Mark Spitznagel Warns Today’s “Distorted” Market Is “Set Up For A Major Crash”

Despite Ron Insana's insta-dismissal of all things "Austrian", and Maria Bartiromo's scoffing at his comments, Mark Spitznagel (who most recently discussed the problems we face here, here and here) ventured on to the unreality channel this afternoon and much eyebrow-raising ensued. Spitznagel, author of The Dao of Capital , explained why he believes "the market is setup for a major crash," and expects a 40% decline in stocks. The current market "entirely artificial" environment driven by zero-interest-rates and central bank asset purchases, along with valuations and sentiment, has distorted the 'markets' in the same way as "in all other major tops in history." His investing advice is simple, "step aside!" But doesn't expect many to heed his proven advice, because, "it is the hardest thing to do right now, "and makes you look like a fool."

"this notion of a 'catalyst' for the decline is false"…

If you prefer your business media with a sense of reality – the following 210 seconds is must watch!

 

 

As Spitznagel noted previously,

 

Our fear of corrective crashes is misplaced. They are necessary purges to clear the financial system of unhealthy mal-investment and to allow the redistribution of resources to stronger industries. I would argue that had the government followed this path in 1929, there would have been a garden-variety recession — not a Depression.

 

Unfortunately, we have labored under faulty assumptions and failed logic, particularly since 2008-2009. This is the legacy that Bernanke leaves not only to his successor, but to all of us.

 

What we must learn from history is that the government should stop suppressing the natural, homeostatic functions of the market. Otherwise, the "cure" will prove deadlier than the disease.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/gCM6kqDPUuU/story01.htm Tyler Durden

Mark Spitznagel Warns Today's "Distorted" Market Is "Set Up For A Major Crash"

Despite Ron Insana's insta-dismissal of all things "Austrian", and Maria Bartiromo's scoffing at his comments, Mark Spitznagel (who most recently discussed the problems we face here, here and here) ventured on to the unreality channel this afternoon and much eyebrow-raising ensued. Spitznagel, author of The Dao of Capital , explained why he believes "the market is setup for a major crash," and expects a 40% decline in stocks. The current market "entirely artificial" environment driven by zero-interest-rates and central bank asset purchases, along with valuations and sentiment, has distorted the 'markets' in the same way as "in all other major tops in history." His investing advice is simple, "step aside!" But doesn't expect many to heed his proven advice, because, "it is the hardest thing to do right now, "and makes you look like a fool."

"this notion of a 'catalyst' for the decline is false"…

If you prefer your business media with a sense of reality – the following 210 seconds is must watch!

 

 

As Spitznagel noted previously,

 

Our fear of corrective crashes is misplaced. They are necessary purges to clear the financial system of unhealthy mal-investment and to allow the redistribution of resources to stronger industries. I would argue that had the government followed this path in 1929, there would have been a garden-variety recession — not a Depression.

 

Unfortunately, we have labored under faulty assumptions and failed logic, particularly since 2008-2009. This is the legacy that Bernanke leaves not only to his successor, but to all of us.

 

What we must learn from history is that the government should stop suppressing the natural, homeostatic functions of the market. Otherwise, the "cure" will prove deadlier than the disease.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/gCM6kqDPUuU/story01.htm Tyler Durden

Guest Post: The Sixth Stage Of Collapse

Submitted by Dmitry Orlov via Club Orlov blog,

I admit it: in my last book, The Five Stages of Collapse, I viewed collapse through rose-colored glasses. But I feel that I should be forgiven for this; it is human nature to try to be optimistic no matter what. Also, as an engineer, I am always looking for solutions to problems. And so I almost subconsciously crafted a scenario where industrial civilization fades away quickly enough to save what's left of the natural realm, allowing some remnant of humanity to make a fresh start.
 
Ideally, it would start of with a global financial collapse triggered by a catastrophic loss of confidence in the tools of globalized finance. That would swiftly morph into commercial collapse, caused by global supply chain disruption and cross-contagion. As business activity grinds to a halt and tax revenues dwindle to zero, political collapse wipes most large-scale political entities off the map, allowing small groups of people to revert to various forms of anarchic, autonomous self-governance. Those groups that have sufficient social cohesion, direct access to natural resources, and enough cultural wealth (in the form of face-to-face relationships and oral traditions) would survive while the rest swiftly perish.
 
