Jueves 03/09/15 Ventas de tiendas, comercio internacional

[Fenix]

This Hedge Fund Made 15% Yesterday As The Market Tumbled

Submitted by Tyler D.
09/02/2015 15:37 -0400

We have already mocked the so-called marquee "hedge" funds for their deplorable August performance to the point where there is little to add, suffice to repeat that one really should i) scrap the phrase "hedge funds" entirely and just call these formerly insider trading and colluding vehicles "massively beta-levered funds who pray every day that the Fed does not lose control" and ii) stop paying 2 and 20 for underperforming the S&P for seven years in a row.

Because after August one thing is clear: nobody actually hedges (and why should they: the LP already has collected all the upside, while the downside loss is all other people's money) and if the market crashes, hedge fund LPs funds will not only suffer outsized losses (while underperforming stocks on the way up) but also be promptly gated and have no access to any funds until the Fed (hopefully) bails out the financial system once again.

Of course, not every asset manager falls in the above generalization; only about 98%. There are some outliers, such as Mark Spitznagel's Universa which as we reported last week made a whopping $1 billion profit on the one day when the market crashed and countless hedge funds not only lost billions but were margined out on their profitable positions.

Another hedge fund that actually hedges against the kind of fat tail event that nobody else had even remotely considered, is Artemis Vega Fund, whose exemplary writings and market analyses have repeatedly appeared on these pages.

In Artemis most recent letter from July 18, the founder Christopher Cole when discussing "the greatest collapse in the history of the VIX index" said:

I can only point to government intervention as the core reason. I firmly believe that this moral hazard produces a hidden leverage and “shadow market gamma” that at some point will result in a sustained volatility outlier event in the opposite direction.

One month later, he was proven to be 100% correct, and the result was a monetay, literally: as the following letter to investors released earlier today reveals, the fund made a whopping 15.5% on September 1, 2015, the day the S&P dropped 3%. Which, for those who have forgotten, is what is really known as hedging.

The full letter from Artemis Capital Management below:

September Mid-Month 2015 Market Update and Commentary (Confidential to Artemis Investors)



As markets continue to experience significant volatility I wanted to provide an update as to the performance of the Artemis Vega Fund LP. As discussed in my August 26th letter to investors convergence in the forward volatility curve has been highly beneficial for Artemis.



Artemis Vega Fund LP and associated institutional managed accounts gained approximately +15.49% gross of fees on September 1, 2015 on a day the S&P 500 index lost -2.96%. Please note this performance was for the day. Overall, Artemis is up approximately +18.11% (before fees) from August 1 to September 1 including an estimated +2.27% increase in August (all final numbers subject to change and review by administrator). The S&P 500 index has fallen -9.03% over this time frame. This is your crisis alpha in action.



In my Sunday, August 23 letter to investors (prior to the VIX spike), I indicated that our machine learning models were on their highest risk warning registering a 29% probability the VIX would spike above 40 in the immediate future. While this warning proved prescient what should be noted is that we do not see any considerable change in the fundamental and technical conditions that generated the initial warning. Our models currently register a 30% probability the VIX will re-test highs above 40 in the next 21 days.



We continue to see excellent opportunity in positive carry and positive convexity positions and will continue to hold positions so long as those conditions persist. Our dynamic volatility portfolio has held up well into this morning’s minor market rebound, however markets remain in flux and September performance numbers are subject to change. Any volatility persistence above 30 will be highly advantageous to the fund (I would urge investors to re-read my August 23 and August 26 letters for the full rationale on our current positioning). To this effect you still have substantial crisis alpha coverage to buy equity beta into further weakness in markets.

[Fenix]

Is It A Correction Or A Bear Market?
09/02/2015 17:20 -0400


Submitted by John Murphy,

What Difference Does It Make?

There's a debate in professional circles as to whether the stock market is in a correction or a bear market. It makes a difference. Let's define what they are. A stock market "correction" is a drop of more than 10%. Most corrections average about -15%. A bear market is a drop of 20% or more. Bear market losses have averaged -30%, and last longer than corrections. The last two bear markets between 2000 and 2002 and 2007 to 2009 lost -50%. Those losses were much bigger than most bear markets. Those precise definitions can lead to problems however. The price bars in Chart 1 show the S&P 500 losing -21% during 2011 from May to the start of October. That qualified as a bear market.

Closing prices, however, lost -19% which signaled a correction. I recall a debate at the time as to whether or not that qualified as a bear market. As it turned out, 2011 was only a correction. Moving averages "death crosses" often signal a bear market, but not always. Chart 2 shows the (blue) 50-day average falling below the red 200-day average during 2010 and 2011 for the SPX. [50 and 200day EMAs also turned negative both years].

The SPX lost -17% in 2010 before turning back up. That was also a correction. Bear markets don't always last a long time either. Bear markets in 1987, 1990, and 1998 lasted only three months, and bottomed during October.

A LONGER-RANGE LOOK AT THE S&P 500...

The monthly bars in Chart 3 show the last two bear markets in the S&P 500 starting in 2000 and 2007 which lost -50% and 57% respectively; and the SPX reaching a new record in spring 2013 which ended the "lost decade" of stocks that started in 2000. The horizontal line drawn over the 2000/2007 peaks should act a solid floor beneath the price bars. A drop to that flat line would represent a drop of 26% which would qualify as a bear market. But that would still leave the SPX in a secular uptrend.

The rising trendline drawn under the 2009/2011 lows shows potential support near 1700. A retest of that support line would represent an SPX lost of 20% which qualifies as a bear market. Chartwise, however, an SPX drop into bear market territory (-20% to 26%) would still be within its long-term uptrend. So it might not matter that much after all whether we're in a "correction" or "bear market" as long as the secular uptrend remains intact.

S&P 500 RUNS INTO SELLING...

Last week, I used Fibonacci retracement lines over the Dow Industrials to identify levels where more selling was likely. Chart 4 applies those (red) lines to the S&P 500 measured from its July high to its August low.

