While Angela Merkel is busy sowing the seeds of the next cold war between Germany and the Trump administration (and therefore the US, if only for the next three and a half years), a troubling flashpoint for Germany continues to grow in Turkey where on Tursday, Turkey’s foreign minister said it is not possible to allow German lawmakers to visit troops stationed at Turkey’s Incirlik air base now, although he said Ankara may reconsider if it sees “positive steps” from Berlin. It was not immediately clear just what Turkey’s “demands” or expectations, monetary or otherwise, were from Merkel for it to change its view.

“We see that Germany supports everything that is against Turkey,” Mevlut Cavusoglu told a news conference in Ankara. “Under these circumstances it is not possible for us to open Incirlik to German lawmakers right now … If they take positive steps in the future we can reconsider.”

Turkey has prevented German lawmakers from visiting the roughly 250 troops stationed at Incirlik as part of the U.S.-led coalition against Islamic State, saying that Berlin needs to improve its attitude first.

According to Reuters, Cavusoglu also said the issue would be discussed with German Foreign Minister Sigmar Gabriel, who is due to visit Turkey on Monday. Ties between the NATO allies deteriorated sharply in the run-up to Turkey’s April 16 referendum that handed President Tayyip Erdogan stronger presidential powers.

The recent deterioration in relations between Germany and Turkey developed when Germany, citing security concerns, banned some Turkish politicians from addressing rallies of expatriate Turks ahead of the referendum, infuriating Erdogan. Ankara responded by accusing Berlin of “Nazi-like” tactics. Germany has also expressed concern about the widespread security crackdown that followed last year’s failed coup in Turkey. More than 100,000 people have been sacked or suspended from their jobs and more than 40,000 people jailed.

German officials said this month that 414 Turkish citizens with diplomatic passports and other government work permits had requested asylum since the attempted putsch. Berlin’s interior ministry has confirmed that asylum requests had been approved for a number of the applicants, a move that angered Ankara.

via http://ift.tt/2rkfrIK Tyler Durden

Authored by John Rubino via DollarCollapse.com,

Housing is hot again, but lately it’s been overshadowed by flashier bubbles in government debt, tech stocks and possibly cryptocurrencies.

Still, the warning signs are spreading. Today’s Wall Street Journal, for instance, reports that homeowners are back to using their houses as ATMs:

Homeowners Are Again Pocketing Cash as They Refinance Properties

Americans refinancing their mortgages are taking cash out in the process at levels not seen since the financial crisis.

 

Nearly half of borrowers who refinanced their homes in the first quarter chose the cash-out option, according to data released this week by Freddie Mac. That is the highest level since the fourth quarter of 2008.

 

The cash-out level is still well below the almost 90% peak hit in the run-up to the housing meltdown. But it is up sharply from the post-crisis nadir of 12% in the second quarter of 2012.

 

In a cash-out refi, a borrower refinances an existing mortgage with a new one, typically at a lower borrowing cost, that has a higher principal balance than the existing one. This allows the homeowner to pay off the old mortgage and still have cash left over for other uses.

 

The growing popularity of cash-out refis has helped buoy refinance activity. After booming for several years, demand for refinance mortgages had begun to slow as the Federal Reserve began increasing short-term interest rates and longer-term bond yields moved higher.

 

 

Mortgage rates remain low by historical standards, though. The average rate for a fixed, 30-year mortgage was 3.95%, Freddie Mac reported this week.

 

Meanwhile, rising home prices have helped increase the equity homeowners have in their houses. This allows more people to refinance to capture the benefit of lower mortgage rates.

 

And borrowers whose homes are rising in value are often more likely to be interested in refinancing for cash. For example, in Denver and Dallas, where home prices have jumped, more than half of refinancers opted for cash last year, according to Freddie Mac.

 

To some housing-market observers, the fact that more homeowners are tapping their homes for cash represents a healthy confidence in the economy. It comes against a backdrop of continued gains in employment.

 

At the same time, the increasing use of cash-out refis causes some concern since, in the run-up to the financial crisis, borrowers used their homes like veritable ATMs.

 

Len Kiefer, Freddie Mac’s deputy chief economist, says this time has been different. Borrowers now are subject to stricter standards when they get a loan or refinance a mortgage. There is also less money at stake now than a decade ago.

 

Cash-out refis in the first quarter represented about $14 billion in net home equity compared with more than $80 billion in each of three straight quarters in 2006. On an annual basis, total home equity cashed out in 2016 was $61 billion, according to Freddie Mac, versus $321 billion in 2006.

 

“People have been using cash-out for years,” Mr. Kiefer said. “From a personal-finance standpoint, it can make a lot of sense.”

 

One example is a borrower using the cash from a refinance to consolidate credit-card debt that has far higher yields. That in many cases can produce a big savings in debt-servicing costs by replacing debt that has double-digit interest rates with a loan that has a rate in the low single digits.

