The Carnage Beneath The Bullish Stampede

Submitted by Wolf Richter via The Testosterone Pit blog,

It’s part of the daily routine by now: the S&P 500 index rose to another all-time high. We’ve been confronted with this miracle for a long time. The last correction when the index dropped over 10% was, well, if anyone can even remember, in 2011. And it shows.

Every single bearish call on the S&P 500 has been punished with a rally, followed by ridicule. Realism got to be very expensive for those hapless daredevils. Financial advisors lost clients over mentioning the possibility that the market could someday head south. To save their own skin, they did what it took: an all-time record 62.2% are bullish, up from 58.3% a week earlier, above the exuberance line of 55% for the fifth week in a row, above the prior record of 62.0% set in October 2007. Which wasn’t, it turned out, the ideal time to be bullish.

“Danger territory” is what Investors Intelligence, which compiled these numbers, called the phenomenon where everyone is comfortably relaxing on the same side of the boat.

“Almost all clients have the same outlook: 3% economic growth, rising earnings, rising bond yields, and a rising equity market,” Goldman Sachs chief equity strategist David Kostin wrote in a research note a few days ago after he’d met with numerous institutional clients. They considered Goldman’s own forecasts for the S&P 500 – 1900 by the end of this year and 2100 by the end of next year – too conservative.

Risk is no longer priced into anything. Volatility has gone to sleep. Uniformity of thought has taken over the stock market. Complacency has reached a point where even central banks have begun to worry about it: the idea that markets can only go up – once entrenched, which it is – leads to financial instability because no one is prepared when that theory suddenly snaps.

Even the Fed is frazzled by the absence of frazzles.

By practically guaranteeing with their verbiage and their trillions for the past five years that asset prices would rise forevermore, the Fed made sure that markets have become a one-way bet, that risks are eliminated from the calculus, that everybody is comfortable with that, and that therefore volatility has settled on record lows.

So it’s ironic that New York Fed President William Dudley would suddenly, as he said last week, be “a little bit nervous that people are taking too much comfort in this low-volatility period.” He was worried that these folks would “take more risk than really what’s appropriate.” Others have chimed in. “Low volatility I don’t think is healthy,” explained Dallas Fed President Richard Fisher, concerned about “a little bit too much complacency.”

But all this bullishness, this complacency is only skin deep. Beneath the layer of the largest stocks, volatility has taken over ruthlessly, the market is in turmoil, people are dumping stocks wholesale, and dreams and hopes are drowning in red ink.

The 50 stocks with the largest market capitalization in the Russell 3000 index are up a not too shabby 4.1% so far this year, while the rest of the stocks in the index (51-3000) are on average down 1.1%. But this average papers over a much uglier reality. Charlie Bilello at Pension Partners did the math in an excellent report. The Russell 2000, which covers the smallest 2000 stocks in the Russell 3000, peaked on March 4. Since then, the 50 largest stocks have climbed 3.8%. And the rest? Here is how they fared by market capitalization rank:

Since March 4, the smallest 500 stocks in the Russell 3000 have plunged 14.7%! The smallest 1000 stocks have dropped 8.4%. But even these averages paper over the bloodletting among individual stocks.  

The greatest hype sectors have been hit the most.

“Cloud” computing – which boils down to renting server space and software off premise – was where our revenue-challenged tech heroes, including Cisco and IBM, saw their salvation because it would be the growth area of the future. The smaller companies in that sector are now careening south.

Other stellar performers: social media outfits – including Twitter, down 54% from its high in December – biotech stocks, ad tech stocks…. Oh my.

Ad tech stocks used to be a white-hot sector. Rubicon Project, whose IPO was in April, is already down 44% from its high. Criteo, which went public in November, is down 50% from its peak in March. Tremor Video, which went public about a year ago, is down 65% from its peak in November. Rocket Fuel, which went public in September, is down 68% from its peak in January. Millennial Media is down a cool 85% from its peak, which was its IPO in 2012.