The SPX has already run into selling near 2000 which was a 50% bounce. It has lost ground since then, but remains above last week's climactic low. The SPX will probably "back and fill" for a month or two in an attempt to repair recent technical damage. That would take us into October which has marked the bottom of most previous corrections. In the meantime, a retest of the August low wouldn't be surprising. That would be an important test. As long as last October's low remains intact, I will continue to lead toward the "correction" camp. But there are enough negative warnings to justify a very cautious stance.

[Fenix]

Presenting Never-Ending QE In One Easy Flowchart
Submitted by Tyler D.
09/02/2015 18:35 -0400

In case you haven’t noticed, the world’s central banks are locked in an epic race to the devaluation bottom in desperate pursuit of a post-crisis economic recovery that never came despite trillions in worldwide QE and on August 11, in the currency war equivalent of the United States entering World War II, China devalued the yuan, serving notice that, to quote Xi Jinping, "the lion has woken up."

China’s move has sent shockwaves through the emerging market world and caused the Fed to reconsider the timing of the ever elusive "liftoff" and now, with the sputtering engine of global growth and trade set to export its deflation across the globe, countries like India and South Korea must decide how to respond.

Because we know the mechanics of the currency war and the endless loop of competitive easing can be a bit confusing at times, we present the following simplified, circular flow chart from Morgan Stanley which should serve as a helpful guide to the never ending "beggar thy neighbor" loop.

From MS:

At the beginning of the game, the global economy is at an arbitrary point of equilibrium, similar to a chess board, with the pieces representing policy tools that are used to achieve one’s goal—growth and inflation—the king. Once a central bank makes an initial move to achieve a new equilibrium, it sets in motion a sequence of moves from other central banks, which we refer to as the opening repertoire. Suddenly, the game becomes unbalanced and requires more policy changes until a new equilibrium is achieved.



Second Largest US Pension Fund To Sell 12% Of Stocks Holdings In Advance Of "Another Downturn"

Submitted by Tyler D.
09/02/2015 17:49 -0400

While many continue to debate if what with every passing day increasingly looks like a global recession, one from which the US will not decouple no matter how many "virtual portfolio" asset managers claim the contrary, there are those who without much fanfare are already taking proactive steps to avoid the kind of fallout that the markets have hinted in the past month of trading, is inevitable. Some such as Calstrs: the nation's second largest pension fund with $191 billion in assets (smaller only than Calpers), which as the WSJ reports is "considering a significant shift away from some stocks and bonds amid turbulent markets world-wide."

The move represents "one of the most aggressive moves yet by a major retirement system to protect itself against another downturn." A downturn which the pension fund implicitly suggests, is now inevitable.

According to the WSJ, the top investment officers of the California State Teachers’ Retirement System will move as much as $20 billion, or 12% of the fund’s portfolio, into "U.S. Treasurys, hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund."

Actually considering the relative underperformace of hedge funds, which have largely underperformed the market both during the upcycle, and have fared no better during the volatility of the past month, Calstrs may want to just buy whatever Treasurys China has to sell. Which, incidentally, also answers a suddenly very pertinent question: if China is selling US paper, who will buy it? Well, pension funds for one - the same entities who have had an abnormally heavy allocation to stocks in recent years, and now are seeking to cash out. Which while favorable for bond yields, is hardly good news for stocks - because in this illiquid market, and painfully thin tape, just who will buy the tens of billions of stocks that pension funds will decide to sell.

And it will certainly be more than just Calstrs: once one fund announces such a dramatic shift in strategy, most tend to follow.

So when will the Calstrs reallocation take place? According to WSJ," the board is expected to discuss the proposal at a meeting later today in West Sacramento, Calif. A final decision won’t be made until November. The new tactic—called “Risk-Mitigating Strategies” in Calstrs documents posted on its website—was under discussion for several months as the fund prepared for a scheduled three-year review of how it invests assets for nearly 880,000 active and retired school employees. But the recent volatility around the world has provided a fresh reminder of how exposed Calstrs’ investments are when markets swoon."

Furthermore, as the WSJ points out, the question is now that the market appears to have topped out (at least until the next QE), what will be the proper distribution between stocks and bonds in a typical pension fund portfolio.

Pension funds across the U.S. are wrestling with how much risk to take as they look to fulfill mounting obligations to retirees, and the fortunes of most are still heavily linked with the ebbs and flows of the global markets despite efforts to diversify their investments. State pension plans have nearly three-quarters, or 72%, of their holdings in stocks and bonds, according to Wilshire Consulting.

That number is certain to decline in the coming months.

What is also notable is that while Calstrs’ is at least considering investing in hedge funds, its cousin, the California Public Employees’ Retirement System, decided last year to exit all hedge-fund investments. Other pensions seeking to become more conservative have beefed up stakes in bonds or international stocks. "Calstrs Chief Investment Officer Christopher Ailman said in an interview he hopes the potential shift could help stub out heavy losses during gyrations because the investments don’t generally track as closely with market swings."

Actually they do: if the past few years have shown anything, it is that not only do "hedge" funds not hedge, in broad terms, they are merely highly levered beta chasers, who will gate their LPs at the first sign of abnormal market turbulence. Which is why we wouldn't be surprised if Calstrs ends up reallocating entirely in plain vanilla Treasurys.

As for the punchline, as usual it is saved for last: "Calstrs has not made any major moves in recent weeks amid the turmoil in China and the U.S. markets. Mr. Ailman said he knew there would be turbulence after Asian markets tumbled last month, but he said Calstrs chose to stay put because it views itself as a long-term investor and because its largess means it has limited countermoves when stock prices fall."

Ah, "a long-term investor" - the legendary words every asset managers uses when they have a position that is so underwater, they have no choice but to hold on. Who can possibly forget Norway's sovereign wealth fund which was investing in Greek bonds for "infinity"...