Here we go again. In every cycle, destructive behavior like using home equity to pay off credit cards or take vacations or whatever starts to surge. And every time the banking/real estate complex trots out paid spokesmen masquerading as economists to explain that this behavior is perfectly safe because everything else is going so well.

This deception eventually blows up in their faces, the pseudo-economists are disgraced (See Realtors’ Former Top Economist Says Don’t Blame the Messenger) and the people suckered in by the experts’ assurances are stuck with bills they can’t pay.

If cash-out refis continue to soar in the second quarter, then housing is officially a bubble again — with one big difference: This time around it’s just one of many, which means the eventual reckoning will be a lot more complex and interesting.

via http://ift.tt/2rkacJd Tyler Durden

The Mexican peso tumbled more than 1% this morning, more than every other major emerging-market currency except the South African rand.

Bloomberg reports that traders were anticipating a victory for the opposition Morena party in this weekend’s gubernatorial elections in the state of Mexico, according to Win Thin, Brown Brothers Harriman & Co.’s head of emerging markets in New York.

And the peso is back at one-week lows

Peso also hurt by negative sentiment towards emerging markets, as South
African President Jacob Zuma quashed a revolt in his own party, denting
optimism a more market-friendly leader will take over…

While hot money floods into EM bonds and stocks, Thin notes

“Markets got a wake-up call with regards to
EM political risk with South Africa, and may be re-pricing chances of a
negative outcome from this coming weekend’s state of Mexico elections”

via http://ift.tt/2qwjDpG Tyler Durden

Much of this morning’s interview between CNBC’s Steve Liesman and Dallas Fed’s Robert Kaplan was pre-scripted and uneventful, representing the latest canned discussion of the Fed’s rate hike and normalization plans. Specifically, the former Goldman partner and current Dallas Fed preident once again laid out a noted course for a fairly aggressive path of rate hikes coupled with reductions in the central bank’s balance sheet for the remainder of the year.

Still, there were two notable highlights.

First, Kaplan doesn’t think that’s because the economy is about to take off. Instead, the regional Fed president sees growth likely continuing on the path of about 2% and not the 3% or higher GDP boom forecast in President Donald Trump’s budget.

“Two things drive GDP: growth in the labor force and growth in productivity,” he said. “The problem is labor force growth is very sluggish. And my own judgment and our economists at the Dallas Fed think it’s going to continue to be sluggish the next 10 years because the population is aging and labor force growth therefore is slowing.” Despite his structural pessimism, Kaplan said he foresees two more interest rate increases in 2017 and a start to the the unwind of the Fed’s $4.5 trillion bond portfolio, a process which as BofA explained earlier could lead to some dramatic fireworks in bonds and stocks.

“I think that removal of accommodation should be done gradually and patiently.” Kaplan said the balance sheet should be “substantially less” than it is today but conceded that it likely will remain above $2 trillion. “I don’t want to put a specific number on it. If somebody says in the 2s, that sounds about right to me,” he said.

Second, and closer to the Fed’s real mandate of keeps stocks propped up, Kaplan said that while the record levels of the S&P500 aren’t yet flashing “worrisome signals” of an imbalance that risks derailing the U.S. economy, he did make an odd comment, saying that “some correction” in the stock market may be healthy for sustaining the economic expansion for longer.

“What I’m looking for is increased imbalances in the economy, increased leverage and other imbalances because rates are so low.  If there were some correction in the stock market that could even be healthy, but also looking at the stock market, other people comment on whether the P/E is too high or too low, what I am looking at is fundamentals particularly earnings growth which has basically been positive. So I don’t see a bubble out there. I don’t see excesses or imbalances. I am concerned that imbalances may build, but if you ask me today right now it’s manageable, but I do think if there were some correction also in the markets, that could actually be a healthy thing.”

Needless to say, this is an odd statement for the Fed – which explicitly controls all asset prices through interest rates and its balance sheet – to make, and if taken at face value suggests that Goldman’s recent rhetorical question, namely “whether Yellen has lost control of the market”, may be more accurate than it seems. 

via http://ift.tt/2rk5v1E Tyler Durden

Since 2007, Emerging markets (EEM) have under performed the broad market by nearly 80%. Below compares the performance of the S&P 500 to Emerging markets ETF EEM, since the highs back in 2007.

CLICK ON CHART TO ENLARGE

Could this lagging performance be coming to an end? For this lagging performance to end, it first has to accomplish an important breakout, see chart below.

CLICK ON CHART TO ENLARGE

EEM has created a series of lower highs along line (1) at (2). This line was last touched in 2014, where it peaked and soon lost over 25% of its value. EEM is kissing the underside of line (1) again at (3), as the month of May is coming to an end.

At this time, EEM is facing a critical test of resistance, as it is kissing the underside of more than one line at (3). Over the past few years, this is a price point where buyers stopped coming forward. If EEM can manage a breakout at (3), it would send a bullish message to this lagging ETF.