The Wall-Street hype machine is currently busy explaining that this brutal turmoil and “volatility” beneath the surface, beneath the largest five hundred companies, is just a routine rotation from small caps into the mastodons of the stock market, with the largest 50 stocks benefitting the most. What it is currently not very busy explaining is why the many stocks it had hyped by hook or crook to push them to ridiculous valuations are now getting annihilated. Better not bring it up.

But why worry, with the S&P 500 hitting new highs day after day! Extreme bullishness rules! At least on the surface, and among hard-pressed financial advisors. Meanwhile, the “larger, institutional players are systematically rotating out of illiquid small-cap names and hiding in names with the highest liquidity,” Bilello writes. “They are at the very least anticipating a more difficult market environment to come and likely something more severe.”

So that record-breaking bullishness among financial advisors – people whose job it is to advise regular folks what to do with their life savings – is not shared by the big money, and presumably the smart money. They’re busy battening down the hatches.

And throughout, the most important “data” Wall Street hands out via its army of analysts to rationalize these lofty mega-cap valuations is consistently the biggest hoax out there. Read…. The Big Hoax Of The Wall Street Hype Machine




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Can You Fix the World with $75 Billion?

“Can You Fix the World with $75 Billion?” Camera by
Paul Feine and Zach Weismueller. Edited by Carlos Gutierrez. About
38 minutes

Original release date was June 3, 2014 and original writeup
is below.

Can you fix the world with $75 billion? If not, what do you fix
first? Bjørn Lomborg—a Danish writer, Copenhagen Business School
adjunct professor, director of the Copenhagen Consensus Centre, and
former director of the Environmental Assessment Institute in
Copenhagen—speaks to Reason Weekend attendees about solving the
world’s problems.

He lists 10 challenges the world faces—including armed
conflicts, climate change, and hunger and malnutrition—and then
suggests a practical approach by setting personal preferences aside
and prioritizing in order to get “the biggest bang for your
buck.”

Lomborg thus prioritizes these issues by the cost effectiveness
of investments into solving each one, and provides thoughtful
insight into creating the most efficient allocation of resources
toward easing the world’s problems.

Camera by Paul Feine and Zach Weismueller. Edited by Carlos
Gutierrez

View this article.

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Suspect Yells “Tell The Police, The Revolution Has Started” Before Shooting Spree In Las Vegas WalMart

Multiple shootings and at least one death has been reported after two people (a man and a woman) shot two Law Vegas police officers, stole their gear, and entered a nearby Wal-Mart. As KLAS-TV reports, police say witnesses told them the suspects took the police officers’ gear and, as they were walking out of the restaurant after the shooting, they said, “tell the police the revolution has begun.”


 

As KLAS TV reports,

A police source reports one Metro officer is dead following a double shooting at a pizza restaurant Sunday near Nellis Boulevard and Stewart Avenue.

 

According to police, two people walked into a Cici Pizza restaurant at 309 North Nellis and appeared to target two Metro officers who were eating at the restaurant. One person shot one officer in the head. The second person shot the second officer. There is no word on the officers’ conditions.

 

 

The two suspects then left the restaurant and went into the Wal-Mart store across the street. Police have surrounded the Wal-Mart.

As Las Vegas Review reports,

The officers’ conditions were not immediately available. The shooters were still at large as of noon.

 

Metro’s SWAT team is there. Police have cordoned off most of the store parking lot.

 

 

Both shooters were reportedly carring large bags, and a bomb squad was called to the scene. It’s unclear at this time what, if anything, was found in the bags.

RT reports,

By Noon, Metro SWAT team entered the Wal-Mart and by 12:02 claimed to have seen one body in aisle 11 at Walmart.

 

Las Vegas Metropolitan Police Department said it is to hold a news conference shortly.




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US Air Force Sends 2 B-2 Stealth Bombers To The UK

With call-signs “Death 11” and “Death 12”, we suspect the deployment by the US Air Force of 2 B-2 Stealth Bombers to the UK’s RAF base in Fairford is for anything but simple sight-seeing. As The Aviationist notes, B-2s don’t move from Whiteman AFB, in Missouri, too often as they are trained to conduct very long round-trip missions from their homebase; which is why the deployment of two Spirit bombers with the 509th Bomb Wing to the UK is, at least, noteworthy. The question is… what will Putin’s retaliatory sabre-rattle be?