* * *

And while a US pension fund is at least doing the prudent thing, and preparing to rotate out of the riskiest asset just as the market tops out, here comes Japan where things traditionally are upside down, and where we read that with the largest pension fund in the world, the GPIF, having maxed out its allocation "dry powder", another massive pension funds is set to start selling bonds to buy stocks, even as the Nikkei continues to flirt with decade highs. Bloomberg reports:

As the world’s biggest pension fund nears the end of its switch from sovereign bonds into stocks, investors are looking at Japan Post Bank Co. as the next actor big enough to move markets.



The postal lender, the biggest holder of Japanese government bonds after the central bank, sold 5.1 trillion yen ($42 billion) in JGBs in the three months ended June, after offloading a record amount of the debt last fiscal year. The $1.2 trillion Government Pension Investment Fund, known as the whale, said last week stock and fixed-income holdings were all within 3 percentage points of their targets, suggesting it has almost completed a planned shift into riskier assets including global bonds and shares.



The Bank of Japan needs to find about 45 trillion yen in JGBs from the market to meet its annual goal for boosting money supply to stimulate the economy. Japan Post Bank, with 49.2 percent of its 206.5 trillion yen held in domestic debt, fits the profile and needs to seek higher profits ahead of a possible public share sale this year.



The postal bank said in April it plans to increase investments in assets aside from JGBs, such as foreign securities and corporate bonds, by 30 percent to 60 trillion yen in the fiscal year ending March 2018.



Like GPIF, Japan Post Bank has been reducing its dependency on domestic government bonds. The bank owned 101.6 trillion yen in sovereign debt at the end of June, with the ratio falling below 50 percent of holdings for the first time. Unlike GPIF, however, Japan Post Bank hasn’t been increasing domestic stocks. It held just 900 million yen of local equities at the end of the first quarter, unchanged from March.

It will be soon. So good luck Japanese pensioners: nothing screams fiduciary responsibility quite like your asset manager dumping a safe, government backed asset (even if there are 1.1 quadrillion of them) and buying a risky one which is trading at the highest price and valuation since the dot com bubble.

Then again, with Japan's demographic crisis where more adult than infant diapers are sold every year, a little proactive culling of the top-heavy pyramid - courtesy of a few million "so sorry, all your pension funds have vaporized" letter - may be just what the deranged Keynesian doctor ordered.

[Fenix]

"It's A Tipping Point" Marc Faber Warns "There Are No Safe Assets Anymore"
Submitted by Tyler D.
09/02/2015 21:45 -0400


Markets have "reached some kind of a tipping point," warns Marc Faber in this brief Bloomberg TV interview. Simply put, he explains, "because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks - there is no safe asset anymore." The purchasing power of money is going down, and Faber "would rather focus on precious metals because they do not depend on the industrial demand as much as base metals or industrial commodities," as it's now "obvious that the Chinese economy is growing at nowhere near what the Ministry of Truth is publishing."



Faber explains more... "I have to laugh when someone like you tries to lecture me what creates prosperity"



Some key exceprts...

On what central banks hath wrought...

I think that because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks there is no safe asset anymore. When I grew up in the '50s it was safe to put your money in the bank on deposit. The yields were low, but it was safe.



But nowadays, you don't know what will happen next in terms of purchasing power of money. What we know is that it's going down.

On the idiocy of QE...

in my humble book of economics, wealth is being created through, essentially, a mixture of capital spending, and land and labor. And if these three production factors are used efficiently, it then creates a prosperous society, as America became prosperous from its humble beginnings in 1800, or thereabout, to the 1960s, '70s. But it's ludicrous to believe that you will create prosperity in a system by printing money. That is economic sophism at its best.

On the causes of iunequality...

unfortunately the money that was made in U.S. stocks wasn't distributed evenly. And we have precise statistics, by the way published by the Federal Reserve, who actually benefited from the stock market boom post-2009. This is not even one percent of the population. It's 0.01 percent. They took the bulk.



And the majority of Americans, roughly 50 percent, they don't own any shares anyway. And in other countries, 90 percent of the population do not own any shares. So the printing of money has a very limited impact on creating wealth.

On China's lies... and its commodity contagion...

I indicated on this program already a year ago, the Chinese economy was decelerating already then. It's just that the fund managers didn't want to accept it.



And now it's obvious that the Chinese economy is growing at nowhere near what the Ministry of Truth is publishing in China, but more likely either no growth at all or maybe around two percent, but no more than that.



So that has a huge impact on commodity prices, and in turn it has a huge impact on the economies of all the raw material producers around the world from Latin America, to Australasia, Russia, Middle East, Africa and so forth. And these countries then with falling commodity prices have less money to buy, also less money to buy American goods.

On Asian currency devaluation... and a Chinese economic collapse...

Yes. These countries just followed the example of what Mr. Draghi and Kuroda tried to achieve with lowering the value of their currencies, which is actually to create a depression in real incomes and a contraction of world GDP in dollar terms, and a contraction of world trade in dollar terms, which is of course negative for economic growth around the world.



Well, I mean, we have to put the achievements of China and also of President Xi in the context of what China was 20, 30 years ago, and what it is today. And it's a remarkable change. Now will China have a very serious setback? And don't forget, the U.S. after 1800 had numerous financial crises, and depressions, and the Civil War, and went through World War I, and through the depression years, and World War II and so forth. And the country continued to grow.



I think China is, from a cyclical point of view now, in a very serious downturn, serious. And from a secular point of view, I think there is still tremendous growth opportunity in China in the long run. But, as I said, cyclically I think they're going to have a tough time

On where to invest...

I would rather focus on precious metals, gold, silver, platinum because they do not depend on the industrial demand as much as base metals, as industrial commodities.



If I had to turn anywhere, where, as you say, the opportunity for large capital gains exists, and the downside risk is in my opinion, limited, it would be the mining sector, specifically precious metals, mining companies, in other words, gold shares.



