Fact: Bank Product Prices Rise Faster Than Income & ALL Other Expenses – Fact: YOU Can Drop Bank Product Prices Now!

In BitLicense Part 1, we explained how debilitating the proposed NYS Department of Financial Services rules on Bitcoin companies would have been had it been applied to the last major technological breakthrough – the Internet. In a nutshell, we would all be surfing to slow web pages controlled by bank portals.

In BitLicense Part 2, we clearly demonstrated that while Internet technologies have pushed the prices of practically EVERYTHING down while the performance and quality have risen, bank product pricing has literallly skyrocketed in the same timeframe with no material increase in quality. Why is that? Well…

In BitLicense Part 3, we showed all that the proposed (and applied) regulations act as a monopolistic/oligarchal barrier that prevents smaller companies from pushing innovation to increase product/service quality and from dropping prices. We even went so far as to rewrite the proposed BitLicense to prevent and avoid the inevitable “robbing” of the consumer by entities that are essentially protected by regulation and seemingly immune and definitely resistant to the (vastly consumer beneficial) advances of technological change.

Well, here, we will clearly and succinctly demonstrate exactly how much that ‘inevitable “robbing” of the consumer by entities that are essentially protected by regulation and seemingly immune to technological progress actually costs over time in two very simple, but information-packed charts….

banking prices normalized and adjusted for inflation

 As you can see from the chart above, banking products and services pricing has outstripped every consumer staple in price appreciation since the 1997 base year sans the two year period where the US put over $1 trillion in bailout aid into the industry (which essentially makes the services even more expensive, during said period, to the tax paying, savings orientated consumer)!

banking prices compared to inflation adjusted income

The chart above illustrates how banking product pricing growth rates outstrip income growth rates when inflation adjusted and normalized. Why haven’t bank profits and revenues reflected such a stark increase in pricing? Because the monies are going to fund the (oft hidden) black holes in bank balance sheets and businesses that caused the 2008 financial crisis. 

Veritaseum’s UltraCoin easily beats conventional bank product and service pricing by a magnitude. From the mundane, to the complex. I urge all to read “Using Veritaseum’s UltraCoin To Take Direct, Specific Positions On The Argentine Default For As Little As $5!” for an example or download our quick start guide to get an idea of what the new wave of value transfer feels like.

Are you interested in a more competitive financial landscape that breeds better pricing and superior services? Well, now you can do something about it.

  1. Step oneDownload the future of money, now! See for yourself what the banking industry is up in arms about. More importantly, witness first hand, the power of Bitcoin technology. 
  2. Step two: Stop the BitLicense proposed legislation that simply furthes the forces that allow these price increases in the face of global price deflation.  We strongly urge you to  voice your own opinions to Superintendent Lawsky, the man who has the authority to put a stop to this overpricing power (althought current actions are heading in the opposite direction) right now.
  3. Step three:Become proficient in the “new” way of performing trades of value. I’m quite confident that once investors, traders, speculators and those in need of hedging services become aware of what’s possible with programmable money, there’s no turning back – regardless of legislation. Think of how far Uber has gotten in the livery industry simply by offering superior services! Look here for a strong example, and remember this is not going though and exchange, is peer to peer, and has less credit or counterparty risk than any comparable product we can think of. Download the future of money, now and experience a new way of trading value – witness a simultaneous increase in value and decrease in price over existing finacial services by taking advantage of the Bitcoin protocol. The Bitcoin protocol is to the banking industry what the Internet protocol was to the media industry.




via Zero Hedge http://ift.tt/1rWYXkc Reggie Middleton

Fact: Bank Product Prices Rise Faster Than Income & ALL Other Expenses – Fact: YOU Can Drop Bank Product Prices Now!

In BitLicense Part 1, we explained how debilitating the proposed NYS Department of Financial Services rules on Bitcoin companies would have been had it been applied to the last major technological breakthrough – the Internet. In a nutshell, we would all be surfing to slow web pages controlled by bank portals.

In BitLicense Part 2, we clearly demonstrated that while Internet technologies have pushed the prices of practically EVERYTHING down while the performance and quality have risen, bank product pricing has literallly skyrocketed in the same timeframe with no material increase in quality. Why is that? Well…

In BitLicense Part 3, we showed all that the proposed (and applied) regulations act as a monopolistic/oligarchal barrier that prevents smaller companies from pushing innovation to increase product/service quality and from dropping prices. We even went so far as to rewrite the proposed BitLicense to prevent and avoid the inevitable “robbing” of the consumer by entities that are essentially protected by regulation and seemingly immune and definitely resistant to the (vastly consumer beneficial) advances of technological change.

