The Darkest Hours

This is a syndicated repost courtesy of Kunstler. To view original, click here. Reposted with permission.
The Tax ‘Reform’ bill working its way painfully out the digestive system of congress like a sigmoid fistula, ought be re-named the US Asset-stripping Assistance Act of 2017, because that’s what is about to splatter the faces of the waiting public, most of whom won’t have a personal lobbyist / tax lawyer by their sides holding a protective tarpulin during the climactic colonic burst of legislation.
Sssshhhh…. The media has not groked this, but the economy is actually collapsing, and the nova-like expansion of the stock markets is exactly the sort of action you might expect in a system getting ready to blow. Meanwhile, the more visible rise of the laughable scam known as crypto-currency, is like the plume of smoke coming out of Vesuvius around 79 AD – an amusing curiosity to the citizens of Pompeii below, going about their normal activities, eating pizza, buying slaves, making love – before hellfire rained down on them.
Whatever the corporate tax rate might be, it won’t be enough to rescue the Ponzi scheme that governing has become, with its implacable costs of empire. So the real aim here is to keep up appearances at all costs just a little while longer while the table scraps of a four-hundred-year-long New World banquet get tossed to the hogs of Wall Street and their accomplices. The catch is that even hogs busy fattening up don’t have a clue about their imminent slaughter.

This post was published at Wall Street Examiner by James Howard Kunstler ‘ December 18, 2017.

Grantham Commits The Cardinal Sin

Way back in the 4th quarter of 2015, GMO’s Jeremy Grantham wrote a piece titled ‘Part II: 2015 and 2016, U. S. Equity Bubble Update, and Yet More on Oil.’
It is easy to forget, but at that point, the S&P was trading around 2,000 and everyone was bearish. QE had ended, the Fed was fumbling with their first hike and ‘fully valued’ were the buzz words used to describe US equities.
Yet Jeremy didn’t write the all-too-easy piece about how stocks were about to crash. Instead, he acknowledged that equities were expensive, but not yet in bubble territory.
‘On the evaluation front, the market is not quite expensive enough to deserve the bubble title. We at GMO have defined a bubble as a 2-standard deviation event (2-sigma). We believe that all great investment bubbles reached that level and market events that fell short of 2-sigma, did not feel like the real thing.’ ‘… I must admit to feeling nervous for this year’s equity outlook in the U. S. But I am not entirely convinced. Sure, we can have a regular bear market. That is always the case. But the BIG ONE? I doubt it.’
So while most everyone else was predicting a U. S. stock market bear market, Grantham postulated the most likely course for equities was to become even more expensive.

This post was published at Zero Hedge on Apr 3, 2017.

Gold exports to China soar in run-up to year of the rooster

Gold exports to China soared in the run-up to the start of the lunar new year, with volumes increasing in December from major suppliers Switzerland and Hong Kong.
More gold was sent from Swiss refiners to the world’s top consumer than in any month since at least January 2014, according to data on the website of the Swiss Federal Customs Administration, while imports from the Asian city-state also increased compared with November.
China is the world’s top gold consumer, according to data from researcher Metals Focus Ltd., and the start of the Year of the Rooster this week is associated with gifting the precious metal. Lower prices at the end of last year, brought on by a stronger dollar as the U.S. increased interest rates, supported demand.

This post was published at bloomberg

Steve Mnuchin Defends the Myth of Fed Independence

One of the biggest surprises during Donald Trump’s unconventional presidential campaign was his frequent criticism of the Federal Reserve. Though he was highly inconsistent on what he thought the Fed should do, coming out as both a critic and advocate of the current low interest rate policy, he was steadier in his dismissal of the Fed as an independent institution. During one of the debates, he went as far as to accuse Fed Chairwoman Janet Yellen of ‘being…more political than Hillary Clinton.’
While it is possible Donald Trump may still believe this, it is clear his Treasury Secretary does not.
Responding in writing to questions from Senator Bill Nelson, Steve Mnuchin described the Fed as ‘organized with sufficient independence to conduct monetary policy and open market operations.’ He also praised ‘the increased transparency we have seen from the Federal Reserve Board over recent years.’
While Mnuchin’s response does not explicitly criticize the movement to Audit the Fed, the leading critics of the effort have always pointed to the Fed’s independence as a primary reason for their opposition. They faithfully parrot the same line offered by Chairwoman Yellen and her predecessor that a GAO audit of their operations would allow partisan politics to interfere with the judgement of the Federal Reserve.