Website: KIMBLECHARTINGSOLUTIONS.COM

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Questions: Email services@kimblechartingsolutions.com or call us toll free 877-721-7217 international 714-941-9381

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Authored by Kevin Muir via The Macro Tourist blog,

Usually when CFTC data shows a big speculative position, it is easy to spot the corresponding mood amongst traders. For example, take the current situation with the Canadian dollar. There are record net speculative shorts, and that bias is obvious amongst hedge funds and other professional traders.

However, over the past few years, I have been puzzled by the building of a massive record net long speculative position in the WTI crude oil market.

The monster speculative long position doesn’t correspond to the general attitude amongst traders. In fact, without looking at the data, I would argue most specs are negative towards crude oil. The data does not jive with my anecdotal evidence.

I have written about the problems of solely using net contracts as a measure of speculative positioning before (Re-evaluating crude oil spec positioning). Increases in open interest, and dramatic changes in the price of the underlying asset can make some of these contract-only indicators less effective. This is why experts who focus on CFTC Data, often use net position as a percent of open interest. Adam Collins at Movement Capital has created a terrific website called Free COT Data that uses this sort of analysis. For those interested in CFTC positioning, I highly recommend Adam’s site.

When we transform net crude spec positioning to a percent of open interest, the recent rise does not seem so scary.

Yet I don’t think that completely explains what is going on.

For 25 years, the net crude oil spec position sat in a range.

Then in 2010, it broke out, and has been rising steadily since then.

Now maybe there has been a whole raft of new speculators entering the crude oil market. Maybe hedge funds are secretly long gobs of futures. I don’t know for sure, but I somehow doubt it.

If they were long tons of futures, I would expect to see them doing what they do with all their other positions – jumping on TV touting their idea, or writing up reports about why oil is going to $100. Sure there is the occasional crude oil bull, but nowhere near what you would expect if they had a record long position.

I don’t buy that this increase in net spec longs is a traditional increase in speculation. There is something different about it.

I don’t have any answers. But I wonder if we are missing a new player that may have entered the market.

I am not sure how China would be classified if they were to buy futures, but I think there is a decent chance they might not be classified as a hedger.

Since the 2008 credit crisis, Chinese crude oil imports have increased from 11.5 million metric tonnes, to over 35 million.

We know that over the past decade China has been ramping up their SPR (Strategic Petroleum Reserve). What if they are also trading crude oil futures?

It might explain the recent massive expansion in open interest and net speculative long position.

I understand the bear argument that crude oil is about to roll over due to the weak longs, but what if they are misinterpreting the extent of speculative long positioning?

There is no doubt that the supply side story is bearish. There is a wall of crude oil out there.

But what if the demand side surprises to the upside? What if everyone is underestimating China’s appetite? I don’t know about you, but if I were a Central Bank with too many U.S. dollars, I certainly would be selling the fiat currency and buying some real assets. And if you think about it, nothing is a better real asset than crude oil. It is storable, and most importantly, it represents a unit of energy that is the basis for man’s unbelievable productivity. Take away crude oil and see how many houses, skyscrapers, etc. are built. Take away crude oil and see how you get your fresh vegetables, or even your summer hamburgers. Crude oil is in the price of almost everything we build and consume.

China buying crude oil as a way to diversify their US dollar holdings makes complete sense. And don’t forget, China is not like Bank of Japan or the Federal Reserve. They aren’t going to announce their purchases ahead of time.

I know this theory is a little out-there. But I look at the recent expansion of crude oil net positioning, and it just doesn’t reflect what I see in the market. China as a big silent buyer is a much more plausible explanation than the fact hedge funds are net long record crude oil because they are so bullish.

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Seemingly dredging up old 'fake' news as new bombshells, CNN reports that Russian government officials reportedly talked about having possibly "derogatory" information about President Trump and some of his top aides during the 2016 presidential race.

As The Hill details, the officials' discussions were intercepted by U.S. intelligence, CNN reported, citing two former intelligence officials and a congressional source.

A source told CNN the information was related to finances.

 

Russians appeared to think "they had the ability to influence the administration through the derogatory information," the source said.

However, not only is The White House slamming the suggestions…

"This is yet another round of false and unverified claims made by anonymous sources to smear the President," a White House spokesman told CNN.

 

"The reality is, a review of the President's income from the last ten years showed he had virtually no financial ties at all. There appears to be no limit to which the President's political opponents will go to perpetuate this false narrative, including illegally leaking classified material."

 

The spokesman said the story plays "into the hands of our adversaries and put our country at risk."

But CNN itself admits this is all bluster…

…sources said the Russians claims "could have been exaggerated or even made up."

 

Sources declined to say specifically which aides were being discussed.

 

"The Russians could be overstating their belief to influence," said one of the sources.

Still, when has anonymous sourcing of unverifiable claims held the liberal media back from penning another Democrat narrative-confirming article to spoon-feed to the echo-chamber?

