Death Through Debt Approaches

One More Can-Kicking!

Crude Gets Clobbered

Bullish Bonds Spell Worry

Bonds don't rise this sharply, and interest rates plunge similarly, unless there are concerns in the financial markets. Note the last candle at the far right. That sharp buying binge for bonds is indicative of grave worry in the financial markets because investors are running for cover by buying bonds, which they consider to be the safest investment available.

End-Of-Month Rally for Corn

So is this just a temporary situation, a short-covering rally, a dead cat bounce, or has Harvey created a corn supply crisis? Stay tuned!

Cliff-Diving Corn

I'm amazed this morning that even with the plunging price of corn over the past two months, the price of corn is down sharply today also. Here is today's chart:

And here is the trend chart over the past two months:

Morose Economic Data Sends Stocks Tumbling

The Dow was down 251 points with just minutes left in the trading session today.

Sniff, Sniff! Smells Like a Bubble to Me!

This headline from Marketwatch today sure smells like a classic bubble!

War Drums? Imagine The Real Thing!

If you think today's stock market plunge was bad, imagine what would happen if war actually happened! We wiped out about a month's worth of gains today!

Sure Looks Like a BUbble

This image, from Dr. John Hussman's weekly market analysis, suggests that this stock market bubble is just getting bigger and bigger. The Dow finished up 9 days in a row today, even though it was already at record highs. Of course, the nature of a bubble is that the vast majority of market participants don't recognize it as such. If they did, extreme prices wouldn't be moving from one extreme to even greater ones.
In the image, the red line is the calculation of a log-period bubble base on the formulas of Dr. Didier Sornette. This bubble matches his calculations perfectly. It is a flawless example of a financial bubble.

Corn Prices Crushed

Corn prices today dropped below support to multi-month lows. These are the lowest prices of this year!

Both Hard and Soft Data Show Weakness!

Ouch!

Central Bankers Still Printing Money With Little Restraint

Debt Disaster Coming

Economic Data Stalls As S&P Continues Near Record Highs

How long can this continue? There seems to be a dismissiveness on Wall St of the economic data, even as the S&P 500 continues near a new record high this morning. Even the Fed's own data is showing weakness! This divergence will eventually close, and when it does, history suggests that it will be UG-LY!

Ominous Sign Stocks Have Peaked

Margin debt suggests that the stock market has topped out. It is a reliable leading indicator that points at a subsequent decline on a consistent basis.

Mark Hulbert on Marketwatch said this morning that "...margin debt typically peaks in advance of the stock market itself. In 2007, for example, margin debt peaked in July, three months before the bull market topping out in October. As Wolf Richter of the Wolf Street investment blog bluntly put it: Margin debt “has a bone-chilling habit of peaking right around the time stocks crash.”

A word to the wise is sufficient! 

Ouch! Fed's Own Labor Market Indicator Declines 7 of 8 Months!

Nevertheless, stocks are higher today1 What a bubble!

Dollar Destruction

Central Bankers Make Bubbles Much Worse

"...Recessions are a normal condition to a market economy as they are regulating any excess, bankrupting the weakest players or those with the highest leverage. However, one of the mandates of central banking is to fight a process (business cycles) that occurs "naturally". The interference of central banks such as the Federal Reserve appear to be exaggerating the amplitude of bubbles and the manias that fuel them. It could be argued that business cycles are being replaced by phases of booms and busts, which are still displaying a cyclic behavior, but subject to much more volatility. Although manias and bubbles have taken place many times before in history under very specific circumstances (Tulip Mania, South Sea Company, Mississippi Company, etc.), central banks appear to make matters worst by providing too much credit and being unable or unwilling to stop the process with things are getting out of control (massive borrowing). Instead of economic stability regulated by market forces, monetary intervention creates long term instability for the sake of short term stability."
--Professor Dr. Jean-Paul Rodrigue, Hofstra University

When Is a Bubble Not a Bubble?

Answer: When it's driven by central banker yield-seeking speculation!

Stock Valuations At Bubble Levels

The outcome of years of yield-seeking speculation induced by central banks is that investors across the globe have now locked in zero prospective total returns in virtually in every asset class for the coming decade... We actually view this period as the extended top-formation of the third speculative bubble in the past 16 years, not as a representative sample of things to come. -- Dr. John Hussman, PhD, August 15, 2016

Dollar Devastation

US GDP Growth -- Just Half of What Was Forecaast!

Deutsche Bank's Dominic Konstam summarized GDP data yesterday:

The latest GDP release favors our hypothesis of an imminent endogenous labor market slowdown over a more optimistic scenario in which productivity will replace employment as the engine for growth. With real GDP growing at just 1.2%, there is little evidence that productivity is ready to do the heavy lifting. We are particularly concerned because annual nominal growth has slowed to 2.4%, essentially a cyclical trough.