This post was published at Ludwig von Mises Institute on January 26, 2017.

Why Europe Secretly Roots For Donald Trump

Submitted by Matthew Karnitschnig via,
Careful observers of European politics might be forgiven for asking if – behind the exclamation of shock and horror over the prospect of a Donald Trump presidency – they don’t detect the occasional wry smile or hint of giddiness when the conversation turns to the U. S. Republican presidential candidate.
To be sure, hardly a day goes by without some senior European official voicing grave concerns over the possibility that Trump might win the elections. European Parliament President Martin Schulz warned recently that Trump ‘would be a problem not just for the EU but for the whole world.’
And yet, in some quarters at least, the Trump cloud carries with it at least a sliver of silver lining. No European politician will say so publicly, but to some on the Continent, Trump presents a once-in-a-generation opportunity for emancipation from American influence.
To varying degrees, America-bashing has been a mainstay on both the Right and Left of European politics for decades. From GMOs to Guantanamo, from the drone war to the death penalty, European politicians have rarely had difficulty finding reasons to rail against the U. S.

This post was published at Zero Hedge on Sep 23, 2016.

GMO: The Market Is About 70% Overvalued

‘It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness …’
– A Tale of Two Cities by Charles Dickens
While all eyes were on Federal Reserve Chair Janet Yellen in Jackson Hole, we were watching something else. In August, the Shiller P/E, a well-regarded metric for measuring the valuation of U. S. equities, breached 27. Given that its normal range is something a bit above 16, valuations are looking rather stretched. Further, the last time the Shiller P/E was above 27 was in October … 2007. And we all know how that movie ended.
While nobody here at GMO is saying that a crash is imminent (and there’s no law that says stocks cannot become even more expensive), we continue to maintain our bias against U. S. stocks. We will also take this end-of-summer moment to point out the yawning disconnect between fundamentals (of the U. S. economy and even corporate America) and their stocks. It really is a tale of two cities, one of mediocre fundamentals versus a meteoric rise in markets (see the chart below).

This post was published at Zero Hedge on Sep 15, 2016.

The Stock Market Is A Monetary Policy Junkie – Quantifying The Fed’s Unprecedented Impact On The S&P

Executive Summary
One of the stated goals of the policies that the Fed has been pursuing since the Global Financial Crisis is to raise asset prices. In this short note we show that this has been standard operating procedure for the Fed since Greenspan’s tenure began. However, the transmission mechanism doesn’t appear to be lower rates, lowering the discount rate. Rather, it seems to come from the influence that the FOMC announcements have on market sentiment or ‘animal spirits.’ We do find that Federal Reserve influence on the stock market has become particularly pronounced since the onset of its unconventional policies. We construct an alternative valuation measure (the Monetary Policy-Adjusted CAPE) that modifies Robert Shiller’s Cyclically-Adjusted P/E ratio (CAPE) in order to gauge the impact the Federal Reserve policies have been having on the S&P500.
The Stock Market As Monetary Policy Junkie – Introduction
Jeremy Grantham has a lovely saying that resonates deeply with us, and it is, ‘Always cry over spilt milk.’ Analyzing past errors and mistakes is crucial to improving our understanding, and vital if we are to stand any chance of avoiding making similar errors in the future. Indeed, ‘Always Cry Over Spilt Milk’ was the title of an internal investment conference we held at GMO towards the end of last year. The deeper subject was seeking to understand why our forecast for the S&P 500 had been too pessimistic over the last two decades or so.
In August 2015, we shared some of the work that emerged from that event in the white paper, ‘The Idolatry of Interest Rates, Part II.’ We would like to highlight two elements from that work that are of particular relevance for this note. First, we showed that our basic valuation framework has tended to underestimate the returns to the U. S. market of late because the market has simply turned out to be more expensive than we had expected (see Exhibit 1). Second, we showed that despite many protestations to the contrary, low interest rates didn’t really seem to be a viable explanation for the market’s high P/E.