I would buy mining stocks. I am not saying they will go up, but I think they will go down less than a lot of other shares. And by the way, if you ask me about relative value, I think emerging markets are not yet cheap, cheap, but I think the return expectation I would have over the next seven to 10 years by investing in emerging markets would be much higher than, say, in U.S. stocks. The U.S. market is overhyped and is expensive in terms of valuations from a historical perspective. Emerging markets are no longer terribly expensive.

[Fenix]

The QE End-Game Decision Tree: Not "If" But "When" Central Banks Lose Control
Submitted by Tyler D.
09/02/2015 19:42 -0400


Make no mistake, the writing has been on the wall for quite some time and we haven't been shy about pointing it out.

Central banks are losing control.

Trillions upon trillions in post-crisis asset purchases haven’t given the global economy the defibrillator shock the world’s central planners were depending on to bring about a sustained and robust recovery.

Indeed, the opposite appears to have materialized.

Subdued demand and trade looks to have become structural and endemic rather than cyclical and rather than create "healthy inflation", seven years of accommodative monetary policy has only served to bury the world in a global deflationary supply glut. And that’s just the big picture. The more granular we get, the more apparent it is that central banks are no longer in the driver's seat.

Inflation expectations across the eurozone have collapsed despite Mario Draghi’s best efforts to assure the public that PSPP has been an overwhelming success and similarly, inflation expectations have tumbled in the US ahead of a expected rate hike which looks less likely by the day. Meanwhile, in Sweden, the Riksbank has sucked so much high quality collateral from the system that QE has actually reversed itself, giving the world its first look at what happens when QE demonstrably fails. And let’s not forget Japan, where the world’s most hilariously absurd example of central bankers gone stark raving mad has done exactly nothing to pull the country out of the deflationary doldrums.

And so here we stand, on the precipice of crisis with central banks having run out of both ammunition and credibility. In short, it’s time to ask if central banks have officially lost control. For the answer, and for the "QE end-game decision tree", we go to BNP.

Note that if CB's do lose it, the likely scenario is: "deflation, vicious cycle... economic depression".

* * *

From BNP

Not "IF" but "WHEN central banks lose control?"

The global financial repression pushed investors to invest cash in risky assets, such as property and equity. The scale of global policy interventions is trumping all fundamental factors for now. Investors should keep in mind that the road is never straight and next month should be full of potentially disruptive events impacting sharply overcrowded assets and trades. History shows that such misallocation of resources creates bubbles that can last before fully blowing; the question is not if, but when.

Risk assets and risk parameters would be massively affected in the event central banks lose control; in the meantime, EDS Asia believes that central bank maturities that use forward guidance matter more than the QE process itself. The Fed and the ECB have been providing guidance which partly explains the low short-term volatility. The BoJ is moving toward this behaviour, managing the news flow: therefore there is a case for the NKY index going up slowly with a lower upfront volatility and a term structure closer to the US one: in that sense, we have started to observe an "SPX-isation of the NKY Index" in the past few months before this summer’s risk-off, as short dated volatility was trading lower. In China, the PBoC intervention learning curve is steep; this is the reason we believe the next equity leg up will be accompanied by an elevated volatility regime.

The quantitative easing started in the US more than six years ago and the SPX index, as well as selective risky assets, are now hovering at the high end of their valuation histories. Recent price actions are testimony of the fragility of imbalances built over the years. Investors may recall the Japan easing experience in 2005 and 2006; an early exit, together with a global financial crisis, caused a Japanese equities meltdown (between mid-2007 and late-2008).

In the decision tree, EDS Asia addresses the potential "QE end-game scenarios" [attempting to] answer the question "Are central banks losing control?" and providing a time horizon and probabilities affecting each path, which should allow investors to get a clearer overview.

[Fenix]

Bob Shiller Fears "Substantial Decline" Sees Dow 'Fair Value' Around 11,000
Submitted by Tyler D.
09/03/2015 09:43 -0400

"This is a dangerous time," warns Nobel laureate Bob Schiller as he warns of the false signal that typical P/E ratios are misleading and in fact his CAPE ratio (looking through the cycle) implies "fair value" for The Dow should trade around 11,000 and around 1300 for the S&P 500. "There is a risk of a substantial decline," he adds, warning that the recent rebound "maybe someone's good will effort to stabilize the market," and in fact the market's valuation is high now and people are over-exposed.

[Fenix]

Saudi Arabia Just Cut Crude Selling Prices To The US, Europe And Asia
Submitted by Tyler D-
09/03/2015 - 11:05

WTI Crude oil prices are in total panic buying mode this morning as the algos are fully in charge once again. WTI is up 5% this morning in a straight line since US equity markets opened (and USO went vertical). What is most ironic is that Saudi Aramco just slashed prices for crude oil to everyone around the world.



Will The Fed Have To Save Emerging Markets With QE4?
09/03/2015 11:15 -0400

Submitted by Chartles Hugh-Smith

The risk-off tide is rising, and sand castles of QE will only hold the tide back for a brief period of apparent calm.

A funny thing happened on the way to permanently expanding global markets: unintended consequences. Borrowing cheap, abundant U.S. dollars seemed like a good idea when the dollar was declining, and few voiced any concern when $9 trillion was borrowed in USD-denominated debt around the world in the years since 2009.

Few saw the possibility of the USD rising, or that if it did appreciate against other currencies, that the blowback would destabilize the global economy.

It turns out a strengthening USD has triggered capital flight as other currencies devalue. Anyone propping up their currency to stem the flood tide faces another unintended consequence--a faltering export sector: China: Doomed If You Do, Doomed If You Don't (September 1, 2015).

Meanwhile, the Imperial economy is suffering its own spate of unintended consequences, notably rising yields, a.k.a. quantitative tightening. As emerging markets and nations attempting to defend their currency pegs to the USD sell U.S. Treasury bonds (which have been held as foreign exchange reserves), the yields on the Treasuries rise as a matter of supply and demand.

As supply increases, sellers must offer higher yields to entice buyers to soak up the inventory.

This increase in yields reverses the primary effect of quantitative easing, i.e. declining yields/interest rates in the U.S.