Russian officials must be laughing at the U.S. & how a lame excuse for why the Dems lost the election has taken over the Fake News.

— Donald J. Trump (@realDonaldTrump) May 30, 2017

via http://ift.tt/2qCnT1W Tyler Durden

In late April, the Venezuela opposition slammed attempts by the Maduro regime to liquidate some/all of the nation’s gold in order to buy his crumbling regime some additional time with much needed liquidity.

As we reported then, in a letter sent by National Assembly President and head of the Venezuela opposition to US banks, Julio Borges, the politician wrote that “the national government, through the central bank, is going to try to swap gold held as reserves for dollars to stay in power unconstitutionally. I have the obligation to warn you that by supporting such a gold swap you would be taking actions favoring a government that’s been recognized as dictatorial by the international community.”

Fast forward to this weekend, when the Wall Street Journal reported that Goldman Sachs had bought some $2.8 billion in bonds issued by state oil company PDVSA that mature in 2022, paying 31 cents on the dollar or around $865 million. The price represented a 31% discount to trading Venezuelan securities that mature the same year, and would result in a staggering annual yield of more than 40%.

The purchase came as Maduro’s detractors have been pleading with international financial institutions to avoid any transactions that might help a government accused of human-rights abuses. It also prompted Julio Borges to accuse bank Goldman Sachs of “aiding and abetting the country’s dictatorial regime.”

“Goldman Sachs’ financial lifeline to the regime will serve to strengthen the brutal repression unleashed against the hundreds of thousands of Venezuelans peacefully protesting for political change in the country,” wrote Julio Borges in a letter to Goldman Sachs President Lloyd Blankfein.

“Given the unconstitutional nature of Nicolas Maduro’s administration, its unwillingness to hold democratic elections and its systematic violation of human rights, I am dismayed that Goldman Sachs decided to enter this transaction.”

The letter also said that Congress will open an investigation into the transaction and that he will recommend “to any future democratic government of Venezuela not to recognize or pay these bonds.” Furthermore, on Monday, Venezuela’s opposition parties upped the ante, threatening that a successor government could forgo paying the debt.

“It is apparent Goldman Sachs decided to make a quick buck off the suffering of the Venezuelan people,” Borges said in his public letter to the New York bank’s chief executive, Lloyd Blankfein. “I also intend to recommend to any future democratic government of Venezuela not to recognize or pay on these bonds.”

Of course, there was one particular nuance: Goldman did not buy the bonds from PDVSA directly, but from a third party, as a result no money was transferred directly from Goldman to Venezuela… although there is a “yeah, but” as explained below.

In a statement, Goldman said it bought the securities, which are held in funds and accounts it manages on behalf of clients, from a broker and did not interact with the Venezuelan government. “We recognize that the situation is complex and evolving and that Venezuela is in crisis,” the bank said.

“We agree that life there has to get better, and we made the investment in part because we believe it will.” In other words, while Goldman did not fund Maduro’s government in any way, its “excuse” was that it was was investing for Venezuela’s brighter future. Incidentally, Goldman Sachs Asset Management manages $750 billion of fixed-income investments for mutual funds, pension funds and other investors, about $40 billion of which is dedicated to emerging markets.

Some more details: the so-called PDVSA bonds that Goldman picked up last week had until recently been in the possession of Venezuela’s central bank since they were issued in a private placement in late 2014. It is unclear whom Venezuela sold the bonds to or how many investors held them before reaching Goldman. One thing is clear: Venezuela bonds have been a stellar performer in the JPM EM Bond index:

Furthermore, the WSJ does, however, note that Goldman bought the bonds from London-based brokerage Dinosaur Group, people familiar with the sale said. Dinosaur Chief Executive Glenn Grossman declined to comment. It is also worth noting that the Central Bank of Venezuela’s international reserves jumped $442 million to $10.8 billion on Thursday, the day the bond deal was completed, according to official figures. Furthermore,last week, Oil Minister Nelson Martinez said his government was looking at “all options” to raise money it owes to key allies like Russia and China.

So if Goldman did in fact plan to “fund” Maduro, it did so in a complex scheme using at least one third-party agent with the intention of covering up its tracks.

Or maybe it was just a BWIC that was just too good to pass by. In any case, while this interesting interlude in Venezuela’s otherwise relentless death spiral demonstrates that when it comes to the bond market, governments remains confused about funding mechanics, it does highlight something else more relevant: at least according to Goldman, Venezuela will not stop making payment on its debt any time soon, stiffing creditors – such as Goldman – with defaulted bonds.

* * *

None of this mitigated Borges’ anger, however, and he said the country’s opposition-controlled National Assembly would launch an investigation into the Goldman transaction. He also warned that any future opposition government “would not forget where Goldman Sachs stood when it had to choose between supporting the Maduro dictatorship and democracy for our country.”