 

The B-2s landing in Fairford (via @miket_343 )

 

As The Aviationist details,

…overseas deployments of the Spirit stealth strategic bombers are quite unusual.

 

Indeed, B-2s don’t move from Whiteman AFB, in Missouri, too often as they are trained to conduct very long round-trip missions from their homebase in CONUS (Continental U.S.), as happened during recent training missions, extended nuclear deterrence sorties in the Korean Peninsula, as well as during real conflicts, as the Libya Air War in 2011 or the Allied Force in Serbia in 1999.

 

That’s why the deployment of two Spirit bombers with the 509th Bomb Wing to the UK is, at least, noteworthy.

 

Obviously, the official press release doesn’t mention the rarity of this “short-term deployment,” as it only mentions that the “multi-role heavy bombers will conduct training flights in the USEUCOM area of operations, providing opportunities for aircrews to sharpen skills in several key operational sets and become familiar with airbases and operations in the region.”

 

Little is known about this deployment, unlike the other one which involves three B-52s that have arrived at RAF Fairford last week and whose detachment had been exposed by aircrew patches produced ahead of the participation of the Stratofortresses to the Saber Strike and Baltops exercises.

 

“The training and integration of strategic forces demonstrates to our nation’s leaders and our allies that we have the right mix of aircraft and expertise to respond to a variety of potential threats and situations,” said Adm. Cecil Haney, commander, U.S. Strategic Command in the release.

 

For sure, the Russian threat in Europe is taken seriously by the USSTRACOM, that may have decided to deploy some strategic assets closer to Ukraine, more to show the local allies that Washington is capable to support them if needed rather than put some pressure on Moscow.

But, but… but… the markets are at all-time-highs so there can’t be any “risks” to worry about?




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Everything Popular Is Wrong: Malinvestment And Consumers

Submitted by J. Dayne Girard of The Ludwig von Mises Institute,

“Everything popular is wrong” — Oscar Wilde’s famous quote can be supported by economic theory. One of the seemingly neglected aspects of malinvestment is the effect it has upon the popular perception of products, services, and lifestyles.

Malinvestment, while misunderstood by many, is nonetheless an easy concept to grasp. Imagine that the government decided that cars were unsafe and, therefore, more people should drive trucks. To encourage the use of trucks over cars, the government offers easy credit to truck buyers through a federal truck loan program. The easy credit creates an artificially high demand for trucks, increasing revenue and profits for truck manufacturers at the expense of other industries.

The easy credit encourages more people to buy trucks than would otherwise buy them. That’s malinvestment in a nutshell — capital being diverted from somewhere to somewhere else through government intervention.

Malinvestment is a term usually reserved for the malinvested capital created by credit expansion. But, any kind of government intervention in the economy creates malinvestment, whether it’s a loan program, regulation, or other economic intervention. In many cases, if it manipulates behavior, it causes malinvestment.

The same effect could be obtained by regulation. The government might require those who drive cars to study for a special license, then pay an annual fee for that license. Just like the loan program, this would cause an imbalance in economic investment. People would avoid buying cars because of the additional expense and hassle. Instead, they would be more likely to buy trucks, which don’t require the extra license.

The government intervention, in whatever form, causes an increase in revenue for the truck industry. This increase in revenue means larger marketing budgets for the truck manufacturers. Larger marketing budgets will afford more advertisements touting the value of trucks over cars. They will spend more money creating and promoting research that exposes the negative traits of other types of vehicles. With their larger marketing budgets, they can reach the masses with their message as never before.

What makes these marketing messages so dangerous is that they are indeed true. The research that the truck industry puts out will be accurate and convincing. It will show up before the eyes of the population and convince many. But there is a missing message that should be balancing the truck manufacturers’ marketing. The revenue diverted from car manufacturing to truck manufacturing results in more marketing for trucks but also results in less marketing for cars.