This dynamic undermines both the emerging markets and the U.S. Emerging markets are not really restored to growth by selling Treasuries; the strong dollar continues to crush their currencies and dampen growth, as assets must be sold to pay back debt borrowed in USD.

Rising rates threaten the feeble U.S. "recovery" as well.

So what's the solution to this inconvenient dynamic? QE4, of course. Why would the Federal Reserve launch QE4, if not to push rates down in the U.S.?

The primary reason is not yield suppression in the U.S. but to provide sufficient USD liquidity to everyone in the world who borrowed USD-denominated debt. If dollars are scarce, emerging market assets will have to be sold, and the demand for USD will push the USD higher vs. other currencies.

This creates an unvirtuous cycle in which the strengthening dollar makes it increasingly onerous to pay back dollar-denominated debt, which further pressures emerging market currences and asset valuations.

In the long view, this is the cost of issuing the reserve currency: the U.S. central bank doesn't just have to bail out American debtors and speculators--it also has to bail out international debtors and speculators who gambled with borrowed USD.

The only way to break this unvirtuous cycle is to flood the world with U.S. dollars so borrowers can refinance without having to liquidate assets denominated in other currencies.

One way to issue more dollars is quantitative easing, in one form or another.

This will suppress the rise of the U.S. dollar and give a reprieve to borrowers of USD-denominated debt. But the reprieve will be temporary, as the "growth story" based on borrowing cheap USD to invest in emerging markets and China is broken.

The risk-off tide is rising, and sand castles of QE will only hold the tide back for a brief period of apparent calm. QE4 will fix nothing on a fundamental level.

[Fenix]

Mapping The Crisis Contagion Process: The Flowchart
Submitted by Tyler D.
09/03/2015 12:36 -0400

When one looks across markets and reflects on the actions of the world’s central banks since 2008, it’s easy to get confused.

That is, how could it possibly have come to this?

In polite circles and certainly in the mainstream media echo chamber, Ben Bernanke’s deployment of unconventional monetary policy in the wake of the crisis is credited with pulling the world back from the edge of a veritable financial apocalypse and if that’s true, then the proliferation of these world-saving monetary measures should by all rights have brought about a dramatic global economic recovery.

Only that didn’t happen.

Instead, we stand once again at the precipice of crisis and central banks are out of ammunition and, perhaps more importantly, completely out of credibility. Indeed, the fact that we are facing a new Asian Financial Crisis, emerging market mayhem, harrowing bouts of volatility accompanied by ever more frequent flash crashes across asset classes seems to prove that far from "smoothing out" the business cycle, Keynesianism gone wild in fact does the exact opposite: it creates the conditions for still greater booms and busts and thereby serves to destabilize markets.

In light of the above, we present the following flowchart from BNP which should serve as a helpful roadmap for those wondering how we just went from one major crisis to another in the space of seven years and all we have to show for it is more debt and trillions in printing press money that did next to nothing to boost aggregate demand.





This Is Not A Retest - It's A Live Bear!
09/03/2015 12:12 -0400

Submitted by David Stockman

By the lights of bubblevision, Tuesday’s plunge was just a bull market “retest” of last week’s lows, which posted at 1867 on the S&P 500. As is evident below, the test was passed with 80 points to spare at today’s close.

So according to the talking bull heads - CNBC had three of them on the screen at once about 2pm—–its time to start nibbling on all the bargains. Soon you may even want to just back up the truck.

You can supposedly see it right here in the charts. The market hit the October 15 Bullard Rip low last week, and has gone careening upwards where it is now allegedly forming a new bottom around 1950. Remember, its a process. Be patient.

^SPX Chart

^SPX data by YCharts

Not on your life! The world is heading into an unprecedented monetary deflation - with output and trade falling nearly everywhere. That implosion is already rumbling through Canada, Mexico, Brazil, Australia, South Korea, Malaysia, Indonesia, Russia, Japan, the Persian Gulf oil states and countless lesser economies in between. And at the center, of course, is the unraveling of the Great Red Ponzi of China.

In the face of this on-coming economic storm, honest financial markets would have been selling off long ago, and, in fact, would never have approached today’s absurd levels of over-valuation. But financial markets have been hopelessly corrupted by two decades of massive central bank intrusion and falsification of asset prices. Consequently, Wall Street punters and their retainers and cheerleaders cannot see the forest for the trees.

Thus, one of today’s CNBC permabull threesome reassured viewers that the US economy is chugging along in fine fashion and that China is a big problem——but for the policymakers in Beijing, not the S&P 500.

The “1000 points of fright” last Monday is actually a gift. You can now buy the market at 15X, which is tantamount to a steal. So he said, and with no inconsiderable air of annoyance that anyone would think otherwise, let alone succumb to panic.

Well, let’s see. The implied “E” in that proposition is $130 per share on the S&P 500 for 2016. But that’s the Wall Street sell-side’s version of earnings ex-items.

So let’s start with where we are at the end of Q2 2015 in the real world of GAAP profits. That is, the kind of earnings that CEOs and CFOs certify to the SEC upon penalty of jail as fair, accurate and complete, according to well settled general accounting principles.

It turns out that the reported LTM net income (latest 12 months as of June 2015) of the 500 largest US companies in the index came in at $97.32 per share. But that’s down considerably from the LTM figure of $103.12 per share in the June quarter of last year, and was off by 8% from peak LTM earnings of $106 per share in the September quarter last fall.

What this means is that the market is not really trading at 15X at all, but closed today at 20X—–which is an altogether different kettle of fish. By the lights of permabulls like CNBCs 2pm trio, of course, the market is always trading at 15X and is always cheap. You might even think that Wall Street’s ex-items year-ahead EPS estimates are goal-seeked—-and you might well be on to something.

In any event, how do we leap the chasm from $97 per share and falling to $130 per share and soaring? Well, you mount a Wall Street hockey stick, close your eyes to the rest of the world and hope for a swell ride.