Deutsche Bank calculates, on an annual basis, the non-consumer portion of the economy is shrinking, i.e., in a recession, not only in real terms but also in nominal terms.

Business spending is in recession. Equipment spending fell -3.5% in the quarter and is down nearly -2% over the last year. At the same time, spending on structures was down -7.9% in the quarter and -7.0% over the last four quarters. The only pocket of strength within the nonresidential fixed investment sector was intellectual property products; this category, which includes software, R&D, and entertainment, literary and artistic originals, advanced a modest 3.5% in the quarter, and at a similar rate over the last year. While some of the weakness in investment spending has been due to the collapse in oil prices, non-energy-related spending has been soft, too, reflecting weak internal and external demand, excess slack and corporate uncertainty regarding the outcome of this year’s Presidential Election. While investment spending may get a slight boost over the next couple of quarters as the energy investment drag abates, we expect corporate outlays to remain stagnant until next year.

Housing stumbles. Residential investment declined -6.1% last quarter following a 7.8% in the previous quarter. Since the sector bottomed in Q3 2010, it has grown at an annualized rate of 8.6%. Elevated housing affordability coupled with low vacancy rates tells us that residential investment should rebound this quarter and next.

We should expect a sharp pullback in spending this quarter. Indeed, the recent softness in motor vehicles sales, which are one of our five favorite economic indicators, may be hinting as much. We can see in the chart below that the toppyness in vehicle sales does not bode well for the underlying trend in consumer spending. Besides, as we have written on numerous occasions, gains in consumer spending alone are not enough to prevent a broader economic downturn. There have been numerous economic cycles when year-over-year consumer spending was positive but the economy still entered a downturn. Witness what happened during the 1981 to 1982 and 2001 recessions.

 And, monetary policy has effectively exhausted itself, so there is little that policymakers can do to offset any further slowing in demand. With respect to the second half, we continue to project sub-2% growth, a view that we have held for some time.

Race To The Bottom

"To understand what’s happening in the financial markets, it’s important to recognize the sequential nature of yield-seeking speculation....
With every extension of quantitative easing, the public is left with a lower-quality stock of speculative assets...
Ultimately, all that quantitative easing does is to remove higher-quality interest-bearing securities from public hands, replace them with zero-interest cash, and leave a remaining stock of lower-quality speculative assets that then have to compete with that cash...
"...the global economic outlook has experienced a downward shock in recent weeks, largely as a result of the “Brexit” referendum where British citizens voted to exit the European Union, coupled with deterioration in China that has led it to accelerate the depreciation of its currency. That combined deterioration, coupled with expectations of further central bank easing, has resulted in a plunge in global interest rates...
This advance in asset prices isn’t a reflection of economic health. To the contrary, it is a yield-seeking race to the bottom resulting from a downward shock to the global economy."
--Dr. John Hussman PhD.

Inflation Surges! The Fed Must Be Celebrating!

Fed Leaves Rates Unchanged

So the Fed says that the labor market has slowed, but "will strengthen". I think we call that a contradiction. And if it's intentional, we call it a lie! And since the "has slowed" part of it is real-time and has occurred, we need to give that much more credibility that the "will improve" part.

Bad Day for Stocks

Bill Gross: Supernova of Debt Will Explode

A supernova of debt is here, and when it implodes, it will be undeniable that some people, like Janus' Bill Gross -- America's bond king billionaire -- DID see it coming, and was systematically ignored.

Who's Buying All Those Bad-News Dips?

V-rallies everywhere! Who is buying all those dips as the news becomes more and more morose in recent months? Some suggest the Fed is behind it. After all, there is no limit to how much electronic money they can create out of thin air!

We have been lulled into a false sense of prosperity, and it's only building an ever-larger house of cards! Here we are, sitting at near-all-time-record-highs, even as earnings collapse, job hiring is stagnating, and the manufacturing sector is weakening! Who is foolish enough to do that? And who is foolhardy enough to believe the faux prosperity!

Another tell-tale sign of manipulation: the buying halts almost the moment stocks get to 2,100 on the S&P 500. At this point the manipulation ends. And because there are few REAL investors buying stocks at these levels, the market immediately retreats.
Could it be that the Fed or Plunge Protection Team is aware that earnings are collapsing… signaling that this stock market bubble is ready to burst? -- Phoenix Capital Research

Central Bank Delusions

"This is the market we have now: dominated by delusional, irrational central planners with unlimited powers to create money out of thin air to fund their manipulations.
The only rational response is to trade accordingly: anticipate constant manipulation, anticipate constant bombastic propaganda of the "whatever it takes" variety, and anticipate massive selling of volatility to maintain the ever-so-important illusion that global risks have been disappeared by central banks and central planners.
Until the central planning madness destroys markets' ability to discover price and allocate capital. Then you end up with Venezuela: a failed state and a broken economy that can no longer feed its people despite the nation's vast oil wealth.
Volatility has been chosen as a "signaling device" by central planners. A low VIX signals all is well and risk is non-existent, so central planners suppress VIX.
In a world roiled by staggeringly large risks, can VIX be suppressed forever? That's a difficult question in a market dominated by irrational central planners." -- Charles Hugh Smith, Of Two Minds blog. 

