UK’s Top Fund Manager: “So Many Lights Flashing Red, I’m Losing Count”

Neil Woodford is the founder of Woodford Investment Management, with $20 billion under management, and was appointed a Commander of the Order of the British Empire (CBE) for services to the economy in the Queen’s 2013 Birthday Honours List. However, he’s not very happy in his latest outlook for equity markets, nor is he happy with the recent performance of his funds, although he’s been in this situation before – ahead of the tech crash in 2000 and the sub-prime crisis in 2008. According to the Financial Times.
Neil Woodford, the UK’s most high-profile fund manager, has said he believes stock markets around the world are in a ‘bubble’ which when it bursts could prove ‘even bigger and more dangerous’ than some of the worst market crashes in history. The founder of Woodford Investment Management, which manages 15bn of assets, warned investors to be wary of ‘extreme and unsustainable valuations’ in an interview with the Financial Times, likening the level of risk to the dotcom bubble of the early 2000s. ‘Ten years on from the global financial crisis, we are witnessing the product of the biggest monetary policy experiment in history,’ he said. ‘Investors have forgotten about risk and this is playing out in inflated asset prices and inflated valuations. ‘Whether it’s bitcoin going through $10,000, European junk bonds yielding less than US Treasuries, historic low levels of volatility or triple-leveraged exchange traded funds attracting gigantic inflows – there are so many lights flashing red that I am losing count.’ Woodford likes to be contrarian: few people believed that Brexit was a buying opportunity, for example. Given his value investing style, it’s not surprising that’s he’s avoiding high-profile momentum driven names and boosting holdings in old economy ‘bricks and mortar’ companies, literally. The FT continues.

This post was published at Zero Hedge on Dec 1, 2017.

Dutch People Are Different – ABN Amro Employees Want To End Bonus Scheme

We always shudder slightly when we discuss ABN Amro, since nothing ever seems straightforward in the ongoing saga of the Dutch bank. However, this time at least nobody has died. In 2015, we notedthat Chris Van Eeghen, head of the bank’s corporate finance and capital markets ‘startled’ friends and colleagues after the ‘always cheerful’ banker reportedly committed suicide. Van Eeghen was the fourth ABN banker suicide since the financial crisis.
When it comes to bonuses, ABN also has a chequered history. The Dutch government nationalised the bank at the height of the financial crisis at a cost to Dutch taxpayers of 22 billion Euros. There was a national outcry in 2015 over bonuses ABN paid to its top executives, as Business Insider reported.
Public outcry over bankers’ bonuses is pretty common, but the anger sweeping the Netherlands, over nationalised ABN Amro’s executive pay packets is on a completely different level. Over the last week, Dutch newspapers Financieele Dagblad and NOS (Holland’s version of the BBC), and other media outlets were awash with debates over the justification of how ABN Amro’s high ranking executives were getting huge bonuses ahead of the bank being re-privatised.
In fact, the outcry was, and continues to be, so bad that Dutch finance minister Jeroen Dijsselbloem delayed the IPO of the nationalised bank at the end of March because the row over giving six executives a 100,000 (73,000) bonus on top of their salaries escalated so greatly.

This post was published at Zero Hedge on Dec 1, 2017.

US Retail Companies Have a Massive Bill to Pay Come 2018

Right now, retail stores are closing at a pace that we haven’t seen since the 2008-2009 financial crisis. Some are calling it a ‘retail apocalypse’ as a number of major headwinds approach, including increasing pressure from Amazon and the sad fact that most brick-and-mortar retailers simply built way too many stores and borrowed too much money to do so.
Though many are likely aware of the above, what isn’t so well known is how much debt is coming due starting next year. That’s really the heart of the issue, which is why America’s ‘Retail Apocalypse’ Is Just Getting Started, Bloomberg’s Matt Townsend explained to Financial Sense Newshour on today’s podcast.
Debt Is the Main Challenge Retailers Face
Though online retailers are definitely a threat and many traditional retail businesses are overstored, what’s really going to drive the shakeout of legacy retailers is debt.
‘What really drives a company out of business is, if they have a lot of debt and their business is deteriorating, that will force them into bankruptcy and potentially liquidation,’ Townsend said.
And the fact is, a lot of this debt is starting to come due next year, Townsend stated, and many retailers may not to be able to pay it off or refinance it.