In the alternative, you might want to scroll back to nearly an identical inflection point in mid-2007 when the Greenspan housing and credit bubble was nearing its apogee. To be specific, LTM GAAP earnings at the time were about $85 per share and the June 2007 quarter closed with the index at about 1500 or just 4% below its October peak of 1565.

So the market was positioned at 17.6X honest-to-goodness GAAP earnings in the eve of the Greenspan Bubble’s collapse. Needless to say, that was a pretty sporty multiple under the circumstances—–the rot in the Bear Stearns mortgage funds had already been exposed and the sub-prime market had gone stone cold in the spring. Yet it was well below today’s 20X.

Naturally, Wall Street didn’t see it that way at the time. The ex-items consensus for 2008 was $120 per share of S&P 500 earnings, meaning that it was indeed time to back-up the truck. You could buy the broad market for less than 13X, said the talking heads, or more specifically the very same trio that made its appearance today.

Indeed, the chasm between reported GAAP and the forward hockey stick ex-items was $35 per share at that point in time. Ironically, today’s spread between the reported actual and the Wall Street hopium is the exact same $35 per share.

Here’s what happened next. By the June 2008 LTM period, GAAP earnings had fallen to $51 per share and by June 2009, after the meltdown, S&P 500 earnings for the previous four quarters were, well, $8 per share!

That’s right. The great Greenspan financial bubble collapsed; the global economy buckled; and corporate balance sheets were purged of 7-years worth of failed investments and financial engineering maneuvers gone astray, among sundry other losses. In the end, Wall Street’s $120 per share hockey stick got smashed into smithereens.

Eight years later we are at an even more fraught inflection point. The post-crisis money-printing binge was orders of magnitude larger and more radical, and was universally embraced by every significant central bank on the planet. As a consequence, the resulting financial bubble has become far more incendiary than the one which burst in September 2008, and the distortions, deformations and malinvestments in the global economy dramatically more insidious.

Obviously the onrushing collapse of China’s purported miracle of red capitalism is the epicenter of this great global deflation, but every nook and cranny of the world economy is implicated; and its shock waves are already wreaking havoc in areas that were especially swollen by the China trade.

On a nearby page, for example, we outlined the unfolding disaster in Brazil. This chart on the trend in year-over-year retail trade is stunning because Brazil’s inflation rate is above 5%. So when nominal sales plunge from the boom time rate of 11% to negative 1% in June, it means that real sales are shrinking at nearly a depressionary pace.





By all accounts, in fact, Brazil is plunging into its worst recession in the last half century. After years of booming jobs growth fueled by exports and a massive internal dose of monetary and fiscal profligacy, for example, its economy is now shedding workers at an unprecedented pace.





The point here is that Brazil is just the leading edge of the epochal worldwide monetary reversal now underway. During the last 15 years its central bank balance sheet literally exploded, rising by more than 10X, while loans to the private sector more than quadrupled in the last seven years alone.

Brazil Central Bank Balance Sheet

Brazil Loans to Private Sector

The consequence was a frenzy of government and household spending and business investment, expansion and speculation that bloated, deformed and destabilized the Brazilian economy beyond recognition. And those distortions were not contained to the Amazon economic basin alone, but where connected by a two-way highway of financial and trade flows that penetrated right into the heart of the US economy.

In the first instance, the massive but artificial and unsustainable export boom to China and its EM satellites generated enormous capital inflows to Brazil which caused its exchange rate to soar, even as its government frantically attempted to contain its rise. During that pre-2012 period, its finance minister even coined the terms “currency wars”.

The effect of the China export boom and the massive capital inflow, however, was to create an economy with apparent dollar purchasing power far greater than its sustainable real wealth and output capacity. This immense distortion is best measured by the US dollar value of its GDP. As shown below, during the six years between 2006 and 2012, Brazil’s dollarized GDP grew at a fantastic 20% annual rate!

Brazil GDP

It is no wonder Miami became a boom town. Giddy Brazilians who had enough sense to realize its socialist government had not performed an economic miracle of fishes and loaves exchanged their red hot real’s for dollars and trucked northward to condo land in south Florida.

At the same time, its booming economy was a magnet for US money managers parched for yield in Bernanke’s ZIRP repressed market and for US exporters temporarily benefited by a dollar/BRL exchange rate that made them suddenly far more competitive. Accordingly, hundreds of billions of hot dollar capital flowed into Brazilian equity and corporate bond markets, while US exports nearly quadrupled in eight years.
US Exports of Goods to Brazil Chart

US Exports of Goods to Brazil data by YCharts

Here’s the point. The US economy was not “decoupled” from Brazil in the slightest during the expansion of the great global monetary boom that has now crested. Nor will it uncouple during the deflationary bust that must necessarily ensue.

The ultimate worldwide hit to US exports is evident in the 20% drop in shipments to Brazil shown in the chart above, and that’s just for starters because its economic depression is just getting underway. Likewise, the panicked flight of hot dollars from Brazil now besetting the global financial markets is only indicative of the turmoil to come as the massive “dollar short” unwinds on a global basis.

So this is not a retest. We are in the midst of an unprecedented global deflation. A real live bear market is once again at hand.

[Fenix]

JPM Head Quant Is Back With New Warning: "Only Half The Selling Is Done; Expect More Downside"
Submitted by Tyler D.
09/03/2015 - 15:25

"... we estimate that only about half (or slightly more than half) of total technical selling was completed to-date (mostly completed by VT funds, half by CTAs, and a smaller fraction by RPs). We estimate that a further ~$100bn of selling remains to be completed over the next 1-3 weeks. As a result, we expect elevated volatility and downside price risk to persist."



Central Banker Urges Lying To The Public About Bank Health
Submitted by Tyler D.
09/03/2015 - 12:52

For years, many had mocked both European and US stress tests as futile exercises in boosting investor and public confidence, which instead of being taken seriously repeatedly failed to highlight failing banks such as Dexia, Bankia and all the Greek banks, in the process rendering the exercise a total farce. The implication of course, is that regulators, thus central bankers, openly lied to the public over and over just to preserve what little confidence in the system has left. Now we know that this is precisely the policy intent: as Reuters reports citing a paper co-authored by a Bundesbank economist, "banking supervisors should withhold some information when they publish stress test results to prevent both bank runs and excessive risk taking by lenders."