Well, here, we will clearly and succinctly demonstrate exactly how much that ‘inevitable “robbing” of the consumer by entities that are essentially protected by regulation and seemingly immune to technological progress actually costs over time in two very simple, but information-packed charts….

banking prices normalized and adjusted for inflation

 As you can see from the chart above, banking products and services pricing has outstripped every consumer staple in price appreciation since the 1997 base year sans the two year period where the US put over $1 trillion in bailout aid into the industry (which essentially makes the services even more expensive, during said period, to the tax paying, savings orientated consumer)!

banking prices compared to inflation adjusted income

The chart above illustrates how banking product pricing growth rates outstrip income growth rates when inflation adjusted and normalized. Why haven’t bank profits and revenues reflected such a stark increase in pricing? Because the monies are going to fund the (oft hidden) black holes in bank balance sheets and businesses that caused the 2008 financial crisis. 

Veritaseum’s UltraCoin easily beats conventional bank product and service pricing by a magnitude. From the mundane, to the complex. I urge all to read “Using Veritaseum’s UltraCoin To Take Direct, Specific Positions On The Argentine Default For As Little As $5!” for an example or download our quick start guide to get an idea of what the new wave of value transfer feels like.

Are you interested in a more competitive financial landscape that breeds better pricing and superior services? Well, now you can do something about it.

  1. Step oneDownload the future of money, now! See for yourself what the banking industry is up in arms about. More importantly, witness first hand, the power of Bitcoin technology. 
  2. Step two: Stop the BitLicense proposed legislation that simply furthes the forces that allow these price increases in the face of global price deflation.  We strongly urge you to  voice your own opinions to Superintendent Lawsky, the man who has the authority to put a stop to this overpricing power (althought current actions are heading in the opposite direction) right now.
  3. Step three:Become proficient in the “new” way of performing trades of value. I’m quite confident that once investors, traders, speculators and those in need of hedging services become aware of what’s possible with programmable money, there’s no turning back – regardless of legislation. Think of how far Uber has gotten in the livery industry simply by offering superior services! Look here for a strong example, and remember this is not going though and exchange, is peer to peer, and has less credit or counterparty risk than any comparable product we can think of. Download the future of money, now and experience a new way of trading value – witness a simultaneous increase in value and decrease in price over existing finacial services by taking advantage of the Bitcoin protocol. The Bitcoin protocol is to the banking industry what the Internet protocol was to the media industry.




via Zero Hedge http://ift.tt/1rWYXkc Reggie Middleton

India Slams US Global Hegemony By Scuttling Global Trade Deal, Puts Future Of WTO In Doubt

Yesterday we reported that with the Russia-China axis firmly secured, the scramble was on to assure the alliance of that last, and critical, Eurasian powerhouse: India. It was here that Russia had taken the first symbolic step when earlier in the week its central bank announced it had started negotiations to use national currencies in settlements, a process which would culminate with the elimination of the US currency from bilateral settlements.

Russia was not the first nation to assess the key significance of India in concluding perhaps the most important geopolitical axis of the 21st century – we reported that Japan, scrambling to find a natural counterbalance to China with which its relations have regressed back to World War II levels, was also hot and heavy in courting India. “The Japanese are facing huge political problems in China,” said Kondapalli in a phone interview. “So Japanese companies are now looking to shift to other countries. They’re looking at India.”

Of course, for India the problem with a Japanese alliance is that it would also by implication involve the US, the country which has become insolvent and demographically imploding Japan’s backer of last and only resort, and thus burn its bridges with both Russia and China. A question emerged: would India embrace the US/Japan axis while foregoing its natural Developing Market, and BRICS, allies, Russia and China.

We now have a clear answer and it is a resounding no, because in what was the latest slap on the face of now crashing on all sides US global hegemony, earlier today India refused to sign a critical global trade dea. Specifically, India’s unresolved demands led to the collapse of the first major global trade reform pact in two decades. WTO ministers had already agreed the global reform of customs procedures known as “trade facilitation” in Bali, Indonesia, last December, but were unable to overcome last minute Indian objections and get it into the WTO rule book by a July 31 deadline.

WTO Director-General Roberto Azevedo told trade diplomats in Geneva, just two hours before the final deadline for a deal lapsed at midnight that “we have not been able to find a solution that would allow us to bridge that gap.