This post was published at Zero Hedge on 03/24/2016.

A Collision Is Coming In Securitized Auto Debt

Delinquencies on subprime auto debt packaged into securities reached a high not seen since October 1996, as late payments continued to worsen in February, according to Fitch Ratings. – Bloomberg News
The Fed and the Obama Government inflated a massive bubble in automobile sales (among all the other bubbles). Over 30% of all auto loans over the past few years have been of the subprime variety. Not just ‘subprime’ per se, but absolute nuclear waste. Low credit score borrowers have been able to buy used cars with loan terms well beyond 5 years AND loan-to-value amounts far greater than 100% of the assessed NADA used car value.
It’s an absolute disaster waiting to happen. Fitch of course puts a positive spin on the ticking time bomb by stating that it expects the payment rate to improve in the comingmonths as tax refunds kick in. Only there’s a problem with this assertion – where are the tax refunds? Not only that, many taxpayers have been taking advantage of the available of tax refund anticipation loans: Tax Refund Advances Are Back. Sorry Fitch, a lot of that tax refund money is already spent. And guess what? Your beloved sub-prime auto CLO’s are now subordinated to the Tax Anticipation Debt.

This post was published at Investment Research Dynamics on March 16, 2016.

Disastrous Discussion: US Corporate Profits vs. GDP: How Sustainable is Corporate Profit Trend? Do US Equities Deserve a PE Premium?

US Corporate Profits vs. GDP
The latest GMO Quarterly Report, released yesterday as a 26-page PDF, has some interesting charts and commentary on valuations, PEs, and a premium on US equities.
Let’s put a spotlight on a chart and commentary starting on page 10.

When we began building our forecasts, this series had a wonderfully mean-reverting look to it. There had been no obvious trend for the close to 50 years of data, despite plenty of good times and bad in the interim. And the appearance of long-term stability still seemed strong as late as the early 2000s. At the time we excused the new highs of profitability as the consequence of the housing boom and bubble in risk assets. Afterwards profits were good enough to fall through the old average in the financial crisis, although not to the lows we saw in prior recessions. And since then, after the fastest and sharpest recovery on record, we saw them rise well beyond anything the U. S. has ever seen. On this measure, while profitability is off of its recent highs, it is higher than any point in history before 2010.
And this leads to the quandary for thinking about the U. S. stock market. We cannot find any convincing evidence that the U. S. is deserving of trading at a premium P/E to the rest of the world. This profitability, however, could be read either of two ways. Either the U. S. has somehow unlocked a secret to permanently higher profitability or this is an extremely dangerous time to be investing in the U. S. U. S. profitability has never looked materially better relative to the rest of the world than it does today. The bull case would be that, for whatever reason, this profitability gap is sustainable and U. S. stocks are only mildly more expensive than the rest of the developed world given U. S. P/Es are only about a point higher.

This post was published at Global Economic Analysis on December 10, 2015.

Ted Butler Quote of the Day 09-25-15

How long before silver prices reflect what’s going on in the real world of actual metal supply and demand? It’s not just that we happen to be in the most severe shortage in retail forms of silver any of us has ever witnessed, because some will say the premiums fully reflect the shortage. But while the premiums do confirm the shortage, they don’t explain it. And one would think the most severe retail silver shortage in history would demand a detailed explanation.

It’s not just the retail shortage in silver demanding an explanation, all the obvious signs of wholesale tightness amid desultory price action also demand explanations. The unprecedented and frantic physical turnover in COMEX silver inventories and the growth of silver inventories in the JPMorgan COMEX warehouse and the shrinkage in other warehouses also demand explanations; but few are forthcoming.

More than anything, how long will everyone tolerate the daily pricing of commodities that is mostly divorced from the realities of actual supply and demand? Increasingly, there is no other plausible explanation for large daily price swings in silver, gold, copper and other metals and commodities than manipulative trading on the COMEX and NYMEX. For instance, I’d sure like to hear a plausible supply/demand explanation for why silver and copper fell sharply on Tuesday other than the obvious – the commercials (led by JPMorgan) rigged prices below key moving averages on the COMEX to induce selling by the managed money traders. I won’t be holding my breath for an alternative explanation.