In other words: lie.

[Fenix]

Is This Where The US Recession Is Hiding?
Submitted by Tyler D.
09/03/2015 - 17:09

To answer the question: yes, the US recession is hiding just under the "question mark" at the unexplained and perplexing divergence between industrial production, and actual end sales all of which result in a record inventory stockpiling which as we showed before, is what recently boosted Q2 GDP to an unsustainable 3.7% growth rate.



Hyperinflation Cannot Be Prevented By Debt/Deflation
Submitted by Sprott M.
09/03/2015 05:57 -0400

Hold your real assets outside of this system in a private non-government controlled facility --> http://www.321gold.com/info/053015_sprott.html

Hyperinflation Cannot Be Prevented By Debt/Deflation

Written by Jeff Nielson (Click For Original)

Hyperinflation Cannot Be Prevented By Debt/Deflation - Jeff Nielson

A repetitive flaw continues to circulate throughout much of the media – mainstream and Alternative, alike. This flawed analysis contends that we are heading for a deflationary crash, and reflects a fundamental misunderstanding of economic dynamics.

This fundamental (and unforgivable) error comes from a failure to recognize the definition of deflation: it is when the currency in which a particular jurisdiction is denominated rises in value. It is with this basic fact in mind that we can now view a simple hypothetical example, which resolves the phony “inflation/deflation debate” once-and-for-all.

Imagine two economies which are identical in every way, except for one, important difference. They have the same GDP, the same sized population, and a similar set of identical, economic parameters (except for that one difference). Both economies recklessly decide to hyperinflate their currencies, as represented in the “hypothetical” chart above.

This is not a chart of a potential hyperinflation. Rather, it is a chart of a currency which has already been hyperinflated (past tense). For readers who can’t “see” this already, just imagine a chart even more ridiculously extreme requiring a much larger page.

Both Economy A and Economy B have hyperinflated their currencies (i.e. driven the value of those currencies down to zero). Now we come to the key difference between the two economies – and the obvious folly of the Deflationists: Economy A is totally solvent, without a single penny of debt, while Economy B has a $50 trillion national debt, and is obviously bankrupt.

According to the nonsense of the Deflationists, the currency of Economy A which has ‘only’ hyperinflated its currency will fall to zero, while the currency for Economy B which has hyperinflated and bankrupted itself will rise in value – due to the “deflationary crash” about which the Deflationists are continually jabbering.

We thus arrive at the Idiot Principle of Deflation. A nation which only hyperinflates itself will see the value of its currency fall to zero, but a nation which hyperinflates and bankrupts itself will cause that currency to rise in value. The bankruptcy supposedly does more than merely “cancel out” the hyperinflation, it completely overwhelms it.

By now, it should be patently obvious to anyone with two synapses to rub together that the Idiot Principle of Deflation is utter gibberish, and cannot possibly add up, when one simply views the economic dynamics (and definitions) in their proper context. But the mind-numbing idiocy of the Deflationists becomes even more obvious when we add some empirical evidence from the real world.

What makes the hypothetical example above totally unrealistic? Economy A, the solvent economy, would have absolutely no reason to engage in the recklessness and suicide of hyperinflation. Solvent nations never hyperinflate their currencies. Thus every one of the (numerous) regimes throughout history whose currencies exploded into hyperinflation was also already insolvent/bankrupt. It is only such insolvency which creates the extreme desperation necessary for a government to invoke such economic suicide(hyperinflation).

According to the Idiot Principle of Deflation, this is impossible. Because these nations went bankrupt, their currency should have risen in value, rather than collapsed to zero. But there is another principle of idiocy at work here.

As has been pointed out to readers, but apparently ignored by the Deflationists, until our governments embarked upon the even more-reckless fraud of “quantitative easing” (monetizing debt), our governments literally borrowed every unit of currency into existence. This means that these units of currency are/were literally the IOU’s of our governments – our bankrupt governments.



What is the value of an IOU issued by a bankrupt Deadbeat? Zero. The currency of Economy B was already worthless, even before it began it began its hyperinflationary money-printing. The currency of Economy A only became worthless as a result of the money-printing. The currency of Economy A is worthless. The currency of Economy B is doubly worthless.

However, according to the Idiot Principle of Deflation, when you render a currency doubly worthless, it rises in value.

Sadly, this infantile error in logic/arithmetic of which all the Deflationists are guilty cannot be attributed to mere ignorance. It is (has been) nothing less than abject stupidity. The reason why such a harsh verdict is absolutely warranted can be summarized in two words (and one name): John Williams.

It is now a full decade since the esteemed Mr. Williams (of Shadowstats.com) first published his brilliant essay (and analysis) “The Hyperinflationary Depression” (updated on numerous occasions), where he explained why bankruptcy does not (and would not) prevent the value of a currency from falling to zero if that governments pursues a hyperinflationary monetary policy (i.e. hyperinflationary money-printing).

Put simply, a government can destroy the value of its currency and implode into bankruptcy, simultaneously. Empirically, this is precisely what we have seen with every hyperinflationary episode in history. The deflationary crash of bankruptcy occurs (more or less) simultaneously with the hyperinflationary plunge-in-value of the currency. The former never “cancels out” the latter.

This is the true “principle” at work with these dynamics, and it is one which the Deflationists have either ignored (for ten years) or simply lack the capacity to grasp. Individual facets/sectors within an economy can implode in a “deflationary crash” (within that niche). Not only does this fail to negate any overall hyperinflation at work, it must accelerate it. Obviously a nation whose currency is “doubly worthless” should/must plunge to zero even more rapidly than the currency of a nation which is ‘merely’ worthless.