Significant amounts of research and marketing for the truck industry are created that should have never existed. On the other hand, research and marketing that should be informing people about the advantages of cars never comes into existence. Combine the prevelance of one messsage and the absence of competing messages and the result is a perfect storm for widespread misinformation. This is all the result of government intervention in the ecomomy.

Higher education, an industry bloated with government incentives and malinvestment, shows the effects of malinvestment in spades. Students are told that degrees provide the path to higher earning potential. I believe that this is true. There is still value left in the higher education system. But malinvestment in higher education has saturated the economy with this message so pervasively that alternatives are not even considered.

Consider the student pursuing a business degree. Is it really possible that spending four years and $60,000 is the best method of preparing for a career in business? $60,000 is enough to cover the average startup costs of two small businesses. As an entrepreneur myself, I would argue that many business concepts can be easily market tested in three months for $4,000. In four years, an aspiring businessperson could test 15 different business models for the equivalent cost of a business degree. In terms of effective preparation for success, I find it hard to believe that a college degree could even begin to compete with four years of experience working on business startups.

Consider also the hundreds of wonderful educational resources made available online for free. In college, I learned more from a one hour YouTube video lecture by Murray Rothbard on the Fed than I did in my entire Macroeconomics class at the state college.

But these alternatives do not have the long marketing arms that regionally accredited higher education institutions have. Government does not offer incentives for alternatives to traditional college and, therefore, few people realize they even exist. The partial truth that higher education offers a path to a better future so heavily dominates the “path-to-a-better-future” landscape that it might as well be a lie.

Healthcare provides another fascinating example of unbalanced messaging. Patent laws and strict FDA regulation provide synthetic drugs exorbitant revenue compared to natural healthcare products (which cannot be patented). Hunter Lewis writes, “Only a medicine protected by a government patent can hope to recoup the enormous costs (up to $1 billion) of taking a new drug through the government’s approval process.”

The result on the American psyche is obvious. Any product that has not undergone rigorous double-blind, placebo controlled clinical trials is considered quackery. Synthetic drug manufacturers masquerade their research with marketing budgets hundreds of millions dollars deep and convince the masses that nothing else is as safe or effective.

While it is true that natural products have not been tested as thoroughly, this is not necessarily because they are less effective or safe. It’s because the product’s creators cannot afford the testing. Natural products never get a chance to compete because they are stuck playing in a completely different economic arena.

The story is the same in nearly every other area of the economy. Government intervention in the economy manipulates the buying decisions of the population. The resulting malinvestment quickly turns into malinformation and imbalanced marketing messages. Our minds are dominated by the marketing messages of malinvestment which blankets our economy in a dark fog of partial truths.

In a free economy there are no advantaged or disadvantaged parties. The best product obtains the most revenue and has the biggest marketing budget. Messaging from one industry is balanced by messaging from competing industries.

But our economy is another story. Partial truths masquerade as the whole story, granting subpar products and services unchallengned attention and popularity. Oscar Wilde was right: “Everything popular is wrong.”




via Zero Hedge http://ift.tt/1pTBQpg Tyler Durden

Europe’s Good, Bad, & Ugly Reality (In 3 Simple Charts)

Mario Draghi unleashed his ultimate “spend-it-all-now-or-you’ll-lose-it” Keynesian demand-pull bazooka this week when he went full negative-rate-tard. While plenty of time has been spent discussing the “low-flation” and the total lack of credit creation (Keynes ultimate kryptonite), we thought the following three charts might bring home just how entirely broken (and dependent) Europe’s economy/market has become…

 

First – the Good… European Sovereign Risk (GDP-weighted) is at an all-time low…the central-bank front-runners have front-run themselves to death as they fund cheap and pile into sovereign risk, forcing the banking system and sovereign ever closer together in a ‘if rates ever rise, we are all doomed’ vicious circle…

 

And just exactly how much “pressure” does this exert on policy-makers to make thenecessary change and tough reforms that are required? (spoiler Alert – None!)