Of course, there are problems even with this scenario. Take, for instance, the problem of Global Dimming. The phenomenon is well understood: sunlight reflected back into space by the atmospheric aerosols and particulates generated by burning fossil fuels reduces the average global temperature by well over a degree Celsius. (The cessation of all air traffic over the continental US in the wake of the terrorist attacks of 9/11 has allowed climate scientists to measure this effect.) If industrial activity were to suddenly cease, average global temperatures would be jolted upward toward the two degree Celsius mark which is widely considered to be very, very bad indeed. Secondly, even if all industrial activity were to cease tomorrow, global warming, 95% of which is attributed to human activity in the latest (rather conservative and cautious) IPCC report, would continue apace for the better part of the next millennium, eventually putting the Earth's climate in a mode unprecedented during all of human existence as a species.
 
On such a planet, where the equatorial ocean is hotter than a hot tub and alligators thrive in the high Arctic, our survival as a species is far from assured. Still, let's look at things optimistically. We are an adaptable lot. Yes, the seas will rise and inundate the coastal areas which over half of us currently inhabit. Yes, farmland further inland will become parched and blow away, or be washed away by the periodic torrential rains. Yes, the tropics, followed by the temperate latitudes, become so hot that everyone living there will succumb of heat stroke. But if this process takes a few centuries, then some of the surviving bands and tribes might find a way to migrate further north and learn to survive there by eking out some sort of existence in balance with what remains of the ecosystem.
 
We can catch glimpses of what such survival might look like by reading history. When Captain James Cook landed on the shore of Western Australia, he was the first white man to encounter aboriginal Australians, who had up to that point persisted in perfect isolation for something like 40.000 years. (They arrived in Australia at about the same time as the Cromagnons displaced the Neanderthals in Europe.) They spoke a myriad different languages and dialects, having no opportunity and no use for any sort of unity. They wore no clothes and used tiny makeshift huts for shelter. They had few tools beyond a digging stick for finding edible roots and a gig for catching fish. They had no hoards or stockpiles, and did not keep even the most basic supplies from one day to the next. They had little regard for material objects of any sort, were not interested in trade, and while they accepted clothes and other items they were given as presents, they threw them away as soon as Cook and his crew were out of sight.
 
They were, Cook noted in his journal, entirely inoffensive. But a few actions of Cook's men did enrage them. They were scandalized by the sight of birds being caught and placed in cages, and demanded their immediate release. Imprisoning anyone, animal or person, was to them taboo. They were even more incensed when they saw Cook's men catch not just one, but several turtles. Turtles are slow-breeding, and it is easy to wipe out their local population by indiscriminate poaching, which is why they only allowed the turtles to be taken one at a time, and only by a specially designated person who bore responsibility for the turtles' welfare.
 
Cook thought them primitive, but he was ignorant of their situation. Knowing what we know, they seem quite advanced. Living on a huge but arid and mostly barren island with few native agriculturally useful plants and no domesticable animals, they understood that their survival was strictly by the grace of the surrounding natural realm. To them, the birds and the turtles were more important than they were, because these animals could survive without them, but they could not survive without these animals.
 
Speaking of being primitive, here is an example of cultural primitivism writ large. At the Age of Limits conference earlier this year, at one point the discussion turned to the question of why the natural realm is worth preserving even at the cost of human life. (For instance, is it OK to go around shooting poachers in national parks even if it means that their families starve to death?) One fellow, who rather self-importantly reclined in a chaise lounge directly in front of the podium, stated his opinion roughly as follows: “It is worth sacrificing every single animal out there in order to save even a single human life!” It took my breath away. This thought is so primitive that my brain spontaneously shut down every time I tried to formulate a response to it. After struggling with it for a bit, here is what I came up with.
 
Is it worth destroying the whole car for the sake of saving the steering wheel? What use is a steering wheel without a car? Well, I suppose, if you are particularly daft or juvenile, you can use it to pretend that you still have a car, running around with it and making “vroom-vroom!” noises… Let's look at this question from an economic perspective, which is skewed by the fact that economists tend view the natural realm in terms of its economic value. This is similar to you looking at your own body in terms of its nutritional content, and whether it would make good eating. Even when viewed from this rather bizarre perspective that treats our one and only living planet as a storehouse of commodities to be plundered, it turns out that most of our economic “wealth” is made possible by &ld
quo;ecosystem services” which are provided free of charge.
 