Meanwhile, large institutional debt investors have been reluctant to pass on the hefty returns because Venezuelan debt forms a significant part of the major bond indexes against which money managers are compared. As a result, the securities are everywhere, including emerging-market debt funds run by Fidelity Investments, BlackRock Inc. T. Rowe Price Group Inc., HSBC Holdings PLC and Pacific Investment Management Co. Representatives for BlackRock, Fidelity, HSBC and Pimco declined to comment.

Speaking to the WSJ, Mike Conelius, portfolio manager for the T. Rowe Price Emerging Markets Bond Fund, which has about 6% of its portfolio in Venezuela, said he believes the country will have a regime change that will bring about an economic recovery—a change he would welcome.

“As unpalatable as holding Venezuela risk may seem, this is precisely the type of time that long-term investors typically want to accumulate exposure,” he said.

Ceasing bond payments would be detrimental to a country that runs almost completely on oil exports, opening crude tankers and foreign assets to seizure by investors looking to recoup their losses. But many fear Mr. Maduro’s populist policies could also lead the country down the path of default.

“Given Venezuela’s intense reliance on imports, disrupting the credit markets with a default is likely to cost the country far more than it saves,” Bulltick Research said in a recent note.

Also according to the WSJ, Ricardo Hausmann, who is a former Venezuelan planning minister and a critic of the Maduro government, last week urged J.P. Morgan Chase & Co. to remove Venezuelan bonds from its benchmark emerging-market debt index. That would permit investors who trade entire asset classes to avoid holding debt issued by a government accused of rights abuses, the Harvard University economist said in an essay published on the website Project Syndicate. J.P. Morgan declined to comment.

* * *

For now the biggest quandary about Venezuela’s funding priorities remains unanswered: why does the insolvent nation still continue to put the needs of its foreign creditors over those of its own population, which has been engaged in daily, and deadly, protests against the government, and where the words “civil war” and “revolution” are uttered increasingly more often.

via http://ift.tt/2rgAwlm Tyler Durden

The following article by David Haggith was published on The Great Recession Blog:

If I can show you that economists, central bankers and stock analysts are blind in the area of their expertise to the most obvioussetup for disaster ever, then you’ll realize we are perfectly poised for potentially the greatest stock market crash in history. Many times in the past few months, I’ve heard these people say that the present bull market cannot crash spectacularly yet because we have not seen the kind of irrational exuberance that is required to set things up for such a crash. I shake my head in amazed disbelief as I listen to the most irrational nonsense about a stock market rally that was by far the most exuberant we have ever seen!

When the end of the financial world comes, it comes quickly. Because of the irrationality that allows such events to build up, it also comes unexpectedly to the majority of people in the financial world (and to others). The one essential ingredient for a truly massivefinancial crash is that almost no one sees it coming.

Simply put, the higher and steeper the rise, the more spectacular the fall; but the market and the economy it is operating in have to be rickety in order for things to go down like a house of cards. For that kind of situation to develop, market analysts have to be blind to the flaws around them (which looks completely irruption to those who can see). Otherwise, they’d be counseling everyone to get out of the market, not to keep bidding it up into the stratosphere, and so the market would never rise to such absurd heights in such a perilous situation.

 

Trump Rally displayed irrational exuberance with the worst possible timing

 

We are now exiting the longest period of central bank stimulus in the history of mankind. As that time dragged on, central banksters began to see nothing but diminishing returns for all their extravagant money printing, known as quantitative easing coupled to the lowest interest in the history of the modern world. So, the Trump Rally happened just as we are exiting a time when even central bankers know their ability to save a falling market or a failing economy is more limited than ever before. Their old tricks for recovery are ceasing to work because they are played out, and the banksters know it.

The knowledge that their usual tricks have lost potency is pressuring the governors of the Federal Reserve to get out of stimulus mode quickly now so that they have something they can throw at the next downturn that is not already in play and completely exhausted. The economy needs a rest from stimulus if the next round of stimulus is to have any shock value. It doesn’t do any good to just hold the shock paddles of the defibrillator on the patient’s chest and administer a continual shock. The defibrillator needs to recharge and then hit suddenly in order to have any shock value to a dying heart.

The law of diminishing returns, like entropy, trumps everything — even Donald Trump — and the Trump Rally has exhausted itself just as the Federal Reserve has determined that it has to remove the shock paddles and give the defibrillator time to recharge. So, stimulus is coming off just as the stock market fades out.

Not only has the rally ended, but the Federal Reserve’s recovery is going into cardiac arrest just as the board of governors are putting the defibrillator away. Figuring out whether the currently now unfolding collapse of the Federal Reserve’s “recovery” is due to the stupidity of central bankers (to have ever thought money printing would work in a world rife with examples of its catastrophic failure)) or is due to a bankster conspiracy that is plotting to force a new monetary paradigm on the world, doesn’t matter for our understanding of what is about to happen. The only difference that conspiracy adds is that it means people need to go to jail at the end of all of this. I’ll leave that for others to decide when the dust settles.

