See-Saw Day On Wall St

It was up. Then it was down. Now, it's up again, but not enough to push stocks into the green for the day!

Stocks Collapse Following Good News?

This may seem strange, but one day after GDP growth of 4% was announced, the stock market plunged 317 points. Is this the beginning of the consequences for so much market manipulation by the Fed?

"U.S. stocks sustained heavy losses on Thursday as traders ditched a wide swath of assets, leading the blue-chip average to hit the flat-line for 2014." Fox Business

Cost of Beef Goes Parabolic

This is hard to believe, but it's real.
Jason Lusk:

• "That leaves supply-side issues.  Cattle inventories are at their lowest level since the 1950s. Because of technological advancement, we don't need as many cattle today today to produce the same amount of beef as we did in 60 years ago.  Still, fewer cattle numbers means less beef, and less beef supplied means higher prices.  Contraction in cattle supplies can be explained by a number of factors, such as drought in the plains states that limited the amount of grass and hay available and higher feed (mainly corn) prices due to drought, ethanol policy, etc., which pushed pushed more cattle to slaughter several years ago, leading to smaller inventories today.  Feed prices have now come down off their highs but cattle prices are still rising, partially because producers are holding back breeding stock to rebuild inventory.  Still, if high feed prices were THE answer, I would have expected chicken prices to rise in tandem with beef and pork (at least over part of the period), but as the above graph reveals, they didn't."

"In short, the reasons are: (1) supply and demand, which has been affected by weather and increased Asian demand, (2) government intervention, and (3) crony capitalism."
Why Beef Prices Are So High

Bad News, Stocks Drift Modestly Lower

"Crippling Blow" to Obamacare

From CNBC:
"In a potentially crippling blow to Obamacare, a federal appeals court panel declared Tuesday that government subsidies worth billions of dollars that helped 4.7 million people buy insurance on HealthCare.gov are illegal."

Why Collapse Becomes Inevitable!

Charles Hugh Smith:
"It's easy to see what's happening with debt and the real economy (as measured by GDP, gross domestic product): debt is skyrocketing while real growth is stagnant. Put another way--we have to create a ton of debt to get a pound of growth."

Signs of An Approaching Stock Market Top?

Wall St insiders know that once John and Mary Mainstreet pile into the market, the time is now to get OUT. They're jumping ship like rats, while the small investors on Main St piling into the market. One reason for this is that there's not big piles of cash left to keep pushing the market still higher. Once John and Mary pile in, who's left with mountains of cash to keep buying and pushing the market higher?

Look at the chart in this article that shows that just as the Wall St bankers are jumping OUT, small "retail" investors from Main St are finally (foolishly) piling in. This phenomenon has existed for generations in history. Many on Wall St know that this is a sign of an impending top. That's why this article was written to talk about it.

 "Individual investors are plowing money back into the U.S. stock market just as professional strategists say gains for this year are over. About $100 billion has been added to equity mutual funds and exchange-traded funds.
Professional investors, such as Nick Skiming of Ashburton Ltd., say that individuals investors are attracted to stocks after seeing others getting rich from a big rally, a time when equities are usually overpriced. The bursting of the technology bubble in March 2000 was marked by mutual funds absorbing a record $102 billion in the first quarter."

It's a commonly-understood phenomenon on Wall St that as the "dumb" money, as they often call it, or "retail" investors -- unshophisticates -- pile into the market, a market top is soon coming. These small investors tend to wait far to long to get in, and far too long to get out! They tend to lose lots and lots of money.

Goldman Sachs, by the way, internally refers to these people -- their own clients -- as "muppets". A Goldman insider blew the whistle on this a few years ago and revealed the true collusion on Wall St against small investors.

What A Bubble Looks Like!

While Janet Yellen can continue in denial, just as her predecessors have done, in perpetuity, just about any reasonable person would look at this chart of the current S&P 500 stock index and see a market priced in bubble territory.

Dose of Reality Hits Wall St?!

This morning, as the National Federation of Independent Business released its survey showing that 6 of the NFIB's 10 indicators decreased, with about half of the decline in the overall index due to less confidence in future business conditions, perhaps a dose of reality is hitting Wall St.
We're now in the 2nd half of 2014, and for the first six months, Wall St has been bidding up the stock market in expectation of a break-out higher for the global economy. This morning may be the first of a forced dose of reality for the Fed-pumped delusions of Wall St. It's not going to happen!