While I don’t have a definitive answer for how much longer before silver (and other commodities) reflect actual supply and demand—and not crooked COMEX pricing; based upon the growing awareness of the price discovery process and the growing tightness in physical silver I sense not much longer. I say that for two reasons – one, a genuine wholesale physical silver shortage cannot be contained by derivatives at some point—and all the signs that I monitor show continued tightness. Two, there are indications that the most important players, like JPMorgan, may be putting the finishing touches on COMEX positioning best suited for a large up move in price.

A small excerpt from Ted Butler’s subscription letter on 23 September 2015.

More precious metals news & information available at
Ed Steer’s Gold & Silver Digest.

Presenting Jeremy Grantham’s “10 Topics To Ruin Your Summer”

When last we checked in with Jeremy Grantham, the GMO co-founder was still bubble watching, reiterating his outlook from November that although stocks can always go higher in the “strange, manipulated world” that we call the “new paranormal”, “bubble territory” probably isn’t far off given that the Yellen Fed is “bound and determined” to facilitate the inexorable rise of asset prices.
More specifically, bubble territory for Grantham is around S&P 2250, and because “the Greenspan/ Bernanke/Yellen .. Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U. S. growth stocks in 2000 and in U. S. housing in 2006,” there’s no good reason to think we won’t reach a bubble-defining two sigma event before all is said and done, even if that means launching QE4 in the event liftoff’s first 25bps baby steps result in a 1937 redux.
Grantham also bemoaned the lack of capex spending and the myopia exhibited by corporate management teams, noting the “current extreme reluctance to make new investments in plant and equipment (how old-fashioned that sounds these days) rather than [plowing money] into stock buybacks, which may be good for corporate officers and stockholders, but bad for GDP growth and employment.”
In GMO’s latest quarterly missive, Grantham is back with another dose of inconvenient truthiness, this time in the form of “ten quick topics to ruin your summer.”
In short, this is a list of what Grantham – who points out how fortunate he is to “have an ideal job [with] no routine day-to-day responsibilities [which leaves him] free to obsess about anything that seems both relevant and interesting” – thinks you should worry about going forward:

This post was published at Zero Hedge on 07/29/2015.

SuperBull Club: RBC Ups Morgan Stanley, Says Bull Market to Continue 6 Years; Sobering Alternative View from GMO

SuperBull Club
RBC Capital Markets chief U. S. market strategist Jonathan Golub joined the SuperBull Club today. Golub says Years Left to Go in S&P 500 Bull Market.
The U. S. economy’s slow recovery may extend another six years, potentially doubling the duration of the bull market in equities, according to RBC Capital Markets chief U. S. market strategist Jonathan Golub.
Bull markets tend to continue until an economic cycle runs out, usually after about seven years, Golub said in an interview with Bob Moon on Bloomberg Radio. Given the pace of the current economic expansion, he said the cycle could last 12 years or longer, providing investors with reason to continue buying stocks.
‘We’re going to see a lot more upside to the stock market,’ Golub said. ‘This is going to go on for long enough that many Americans are going to be able to participate in the run higher.’
The Standard & Poor’s 500 Index has more than tripled during the current bull run, which at 76 months is the second longest in the past 60 years.
He forecasts the benchmark index will end the year at 2,325, the fourth-most bullish forecast in a Bloomberg survey of 21 strategists.

This post was published at Global Economic Analysis on July 21, 2015.

Eric Dubin – The News Doctors: Unusual Trading Patterns In Gold/Silver

There’s no question right now that the Fed/Treasury/Banks – collectively the Plunge Protection Team – are putting a great deal of effort into keeping a strong bid underneath the S&P 500. Of course, there’s slippage in other areas:
The Dow Jones Transports have been in a definitive downtrend now since the beginning of the year. It is diverging negatively from the heavily manipulated S&P 500. More important, the DJT represents shipping and transportation companies which are directly tied to any consumption-based economic activity. If consumers are not spendingMONEY, it shows up directly in the bottom line of most of the companies in the DJT.