Reuters reports that most diplomats had expected the pact to be rubber-stamped this week, marking a unique success in the WTO’s 19-year history which, according to some estimates, would add $1 trillion and 21 million jobs to the world economy.

Turns out India was happy to disappoint the globalists: the diplomats were shocked when India unveiled its veto and the eleventh-hour failure drew strong criticism, as well as rumblings about the future of the organisation and the multilateral system it underpins.

“Australia is deeply disappointed that it has not been possible to meet the deadline. This failure is a great blow to the confidence revived in Bali that the WTO can deliver negotiated outcomes,” Australian Trade Minister Andrew Robb said on Friday. “There are no winners from this outcome – least of all those in developing countries which would see the biggest gains.”

Shockingly, and without any warning, India’s stubborn refusal to comply with US demands, may have crushed the WTO as a conduit for international trade, and landed a knockout punch when it comes to future relentless globallization which as is well known over the past 50 or so years, has benefited the US first and foremost.

Broke, debt-monetizing Japan, which as noted previously, was eager to become BFFs with India was amazed by the rebuttal: “A Japanese official familiar with the situation said that while Tokyo reaffirmed its commitment to maintaining and strengthening the multilateral trade system, it was frustrated that such a small group of countries had stymied the overwhelming consensus. “The future of the Doha Round including the Bali package is unclear at this stage,” he said.”

Others went as far as suggesting the expulsion of India:

Some nations, including the United States, the European Union, Australia, Japan and Norway, have already discussed a plan to exclude India from the agreement and push ahead, officials involved in the talks said.

However, such a move would clearly be an indication that the great globalization experiment is coming to an end: “New Zealand Minister of Overseas Trade, Tim Groser, told Reuters there had been “too much drama” surrounding the negotiations and added that any talk of excluding India was “naive” and counterproductive. “India is the second biggest country by population, a vital part of the world economy and will become even more important. The idea of excluding India is ridiculous.” … “I don’t want to be too critical of the Indians. We have to try and pull this together and at the end of the day putting India into a box would not be productive,” he added.

And yes, the death of the WTO is already being casually tossed around as a distinct possibility:

Still, the failure of the agreement should signal a move away from monolithic single undertaking agreements that have defined the body for decades, Peter Gallagher, an expert on free trade and the WTO at the University of Adelaide, told Reuters.

 

“I think it’s certainly premature to speak about the death of the WTO. I hope we’ve got to the point where a little bit more realism is going to enter into the negotiating procedures,” he said.

But the one country that was most traumatized, was the one that has never before been used to getting a no answer by some “dingy developing world backwater”: the United States, and the person most humiliated, who else but John Kerry.

U.S. Secretary of State John Kerry told Prime Minister Narendra Modi on Friday that India’s refusal to sign a global trade deal sent the wrong signal, and he urged New Delhi to work to resolve the row as soon as possible.” “Failure to sign the Trade Facilitation Agreement sent a confusing signal and undermined the very image Prime Minister Modi is trying to send about India,” a U.S. State Department official told reporters after Kerry’s meeting with Modi.

Wrong signal for John Kerry perhaps, who is now beyond the world’s “diplomatic” laughing stock and the man who together with Hillary Clinton (and the US president) has made a complete mockery of US global influence in the past 5 years. But just the right signal for China and of course, Russia.




via Zero Hedge http://ift.tt/1rWYX3H Tyler Durden

Why Wait For The Shoe To Hit The Floor? The Case For Selling Now

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Waiting to sell is akin to ignoring the smoke and flames in the crowded theater and hesitating until somebody yells "fire!" to rush for the now-jammed exit.

The stock market is supposed to be a discounting mechanism that anticipates and prices in developments six months out. This discounting mechanism has been broken for so long that many participants seem to have forgotten how to do anything but buy the dips, the Pavlovian response to any decline in stocks that has been rewarded with a food pellet for the past five years.
 
If the shoe has been dropped, why wait until it hits the floor to sell? But incredibly, that is the overwhelming bias, even after the relatively modest decline of the past week.
 
Even though the Federal Reserve has made it abundantly clear that it is ending its quantitative easing (QE) bond and mortgage buying program (the Fed has already slashed it from $85 billion a month to $25 billion/month), punters are anticipating a decline in October: in other words, they expect market participants to wait until the shoe hits the floor–i.e. the Fed announces the end of QE–before they dump equities.
 