Beef Prices Hit Velocity Higher

US Economy Stagnates Even As Inflation Accelerates

Stagnation is here! And the Fed created it!

Go Vegetarian or Starve

I don't buy beef any more. I'm not vegetarian, but I don't buy beef. It's too expensive. This chart shows why. This is the price of cattle futures over the past year. And the price of beef is only accelerating higher!

Delusions of Grandeur On Wall St

...and from the Propaganda Press:
NEW YORK, June 12 (Reuters) - U.S. stock index futures pointed to a flat open on Thursday as a round of disappointing data gave investors few reasons to buy, even after the S&P 500's biggest one-day drop in three weeks.
* Data on both retail sales and jobless claims were below expectations, though neither read was seen as so weak as to derail the thesis that economic conditions are improving.
* Retail sales rose 0.3 percent in May, half of the growth rate that had been expected, while the number of Americans filing new claims for unemployment benefits unexpectedly rose last week.

And when the collapse comes from this latest bubble, these same people will then be telling us that no one saw it coming! 

Stocks Go Vertical As ECB Announces NIRP

So what happens when there are no savers left? What then? What happens when everyone is so dependent on government that NO ONE prepares for a rainy day or a calamity any more? Will central bankers just offer to print money to fund more than government? Will they offer to fund EVERYTHING by printing money? The chain reactions and ripple effects are incalculable!

Evans-Pritchard Shreds Friday's Jobs Data

Ambrose Evans-Pritchard at the Daily Telegraph:

The US economy has delivered two minor shocks in a week, prompting concerns that bond tapering by the Federal Reserve may be doing more damage than expected.

Non-Farm Payrolls data released on Friday shows that the workforce shed 806,000 jobs in April, a stunning drop that cannot plausibly be blamed on the weather. Wage growth and hours worked were both flat and the manufacturing hours per week fell.

This follows news earlier in the week that the economy to a halt in the first quarter. Growth plummeted to 0.1pc and is now well below the Fed’s “stall speed” indicator. Analysts blamed this on the freezing polar vortex over the winter.

Yet the jobs data confirm a disturbingly weak picture. The headline unemployment rate fell to 6.3pc but that was only because the labour “participation rate” plummeted back to a modern-era low of 62.8pc, last seen in 1978 when there were far fewer women in the workforce. The rate for males is the lowest ever recorded at 69.1pc.

The rest can be found here. 

GDP Barely Breathing

But stocks are higher, near all-time records. Thank you, central bankers, for delivering yet another bubble that will need to crash before investors wake up!

Still More Food Inflation

"It Will All End Badly"

from Zero Hedge:

Some less than pleasant observations from the billionaire founder of Elliott Management, Paul Singer, extracted from his periodic letter to clients.
AMERICA’S LIABILITIES