What matters right now is that I convince my readers how extraordinarily exuberant and remarkably irrational the present bull run in the stock market became during the Trump Rally. Because, if you can see that, you’ll recognize the end is here, and you might be able to exit before the rush when the exits become so jammed that no one else can get out.

Those who understand basic economics (such as diminishing returns) and who can learn from stock market history will be able to see that the Trump Rally ends in disaster and that it’s not Trump’s fault. (Though the globalists will certainly capitalize on the opportunity to say that this completely foreseeable disaster was due to Trump and his supporters.)

The truth is that the disaster was baked in long ago; that’s why I can tell you it is coming and have been saying for many months that it would show up in June or July. Whether by the sheer stupidity of banksters who have ascribed to fantasy economics or by nefarious design, the Fed’s phantom recovery is fading right as the Fed ends the life support that created the appearance of recovery. That is characteristic form for the Fed.

My position for the past decade has been that this patient (the economy) was only kept alive after the official part of the Great Recession by artificial life support and that it would die when support was removed. Clearly, the doctors of disaster are now stripping that life support away, even as the patient goes into his final paroxysms.

 

The Trump Rally displayed the most exuberant irrational exuberance ever seen in the stock market

 

That’s the amazing part that leaves me standing in utter bewilderment as the economic gurus of our time say the stock market cannot crash because we have not seen the kind of irrational exuberance that precedes such an end. The rise in the stock market that happened during the Trump Rally was far greater and far faster than any seen in history! And it is so easy to see and to prove on an historic graph.

Of course, the rise in cash (liquidity) that the Federal Reserve is determined to remove was also far greater and far faster than at any time, which is why the market has been so irrationally exuberant. The market has never been this juiced for this long, and it was all built on the Fed’s free money, now quickly fading away. Look at the worst market crashes and the bull runs that preceded them, and you’ll never see a sharper, more exuberant upturn at the end of those runs than the Trump Rally. NEVER! I’ll prove it below.

Please show me a time on any graph of the stock market where we have EVER seen an exponential rise as steep and prolonged as the Trump rally. I repeat myself because it amazes me that people can be so blind in the area of their overrated expertise. How much more euphoria can you possibly expect than what we just had, given that it exceeds ANYTHING in the history of the stock market?

Now the market is flatlining, the euphoria has ended, but that, too, is typical of all major tops before major crashes. None of them instantly blew off and crashed. The fall of the cliff has ALWAYS come after a short term of a few months during with the top flattened out, usually followed by a choppy downward turn, and FINALLY the market suddenly leaped off the cliff a few months later later. We’ve had three months now of such a top. So, the end is fully poised to happen.

Let’s prove it now. Look at the last last thirty years of the Dow in the graph below and particularly at the run-ups to the two greatest crashes during that time — the dot-com crash that unfolded slowly at the change of the millennium and the Great Recession that began at the start of 2007. They both show “exuberance,” which means the steepness of the bull market suddenly increases in a sustained manner, and they both flatten out at the top for a time after that exuberance and then tilt downward before the big crash comes. Here are the three periods of greatest irrational exuberance in history:

 

 

Note that the sharpest increase in the pitch of any bull market happened during the last half year (the Trump Rally)and has just topped out. It is is more euphoric than any other rise on the graph. That is to say the Dow rose much more steeply during that rally than during ANY other period in history. It is the steepest rise in the entire history of the stock market, and it continued that rise for as long or longer (not in months but in height attained) than any other sharp rise in the history of the Dow. (I use the Dow because it has the longest history of any index, and you know that the history beyond the left border of the graph is minuscule in its ups and downs compared to recent history. Even the Great Depression happened within a much shorter range of highs and lows.)

Clearly, before each major crash, the pitch of the market steepened for a heroic last hurrah. The last hurrah is now in! It’s fully there. You can see it. It’s gained as much altitude as any hurrah that ever preceded it. The fact that it did so in half the time of all previous euphoric bouts only makes it ALL THE MORE EUPHORIC!

And look at all the tops after those periods of exuberance. Never did the stock market just immediately plunge over the cliff. Instead, we see it rounding off or flattening out, just as it has in the past few months. Then it trends downward for several months or even a year before it finally takes the big plunge.

Again, I repeat myself because so many experts are failing to see this, and it SO OBVIOUS! There is nothing more irrational than experts coming out of a period of the most extreme exuberance in history and not even being able to see it at all.

Since the Trump Rally was clearly the largest burst of irrational exuberance in history, there is certainly no need for another burst before the big crash and it would be unlike any previous crash if the market did put in another large burst of euphoria. It could happen, of course, but there is no need for it to happen before the next big crash because what has already happened exceeds anything we’ve ever seen. Even the ramp up to the dot-com crash, where Greenspan coined the term “irrational exuberance,” was not as steep or as protracted as the Trump Rally.