This post was published at FinancialSense on 11/29/2017.

US Gross National Debt Jumps $723 billion in 12 Weeks, Yellen ‘Very Worried about Sustainability of US Debt Trajectory’

But only a few lost souls in Congress care. Even as lawmakers are trying to cobble together a tax-cut bill that would cut revenues by $1.5 trillion over ten years, the gross national debt has spiked $723 billion over the past 12 weeks since Congress suspended the ‘debt ceiling.’ It just hit $20.57 trillion, or 105% of GDP.
Over the past six years, since November 2011, the gross national debt has surged nearly 40%, or by $5.8 trillion. Back in 2011, gross national debt amounted to 95% of GDP. Before the Financial Crisis, it was at 63% of GDP. There are no signs that the relentless rise in the debt is slowing down. On the contrary – the tax cuts are going to steepen the curve:
***
In the chart above, note the last three debt-ceiling fights – the flat lines in 2013, 2015, and 2017, followed each time by an enormous spike when the debt ceiling was lifted or suspended, and when the ‘extraordinary measures’ with which the Treasury keeps the government afloat were reversed.

This post was published at Wolf Street on Nov 30, 2017.

29/11/17: Four Omens of an Incoming Markets Blowout

Forget Bitcoin (for a second) and look at the real markets.
Per Goldman Sachs research, current markets valuation for bonds and stocks are out of touch with historical bubbles reality: As it says on the tin,
‘A portfolio of 60 percent S&P 500 Index stocks and 40 percent 10-year U. S. Treasuries generated a 7.1 percent inflation-adjusted return since 1985, Goldman calculated — compared with 4.8 percent over the last century. The tech-bubble implosion and global financial crisis were the two taints to the record.’
Check point 1.
Now, Check point 2: The markets are already in a complacency stage: ‘The exceptionally low volatility found in the stock market — with the VIX index near the record low it reached in September — could continue. History has featured periods when low volatility lasted more than three years. The current one began in mid-2016.’

This post was published at True Economics on Nov 29, 2017.

US Home Prices Surge At Fastest Pace Since July 2014

As the latest housing data shows an uptick in sales, Case-Shiller’s 20-City Composite index surged 6.19% YoY in September – the fastest rate of gain since July 2014.
As Bloomberg notes, the residential real-estate market is benefiting from steady demand backed by a strong job market and low mortgage rates. The ongoing scarcity of available houses on the market, especially previously-owned dwellings, is likely to keep driving up prices.
Eight cities have surpassed their peaks from before the financial crisis, according to the report.

This post was published at Zero Hedge on Nov 28, 2017.

China Regulators Seek To Calm Mania For HK Stocks As Plunge Protectors Make An Appearance

The Chinese authorities’ efforts to contain leverage and reduce risk across the nation’s financial system took another step forward overnight with the ban on approvals for mutual funds that plan to allocate more than 80% of their portfolios to Hong Kong stocks. This looks like a response to surging capital flows into the territory from the mainland and the equity market euphoria in Asia, which saw the Hang Seng index cross the 30,000 mark last Wednesday for the first time in 10 years. As we noted in ‘Very Close To Irrational Exuberance: Asian Equities Break Above All-Time High As Hang Seng Clears 30,000’.
Ongoing southbound flows from the mainland exchanges in Shanghai and Shenzhen – via the connect trading scheme – helped to propel the rally.
The South China Morning Post has more:
China’s securities regulator will suspend the approval of new mutual funds that are meant for investing in Hong Kong’s equity market, putting a temporary cap on southbound capital that has boosted the city’s benchmark stock index to a decade high.
Chinese mutual funds which plan to allocate more than 80 per cent of their portfolio to Hong Kong-listed equities will no longer be approved for sale on the mainland, according to two state-owned funds familiar with the matter, citing an order by the China Securities Regulatory Commission. Only funds that allocate less than half of their portfolio to Hong Kong will be approved, the funds said, echoing a Monday report on the China Fund website, an industry news site.
The Chinese regulator ‘s latest instruction reflects the concern that Hong Kong’s key stock benchmark has risen too much too quickly to a level that was last attained in 2007, before the global financial crisis a year later caused the Hang Seng Index to plunge 33 per cent, and wiped out billions of dollars of value.