Where is the discounting mechanism in this? Since the Fed has announced the end of QE bond purchases, and backed that up by reducing QE by 70%, what sense does it make to wait until the announcement to sell?
Waiting to sell is akin to ignoring the smoke and flames in the crowded theater and hesitating until somebody yells "fire!" to rush for the now-jammed exit. If you want to get trampled to death, this is the optimal strategy. If not, it makes no sense.
 
The other big news is the unexpected rise in labor costs. The basic narrative here is: the Fed has a free hand in keeping interest rates low and spewing free money for financiers because inflation is (officially) tame, and the lousy job market has strangled wage inflation.
 
The rise in total labor costs (labor overhead and wages/salaries) throws a wrench into that narrative. As total labor costs (healthcare, pensions, taxes, etc. as well as wages) rise, companies will have to raise prices. (They've already reduced the quality and quantity of goods per package to the point that consumers can't help but notice.)
 
And voila, inflation's fearful form emerges from the murky swamp of officially sanctioned "low inflation forever." This means the Fed will have to allow interest rates to rise, lest a host of other unintended consequences wreak havoc on what's left of the legitimate economy.
 
What sense does it make to wait for the inevitable announcement that the Fed funds rate is ticking up? Why sit in your chair buying the dip while the smoke and flames spread, waiting until someone yells "fire" before heading for the exit?
 
Just as a refresher about how much air there is between the classic technical support of the 200-week moving average and the current discounting mechanism is broken heights:
 
 
The theater is filling with smoke; do you really want to wait until the crowd rushes for the blocked exits to sell? Why not actually use the discounting mechanism and sell now?
 
Sadly, there won't be much oxygen left for the buy the dip true believers who remain in their seats, mechanically hitting the "buy" button.

 




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

WHO Warns Ebola Outbreak Out Of Control, “High Risk Of Spread To Other Countries”

Things just went to 11 on the Spinal-Tap amplifier of massive infectious disease outbreaks. As AP reports, the Ebola outbreak that has killed more than 700 people in West Africa is moving faster than the efforts to control the disease, the head of the World Health Organization warned. Dr. Margaret Chan pulled no punches in her direct statement, “If the situation continues to deteriorate, the consequences can be catastrophic in terms of lost lives but also severe socio-economic disruption and a high risk of spread to other countries.” Time to panic?

 

As AP reports,

Dr. Margaret Chan, director-general of the World Health Organization, said the meeting in Conakry “must be a turning point” in the battle against Ebola, which is now sickening people in three African capitals for the first time in history.

 

 

At least 729 people in four countries — Guinea, Sierra Leone, Liberia and Nigeria — have died since cases first emerged back in March. Two American health workers in Liberia have been infected, and an American man of Liberian descent died in Nigeria from the disease, health authorities there say.

 

While health officials say the virus is transmitted only through direct contact with bodily fluids, many sick patients have refused to go to isolation centers and have infected family members and other caregivers.

 

The fatality rate has been about 60 percent, and the scenes of patients bleeding from the eyes, mouth and ears has led many relatives to keep their sick family members at home instead.

 

 

“Constant mutation and adaptation are the survival mechanisms of viruses and other microbes,” she said. “We must not give this virus opportunities to deliver more surprises.”

 

 

“I believe we’re only seeing a small portion of the cases out there … The virus is getting to large, dense, city areas. We’re now getting samples (to test) from all over,” he said Friday.

 

 

Meanwhile, other countries are taking precautions to prevent the spread of Ebola.

*  *  *
Interestingly, worries are spreading quickly as one Commonwealth Games competitor found:

a cyclist from Sierra Leone competed in the Commonwealth Games after being tested for Ebola. Moses Sesay, 32, was admitted to a Glasgow hospital last week after feeling unwell, and doctors tested him for various conditions including Ebola. Sesay was passed fit, and released from hospital in time to compete in the individual time trial on Thursday.

Yahoo has kindly provided this ‘panic sheet’ for where the nearest CDC quarantine stations are in the US…




via Zero Hedge http://ift.tt/1m65Wjn Tyler Durden

WHO Warns Ebola Outbreak Out Of Control, "High Risk Of Spread To Other Countries"

Things just went to 11 on the Spinal-Tap amplifier of massive infectious disease outbreaks. As AP reports, the Ebola outbreak that has killed more than 700 people in West Africa is moving faster than the efforts to control the disease, the head of the World Health Organization warned. Dr. Margaret Chan pulled no punches in her direct statement, “If the situation continues to deteriorate, the consequences can be catastrophic in terms of lost lives but also severe socio-economic disruption and a high risk of spread to other countries.” Time to panic?