 

The Trump Rally displayed the most irrational irrational exuberance ever seen in the stock market

 

The graph above proves the exuberant part, but now let’s examine this irrational aspect. The Trump Rally — sprint to the stratosphere that it was — was clearly built on nothing but hot air. It was based entirely on the mere hope that President Trump’s big fiscal stimulus plans will come into effect, and it continued to rise even as every one of his major plans (his big campaign promises) either failed in congress or in the courts … just as I said was likely many months ago … and as continues to be the case.

If a market’s period of exuberance (any market, housing, stocks, bonds, whatever) is all based on campaign promises, we ALL KNOW such promises rarely turn out as promised. No group of people is more notorious at failing to deliver their promises than politicians. So, it is irrational to invest based on a politician’s promise, especially when you already see that politician flip-flopping on nearly everything he has said, AND you see his own party members fighting him in congress and the other party unanimously lined up against him. This rally was entirely based on the promises, not on anything that was actually happening. There was no REAL change to merit a surge in the market, and very little likelihood that the hopes would materialize.

Moreover, those promises would have to materialize in nation that is more sharply divided politically (on the streets and in congress) than it has been since the Great Society changes of LBJ. So, those promises face huge political battles, which they must overcome before they ever become reality. Nothing defines irrationality like the resolute belief in a reality that does not exist and has more than half the nation united against its ever happening! (I.e., not just Democrats, but a good number of NeverTrumper Republicans who for the first time in history voted against their own party member and voted FOR a president from the opposition party.)

That the market would rally during such unlikelihood speaks of a phenomenal level of irrationality driving its exuberant climb. This market has risen more quickly than ever into thinner atmosphere than ever based entirely on hot air. All it needs in order to crash is for the hot air (Trump’s plans) to fail, which they have every likelihood of doing and, so far, is the only thing they have done!

Add to that scenario the fact that many experts who are looking at this picture are saying, “We still need to see some sign of irrational exuberance before this bull market crashes,” and you have the most spectacular irrational blindness in the history of the stock market.

As the graph proves, exuberance has never risen higher, more quickly on such faint and unlikely hopes than it has now. Add to that the fact that fundamental economic indicators were turning downward during that rise in a way that would cause a rational market, in the very least, to hesitate, if not drop; yet it soared. (See my “List of Seven Troubles Assailing the US Economy as We Head into Summer.”) Add to that the fact that stimulus is being shut off and the Fed has just begun talking about winding down its balance sheet. Add to that the fact that even the world’s leading market analysts see no sign of irrational exuberance in that kind of scenario; then, clearly, irrationality has reached its zenith.

 

Folks, irrational exuberance is all in, so the stock market is poised to crash!

 

This market has lost any grasp or concern whatsoever about fundamentals. Thus, I was not suggesting in the article just referenced that the market would fall because of how it responds to fundamentals that are now going down, but exactly the opposite. It will crash severely because it has no grasp of fundamentals whatsoever, and is flying like a hot-air balloon into a cold storm. But fundamentals still fundamentally matter because they arereality. Those who are out of touch with reality, get slammed by it because it happens whether they believe in it or not. It doesn’t wait for their acknowledgment of its existence.

So, as auto sales tank, home sales start to slide, the promise of wage growth fails to materialize, commodity prices drop (particularly oil and copper and iron) because China cannot sustain its outlandish construction spree (see referenced article for all of that) society becomes more discordant politically, and the Fed starts subtracting cash from the market, then reality will eventually crush the exuberance out of the market by taking American corporations deep into the red. We’re seeing it now with automakers, and may be about to see it in housing (too early to know for sure if April was a change in trend or a one-off).

It is when reality becomes so crushing that it forces knowledge upon us that markets suddenly leap off a cliff as denial finally breaks. They don’t fall. They leap as panicked investors jump for their lives.

Economic fundamentals are falling apart right when I thought they would. The fact that they are collapsing immediately after the most stunning rise of irrational exuberance in market history is why I’ve predicted the economy and the stock market will crash this summer. Exactly when that breaks through market denial into the big leap, I don’t know; but I’ve predicted that happens sometime between June and January of 2018.

The economy will continue to force companies out of profit and into trouble until irrationality (economic denial) can no longer hold up to the crushing reality. In the present case, the level of denial is so much greater than we’ve ever seen that reality is going to have to crush hard in order to break through the denial.

Stock market crashes do not ever play out all at once. So, don’t expect just because I’ve predicted the crash will begin in June or July that the stock market is just going to go BOOM! off a cliff. Historically, the stock market has never fallen that way. Look again at the chart above, and you will see that the tops after the period of irrational exuberance can run horizontal for a long time or take a bumpy ride that rounds ever more steeply downward. They decline from a peak for awhile before reality overcomes investor denial and all the investors finally leap off a cliff like lemmings in what becomes that 20%-or-greater plunge that crashes become famous for (the Black Monday, Black Tuesday or October Surprise kind of event), which technically turns a bull market into a bear market.