This post was published at Zero Hedge on Nov 28, 2017.

The Importance Of Knowing

At Peak Prosperity, we strive to help people advance in three key areas: Knowing, Doing and Being.
Doing and Being are the resilience-building steps we recommend. Helping folks develop their own personal action plans in these areas is the main focus of the seminars we run.
But Knowing? That’s the essential first part to master. Without sufficient understanding and insight to guide you, any action you take is merely groping in the dark.
That’s why Chris and I spend the majority of our time info-scouting: following the data and analyzing where macro trends are likely to head next given the latest developments.
We dedicate so much time and energy to this because it’s not the domino that’s falling today that matters. What’s much more important is: Which dominoes will fall tomorrow as a result?
And make no mistake, the pace of falling dominoes is accelerating. From the geo-politically destabilizing regime change in Saudi Arabia, to the ending of the central bank liquidity bubble, to the largest species extinction wave in millennia, to the bursting retirement dreams of the Baby Boomer generation, to the fast-worsening net energy predicament — change is afoot. The relative calm of the false ‘recovery’ that the world’s central planners engineered in response to the Great Financial Crisis has reached its terminus.
Now, more than ever in recent years, understanding where events are headed next is critical to preserving your wealth and well-being.

This post was published at PeakProsperity on Monday, November 27, 2017,.

Francesco Filia: The World’s Twin Asset Bubbles Could Collapse Under Their Own Weight

In this week’s MacroVoices podcast, Erik Townsend interviews Francesco Filia, a fund manager at Fasanara Capital. After exchanging pleasantries, Townsend begins the interview by asking Filia, an analysts who’s widely regarded for his research about how post-crisis monetary policy has impacted distorted markets, about the different metrics he uses to determine whether a certain asset is in a bubble.
Filia begins by ticking off a laundry list of metrics that all point to the same conclusion: That today’s market is more overvalued than at any point in recent history – including the run-up to the financial crisis.
Thank you, Erik. I think the equity bubble is quite uncontroversial, is quite unambiguous. There are a lot of different valuation metrics for those that care to look into them. They’ve been valid for over a hundred years of modern financial markets. And this time is no different in that respect. There are the usual metrics that the valuation guys are looking at, like financial assets to disposable income that shows that this market is way more expensive than at any point in history including the big dot com bubble and the Lehman moment in 2007-2008.

This post was published at Zero Hedge on Nov 25, 2017.

The Debt Bubble Is Beginning To Leak Air

‘The current state of credit card delinquency flows can be an early indicator of future
trends and we will closely monitor the degree to which this uptick is predictive of
further consumer distress.’ – New York Fed official in reference to rising delinquency rate of credit cards.
The recent sell-off in junk bonds likely reflects a growing uneasiness in the market with credit risk, where ‘credit risk’ is defined as the probability that a borrower will be able to make debt payments. This past week SocGen’s macro strategist, Albert Edwards, issued a warning that the falling prices of junk bonds might be ‘the key area of vulnerability that could bring down the inflated pyramid scheme that the Central Banks have created.’
The New York Fed released its quarterly report on household debt and credit for Q3 last week. The report showed a troubling rise in the delinquency rates for auto debt and mortgages. The graph to the right shows 90-day auto loan delinquencies by credit score. As you can see, the rate of delinquency for subprime borrowers (620 and below) is just under 10%. This rate is nearly as high the peak delinquency rate for subprime auto debt at the peak of the great financial crisis. In fact, you can see in the chart that the rate of delinquency is rising for every credit profile. I find this fact quite troubling considering that we’re being told by the Fed and the White House that economic conditions continue to improve.