 

As AP reports,

Dr. Margaret Chan, director-general of the World Health Organization, said the meeting in Conakry “must be a turning point” in the battle against Ebola, which is now sickening people in three African capitals for the first time in history.

 

 

At least 729 people in four countries — Guinea, Sierra Leone, Liberia and Nigeria — have died since cases first emerged back in March. Two American health workers in Liberia have been infected, and an American man of Liberian descent died in Nigeria from the disease, health authorities there say.

 

While health officials say the virus is transmitted only through direct contact with bodily fluids, many sick patients have refused to go to isolation centers and have infected family members and other caregivers.

 

The fatality rate has been about 60 percent, and the scenes of patients bleeding from the eyes, mouth and ears has led many relatives to keep their sick family members at home instead.

 

 

“Constant mutation and adaptation are the survival mechanisms of viruses and other microbes,” she said. “We must not give this virus opportunities to deliver more surprises.”

 

 

“I believe we’re only seeing a small portion of the cases out there … The virus is getting to large, dense, city areas. We’re now getting samples (to test) from all over,” he said Friday.

 

 

Meanwhile, other countries are taking precautions to prevent the spread of Ebola.

*  *  *
Interestingly, worries are spreading quickly as one Commonwealth Games competitor found:

a cyclist from Sierra Leone competed in the Commonwealth Games after being tested for Ebola. Moses Sesay, 32, was admitted to a Glasgow hospital last week after feeling unwell, and doctors tested him for various conditions including Ebola. Sesay was passed fit, and released from hospital in time to compete in the individual time trial on Thursday.

Yahoo has kindly provided this ‘panic sheet’ for where the nearest CDC quarantine stations are in the US…




via Zero Hedge http://ift.tt/1m65Wjn Tyler Durden

The Fed Is Not Your Friend

Submitted by David Stockman via Contra Corner blog,

During the last 64 months “buying the dips” has been a fabulously successful proposition. As shown in the sizzling graph of the NASDAQ 100 below, at it recent peak just under 4,000 this index of the high-growth, big cap non-financials stood at an astonishing 3.5X its March 2009 low. Moreover, during that 64 month period, there were but five minor market corrections—-the three largest reflecting just a 7-8% dip from the previous interim high. And as the index closed upon its current nosebleed heights, the dips became increasingly shallower, meaning that the reward for buying setbacks came early and often.

So yesterday’s 2% dip will undoubtedly be construed as still another buying opportunity by the well-trained seals and computerized algos which populate the Wall Street casino. But that could be a fatal mistake for one overpowering reason: The radical monetary policy experiment behind this parabolic graph is in the final stages of its appointed path toward self-destruction.

 

In fact, this soaring index reflects the most artificial, unsustainable and dangerous Fed created financial bubble ever. That’s because its was the untoward product of a completely busted monetary mechanism.  What has happened is that the Fed’s historic credit expansion channel of monetary transmission has been frozen shut ever since day one of the massive Bernanke monetary expansion which began in August 2007, but went into warp-drive in the weeks after the Lehman event a year later.

Yet this madcap money printing campaign was a drastic error because it failed to account for the immense roadblock to traditional monetary stimulus that had been built up over the last several decades—namely, “peak debt” in the household and business sector. This condition means that monetary easing and drastic interest rate cuts have not elicited a surge of consumer borrowing and business capital spending and hiring as during past business cycle recoveries.

Instead, the entire tsunami of monetary expansion has flowed into the Wall Street gambling channel, inflating drastically every asset class that could be traded, leveraged or hypothecated. Stated differently, 68 months of zero interest rates had virtually no impact outside the the canyons of Wall Street. But inside the casino, they provided virtually free money for the carry trades, causing an endless bid for leveragable and optionable financial assets.

But now that the monetary flood is cresting, financial asset values hang in mid-air like Wile E. Coyote. Stranded there, they are nakedly exposed to market discovery any moment now that the real economy and sustainable corporate earnings dwell in a region far below.

That the credit channel of monetary expansion is busted and done is patently obvious in the data on the household sector. Below is both the current track of total household debt since the December 2007 peak, and the prior Greenspan housing bubble track. The latter  turns out to be the last hurrah for the essential Keynesian “stimulus” gambit of the last several decades, which is to say, the one-time LBO of household balance sheets.