So I don’t know exactly how and when the stock market will fall apart, but my point is that the chemistry for a crash of epoch scale is finally all in … right at the start of summer, which is when I predicted the chemistry for a crash would all be in play — peak irrationality during the market’s sharpest rate of rise in history at the market’s highest peak in history, ending against a falling economy in a time of extreme political disparity and social turbulence while the Fed is reversing stimulus and removing liquidity. It’s about the worst mojo you could ask for.

 

History repeats itself because we’re irrational

 

Fitting another historic norm, the Fed doesn’t see that its interest rate increases will help trigger the disaster that is already unfolding. It will once again unwind its stimulus into a falling economy. (That, or it wants to push things over the edge as a conspiracy to force monetary change upon the world and start a whole new tier of robbing from the middle class to stuff the bellies of the rich under a new paradigm — the old having gone as far as it can).

Even if the Trump stimulus plan happens, it’ll come far too late.. And, with or without the Fed’s help, the crash is going to play out between now and the start of next year. It’s just a question of how big and close together the chunks are by which it goes down. As you can also see in the chart above, epoch crashes take a couple years or more to play out completely.

Double steep climb combined with double irrationality for as long of a run of that kind as we’ve ever seen at the same time that the market is priced about as rich in view of actual earnings as we’ve ever seen and richer in terms of total market value than we’ve ever seen makes this the highest risk for a historic crash we’ve ever seen.

And, yet, the professional market bulls (the investment analysts) say, “Where’s the irrational exuberance? We haven’t seen any of that yet! We can’t have a huge crash without that!” So, I think, Oh my gosh, Dude’s, can you really be that dumb? You’re standing up to your eyeballs in a manure pile, and you’re so irrational you can’t smell the stuff that’s already covering your nose or see it while it laps around your eyelids. Surely, this is set to be the biggest wipeout in history when irrationality is that severe.

I think of Ben Bernanke in 2008, standing in the middle of the second greatest recession in US history telling congress, “So far, there is not a recession anywhere in sight!” Then, after the first quarter GDP numbers for 2008 were revised and the second quarter numbers came in, we all found out that he (and we) were in the middle of a recession that had begun half a year earlier! It was something I had no doubt we were in, but the nation’s top expert couldn’t see it to save his soul, and real estate experts at the time argued with me that I was nuts!

In November or December of 2007, I was absolutely certain the housing market was entering its worst imaginable crash, yet Ben Break-the-banky was still convinced in June or July of 2008 that housing would keep rising as would the overall economy. It was all rosy in his view.

I was so certain in 2007 of an imminent housing market collapse that I told my wife to push her family to sell the small estate they had been holding on to immediately, even if it made them really angry with her — to do all she could to force their hand because they’d be REALLY THANKFUL they did within just a matter of months. (They had been holding on to it because the housing market was rising so exuberantly that just sitting on it, rather than selling it and dividing it up, was the best investment they all could hope for.)

I told her that housing was on a breaker that was going to destroy the banking industry on a global scale within months! I convinced her that it would be the worst thing WE had ever seen (having not lived through the Great Depression). Half a year later, Bear Sterns went down. Three months or so after that Lehman Bros. died, and the rest is history; but ol’ Ben Bernanke was singing of eternal glory days for housing all the way up to a month before Bear Sterns died. Fortunately, her family sold the estate before all of that went down.

We are poised now on the brink of a collapse even worse than that. Whether the big part of the crash happens this summer or doesn’t become real evident until the end of the year, I cannot say any more certainly than I did back then. I only knew then that it would be a matter of months, not years, as I do now. The situation is already perfectly poised. The irrational exuberance has taken place, and the cracks in the overall economy are already becoming evident. It is just a matter of how long it takes before everything falls.

We are sailing in a hot-air balloon into a dark storm, the likes of which we’ve never seen, and the Fed is shutting off the fuel to the burner that is the only thing that has kept us afloat in our passage over the Great Recession. They are largely out of fuel anyway; so, even if they turn it back on, we won’t get much more than a sputtering flame and couple more minor bounces on our journey down.

And, in case you just cannot bring yourself to take my word for it, here are the parting words of an old-world market analyst and economist retiring after 47 years who parts with “a scathing critique of capital markets, modern economists, central bankers, and everything else that is broken in today’s society.” It is a must read for all market participants, as well as economists, politicians and central bankers: “After 47 Years, Stephen Lewis Calls It Quits In A Scathing Critique Of Modern Markets.”

Yes, folks, it really is that bad, and the ignorance (or irrationality) of economists that let us fall into the Great Recession, as Stephen Lewis rants about, remains as dim-witted now as it was then. Due to economic denial, arrogant economists learned absolutely nothing from their embarrassing and colossal failure to see the worst economic event in their lives as it was unfolding, and now they are joyfully cheering the nation into the next storm once again. Enjoy the remaining ride while you can because it will be short and downward for a long, long way.

The greater the height, the greater the fall. The greater the irrationality, the more likely the fall.

via http://ift.tt/2rQQl4O Knave Dave