Read the rest here!

Growing Gap Between Earnings and Stock Valuations

According to Michael Lebowitz of 720 Global Research (quoted in the article):

Since October 1, 2011, the S&P 500 has risen 82% on the heels of a 0.75% decline in earnings. The price to earnings ratio over that time period has risen 83%, with price gains contributing 99% to the increase. Prices have risen substantially, while earnings have actually fallen. The chart below highlights the growing gap between earnings and the S&P 500.”

Services PMI Near Record Lows As Stocks Approach Record Highs

“A deterioration in the survey data for May deal a blow to hopes that the US economy will rebound in the second quarter after the dismal start to the year." -- Chris Williamsen at Markit, commenting on this data.

Correlation Between USDJPY Currency Pair and Stocks

This correlation between the Japanese Yen and stocks has been demonstrated for a very long time. Does the Bank of Japan control the US stock market? It sure looks like it!

Richmond Fed Contracts Most Ever Recorded

The drop in the last 2 months is the largest in the 23 year history of the survey.

Business Loan Delinquencies Spike

How the Market Really Works

Simple! The Fed now dominates -- even controls -- the market!

Another Sign of Stagflation

 On Marketwatch this morning:

Low wages combined with high rents. Let's try a little math:

high rent + stagnating wages = stagflation

Industrial Production Stuck In a Slump... Even As Inflation Rises... And Wages Slide!!

This spells S-T-A-G-F-L-A-T-I-O-N to me!

But the central bankers are doing everything they can to increase inflation to meet their inflation GOAL! Yes, the Fed has an inflation GOAL! (They then doctor the inflation data to understate the actual inflation!)

Even as wages slumped! Janet Yellen is going for a repeat of the stagflation her university mentor created during the Kennedy years. The worst of all worlds!

Recession Lurks? A Word to the Wise...

Key indicators, especially the leading ones, have been flashing red for the past year. This headline today was on Marketwatch:

But that can't be! The Dow was up 175 points yesterday!
Suffice it to say... a word to the wise is sufficient!

The Equity Exodus

Marketwatch has an article today showing heavy volume among investors that are running for cover. Fear is back! And the price of Federal bonds confirms it also. Treasuries have been rising steadily since late April!

Albert Edwards: "It ends badly."

"Let me tell you how all this ends.
"It ends with investors accepting that they can pretend no longer and profits are sliding into recession.

"It ends as the equity market spirals into a deep bear market as company management reach the end of the road in the face of the recessionary conditions and 'kitchen sink' years of EPS manipulation.

"It ends as corporate bond spreads explode as years of excess debt accumulation lead to widespread corporate bankruptcies, making the recession much deeper.
"It ends with social unrest and double digit budget deficits (again).
"It ends with investors losing faith with the Fed as the resumption of QE proves ineffective in reviving the economy.
"It ends in deeply negative interest rates, currency and trade wars, helicopter money and ultimately inflation.
"In a nutshell, it ends badly."

--- Albert Edwards, Societe Generale

Economic Headlines for April 26, 2016

Ouch all the way around. Let's begin with the doctored data from the Atlanta Fed:

Bank of America's largest institutional, private clients are net sellers:

"Bank of America's "smart money" (institutional, private and hedge funds) clients, simply refused to buy anything, and in fact had continued to sell stocks for a near-record 12 consecutive weeks.  In fact, the selling continued despite what we said, namely that "at this point it was about time for the selling to stock, if purely statistically, otherwise said "smart money" would be sending the clearest signal yet that the market rally from the February lows is nothing but a huge gift to sell into."
"BofAML clients were net sellers of US stocks for the thirteenth consecutive week last week—making it the longest uninterrupted selling streak in our data history (since 2008) as clients continued to doubt the market rally."
According to BofA, "net sales were $3.8bn, the biggest in three weeks but the sixth-largest in our data history (since ’08), with sales from hedge funds, private clients and institutional clients alike. This follows a week of net buying by hedge funds the prior week; institutional and private clients have both been consistent net sellers since February. Clients sold stocks in all three size segments, and year-to-date only small caps have seen cumulative inflows."

Global Anarchy Coming When Central Bankers' Shennigans Blow Up?

Societe Generale's Global Strategist Albert Edwards said today that he feels "utterly depressed". He proclaims that  he hasn't "one scintilla of doubt that these central bankers will destroy the enfeebled world economy with their clumsy interventions and that political chaos will be the ugly result. The only people who will benefit are not investors, but anarchists who will embrace with delight the resulting chaos these policies will bring!"

Wow!