During the 78 months since the last peak, household credit has shrunk by 5%. Nothing like this has every happened before. Not even remotely close. And in truth, the relevant shrinkage has been even greater, since more than 100% of the slight up-tick in borrowing shown in the graph for recent quarters is owing to the explosion of student debt. By contrast, the traditional source of household “borrow and spend”—-mortgage borrowings and credit card debt—-is still below its 7-year ago peak.

Needless to say, this contrasts dramatically with the 78 month path after the 2001 cycle peak. During the Greenspan housing and credit bubble, household debt soared by nearly 90%, providing a robust, if temporary, boost to the consumption component of GDP.

The reason for the sharp difference in the most recent cycle is that Keynesian stimulus was always an economic trick, not an permanently repeatable exercise in enlightened monetary management. Quite simply, the US household balance sheets—-as measured by outstanding credit market debt relative to wage and salary income—got used up during the decades after the nation’s fiat money debt binge incepted at the time of Camp David in August 1971.

Now, in fact, the household leverage ratio has rolled over and is slowly retracing toward the still dramatically lower and more healthy levels that prevailed prior to 1971. In this context, it is surely the case that household leverage will continue to fall—-zero interest rates notwithstanding—– because it is a demographic given. The 10,000 baby boomers retiring each and every day between now and 2030 will not be adding to household debt; they will be liquidating it.

Household Leverage Ratio - Click to enlarge

Household Leverage Ratio – Click to enlarge

What this means is that the motor force of traditional Keynesian expansion is gone. Household consumption spending, perforce, can now grow no faster than household income and economic production, and likely even more slowly than that. The coming funding crisis of the social insurance entitlements—Medicare and Social Security—will surely jolt the American public into a realization that higher private savings will be essential to retirement survival. Accordingly, the household savings rate has nowhere to go but up in the years just ahead.

In any event, it is no mystery as to why business capital spending remains stuck on the flat-line. During the most recent quarter, real spending for plant and equipment was still 4% below its late 2007 peak——an outcome that is not even remotely comparable to the 10-25% surges that have occurred during comparable periods of prior business cycles.  Business is not rushing to the barricades to add to capacity because it is plainly evident that consumer demand is not growing at traditional recovery cycle rates; and that it will never again do so given the constraints of peak debt and the baby boom retirement cycle ahead.

As shown below, in fact, real net investment in CapEx—after allowance for depreciation of assets currently consumed—- is on a declining trend. Not only does this reflect the drastic downshift in the growth potential of the US economy that has set-in during the era of monetary central planning, but it also underscores that the current stock averages are capitalizing a future that is a pure chimera.

At 19.5X reported LTM earnings, the S&P 500 is at the tippy top of its historical range, and at the point that it has invariably stumbled into a deep correction. Yet why is it rational to capitalize at even historic average  PE multiples the earnings of an economy that is clearly locked into a low/no growth mode for as far as the eye can see? In truth, the market’s PE multiple should be well below the historic average generated during recent decades when Keynesian policy-makers were busy using up the nation’s balance sheets on a one-time basis in a nearly continuous campaign to stimulate credit-fueled growth.

Real Business Investment - Click to enlarge

At the end of the day, even the heavily massaged data from the Washington statistical mills cannot hide this reality. Setting aside the short-run inventory swings which cloud the headline GDP numbers each quarter, and which accounted for nearly half of the 4% gain reported for Q2, real final sales tell the true story. Notwithstanding the Fed massive balance sheet expansion since its first big rate cut in August 2007—-that is, from $800 billion to $4.4 trillion—–real final sales have grown at less than a 1% CAGR since then.

There is nothing like this tepid rate of trend growth for any comparable period in modern history. Indeed, given the clear bias toward under-reporting inflation in the BEAs GDP deflators, it is probable that during the last seven years the real economy has grown at a rate not far from zero.

All of this means that the financial markets are drastically over-capitalizing earnings and over-valuing all asset classes. So as the Fed and its central bank confederates around the world increasingly run out of excuses for extending the radical monetary experiments of the present era, even the gamblers will come to recognize who is really the Wile E Coyote in the piece.

Then they will panic.




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

“Costs?”

A funny thing happened since The US unleashed Russian-economy-crushing sanctions… the “costs” appear to have weighed down US and European stocks as Russian stocks gained?

 

As a reminder since the initial sanctions in March, the S&P 500 is up just over 4% and Russian stocks up just over 13% – so much for Carney’s “sell” order.