This post was published at Investment Research Dynamics on November 22, 2017.

Whose Private-Sector Debt Will Implode Next: US, Canada, China, Eurozone, Japan?

Canadians, fasten your seat-belt. Here are the charts. The Financial Crisis in the US was a consequence of too much debt and too much risk, among numerous other factors, and the whole house of cards came down. Now, after eight years of experimental monetary policies and huge amounts of deficit spending by governments around the globe, public debt has ballooned. Gross national debt in the US just hit $20.5 trillion, or 105% of GDP. But that can’t hold a candle to Japan’s national debt, now at 250% of GDP.
And private-sector debt, which includes household and business debts – how has it fared in the era of easy money?
In the US, total debt to the private non-financial sector has ballooned to $28.5 trillion. That’s up 14% from the $25 trillion at the crazy peak of the Financial Crisis and up 63% from 2004.
In relationship to the economy, private sector debt soared from 147% of GDP in 2004 to 170% of GDP in the first quarter of 2008. Then it all fell apart. Some of this debt blew up and was written off. For a little while consumers and businesses deleveraged just a tiny little bit, before starting to borrow once again.

This post was published at Wolf Street on Nov 22, 2017.

Synchronized Global Growth May Have Arrived

Nearly 10 years after the financial crisis brought the global economy to its knees, conditions have finally improved enough to crystallize my conviction that synchronized global growth is currently underway. Revenue and earnings growth are up year-over-year, not just in the U. S. but worldwide. Despite President Donald Trump threatening to raise tariffs and tear up trade deals, global trade is accelerating. World manufacturing activity expanded to a 78-month high of 53.5 in October, with faster rates recorded in new orders, exports, employment and input prices.
Additional trends and indicators support my bullishness. Worldwide business optimism, as recorded by October’s IHS Markit Global Business Outlook survey, climbed to its highest level in three years, with profits growth and hiring plans continuing to hit multiyear highs. Optimism among U. S. firms was at its highest since 2014, with sentiment above the global average for the second straight survey period.
Small business owners’ optimism remained at historically high levels in October, according to the latest survey conducted by the National Federation of Independent Business (NFIB). Its Small Business Optimism Index came in at 103.8, up slightly from September and extending the trend we’ve seen since the November 2016 election.

This post was published at GoldSeek on Publish.

Bank Of America Analyst: A ‘Flash Crash’ In Early 2018 ‘Seems Quite Likely’

Is the stock market bubble about to burst? I know that I have been touching on this theme over and over and over again in recent weeks, but I can’t help it. Red flags are popping up all over the place, and the last time so many respected experts were warning about an imminent stock market crash was just before the last major financial crisis. Of course nobody can guarantee that global central banks won’t find a way to prolong this bubble just a little bit longer, but at this point they are all removing the artificial support from the markets in coordinated fashion. Without that artificial support, it is inevitable that financial markets will experience a correction, and the only real question is what the exact timing will be.
For example, Bank of America’s Michael Hartnett originally thought that the coming correction would come a bit sooner, but now he is warning of a ‘flash crash’ during the first half of 2018…
Having predicted back in July that the ‘most dangerous moment for markets will come in 3 or 4 months’, i.e., now, BofA’s Michael Hartnett was – in retrospect – wrong (unless of course the S&P plunges in the next few days). However, having stuck to his underlying logic – which was as sound then as it is now – Hartnett has not given up on his ‘bad cop’ forecast (not to be mistaken with the S&P target to be unveiled shortly by BofA’s equity team and which will probably be around 2,800), and in a note released overnight, the Chief Investment Strategist not only once again dares to time his market peak forecast, which he now thinks will take place in the first half of 2018, but goes so far as to predict that there will be a flash crash ‘a la 1987/1994/1998’ in just a few months.

This post was published at The Economic Collapse Blog on November 20th, 2017.