These include water clean enough to drink, air clean enough to breathe, a temperature-controlled environment that is neither too cold nor too hot for human survival across much of the planet, forests that purify and humidify the air and moderate surface temperatures, ocean currents that moderate climate extremes making it possible to practice agriculture, oceans (formerly) full of fish, predators that keep pest populations from exploding and so on. If we were forced to provide these same services on a commercial basis, we'd be instantly bankrupt, and then, in short order, extinct. The big problem with us living on other planets is not that it's physically impossible—though it may be—it's that there is no way we could afford it. If we take natural wealth into account when looking at economic activity, it turns out that we consistently destroy much more wealth than we create: the economy is mostly a negative-sum game. Next, it turns out that we don't really understand how these “ecosystem services” are maintained, beyond realizing that it's all very complicated and highly interconnected in surprising and unexpected ways. Thus, the good fellow at the conference who was willing to sacrifice all other species for the sake of his own could never be quite sure that the species he is willing to sacrifice doesn't include his own.
 
In addition, it bears remembering that we are, in fact, sacrificing our species, and have been for centuries, for the sake of something we call “progress.” Aforementioned Captain Cook sailed around the Pacific “discovering” islands that the Polynesians had discovered many centuries earlier, his randy, drunken, greedy sailors spreading venereal disease, alcoholism and corruption, and leaving ruin in their wake wherever they went. After the plague of sailors came the plague of missionaries, who made topless Tahitian women wear “Mother Hubbards” and tried to outlaw fornication. The Tahitians, being a sexually advanced culture, had a few dozen different terms for fornication, relating to a variety of sex acts. Thus the missionaries had a problem: banning any one sex act wouldn't have made much of a dent, while a ban that enumerated them all would read like the Kama Sutra. Instead the missionaries chose to promote their own brand of sex: the “missionary position,” which is best analyzed as two positions—top and bottom. The bottom position can enhance the experience by taking a cold shower, applying blue lipstick and not breathing. I doubt that it caught on much on Tahiti.
 
The Tahitians seem to have persevered, but many other tribes and cultures simply perished, or continue to exist in greatly diminished numbers, so depressed by their circumstances that they are not interested in doing much beyond drinking beer, smoking cigarettes and watching television. And which group is doing the best? That's the one that's been causing the most damage. Thus, the rhetoric about “saving our species from extinction” seems rather misplaced: we have been doing everything we can to drive it to extinction as efficiently as possible for a few centuries now, and we aren't about to stop because that would be uncivilized.
 
Because, you see, that's who we are: we are educated, literate, civilized persons. The readers of this blog especially are economically and environmentally enlightened types, their progressivism resting on the three pillars of pointing out financial Ponzi schemes, averting environmental devastation and eating delicious, organic, locally grown food. We do wish to survive collapse, provided the survival strategy includes such items as gender equality, multiculturalism, LGBT-friendiness and nonviolence. We do not wish to take off all of our clothes and wander the outback with a digging stick looking for edible tubers. We'd rather sit around discussing green technology over a glass of craft-brewed beer (local, of course) perhaps digressing once in a while to consider the obscure yet erudite opinions of one Pederasmus of Ülm on the endless, glorious ebb and flow of human history.
 
We don't want to change who we are in order to live in harmony with nature; we want nature to live in harmony with us while we remain who we are. In the meantime, we are continuing to wage war on the sorry remnants of the tribes that had once lived in balance with nature, offering them “education,” “economic development” and a chance to play a minor role in our ruinous, negative-sum economic games. Given such options, their oft-observed propensity to do nothing and stay drunk seems like a perfectly rational choice. It minimizes the damage. But the damage may already have been done. I will present just two examples of it, but if you don't like them, there are plenty of others.
 
For the first, you can do your own research. Buy yourself an airline ticket to a tropical paradise of your choice and check into an oceanside resort. Wake up early in the morning and go look at the beach. You will see lots of dark-skinned people with wheelbarrows, buckets, shovels and rakes scraping up the debris that the surf deposited during the night, to make the beach look clean, safe and presentable for the tourists. Now walk along the beach and beyond the cluster of resorts and hotels, where it isn't being continuously raked clean. You will find that it is so smothered with debris as to make it nearly impassable. There will be some material of natural origin—driftwood and seaweed—but the majority of the debris will be composed of plastic. If you try to sort through it, you will find that a lot of it is composed of polypropylene and nylon mesh and rope and styrofoam floats from the fishing industry. Another large category will consist of single-use containers: suntan lotion and shampoo bottles, detergent bottles, water bottles, fast food containers and so on. Typhoons and hurricanes have an interesting organizing effect on plastic debris, and you will find piles of motor oil jugs next to piles of plastic utensils next to piles of water bottles, as if someone actually bothered to sort them. On a beach near Tulum in México I once found an entire collection of plastic baby sandals, all of different colors, styles and vintages.
 
