the bank’s lawyers say the $8 billion judgment should be reduced to zero.
‘The law and evidence do not support any claim against JPMorgan, much less the unprecedented multi-billion-dollar punitive damage award, which the heirs have already admitted is unconstitutionally excessive,’ the bank said in a filing in Dallas probate court according to Bloomberg.

This post was published at Zero Hedge on Nov 12, 2017.

Technology Sector Has a Growing Appetite for Gold; Demand Up 3%

The amount of gold used in the technology sector grew for the fourth consecutive quarter, according to the latest demand report by the World Gold Council.
Tech industries consumed 67.3 tons of gold in Q3, a 3% increase year-on-year. Demand for memory chips served as a primary driver for increased industrial gold consumption.
All main sub-sectors registered growth. Continued strength in the memory sector – where supply remained very tight and demand high – underpinned a 12 to 15% increase in demand for gold bonding wire in Q3. Samsung Electronics credited ‘strong demand for …memory chipsets…and flagship mobile devices’ as a key contributor to its record Q3 net profit. The prolonged shortage in memory chips is expected to persist into 2018 as factories struggle to increase output sufficiently to meet demand for high-end smartphones. We believe this bodes well for the short-term outlook for gold bonding wire.’
World Gold Council head of market intelligence Alistair Hewitt told the Telegraph that tech companies spent several years trying to find substitutes for gold in order to save money, but that trend seems to have ended.

This post was published at Schiffgold on NOVEMBER 10, 2017.

“Abdication Is Unthinkable”: Saudis Deny King Salman Will Relinquish Throne To His Son

Three days ago, we reported that based on various unconfirmed media reports, Saudi King Salman – reeling from a just concluded purge that arrested some of the country’s wealthiest and most powerful royals and officials – was set to elevate his son, Crown Prince Mohammed bin Salman, to the throne in as little as 48 hours. Speculation peaked when Al-Arabiya tweeted, then quickly deleted, details of the allegedly imminent ascension ceremony.
To be sure, though a transfer of power to the crown prince has long been predicted and expected, especially after a lesser known round of mass arrests targeting well-known Saudi clerics took place in September, last week’s events pointed to a final “house cleaning” purge in preparation for bin Salman’s likely imminent ascent. After the September arrests against clerics who were largely seen as regime insiders, yet who were mildly critical of the new aggressive stance against Qatar, the WSJ quoted an adviser to the Saudi government as saying, ‘Mohammed bin Salman is definitely preparing to become king. He wants to tackle the internal debate about him becoming the king and focus on consolidating his power, rather than doing that while being distracted by dissidents.’
During the September crackdown, which is currently receiving little commentary in relation to last weekend’s turmoil, over 30 prominent political figures were detained, most of them clerics with large social media followings and broad influence in the Arab world. The WSJ further noted at that time that…

This post was published at Zero Hedge on Nov 12, 2017.

Morgan Stanley: “If Central Banks Push Back, Asset Prices Face A Severe Challenge”

As increasingly more analysts and Fed-watchers have suggested in recent months, the one catalyst that could send the market into a tailspin is for the Fed to get what it has so long wanted: a sudden spike in inflation. From Albert Edwards (who looks at record U. S. vacation plans as an ominous sign of rising wages), to Eric Peters (who warned that pent up inflation could unleash a “nightmare scenario” for the next Fed chair), to Aleksandar Kocic (who yesterday explained why the market is vulnerable to bear steepening of the curve with the Fed “massively negatively convex to inflation risk”), on Sunday Morgan Stanley’s chief cross-asset strategist, Andrew Sheets joins the warning and observes that at a time when things are finally starting to look up for the global economy, “this puts central banks in a challenging position. Inflation remains below target. But current policy means some of the easiest financial conditions ever observed, just as growth is picking back up, regulation is backing down and memories of the last crisis fade.”
As a result, Sheets believes that “current policy rates and financial conditions look unsustainably easy relative to the strength of global growth.” Which means that the response is once again in the hands of Central banks, who hold the key to determining when to push back. “If they do, asset prices face a severe challenge” Morgan Stanley warns, but maybe not yet: “until they do, we should be willing to accept that prices can persist above ‘fair value’.”
Andrew Sheets’ full note is below:

This post was published at Zero Hedge on Nov 12, 2017.

Cryptos may destabilise fiat

The assumption in some quarters is that crypto-currencies will replace gold as money, or at least challenge it. This is an error borne out of a misunderstanding of catallactics, or the theory of exchange. It also ignores the fact that beyond a few European countries and North America, gold is firmly money in the minds of ordinary people. I wrote an article on this subject, explaining why cryptocurrencies are not a new form of money, here.
Anyone reading this article may wish to read my original article first, to understand the true status of cryptocurrencies. I concluded that cryptocurrencies are the purest form of financial bubble in the history of speculation, and will be of great theoretical interest to future generations, just as the phenomena of the Mississippi, South Sea, and tulip bubbles are to us today. I also wrote that
‘It’s worth noting that all crypto-currencies together are worth $120bn, with bitcoin $55bn of that total. This is only a very small fraction of cash and deposits worldwide. Therefore, the point where new money to fuel the craze runs out does not appear to have been reached, and could have much further to go.’

This post was published at GoldMoney on November 09, 2017.

Visualizing The Rapidly Aging Western World

From issues such as declining fertility rates to the ongoing complications resulting from China’s famous ‘One Child Policy’, there are many demographic challenges that the world must grapple with in the coming years.
However, Visual Capitalist’s Jeff Desjardins notes one problem of particular importance – at least in places like Europe and the Americas – is a rapidly aging population. As the population shifts grayer, potential consequences include higher dependency ratios, rising healthcare costs, and shifting economies and cities.
EUROPE: A PRIME EXAMPLE We’ve discussed Germany’s demographic cliff before, but it’s not only Germany that will be impacted by a rapidly aging population.

This post was published at Zero Hedge on Nov 11, 2017.