 

The Bad… European Macro-economic data is in the toilet… just as not one of the super smartest economists in the world could envision rates falling this year, it was evident last year that the “Europe is recovering” meme was as viral as herpes at spring break… odd, how things don’t work out as planned eh?

 

The Ugly… European corporate earnings are tumbling and expectations have collapsed

 

But apart from that – TLTRO and negative rates will fix it all… well played Draghi.

But, as Bloomberg notes, not even the European establishment believes Draghi’s efforts will have any impact…

President of the German Institute for Economic Research Marcel Fratzscher tells Handelsblatt that large and not unlikely risk remains that euro zone economies may fall into stagnation and deflation from which it may be difficult to exit.

Newspaper also cites Fratzscher as saying:

ECB measures won’t solve the fundamental problems of the banking system and lack of structural reforms

 

More expansionary fiscal policy may be helpful in short term but won’t resolve fundamental problems, including excessive national debt

 

DekaBank economist Ulrich Kater also tells newspaper that politically generated economic upswing may collapse into sluggish economy and higher debt when it expires, warns against implementing large scale, debt-financed spending programs

Charts: Bloomberg and @Not_Jim_Cramer




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The World’s Five Most Important Oil Fields

Submitted by Nick Cunningham of OilPrice.com

Here Are The World’s Five Most Important Oil Fields

Much has been made about the role that hydraulic fracturing – or fracking — has played in revolutionizing the energy landscape, unlocking vast new reserves of oil trapped in shale rock. This “tight oil” is pouring into the global pool of oil supplies at a crucial time, preventing oil prices from spiking in an age of high demand and geopolitical turmoil.

But the world still relies overwhelmingly on conventional oil production from existing fields, many of which are in decline. The Middle East has dominated the world of oil for half a century and as the list below shows, it remains king. Here are the top five most important oil fields in the world.

1.  Ghawar (Saudi Arabia) The legendary Ghawar field has been churning out oil since the early 1950s, allowing Saudi Arabia to claim the mantle as the world’s largest oil producer and the only country with sufficient spare capacity to act as a swing producer. Holding an estimated 70 billion barrels of remaining reserves, Ghawar alone has more oil reserves than all but seven other countries, according to the Energy Information Administration. Some oil analysts believe that Ghawar passed its peak perhaps a decade ago, but Saudi Arabia’s infamous lack of transparency keeps everyone guessing. Nevertheless, it remains the world’s largest oil field, both in terms of reserves and production. It continues to produce 5 million barrels per day (bpd).

 

2.  Burgan (Kuwait) Just behind Ghawar is another massive oil field located in the Middle East. The Burgan field was originally discovered in 1938, but production didn’t begin until a decade later. The field holds an estimated 66 to 72 billion barrels of reserves, which accounts for more than half of Kuwait’s total, and it produces between 1.1 and 1.3 million bpd.

 

3.  Safaniya (Saudi Arabia) The Safaniya field is the world’s largest offshore oil field. Located in the Persian Gulf, the Safaniya field is thought to hold more than 50 billion barrels of oil. It is Saudi Arabia’s second largest producing field behind Ghawar, churning out 1.5 million bpd. Like Saudi Arabia’s other fields, Safaniya is very mature as it has been producing for nearly 60 years, but Saudi Aramco is working hard to extend its operating life.

 

4.  Rumaila (Iraq) Iraq’s largest oil field is the Rumaila, which holds an estimated 17.8 billion barrels of oil. Located in southern Iraq, Rumaila was highly sought after when the Iraqi government put blocks up for bid in 2009. BP and the China National Petroleum Corporation (CNPC) are working together to develop the giant field along with Iraq’s state-owned South Oil Company. The field now produces around 1.5 million bpd, but its operators have plans to boost that production to 2.85 million bpd over the next couple of years.