To repeat, every nation in history which has engaged in the suicidal monetary policy of hyperinflation had already succumbed to the fiscal folly of insolvency. Not only is it “possible” to simultaneously have a nation hyperinflate its currency to zero and have a so-called “deflationary” debt-default crash, it is the onlymanner in which hyperinflation ever occurs.


The Deflationists don’t understand economics. They have ignored all of our economic history (where not a single nation has ever “warded off” hyperinflation by going bankrupt). And (apparently) they have never even heard of “John Williams”. They can be, and should be, totally ignored.

Please email with any questions about this article or precious metals HERE

Hold your real assets outside of this system in a private non-government controlled facility --> http://www.321gold.com/info/053015_sprott.html

[Fenix]

Move Over Entrepreneurs, Make Way for Speculation!
Submitted by Gold Standard Institute on 09/03/2015 03:23 -0400

by Keith Weiner


Once upon a time, before banks and before even private lending, there was only one way to prepare for retirement. People had to hoard something durable. Every week, they would set aside part of their wages to buy salt (later, it was silver). Assuming it didn’t get wet, the salt accumulated until they couldn’t work any longer. Then, they would begin selling it off to buy groceries.

This was the best they could do. By modern standards, it wasn’t a very good method. Stockpiling a commodity does not finance business growth, so the hoarder contributed no capital to the economy. And, it carries a very big risk: what if you run out before you die?

The development of lending was a revolutionary breakthrough. Lending allowed the retiree to do business with the entrepreneur. The retiree has wealth, but no income. The entrepreneur is the opposite, with income but not wealth. The retiree lets the entrepreneur use his wealth, in exchange for an income. The entrepreneur is happy to pay interest, in order to grow his business and increase profits.

At times throughout the centuries, governments prohibited lending at interest. They called it a pejorative name—usury. Sometimes, people could work around the law, but when they had to obey lending ceased. No one will risk his wealth, or even forego possession of it, without getting something in return.

Today lending is not illegal, but the Fed has been driving down interest for over three decades. Its administered short-term rate is basically zero. Central bank apologists assert that this will help the economy. It hasn’t yet, and it never will. However, the main concern by both Fed defenders and foes alike is the worry that prices might rise. Well, prices aren’t rising now. So the former are smug and the latter are frustrated.

They miss the real harm of zero interest.

The Fed can force the rate to zero, but it cannot change economic law. As it chokes off interest, the sacred relationship between the saver and entrepreneur is breaking down. Lending to entrepreneurs is dying, and with it growth, opportunities, jobs, and new products. Our horribly weak economy is not in spite of the Fed’s policy. It is because of it. Leaches never cured a fever, and zero interest is not curing the global financial crisis.

If an exchange of wealth and income is not possible, what’s left? It’s replaced with the conversion of wealth to income. Move over, entrepreneur. We don’t need you anymore. Make way for the speculator. Instead of financing productive business, speculation is now the best way to make a profit.

The successful speculator receives someone else’s nest egg. He does not get this as a loan which has to be repaid. He gets it as income, as a profit on his winning trades. He can spend and consume that precious capital, something its previous owner would never do.

It’s a perverse outcome, replacing lending with speculation. However, zero interest makes it necessary, desirable, and easy to bet on asset prices. Without adequate compensation, credit flows to Treasury bonds and major corporations who are performing financial arbitrages like share buybacks. There is always a credit gradient between a large corporation and a small business. However, the lower the interest rate, the steeper the gradient becomes.

Speculation has become very desirable. People need bigger returns than they can get in normal lending. Speculation seemingly offers great returns. I don’t blame the player, I blame the Fed’s perverse game.

Speculation has become too easy. A falling yield is equivalent to rising asset prices, so speculators are simply betting on the Fed’s trend. If I had a penny for every financially unsophisticated person who earnestly told me that I don’t understand the market, well, then I would be richer than most speculators.

Whole generations now believe they will be able to speculate their way to a golden retirement. This is impossible, because they are not investing but consuming.



This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.

[Fenix]

Is a Global Debt Deleveraging At Our Doorstep?
09/03/2015 11:08 -0400

The blogosphere is rife with talk o

The US Dollar will eventually die, as all fiat currencies do. But the fact remains that everyone on the planet has been borrowing in US Dollars for decades, or leveraging up using Dollars and that process needs to unwind.



When you borrow in US Dollars you are effectively shorting the US Dollar. So when leverage decreases through defaults or restructuring, the number of US Dollars outstanding diminishes.



And this strengthens the US Dollar.



With that in mind, it looks as though we are in the early stages of a massive, multi-year Dollar deleveraging cycle. Indeed, the greenback is now breaking out against EVERY major world currency.



Here’s the US Dollar/ Japanese Yen:





Here’s the US Dollar/ Euro:





Even the Swiss’s decision to break the peg to the Euro hasn’t stopped the US Dollar from breaking out of a long-term downtrend relative to the Franc:





The fact that we are getting major breakouts of multi-year if not multi-decade patterns against every major world currency indicates that this US Dollar bull market is the REAL DEAL, not just an anomaly.



With that in mind, I continue to believe the US Dollar is in the beginning of a multi-year bull market. And this will result in various crises along the way.



Globally there is over $9 trillion borrowed in US Dollars and invested in other assets/ projects. This global carry trade is now blowing up and will continue to do so as Central Banks turn on one another.



This will bring about a wave of deleveraging that will see the amount of US Dollars in the system shrink. This in turn will drive the US Dollar higher.



Indeed, consider that the US Dollar actually MATCHED the performance of stocks for the year of 2014.





And it is crushing stocks in 2015 as well.





Any entity or investor who is using aggressive leverage in US Dollars will be at risk of imploding. Globally that $9 trillion in US Dollar carry trades is equal in size to the economies of Germany and Japan combined.



Indeed, few investors remember that the US Dollar rallied hard in 2008 as a precursor to the meltdown. Is today's US Dollar rally a similar warning?



Smart investors are preparing now.



If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.