The Yield Curve Has Not Been This Flat In 10 Years, And Many Believe This Is A Sign That A Recession Is Imminent

Whenever we see an inverted yield curve, a recession almost always follows, and that is why many analysts are deeply concerned that the yield curve is currently the flattest that it has been in about a decade. In other words, according to one of the most reliable indicators that we have, we are closer to another recession than we have been at any point since the last financial crisis. And when you combine this with all of the other indicators that are screaming that a new crisis is on the horizon, a very troubling picture emerges. Hopefully this will turn out to be a false alarm, but it is looking more and more like big economic trouble is coming in 2018.
The professionals on Wall Street take the yield curve very, very seriously, and the fact that it has gotten so flat has many of them extremely concerned. The following comes from Business Insider…
In the past, including before the Great Recession of 2007-2009, an inverted yield curve, where long-term interest rates fall below their short-term counterparts, has been a reliable predictor of recessions. The bond market is not there yet, but a sharp recent flattening of the yield curve has many in the markets watchful and concerned.
The US yield curve is now at its flattest in about 10 years – in other words, since around the time a major credit crunch of was gaining steam. The gap between two-year note yields and their 10-year counterparts has shrunk to just 0.63 percentage point, the narrowest since November 2007.

This post was published at The Economic Collapse Blog on November 19th, 2017.

Doug Noland: Not Clear What That Means”

This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
November 15 – Bloomberg (Nishant Kumar and Suzy Waite): ‘Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved. ‘Have we learned our lesson? It depends what the lesson was…’ Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market ‘could have been dealt with differently.’ And in the ‘so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.’ ‘If you took all of the obvious problems from the financial crisis, we kind of solved none of them,’ Einhorn said… Instead, the world ‘went the bailout route.’ ‘We sweep as much under the rug as we can and move on as quickly as we can,’ he said.’
October 12 – ANSA: ‘European Central Bank President Mario Draghi defended quantitative easing at a conference with former Fed chief Ben Bernanke, saying the policy had helped create seven million jobs in four years. Bernanke chided the idea that QE distorted the markets, saying ‘It’s not clear what that means’.’
Once you provide a benefit it’s just very difficult to take it way. This sure seems to have become a bigger and more complex issue than it had been in the past. Taking away benefits is certainly front and center in contentious Washington with tax and healthcare reform. It is fundamental to the dilemma confronting central bankers these days.

This post was published at Wall Street Examiner on November 18, 2017.

BOE Warns Weekly Fund Redemptions Of 1.3% Would Break Corporate Bond Market

The Bank of England has done some timely and truly eye-opening research into the resilience of corporate bond markets. The research is contained in the Bank of England Financial Stability Paper No.42and is titled ‘Simulating stress across the financial system: the resilience of corporate bond markets and the role of investment funds’ by Yuliya Baranova, Jamie Coen, Pippa Lowe, Joseph Noss and Laura Silvestri.
The starting point of the analysis is to revisit the Global Financial Crisis (GFC) which saw $300 billion of related to subprime mortgages amplified to well over $2.5 trillion of write-downs across the global financial system as a whole. One of the problems was that the system was structured in a way that did not absorb economic shocks, but amplified them. The amplification came via a feedback loop. As the crisis unfolded, fears about credit worthiness of banks led to the collapse of interbank lending. Weaker banks had their funding withdrawn, which led to a downward spiral of asset sales and the strangling of credit in the broader economy.

This post was published at Zero Hedge on Nov 17, 2017.

