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.