The budget deficit for the latest fiscal year (which ended on September 30) was reported to be around $700 billion. However, this figure would be many times higher if the government’s unfunded entitlement programs were included. Even before taking into account liabilities stemming from the Affordable Care Act (ACA), which cannot even be calculated yet because so many of its assumptions are either erroneous or outright fabrications, and because many of its provisions keep getting delayed by the Administration for purposes of political advantage, the present value of the future obligations of the federal government is currently around $92 trillion. These obligations have been growing by over 10% per year since 2000, during which time nominal GDP has risen just 3.8% per year. At this rate, the federal government will owe an estimated $200 trillion on the entitlement programs by 2021 (again, excluding the effects of ACA) and $300 trillion by 2025.
These numbers are not fantasies. At present, there is no acknowledgement by a large portion of the American political establishment that this insolvency even exists. Nor have the leaders of this establishment made any concrete progress toward restoring solvency by taking up serious proposals to rein in unpayable promises. Quite the contrary: Politicians and policymakers continually tell people that such entitlement obligations will be met – a claim they must know cannot possibly be true.
Recently, we had a conversation with a mainstream economist who told us that the government is not actually insolvent because the long-term entitlements are not really liabilities that need to be counted, any more than the military budget for the year 2030 needs to be counted. This assertion is incorrect. Military spending, like any other form of discretionary spending, can be cut quickly and arbitrarily, as Washington recently made clear. And such spending is in exchange for goods and services delivered at the time the money is spent. In 2030, the government can buy many more tanks, or many fewer, than it is buying today. It has not promised to buy any amount. In fact, aside from military entitlements such as veterans’ health care, there is no obligation to spend any money at all on the military in 2030. By contrast, entitlements represent concrete governmental promises that are being made today about future spending – promises on which people are being (falsely) told that they can rely. And at the time the money is scheduled to be delivered, the recipient is delivering no goods or services. Only someone who has never run a business could say with a straight face that such obligations are not really liabilities and need not be included in the accounting.
High inflation (or hyperinflation) is one way that devious or clueless policymakers attempt to deal with unpayable promises. It is devious, because without formally imposing a tax, it takes money from savers and investors and pays it to borrowers and voters. It is clueless, because the cycle of government handouts and demands for more benefits is like a game of “chase the tail” – because it dissipates the real value of promised benefits, it brings the ultimate prize no closer while destroying the value of money and dissolving societal cohesion in the process.
The U.S. is in a “warm-up” phase on this score at present. The promises made by U.S. politicians are huge. Absent reform, they will lead to societal ruin. But so far, there has been no collapse of the dollar – possibly because there is no alternative fiat currency against which it can collapse. Gold is trading at $1,300 per ounce, not $5,000 per ounce. The $100 million co-op apartment in New York and the £100 million flat in London are thought of as oddities, not “coming attractions” for the evaporation of the value of paper money. Wage inflation is small (even though labor markets for desirable skills are tighter than most people think), and the arithmetic of government statistics (jobs, growth and inflation) is distorted and dishonest almost beyond measure.
There is something missing in investors’ reasoning that leads to their current complacency, and that is an understanding of the circularity of confidence in a fragile system. Since the system is fundamentally unsound, all it would take is a loss of confidence to set off a collapse in the purchasing power of money, a major currency or the global stock and/or bond markets. “Risk off” today still means buying U.S. Treasuries, but this may not be the case at some unpredictable but abrupt future turning point in market psychology. Markets are fast and self-reinforcing today, creating facts rather than reflecting them. We believe investor confidence today is unjustified. The leaders of the Developed World have chipped away at the solidity that would ordinarily justify confidence in their leadership, markets and currencies, such that confidence can be lost at any moment. If confidence in a sound system is unfairly lost, then countertrend forces can act to stem the panic and restore stability. But a justified loss of confidence in an unsound system would generate much more damage and be, for a period of time and price, unstoppable. That result is what governments have risked by their poor policies, their lack of attention to the risks posed by the inventions of the modern financial system, and their neglect of the fiscal balance sheet. Since this combination is relatively new, particularly the enormity of Developed World debt and obligations, as well as the complexity and extraordinarily high leverage of the financial system (especially given the size of derivatives books), there is no way to tell exactly how it all will end. Badly, we guess.
* * *
KE=1/2*M*V2
For those who did not recognize the above formula, you are in good company. It is the equation showing that kinetic energy is a function of mass and velocity, but that the relationship is not linear: A doubling of velocity causes a quadrupling of kinetic energy.
What is the relevance to financial markets and trading? We believe some of the same elements are present when financial leverage rises beyond certain levels. Any complex portfolio contains expectations about maximum expected price movements and possible losses, together with assumptions about the dispersion of returns and correlation. Obviously when markets turn adverse, if those assumptions turn out to be overly optimistic, then losses ensue. Capital represents a cushion against losses, a cushion that is very important to the investor, but even more important to the system as a whole. When leverage goes up, it takes smaller and smaller perturbations in prices, correlations and volatility to generate serious losses requiring palliative action. But as leverage increases among key market players, the possibility of large losses and involuntary liquidation behavior creates contagion from one player to another, a kind of chain-reaction effect as losses occur too quickly for reflection and sellers become price-insensitive, causing larger losses – and even failure – to spread from one firm to another. Extreme leverage removes the cushion and the robustness of structure, and it is the proximate cause of disequilibrium. As with kinetic energy, excessive leverage is nonlinear, subject to tipping points, and can cause (and did cause in 2008) massive and abrupt systemic failure.
This nonlinearity of leverage is a function of similar positioning and contagion. We do not believe that the system today is any safer than it was when it failed in 2007 and 2008. Global leverage is up, not down, contrary to the popular misconception. Private debt is unchanged from 2007 levels, but public debt has risen globally from $70 trillion to $100 trillion. It appears that a number of major American financial institutions have de-risked  themselves somewhat, although this is impossible to discern from publicly available filings (which is why rumor and conjecture will govern the way markets perceive large financial institutions in the next market crisis). European financial institutions still maintain more leverage and bigger derivatives books than their American counterparts, as well as large holdings of sovereign debt that they were coerced into buying as part of the “save-the-euro” panic.
In fact, the global financial system is arguably less safe than it was in 2008. The unquestioned creditworthiness of the Developed World governments ended the most intense phase of the 2008 crisis, as the financial system was ultimately all but guaranteed by governments. A catalyzing force for the next crisis might be a failure of confidence in one or more of those major governments or in China. Such a failure alone could cause major stress in markets, as either currencies or bond markets could experience sudden collapses. Also potentially impactful is one of the major lessons of 2008: It is wise to move assets and sell claims and securities immediately if a debtor or counterparty is perceived to be in trouble. This maxim could make the next market crisis play out on a hair-trigger, with a stressful lead-in and then a simultaneous rush to the exits.
Those who think the scenario above is an exaggeration should ask themselves the following question: After decades of advancements in human knowledge and purported innovations in the global financial system, why did 2008 turn into the worst financial crisis since the Great Depression? The answer is that the system was unsound, largely due to excessive leverage and the complexity of financial instruments. In the 80-plus years since the 1929 crash and the subsequent Depression, there clearly have been a large number of geopolitical and financial events, yet none of them caused financial collapse until 2008. Of course, we understand that a combination of public and private errors and misconceptions led to the financial crisis, but it was the unfettered use of leverage that made the episode pass over the line into systemic collapse.
We do not think policymakers have learned anything much from the financial crisis, but that fact can truly be demonstrated only as time passes. In our view, monetary policy extremism has papered over (no pun intended) the lack of fundamental reforms that would enable the Developed World to grow faster and more sustainably with financial institutions that are solid and robust enough to withstand the next periods of economic and financial stress. We believe the world’s financial institutions are still essentially dependent on governments, but the Developed World governments themselves are hopelessly insolvent. The insolvency may not be manifested in a market reaction tomorrow or even next year, but the numbers are obvious and compelling, not conjectural or  fanciful. Markets focus on something when they want to, not when “visionaries” think they should.
It is important to note that mass human behavior cannot be modeled or predicted with any degree of precision. When forces are brought to bear that suggest a possible shift in direction of mass human behavior (examples include oppression, tyranny, economic underperformance, inflation, incentives and disincentives), there is no way of telling if, how or when such forces will actually result in a change of vector.