Left on the beach, the plastic trash photo-degrades over time, becoming discolored and brittle, and breaking down into smaller and smaller pieces. The final result of this process is a microscopic plastic scum, which can persist in the environment for centuries. It plays havoc with the ecosystem, because a wide variety of animals mistake the plastic particles for food and swallow them. They then clog their digestive tracts, causing them to starve. This devastation will persist for many centuries, but it has started already: the ocean is dying. Over large areas of it, plastic particles outnumber plankton, which forms the basis of the oceanic food chain.
 
The ravages of the plastics plague also affect land. Scraped tog
ether by sanitation crews, plastic debris is usually burned, because recycling it would be far too expensive. Plastic can be incinerated relatively safely and cleanly, but this requires extremely high temperatures, and can only be done at specialized facilities. Power plants can burn plastic as fuel, but plastic trash is a diffuse energy source, takes up a lot of space and the energy and labor costs of transporting it to power plants may render it energy-negative. And so a lot of plastic trash is burned in open pits, at low temperatures, releasing into the atmosphere a wide assortment of toxic chemicals, including ones that affect the hormonal systems of animals. Effects include genital abnormalities, sterility and obesity. Obesity has now reached epidemic proportions in many parts of the world, affecting not just the humans but other species as well. Here, then, is our future: chemical plants continue to churn out synthetic materials, most of these find their way into the environment and slowly break down, releasing their payload of toxins. As this happens, people and animals alike turn into obese, sexless blobs. First they find that they are unable to give birth to fertile male offspring. This is already happening: human sperm counts are dropping throughout the developed world. Next, they will be unable to give birth to normal male babies—ones without genital abnormalities. Next, they will be unable to produce male offspring at all, as has already happened to a number of marine species. Then they go extinct.
 
Note that no disaster or accident is required in order for this scenario to unfold, just more business as usual. Every time you buy a bottle of shampoo or a bottle of water, or a sandwich that comes wrapped in plastic or sealed in a vinyl box, you help it unfold a little bit further. All it takes is for the petrochemical industry (which provides the feedstocks—oil and natural gas, mostly) and the chemical plants that process them into plastics, to continue functioning normally. We don't know whether the amount of plastics, and associated toxins, now present in the environment, is already sufficient to bring about our eventual extinction.
 
But we certainly don't want to give up on synthetic chemistry and go back to a pre-1950s materials science, because that, you see, would be bad for business. Now, you probably don't want to go extinct, but if you decided that you will anyway, you would probably want to remain comfortable and civilized down to the very end. And life without modern synthetics would be uncomfortable. We want those plastic-lined diapers, for the young and the old!
 
This leaves those of us who are survival-minded, on an abstract, impersonal level, wishing for the global financial, commercial and political collapse to occur sooner rather than later. Our best case scenario would go something like this: a massive loss of confidence and panic in the financial markets grips the planet over the course of a single day, pancaking all the debt pyramids and halting credit creation. Commerce stops abruptly because cargos cannot be financed. In a matter of weeks, global supply chains break down. In a matter of months, commercial activity grinds to a halt and tax revenues dwindle to zero, rendering governments everywhere irrelevant. In a matter of years, the remaining few survivors become as Captain Cook saw the aboriginal Australians: almost entirely inoffensive.
 
One of the first victims of collapse would be the energy companies, which are among some of the most capital-intensive enterprises. Next in line are the chemical companies that manufacture plastics and other synthetic organic chemicals and materials: as their petrochemical feedstocks become unavailable, they are forced to halt production. If we are lucky, the amount of plastic that is in the environment already turns out to be insufficient to drive us all to extinction. Human population can dwindle to as few as a dozen breeding females (the number that survived one of the ice ages, as suggested by the analysis of mitochondrial DNA) but in a dozen or so millennia the climate will probably stabilize, the Earth's ecology recover, and with it will the human population. We may never again achieve a complex technological civilization, but at least we'll be able to sing and dance, have children and, if we are lucky, even grow old in peace.
 