This post was published at Investment Research Dynamics on June 18, 2015.

Jesse Felder Calls Out The Bulls

It’s no secret I’ve been bearish but in the spirit of seeing the other side of the trade, I’ve been looking for a compelling bull case for equities for some time now. So this is a call to all the equity bulls out there. I’m looking for someone to make a compelling case for owning the broad USSTOCK MARKET over the next 3, 7 and/or 10 years.
I’m using these timeframes because I’ve shown here that margin debtsuggests 3-year returns could be very poor. Jeremy Grantham’s shop, GMO, believes 7-year real returns will be negative. And there are plenty of measures that suggest 10-year returns should be close to zero. In fact, if the Fed is right, and demographics do matter to asset prices, returns over the coming decade could be significantly worse than zero.
Here are the ground rules. Any bullish case for equities under consideration here should:

This post was published at Wall Street Examiner by Jesse Felder ‘ June 17, 2015.

How To Spot Groupthink Among Economists

As GMO’s James Montier says in his latest white paper today “it seems one can hardly open a financial newspaper or read a blog these days without tripping over some academic-cum-central banker talking about the once arcane notion of the equilibrium real interest rate.”
Sure enough, it is the laughable concept of the equilibrium real interest rate (laugable because if it can be quantified and put into an equation, it becomes tangible and central banks are convinced they can recreate it, perfect it and implement it to “fix the economy”… usually with disastrous results) that is the topic of his latest must read piece “The Idolatry of Interest Rates Part I: Chasing Will-o’-the-Wisp“, which not only makes a mockery of central planners but also the intellectual conceits they all hold so dear, and which they will all hold dear all the way until the now inevitable collapse of “New Keynesian” economics.
And while there is much to discuss in his full 13 page paper, the following excerpt discussing how to spot groupthink in crowds (of economists) is what we found most relevant and amusing, perhaps because the entire world is now caught in a groupthink mode, and what’s worse, a groupthink that is peddling the wrong solution to the worldwide problem that can be summarized as simply as “$200 trillion in debt.”
From Jim Montier:

This post was published at Zero Hedge on 05/19/2015.

Gold And Silver – [Thieving] Bankers Operate In Open; Public Have Eyes Wide Shut.

Saturday 2 May 2015
Who are the bankers? There are those known, doing a lot of dirty work, and there are those unknown, operating totally behind the scenes controlling everything, doing even dirtier work. What does that mean, controlling everything? How about the world’s money supply, creating it, deciding who gets what and how it is to be spent.
How has a lot of the money been spent? Acquiring politicians, which means controlling governments and the political partied that make up governments. Bankers have paid for and gained control of the entire pharmaceutical industry, the AMA [American Medical Association], all of the huge Agri-business, controlling the like of Monsanto and GMOs. Bankers control the entire media industry, everything you watch on TV, hear on the radio, read in the newspapers and magazines, control over everything they want you to hear and read. The entire educational system is run by the government. Everything is done under the watchful eyes of the bankers. Nothing gets done without their approval.
No where is there any oversight. Nowhere does the rule of law apply, unless you happen to be in traffic court or have committed a crime, but for the bankers, no one in the Obama Administration has been able to uncover any crimes.
What about control of your finances?
Social Security is being postponed to age 67. Corporate pensions are being phased out. All retirement accounts, 401ks, IRAs, etc, are to be targeted by the government in an eventual takeover, for your own good, of course, and your retirement holdings will be placed into worthless government bonds that will off some kind of ‘guaranteed return’ on ‘investment.’ But there will be no guarantee your investment will ever be returned with any kind of value.

This post was published at Edge Trader Plus on May 2, 2015.