 

5.  West Qurna-2 (Iraq) Also located in southern Iraq, the West Qurna-2 field is Iraq’s second largest, holding nearly 13 billion barrels of oil reserves. The West Qurna field was divided in two and auctioned off to international oil companies. Russia’s Lukoil took control of West Qurna-2 and successfully began production earlier this year at an initial 120,000 bpd. Lukoil plans on lifting production to 1.2 million bpd by the end of 2017. The neighboring West Qurna-1 field – operated by a partnership of ExxonMobil, BP, Eni SpA, and PetroChina – holds 8.6 billion barrels of oil reserves. They hope to increase production from 300,000 bpd to more than 2.3 million bpd over the next half-decade.

It’s clear that the Middle East is still the center of the universe when it comes to oil. Despite their age, these supergiants remain the oil fields of tomorrow. And as the tight oil revolution in the U.S. plays out, these fields will remain, and the world will continue to depend heavily on the fortunes of a few countries in the Middle East




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Next Week’s Course: Digestion

After the ECB meeting, and the new initiatives it announced, coupled with the monthly cycle of PMI reports, and the US jobs data last week, investors will have time to digest the developments this week. The economic calendar is light, and the data is unlikely to impact policy expectations.

 

The impact of the ECB’s rate cuts and the formal end to the attempts to sterilize the bonds purchased under the SMP scheme may be seen in the coming days. Will the extra liquidity in the Eurosystem, the negative deposit rate and 15 bp refi rate, succeed in pushing EONIA back below the effective Fed funds rate? Will the cut in the marginal lending rate (the ceiling of the policy corridor) to 40 bp, limit the quarter-end pressures?

 

The way bank are going to respond to the negative deposit rate will also be closely scrutinized. In Sweden, the negative deposit rate was not really enforced, and in Denmark’s experience, the negative rate was not passed through to depositors. The ECB’s statement indicated that a negative rate would be applied to a broad range of accounts that the ECB maintains, including some government accounts.

 

We remain concerned about the potential unintended and undesirable consequences. On one hand, ECB and international officials want European banks to boost their capital cushion. On the other hand, the negative deposit rate seems to act like a tax that capital cushion, or at least the most liquid part of it.

 

Yet the ECB’s actions helped trigger a bond market rally, and this is beneficial to banks many of whom have expanded sovereign bond exposures. The targeted LTRO (TLTRO) facility, to the extent that is drawn up also encourages new carry trades within the euro zone (and may favor risk assets more broadly). Ironically, some European and IMF officials, as well as a few large global asset managers, have expressed concern about the sustainability of the peripheral bond market rally.

 

The rally in European stocks and bonds should not be confused with a robust economic recovery. The contraction has paved way for what can only be fairly consider stagnation. Just like Paul Kennedy’s “Rise and Fall of Great Powers” (1987) seems to have been more applicable to the Soviet Union than the US, the “secular stagnation” hypothesis in its current iteration, seems more applicable to the euro zone.

 

This will be illustrated by the April industrial production figures this week. On Thursday (June 12), the consensus expects the industrial output expanded by 0.5% after a 0.3% decline in March. The risk is to the downside, especially after Germany’s disappointing figures before the weekend (0.2% rather than 0.4%).  Consider that the average monthly change was -0.1%, during what appears to be an economic recovery phase. Over the last 12 and 24 months, the average change has been zilch.

 

The UK also reports industrial output figures (June 10). Over the past 3, 12 and 24 months, UK industrial production has risen 0.2% on average. It is expected to have risen by 0.4% in April, after a 0.1% decline in March.

 

However, the employment data the following day is more important. The claimant count is expected to have fallen another 20-25k, and the unemployment rate is likely to have ticked down to 6.7%. The data will feed the ongoing debate about the extent of the economic slack. This in turn may see the gradual emergence of a more hawkish wing at the BOE, which could lead to dissents at the MPC later this year.

 

This is an important week for Chinese data. May trade figures were released over the weekend. The trade surplus nearly doubled to $35.9 bln from $18.5 bln in April. The surprise lied less with exports, which at 7.0% year-over-year increase was only a little more than the 6.7% expected, and more with imports which fell 1.6%. The consensus expected a 6.0% increase. The crackdown on commodity financing may have played a role.