So far so good, but our next example makes the desirability of a swift and thorough collapse questionable. Prime exhibit is the melted-down nuclear power plant in Fukushima, Japan. Contrary to what the Japanese government would want everyone to believe, the situation there is not under any kind of control. Nobody knows what happened to the nuclear fuel from the reactors that melted down. Did they go to China, à la China Syndrome? Then there is the spent nuclear fuel pool, which is full, and leaking. If the water in that pool boils away, the fuel rods burst into flames and melt down and/or explode and then, according to some nuclear experts, it would be time to evacuate the entire northern hemisphere. The site at Fukushima is so radioactive that workers cannot go anywhere near it for any length of time, making it rather fanciful to think that they'll be able to get the situation there under control, now or ever. But we can be sure that eventually the already badly damaged building housing the spent nuclear fuel will topple, spilling its load and initiating phase two of the disaster. After that there will be no point in anyone going to Fukushima, except to die of radiation sickness.
 
You might think that Fukushima is an especially bad case, but plants just like Fukushima dot the landscape throughout much of the developed world. Typically, they are built near a source of water, which they use as coolant and to run the steam turbines. Many of the ones built on rivers run the risk of the rivers drying up. Many of the ones built on the ocean are at risk of inundation from rising ocean levels, storm surges and tsunamis. Typically, they have spent fuel pools that are full of hot nuclear waste, because nobody has figured out a way to dispose of it. All of them have to be supplied with energy for many decades, or they all melt just like Fukushima. If enough of them melt and blow up, then it's curtains for animals such as ourselves, because most of us will die of cancer before reaching sexual maturity, and the ones that do will be unable to produce healthy offspring.
 
I once flew through the airport in Minsk, where I crossed paths with a large group of “Chernobyl children” who were on their way to Germany for medical treatment. I took a good look at them, and that picture has stayed with me forever. What shocked me was the sheer variety of developmental abnormalities that were on display.
 
It seems like letting global industrial civilization collapse and all the nuclear power plants cook off is not such a good option, because it will seal our fate. But the alternative is to “extend and pretend” and “kick the can down the road” while resorting to a variety of environmentally destructive, increasingly desperate means to keep industry running: hydraulic fracturing,
mining tar sands, drilling in the Arctic and so on. And this isn't such a good option either because it will seal our fate in other ways.
 
And so it seems that there may not be a happy end to my story of The Five Stages of Collapse, the first three of which (financial, commercial, political) are inevitable, while the last two (social, cultural) are entirely optional but have, alas, already run their course in many parts of the world. Because, you see, there is also the sixth stage which I have previously neglected to mention—environmental collapse—at the end of which we are left without a home, having rendered Earth (our home planet) uninhabitable.
 
This tragic outcome may not be unavoidable. And if it is not unavoidable, then that's about the only problem left that's worth solving. The solution can be almost arbitrarily expensive in both life and treasure. I would humbly suggest that it's worth all the money in the world, plus a few billion lives, because if a solution isn't found, then that treasure and those lives are forfeit anyway.
 
A solution for avoiding the sixth stage must be found, but I don't know what that solution would look like. I do find it unsafe to blithely assume that collapse will simply take care of the problem for us. Some people may find this subject matter so depressing that it makes them want to lie down (in a comfortable position, on something warm and soft) and die. But there may be others, who still have some fight left in them, and who do wish to leave a survivable planet to their children and grandchildren. Let's not expect them to use conventional, orthodox methods, to work and play well with others, or to be polite and reasonable in dealing with the rest of us. Let's just hope that they have a plan, and that they get on with it.


    

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/WstjhS1Q0RU/story01.htm Tyler Durden

Bloomberg “Poker Night On Wall Street” – Live Webcast

While commission-takers the world over attempt to dispel the fact that throwing your hard-earned money into the US equity market is absolutely not gambling, Bloomberg has decided that the time is right to relaunch “Poker Night On Wall Street.” Hosted by Trish Regan, David Einhorn, Jim Chanos, and Mario Gabelli are among the top-ranked investors and hedge fund managers facing-off in a winner-takes all charity poker tournament at the Borgata in Atlantic City. By way of guidance, we include what investors and gamblers have in common

 

Trish Regan introduces the tournament…

 

And what do investors and gamblers have in common…

 

An example with David Einhorn dominating from the big blind…

The Live Tournament…

 