 

But Jack Lew promised:

  • *LEW: SANCTIONS WILL HAVE MINIMAL IMPACT ON U.S. ECONOMY




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

"Costs?"

A funny thing happened since The US unleashed Russian-economy-crushing sanctions… the “costs” appear to have weighed down US and European stocks as Russian stocks gained?

 

As a reminder since the initial sanctions in March, the S&P 500 is up just over 4% and Russian stocks up just over 13% – so much for Carney’s “sell” order.

 

But Jack Lew promised:

  • *LEW: SANCTIONS WILL HAVE MINIMAL IMPACT ON U.S. ECONOMY




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

August 1914: When Global Stock Markets Closed

Submitted by Bryan Taylor, Chief Economist of Global Financial Data

August 1914: When Global Stock Markets Closed

This week marks the hundredth anniversary of the beginning of World War I. On June 28, 1914, Austrian Archduke Franz Ferdinand was assassinated in Sarajevo. This event led to a month of failed diplomatic maneuvering between Austria-Hungary, Germany, France, Russia, and Britain which ended with the onset of the Great War, as it was originally called.
Austria-Hungary declared war on Serbia on July 28, causing Germany and Russia to mobilize their armies on July 30. When Russia offered to negotiate rather than demobilize their army, Germany declared war on Russia on August 1. Germany declared war on France on August 3, and when Germany attacked Belgium on August 4, England declared war on Germany.  Europe was at war, and millions would die in the battles that followed.

The impact on global stock markets was immediate: the closure of every major European exchange and many of the exchanges outside of Europe. Although no one would have predicted this result at the beginning of July 1914, by the end of the month, European stock exchanges were making preparations for the inevitable war and its impact.

Never before had all of Europe’s major exchanges closed simultaneously, but then again, never had such a global cataclysm struck the world.  There had been crises before when the stock market in the United States or other countries had closed, such as the 1848 Revolution in France, or the Panic of 1873 in New York, but never had all the world’s major stock markets closed simultaneously.

Open Financial Markets Led to Closed Exchanges

Ironically, it was because of the openness of global financial markets before the war that the global closure of stock markets occurred.  At the beginning of 1914, capital was free to flow from one country to another without hindrance.  All the major countries of the world were on the Gold Standard, and differences in exchange rates were arbitraged through the buying and selling of international bonds listed on the world’s stock exchanges.  A country such as Russia would issue a bond that was listed on the stock exchanges in London, New York, Paris, Berlin, Amsterdam and St. Petersburg.  Differences in exchange rates between countries could be arbitraged by buying and selling bonds in different markets. In effect, this made European stock exchanges a single, integrated market.

In 1914, currency flowed between countries with lightning speed.  During the Napoleonic wars, money could only move as quickly as a ship could venture from one country to another.  By 1914, cables stretched across the oceans of the world, and money as well as stock orders could be wired telegraphically from one corner of the world to another in minutes.

Traders throughout the world could sell bonds and shares instantly, and it was the fear of massive selling, and the impact this would have on global markets that led to the shutdown of European exchanges.  There was a concern that investors would try to repatriate their money leading to massive selling, a sharp fall in prices, and large amounts of capital flowing out of one country and into another.

The impact of selling on brokers and jobbers was exacerbated by the way shares were traded on the London Stock Exchange.  Individual trades were made on a daily basis, then carried until Settlement Day when trades were matched and crossed.  Brokers would make up the surplus or deficit on their accounts by settling outstanding trades with cash.  As long as there were no significant swings in stock or bond prices, brokers had sufficient capital to settle their accounts.  However, since traders relied on credit, large swings in prices could and would bankrupt many of the brokers, worsening the financial panic. To avoid this problem, stock markets were closed until a solution could be found.

The War Drives Stock Prices Down

Of course, to investors not being able to buy or sell shares is even worse than selling them at a loss.  Although stocks could not be traded on the main exchanges, over-the-counter markets replaced exchanges for those who were desperate enough to sell. 

Although the NYSE was closed between July 30 and December 12 of 1914, stocks were quoted by brokers and traded off the exchange.  Global Financial Data has gone back and collected stock prices during the closure of the NYSE to recreate the Dow Jones Industrial Average while the NYSE was closed.  We collected the data for the 20 stocks in the new DJIA 20 Industrials and calculated the average of the bid and ask prices from August 24, 1914 to December 12, 1914.  This enabled us to discover that the 1914 bottom for stocks actually occurred on November 2, 1914 when the DJIA hit 49.07, over a month before the NYSE reopened.  Few people realize that stocks in the US had already bottomed out and were heading into a new bull market when the NYSE reopened on December 12, 1914. The DJIA did not revisit this level until the Great Depression in 1932. 