Grantham Says Fed “Bound And Determined” To Engineer “Full-Fledged Bubble”

Back in November, we highlighted the accuracy of Jeremy Grantham’s predictions about the trajectory of the central bank liquidity-fueled equity rally. In terms of how far the market can run before reality and gravity finally reassert themselves, bursting the centrally planned bubble and prompting a 2008-style ‘correction’, Grantham defined a ‘full-fledged’ bubble as S&P 2250 and warned that a retracement of some 50% was possible depending on how assertive the Fed’s response to its real favorite economic indicator (stocks) turns out to be.
In GMO’s latest quarterly letter, Grantham is out reiterating his view that although US stocks may not have reached their peak in what he accurately calls a ‘strange, manipulated world’ (we prefer ‘new paranormal’), he’s sticking with the idea that ‘bubble territory’ is likely just around the corner as the Yellen Fed is ‘bound and determined’ to facilitate and inexorable rise in asset prices. He also notes that the Yellen seems no more inclined than her predecessor to take Jeremy Stein’s advice on being careful not to adopt an ‘implicit policy of inaction’ when it comes to bubbles. Here’s more:
The key point here is that in our strange, manipulated world, as long as the Fed is on the side of a strong market there is considerable hope for the bulls. In the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U. S. growth stocks in 2000 and in U. S. housing in 2006. Both of these were in fact stunning three-sigma events, by far the biggest equity bubble and housing bubble in U. S. history. Yellen, like both of her predecessors, has bragged about the Fed’s role in pushing up asset prices in order to get a wealth effect. Thus far, she seems to also share their view on feeling no responsibility to interfere with any asset bubble that may form. For me, recognizing the power of the Fed to move assets (although desperately limited power to boost the economy), it seems logical to assume that absent a major international economic accident, the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble. And we are not there yet.

This post was published at Zero Hedge on 05/01/2015 –.

15 Surprises for 2015

It’s that time of year when people start thinking about New Year’s resolutions and investment planning for the future. It’s also the time of year when analysts feel more or less compelled to offer up forecasts. My friend Doug Kass turns the forecasting process on its head by offering 15 potential surprises for 2015 (plus 10 also-rans). But he does so with a healthy measure of humility, starting out with a quote from our mutual friend James Montier (now at GMO):
(E)conomists can’t forecast for toffee … They have missed every recession in the last four decades. And it isn’t just growth that economists can’t forecast; it’s also inflation, bond yields, unemployment, stock market price targets and pretty much everything else … If we add greater uncertainty, as reflected by the distribution of the new normal, to the mix, then the difficulty of investing based upon economic forecasts is likely to be squared!

This post was published at Mauldin Economics on DECEMBER 31, 2014.

The ‘Near-Bubble’

Central Planners and Displeased Value Investors The Dow fell 51 points on Monday. Gold surged $37.10 – or 3.1% – to settle at $1,232 an ounce. The US stock market is ‘hideously expensive,’ says value investor James Montier at Boston-based investment firm GMO.
He’s not wrong about that. But we have a feeling it’s going to be even more hideous before this story reaches its end. When it is so hideous that to look upon it sends us running to a public toilet and retching, that is when it will be most loved by everyone.
This is the story of human hubris (a classic in Greek drama), wherein man oversteps his boundaries and brings down upon himself the fury of wrathful gods.
Yellen, Draghi, Kuroda, Carney, Zhou – the protagonists think they are ‘wiser than God.’
They think they know that people would be better off spending their money rather than saving it… that prices should be rising not falling… and that, by propping up the price of financial assets with credit easing, they will cause real growth and real prosperity.

Photo credit: Evan-Amos

This post was published at Acting-Man on December 11, 2014.

The World’s Dumbest Idea

In today’s Outside the Box the redoubtable James Montier of GMO lifts his lance to prick the underbelly of the Mighty SVM. (That’s Shareholder Value Maximization, for you newbies.) ‘The world’s dumbest idea’ (among many candidates in the world of finance), says James, citing none other than ‘Neutron Jack’ Welch in support.
After noting that taking on SVM ‘is a little like criticizing motherhood and apple pie,’ James sets right to work, tracing the monster’s birth to an editorial by Milton Friedman in 1970, in which Saint Milton wrote, ‘There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…’
Our intrepid author then explains how in the 1970s the Gospel According to Milton translated into the challenge of how to get corporate executives to focus on maximizing the wealth of shareholders. The solution: pay them a s***load of money (but not just cash – stock and options now constitute about two-thirds of total CEO compensation).

This post was published at Mauldin Economics on DECEMBER 4, 2014.