 

Source: Bloomberg


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/nJspnsN1XBg/story01.htm Tyler Durden

Bloomberg "Poker Night On Wall Street" – Live Webcast

While commission-takers the world over attempt to dispel the fact that throwing your hard-earned money into the US equity market is absolutely not gambling, Bloomberg has decided that the time is right to relaunch “Poker Night On Wall Street.” Hosted by Trish Regan, David Einhorn, Jim Chanos, and Mario Gabelli are among the top-ranked investors and hedge fund managers facing-off in a winner-takes all charity poker tournament at the Borgata in Atlantic City. By way of guidance, we include what investors and gamblers have in common

 

Trish Regan introduces the tournament…

 

And what do investors and gamblers have in common…

 

An example with David Einhorn dominating from the big blind…

The Live Tournament…

 

 

Source: Bloomberg


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/nJspnsN1XBg/story01.htm Tyler Durden

Mapping The Real-Time Global Cyberwar

On Monday, Google rolled out three new initiatives to ensure the openness of the Internet and access to the service — even in the face of government crackdowns on the web. As Foreign Policy notes, one of those tools is a proxy plug-in — creatively titled uProxy — that uses a peer-to-peer system to create secure Internet connections. Another tool, Project Shield, promises to protect human rights organizations and NGOs from so-called DDoS attacks, which take down a website by directing a flood of traffic toward it and overwhelming it or rendering it unusable. The last project rolled out this week is something called the Digital Attack Map, which is embedded below. It’s a fascinating, interactive map that monitors DDoS attacks around the world — an effort Google hopes will raise awareness about the problem.

 

 

The map, which draws on data collected by the network security firm Arbor Networks, provides a nifty visualization of an issue that’s been in the headlines constantly over the last year or so.

The result is the first real visualization of what cyberwar looks like in real time. So what can we learn from the effort? Here are some incidents that jump out in playing around with the map.

 

Source: Google and Foreign Policy


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Kq54Z2MISF0/story01.htm Tyler Durden

Let’s Downgrade S&P, Moody’s and Fitch For Once

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Apparently if we say ‘I have a dream’ it ends up coming true. That’s exactly what we all need to be chanting in unison these days; but this time it’s not about civil-rights recognition but something that is perhaps just as equally important. The rest of the world has had enough of the monopoly of the credit-rating agencies that are largely biased towards the US economy and it’s about time that it all came to an end. Credit-rating agencies believe that they are the be-all and end-all of countries and with one finger can delete a simple letter, dropping the countries’ worth in the eyes of the rest of the economies.

Rating Agencies

Standard & Poor’sMoody’s Investors Service and Fitch Ratings might be forced today after the financial crisis  to submit their methodologies for assigning ratings, but they all fail to adequately follow their own guidelines. They are criticized for poor documentation and inaccuracies in their analyses.


Rating Agencies

Analysts vote in secret meetings still to decide if a country or a company gets upgraded or downgraded in the international stakes and the Securities and Exchange Commission in the US has already stated that sometimes those ratings are based upon no rationale that is obvious, with no link between the original rating and the new published rating.

One can only believe that the three rating agencies have taken the law into their own hands and have been given or have taken the right as a God-given entitlement to declare an entity as worthy of a good credit-rating or condemned to suffer under the new downgrade.

After the financial crisis and the role played by those rating agencies, it was questioned as to what degree they used rational objective criteria to rate entities and they came under scrutiny. But, what has happened since then? Nothing except that the SEC has simply recognized that there is no rationale behind the secretive private club in which companies and countries are black-balled out of the economies of the world with a new downgrade as the agencies deem that fit. The SEC has done nothing but recognize the problem. Why are the problems still there and why are they so widespread?

The rating agencies are either overly critical of the governments in the world in the belief (that has proven to be completely true) that those very same governments will be dissuaded from regulating them; or they are influenced by their conflict of interest in so far as entities pay for their own ratings. We all know that in the run up to the financial crisis many mortgage-backed securities received triple-A investment grades despite the fact that it was common knowledge that they were highly risky. The entities go shopping for ratings and on the ‘issuer-pays’ set-up there is a faulty systemic process that is revealed. The rating agencies end up selling off the ratings to the highest bidder and there is nothing that has changed since those pre-financial-crisis days when the economies went down the drains and dragged the world along at the same time.