The graph below shows how the Dow Jones Industrial Average behaved during 1914, including the period of the NYSE’s closure.  Although the market declined with the onset of war, investors eventually realized that war in Europe would bring opportunities to American companies to sell industrial goods and war materiel. Once this fact settled in, the stock market rose steadily for the next year.

The NYSE reopened trading for bonds under restrictions on November 28th; the San Francisco Stock and Bond Exchange reopened on December 1st; and the NYSE resumed trading at pegged prices on December 12th, though the prospect of war profits soon made these restrictions irrelevant.

As the graph below shows, the Dow Jones Industrial Average almost doubled in price in the year following its bottom in November 1914. The market paused, then had another rally into 1916 before falling back once investors realized the strong profits they had predicted from the war would not be realized.

The Closure of European Exchanges

In Europe, the problem of preventing catastrophic declines in stock prices was solved by putting a floor on share prices.  Initially, stocks and bonds were not allowed to trade below the price they had been trading at on July 31, 1914.  The government also placed restrictions on capital, limiting or preventing large flows of capital out of the country for the remainder of the war.

With these restrictions in place, markets reopened in Europe.  The London Times began printing stock prices for London and Bordeaux on September 19th and for Paris on December 8, 1914.  In January 1915, all shares were allowed to trade on the London Stock Exchange, though with price restrictions.  The St. Petersburg exchange reopened in 1917 only to close two months later due to the Russian Revolution. The Berlin Stock Exchange did not reopen until December 1917.

Unlike the United States, stocks on the London Stock Exchange declined in price during World War I.  This was due not only to the decline in earnings that occurred and general selling of shares to raise capital, but just as importantly, because of the lack of new buying and the shift of capital to government war debt. British companies were allowed to issue new shares only if the issue was in the national interest, and foreign governments and companies were not allowed to issue any new shares. The British government wanted to insure that all available capital was used to fund the growing war debt.

Most of the new bonds that listed on the London Stock Exchange were British government bonds and their share of the London Stock Exchange’s capitalization rose from 9% to 33% during the war. The performance of the London Stock Exchange between 1913 and 1919 is shown below. As can be seen, stocks lost value continually during the war, hitting their bottom only in 1918, despite the general inflation that occurred in Britain during the war, which normally would have carried prices upwards.


The Long-Term Impact of World War I

World War I destroyed the global integration of capital markets.  The Gold Standard never returned despite attempts after the war to revive it.  The system of issuing bonds and shares internationally failed to recover from the war, and stock exchanges listed fewer international shares. The ownership of stocks and bonds from other countries shrank dramatically. 

Exchanges were subjected to extensive regulation that did not exist prior to the war. Germans were not even allowed to trade on the London Stock Exchange for years after the war was over.  London lost its place as the center of global finance during the war as its role as the center of global finance was passed on to New York.  Nevertheless, New York was never able to take on the pivotal role in capital markets that London held prior to World War I.

After the war was over, financial markets had to deal with the dislocations created by the war: inflation, increased government debt, reparation payments, the Russian Revolution, the creation of new countries, England’s failed attempt to return to the Gold Standard, the stock market crash of 1929, the Great Depression, debt defaults, competitive devaluations, the concentration of gold in France and the United States and a hundred other financial repercussions that resulted from World War I.

Governments and stock exchanges did learn their lessons from World War I.  When World War II began, the London Stock Exchange closed for only a week, and the New York Stock Exchange never closed during World War II, save for August 15th-16th, 1945 when the NYSE closed to recognize V-J Day and the end of WWII.  The Berlin Stock Exchange remained open during World War II, though price floors and capital restrictions kept the prices of shares from falling until the devaluation of 1948.

Although global stock markets reopened between 1914 and 1917, it wasn’t until the 1980s that the restrictions on financial markets that prevented the free flow of capital that had existed before 1914 were removed. Only after the fall of Communism did stock markets become as globally integrated as they had been before 1914.

Though the focus of the hundredth anniversary of World War I will be on the massive destruction of World War I, the deaths of millions, and how World War I laid the foundations for World War II, the impact on stock markets and international finance should never be forgotten.




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