The Fed’s Bubblenomics

The Following is adapted from a preface to a new report by Murray Sabrin, featured in his November 15 presentation, “Bubblenomics” at Ramapo College.] If you Google ‘dot com bubble,’ you will get nearly 1.2 million hits, and 3.3 million hits if you Google ‘tech bubble.’ A Google search of ‘housing bubble’ will return nearly 11 million hits. (The searches were conducted on March 29, 2017). And if you search Amazon books for financial crisis 2008 you will get more than 1200 hits.
Given all the books, monographs, essays, articles, and editorials that have been written about back-to-back bubbles that occurred within two decades, one would think there would be nothing else to write about.
The purpose of this book is to present to the general public, my fellow academicians and policymakers with an brief account and review of one of the most turbulent periods in United States history without the usual jargon academics are noted for.
As the two quotes from the Federal Reserve’s website above reveal, the Fed has been given the responsibility by the Congress of the United States to essentially promote sustainable prosperity, stabilize prices and maximize employment. During the past 100 years of the Federal Reserve’s operations, the economy has grown substantially (see Figure 1 for data since 1929), but the path to higher living standards have been interrupted by depressions/ recessions, a few bouts with double-digit price inflation and occasionally widespread unemployment. Although the Congress has expected the Federal Reserve to be a wise and prescient ‘helmsman,’ navigating the economy from becoming overheated or plunging into a recession or worse, the Fed’s track record belies its mandates.

This post was published at Ludwig von Mises Institute on 11/15/2017.

The Last Time These 3 Ominous Signals Appeared Simultaneously Was Just Before The Last Financial Crisis

We have not seen a ‘leadership reversal’, a ‘Hindenburg Omen’ and a ‘Titanic Syndrome signal’ all appear simultaneously since just before the last financial crisis. Does this mean that a stock market crash is imminent? Not necessarily, but as I have been writing about quite a bit recently, the markets are certainly primed for one. On Wednesday, the Dow fell another 138 points, and that represented the largest single day decline that we have seen since September. Much more importantly, the downward trend that has been developing over the past week appears to be accelerating. Just take a look at this chart. Could we be right on the precipice of a major move to the downside?
John Hussman certainly seems to think so. He is the one that pointed out that we have not seen this sort of a threefold sell signal since just before the last financial crisis. The following comes from Business Insider…
On Tuesday, the number of New York Stock Exchange companies setting new 52-week lows climbed above the number hitting new highs, representing a ‘leadership reversal’ that Hussman says highlights the deterioration of market internals. Stocks also received confirmation of two bearish market-breadth readings known as the Hindenburg Omen and the Titanic Syndrome.
Hussman says these three readings haven’t occurred simultaneously since 2007, when the financial crisis was getting underway. It happened before that in 1999, right before the dot-com crash. That’s not very welcome company.

This post was published at The Economic Collapse Blog on November 15th, 2017.

Russell Napier: Debt Deflation Worries Are Starting to Rise Again

There’s been very little deleveraging after the last financial crisis and, in fact, debt levels are at new records globally, which means investors should be thinking about the risk of ‘debtflation,’ Russell Napier, editor of The Solid Ground, told FS Insider last week (see Russell Napier on Debt Deflation: Too Much Debt, Not Enough Money for audio).
No Deleveraging
It isn’t the case that we’ve seen much deleveraging since the financial crisis, Napier noted. Globally, the debt-to-GDP ratio is at an all-time high, he added, significantly above the levels seen in 2007.
Though there has been some deleveraging in the household sector, Napier stated, this isn’t the whole picture. It ignores the releveraging of the government during the last crisis, and also that corporations have been adding significant amounts of debt.
If we look globally, emerging markets are fueling the rise to a new high in the debt-to-GDP ratio. It isn’t just China either, but other countries as well that are responsible for this effect.
‘If the world was fragile in 2007 because there was too much debt and not enough GDP, it is significantly more fragile today,’ Napier said.

This post was published at FinancialSense on 11/14/2017.

The Moment Gary Cohn Realized His Entire Economic Policy Is A Disaster

Ever since 2012 (see “How The Fed’s Visible Hand Is Forcing Corporate Cash Mismanagement“) we have warned that as a result of the Fed’s flawed monetary policy and record low rates, corporations have been incentivized not to invest in growth and allocate funds to capital spending (the result has been an unprecedented decline in capex), but to engage in the quickest, and most effective – if only in the short run – shareholder friendly actions possible, namely stock buybacks.
We got a vivid confirmation of that recently when Credit Suisse showed that the only buyer of stock since the financial crisis has been the corporate sector’, i.e. companies repurchasing their own shares…

This post was published at Zero Hedge on Nov 15, 2017.