Creditor-Fuelled Rating

But, today there is a growing demand that the rating agencies switch from the ‘issuer-pays’ system to one that is fuelled by the creditors. It would be the creditors’ stance and not the viewpoint of the debtors that would be taken into account. Or, at least, that’s the way it should be according to Guan JianzhongChairman of Dagong Global Credit Rating (the Chinese credit rating agency that ended up downgrading the US from A to A-). He stated: “The gap between debt levels and fiscal revenue gets bigger and bigger. The world sees this. But credit agencies of the debtor country choose to ignore it or don’t make assessments based on these facts”. It might just be possible to hear that criticism and give Dagong more credit if they weren’t pitching for the home team every time by giving triple-A ratings for Chinese entities.

Alternatives?

There’s more to it than just getting the US credit-rating agencies out into an open field where play would be more transparent. It’s all about gaining the competitive edge for the Chinese just as much as for the others that want to knock the three US rating agencies off the podium.

Neither one nor the other solution would be able to provide a viable alternative to credit rating.

There are alternatives that exist, however. Either the investor can do his own homework instead of reading something from a third party that is not independent; or there could be third parties that are entirely independent (if that can actually exist). Otherwise, market-based analyses are much more accurate (than rating agencies) at predicting collapse or improvement of an entity and readily available through fairly simple calculations.

How many times have we heard that we mustn’t repeat the mistakes of the past? How many times have we heard that the financial crisis cost $3.4 trillion in retirement savings and unknown trillions in world economic activity since then? The rating agencies were considered to be “essential cogs in the wheel of financial destruction and key enablers of the financial meltdown” according to the Financial Crisis Inquiry Committee. But, that wasn’t enough. Recognition is never enough. There needs to be action, otherwise it’s just verbose language that has no reason and certainly nothing of any interest except in some local bar as if two guys were putting the world to rights.

Let’s do away with the rating agencies and we certainly don’t need them to be taken up by some other entity, wherever that may be, that will be just as bad. Revolutions get rid of the old order so that new orders can be rushed in with new leaders that just take the place of the old. That’s not revolution at all in the end.

Should we get rid of the rating agencies? Rate them yourself!

Originally posted: Let’s Downgrade S&P, Moody’s and Fitch For Once

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/eSFHL69PauU/story01.htm Pivotfarm

Let’s Downgrade S&P, Moody’s and Fitch For Once

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Apparently if we say ‘I have a dream’ it ends up coming true. That’s exactly what we all need to be chanting in unison these days; but this time it’s not about civil-rights recognition but something that is perhaps just as equally important. The rest of the world has had enough of the monopoly of the credit-rating agencies that are largely biased towards the US economy and it’s about time that it all came to an end. Credit-rating agencies believe that they are the be-all and end-all of countries and with one finger can delete a simple letter, dropping the countries’ worth in the eyes of the rest of the economies.

Rating Agencies

Standard & Poor’sMoody’s Investors Service and Fitch Ratings might be forced today after the financial crisis  to submit their methodologies for assigning ratings, but they all fail to adequately follow their own guidelines. They are criticized for poor documentation and inaccuracies in their analyses.


Rating Agencies

Analysts vote in secret meetings still to decide if a country or a company gets upgraded or downgraded in the international stakes and the Securities and Exchange Commission in the US has already stated that sometimes those ratings are based upon no rationale that is obvious, with no link between the original rating and the new published rating.

One can only believe that the three rating agencies have taken the law into their own hands and have been given or have taken the right as a God-given entitlement to declare an entity as worthy of a good credit-rating or condemned to suffer under the new downgrade.

After the financial crisis and the role played by those rating agencies, it was questioned as to what degree they used rational objective criteria to rate entities and they came under scrutiny. But, what has happened since then? Nothing except that the SEC has simply recognized that there is no rationale behind the secretive private club in which companies and countries are black-balled out of the economies of the world with a new downgrade as the agencies deem that fit. The SEC has done nothing but recognize the problem. Why are the problems still there and why are they so widespread?

The rating agencies are either overly critical of the governments in the world in the belief (that has proven to be completely true) that those very same governments will be dissuaded from regulating them; or they are influenced by their conflict of interest in so far as entities pay for their own ratings. We all know that in the run up to the financial crisis many mortgage-backed securities received triple-A investment grades despite the fact that it was common knowledge that they were highly risky. The entities go shopping for ratings and on the ‘issuer-pays’ set-up there is a faulty systemic process that is revealed. The rating agencies end up selling off the ratings to the highest bidder and there is nothing that has changed since those pre-financial-crisis days when the economies went down the drains and dragged the world along at the same time.