PMI Declines Most In Eight Months

US Purchasing Manager's Index (PMI) dropped by the most in 8 months. Markit, who compiled the data, said this "will feed fears that the recovery remains on a weak foundation of intense price competition."

As if that's not bad enough, the same report indicated that inflation is surging:
"...on the inflation front, manufacturers experienced a further solid increase in average cost burdens in April." What? You mean higher prices AREN'T good news?

So Fed policies are failing to bring any real or sustainable recovery, after FIVE YEARS of trying, but they ARE stoking the fires of inflation. Historically, inflation is caused by an economy close to full employment that is overheating, by creating greater demand for products than the available supply. But now, the Fed is placing the horse before the apple cart by creating INFLATION FIRST, and hoping prosperity will follow! They are MORE likely to create STAGFLATION (high inflation + recession), and quite possibly even a hyperinflationary depression.

Meanwhile, Wall St shrugs off the bad news. Stocks are flat so far today. Dr. John Hussman, after doing considerable historical research, concludes that the current stock market is priced at DOUBLE its historical true value! And he's being generous in saying that!

And he has the evidence to prove it! In the last two recessions and stock market crashes, the stock market declined by 47% and 57% respectively. Both times, the S&P 500 declined to around the 600 level. Today, central bankers have pushed the S&P 500 to about 1875. If stocks decline in the next crash to the same level, that would represent more than a 67% LOSS in the stock market!

Soybeans Trade At Record Highs

This is surprising, given that demand from China is down. Just last Friday, China cancelled orders and prices dropped due to declining demand. Now, prices are trading at record highs.