 

The increase in exports lends support to our view that the Chinese economy is stabilizing. We expect this to be confirmed in this week’s reports on retail sales and industrial output. Both PPI and CPI measures of inflation will also be reported. Producer prices have been falling on a year-over-year basis since early 2012. The pace of that decline has been moderating. The -1.5% pace expected in May would be the slowest of the year. Consumer prices are expected to have accelerated to 2.4% from 1.8%.

 

The retail sales report on June 12 is the economic highlight from the US. A strong rebound is expected after a disappointing April. The consensus calls for a 0.6% increase in the headline figures after a 0.1% increase in April. Strong auto and chain store sales and news of a sharp jump in revolving credit (credit cards) in April warn of risk of an upside surprise.

 

The Reserve Bank of New Zealand will most likely hike its cash rate by 25 bp to 3.25% at midweek.    The New Zealand dollar has trended lower since early May and bounced in the second half of last week.  The market may have been too aggressive in pricing RBNZ hikes and the market has slowly cut its chances of a follow up hike in July.  A convincing move back above $.08550 may signal the end to the downside correction.  

 

US bonds are at important levels. If the 10-year yield rises above 2.65%, more participants may become convinced that the yields have bottomed. Among other considerations, the supply increases sharply after falling in the first five months of the year. This may leave the yen vulnerable, even if Japan reports its third consecutive current account surplus (April). We note that such a result would end at least a nine year streak in which the current account balance deteriorated in April from March.




via Zero Hedge http://ift.tt/1hvJLXq Marc To Market

What Most Americans Don’t Know About Student Debt

Now that student loans, well over $1.1 trillion, are hitting fresh record highs as… well… daily as the S&P500, the Fed is finally getting concerned about the latest debt bubble it has blown (not so much in equities). So concerned, in fact, the New York Fed recently added questions about student loans in  its broad survey on consumer expectations to find out what people knew, or rather, did not know about this record debt mountain. We hope it was not shocked to learn that once again the bulk of Americans are taking on unprecedented amounts of debt without having a clue what the conditions are: accordint to the analysis, people don’t fully comprehend the ramifications of taking on student debt.

As Bloomberg summarizes, the survey covered 1,029 people, including those with and without debt. The shocking findings:

  • Only 28% of respondents knew that if student loans aren’t repaid, the U.S. government can garnish wages, withhold Social Security payments and tax refunds, and report the debt to credit bureaus.
  • Even more people—35%—incorrectly thought the government couldn’t do any of those things or said they didn’t know what the government could do.
  • Only 37% of those surveyed knew that students loans are extremely hard to shed in bankruptcy, a reality that differentiates student loans from other debts, such as mortgages and credit cards.
  • The survey found that people who have student loans know more about the consequences than those who don’t, and that’s even truer of those who have high debt loads. But about half of those with higher-than-average student debt didn’t have high comprehension of the issue.
  • The survey also found that fewer than one in five people under 55 years old were “highly literate” on the topic, even though they make up most current and future borrowers.

The findings should hardly come as a surprise: in 2012, Young Invincibles, an advocacy group, and the economic consulting firm NERA found (pdf) that 40 percent of current or recent graduates who got financial aid said they didn’t receive any counseling about their federal student loans, as required by law. Of those who did receive counseling, only a little more than half found it informative.

All of the above, naturally, is a pivot to the moment just after the student debt bubble bursts: then, just like with the housing bubble, the excuse will be the Americans, hardly with a gun against their head, did not understand what the “implications” of burying yourself to the neck in debt are. Which is why they did it. Which is why the entire system had to be bailed out. Or something like that.

It is good to see that nobody has learned any lessons from the recent past, as usual.




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Matthew Feeney: Marijuana in Vending Machines Is the American Way

In April American Green,
part of the Tranzbyte Corporation, unveiled a marijuana vending
machine in Colorado intended for medical cannabis patients. The
company plans to install its ZaZZZ vending machine in Herbal
Elements, a medical marijuana dispensary in Eagle-Vail, Colorado.
Matthew looks at this means of helping customers make their own
choices in peace and relative privacy.

View this article.

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