Creditor-Fuelled Rating

But, today there is a growing demand that the rating agencies switch from the ‘issuer-pays’ system to one that is fuelled by the creditors. It would be the creditors’ stance and not the viewpoint of the debtors that would be taken into account. Or, at least, that’s the way it should be according to Guan JianzhongChairman of Dagong Global Credit Rating (the Chinese credit rating agency that ended up downgrading the US from A to A-). He stated: “The gap between debt levels and fiscal revenue gets bigger and bigger. The world sees this. But credit agencies of the debtor country choose to ignore it or don’t make assessments based on these facts”. It might just be possible to hear that criticism and give Dagong more credit if they weren’t pitching for the home team every time by giving triple-A ratings for Chinese entities.

Alternatives?

There’s more to it than just getting the US credit-rating agencies out into an open field where play would be more transparent. It’s all about gaining the competitive edge for the Chinese just as much as for the others that want to knock the three US rating agencies off the podium.

Neither one nor the other solution would be able to provide a viable alternative to credit rating.

There are alternatives that exist, however. Either the investor can do his own homework instead of reading something from a third party that is not independent; or there could be third parties that are entirely independent (if that can actually exist). Otherwise, market-based analyses are much more accurate (than rating agencies) at predicting collapse or improvement of an entity and readily available through fairly simple calculations.

How many times have we heard that we mustn’t repeat the mistakes of the past? How many times have we heard that the financial crisis cost $3.4 trillion in retirement savings and unknown trillions in world economic activity since then? The rating agencies were considered to be “essential cogs in the wheel of financial destruction and key enablers of the financial meltdown” according to the Financial Crisis Inquiry Committee. But, that wasn’t enough. Recognition is never enough. There needs to be action, otherwise it’s just verbose language that has no reason and certainly nothing of any interest except in some local bar as if two guys were putting the world to rights.

Let’s do away with the rating agencies and we certainly don’t need them to be taken up by some other entity, wherever that may be, that will be just as bad. Revolutions get rid of the old order so that new orders can be rushed in with new leaders that just take the place of the old. That’s not revolution at all in the end.

Should we get rid of the rating agencies? Rate them yourself!

Originally posted: Let’s Downgrade S&P, Moody’s and Fitch For Once

You might also enjoy: US Still Living on Borrowed Time | (In)Direct Slavery: We’re All Guilty | The Nobel Prize: Do We Have to Agree? | Revolution Costs | Petrol Increase because Traders Can’t Read | Darfur: The Land of Gold(s) | Obamacare: I’ve Started So I’ll Finish | USA: Uncle Sam is Dead | Where Washington Should Go for Money: Havens | Sugar Rush is on | Human Capital: Switzerland or Yemen? | Crisis is Literal Kiss of Death | Qatar’s Slave Trade Death Toll | Lew’s Illusions | Wal-Mart: Unpatriotic or Lying Through Their Teeth? Food: Walking the Breadline | Obama NOT Worst President in reply to Obama: Worst President in US History? | Obama’s Corporate Grand Bargain Death of the Dollar | Joseph Stiglitz was Right: Suicide | China Injects Cash in Bid to Improve Liquidity

Technical Analysis: Bear Expanding Triangle | Bull Expanding Triangle | Bull Falling Wedge Bear Rising Wedge High & Tight Flag

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/eSFHL69PauU/story01.htm Pivotfarm

Why We Should All Worry About CAT’s Earnings

It’s different this time, right… even the CAT CEO found a silver lining of hope for the future (admittedly 5,10, 200 years in the future), but, the sad reality is we have seen exactly this kind of disconnect between CAT’s idiocyncratic revenues and world GDP beforeand it didn’t end well…

 

 

h/t @Not_Jim_Cramer


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/1Nqstf_LnWw/story01.htm Tyler Durden

Why We Should All Worry About CAT's Earnings

It’s different this time, right… even the CAT CEO found a silver lining of hope for the future (admittedly 5,10, 200 years in the future), but, the sad reality is we have seen exactly this kind of disconnect between CAT’s idiocyncratic revenues and world GDP beforeand it didn’t end well…

 

 

h/t @Not_Jim_Cramer


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/1Nqstf_LnWw/story01.htm Tyler Durden