Last Friday, when looking at the historic, record lows in September volatility and the daily highs in US and global equity markets, BofA’s chief investment strategist Michael Hartnett said that the “best reason to be bearish in Q4 is there is no reason to be bearish.“

That prompted quite a few responses from traders, some snyde, a handful delighted (some bears still do exist), but most confused: after all what does investors (or algo) sentiment have to do with a “market” in which as Hartnett himself admits over $2 trillion in central bank liquidity has been injected in recent years to prop up risk assets.

To explain what he meant, overnight Hartnett followed up with an explainer note looking at the “Great Rotation vs the Great DIsruption”, in which he first reverted to his favorite topic, the blow-off market top he dubbed the “Icarus Rally”, which he defined initially nearly a year ago, and in which he notes that “big asset returns in 2017 have been driven by big global QE & big global EPS.“

But mostly “big global QE.”

And with global QE continuing, Hartnett, who two months ago predicted a volatile fall (and winter), now sees that Icarus “long risk” trade extended into autumn “by low inflation, big liquidity ($2.0tn central bank buying), high EPS, and promise of US tax reform.”

As a result, Hartnett’s “blow off top”, or Icarus, targets for Q4 are: S&P 2630, Nasdaq 6666, 10-year Treasury 2.85%, EUR 1.15. At this rate, the S&P could hit BofA’s target in about 3-4 weeks, and thus Hartnett lays out the following 11th hour trade recos for Q4

• long US$ vs EM FX,
• long oil,
• long barbell of uber-growth (IBOTZ, DJECOM) & uber-value (BKX) = Icarus trade;
• further unwind of extended “long disruptor, short disrupted” trade likely (i.e. death of old Retail, Media, Autos, Advertising by Tech Disruptors);
• rotational outperformance of oil>credit, EAFE>EM,
• value/growth

But if Hartnett’s “Icarus” is here, then the just as popular “Humpty Dumpty” must be set to follow, and sure enough Hartnett goes back to square one, and his contention that since there is “nothing to be bearish about”, it’s time to take profits. Below are the various reasons why the BofA strategist expects the long-overdue market top is just around the corner.

• Global stock market cap up a massive $18.5tn (= US GDP) since Feb’16 lows
• 3P’s (Positioning, Profits, Policy) thus closer to peak than trough: BofAML Bull & Bear Indicator was 0 in Feb’16, now 6.9; global EPS growth was -6% YoY in early- 2016, now 14% YoY; $2.0tn of asset purchases by central banks YTD but Fed & ECB will taper next 6 months
• Q4 “top” in equities and credit driven by:
  • a. pricing-in of US tax reform (= peak Policy),
  • b. rise in MOVE index (= peak Positioning),
  • c. rally in oil + trough in Chinese RMB + upgrades to global GDP (= peak Profits)
• Tax reform = “peak policy” = buy rumor, sell fact; passage of reform or cuts = quicker Fed balance sheet reduction + less share buybacks as capex accelerates; US equities lose 2 big tailwinds next year (since 2009 lows S&P equity market cap up $15.3tn, Fed’s balance sheet up $4.5tn, share buybacks up $3.5tn)
• Big jump in the MOVE index of US Treasury market volatility (i.e. “bond shock”) catalyst for cross-asset volatility (QE has neutered impact of bond volatility on equity prices but the negative correlation will return as monetary policy normalizes)

Lastly, BofA reminds us not to ignore China, where financial conditions have tightened of late (explcining this weekend’s targeted RRR-cut), and a further leg higher in US bond yields will mean an unwind of EM “carry-trade” another source of Q4 cross-asset vol (Chart 3); note CNY has troughed.

Summarizing BofA’s thesis:

In short, correction late-17 driven by “as good as it gets” narrative; magnitude dependent on CNY, MOVE, tax reform & degree of “forced selling” by ETFs & quant (7 ETFs accounted for 41% of volume of the top 20 most actively traded US issues in 2017; quant hedge funds & CTAs = $1.3tn AUM = 40% of industry total); right now feels more likely single- than double-digit.

It’s not just the imminent correction, however. Hartnett also takes a longer look, and specifically what “the end of the QE trade” will look like. Here are his thoughts:

• Tech disruption & central bank liquidity have been the most important themes past 10 years; CBs have caused Wall St asset prices to boom, technology has constrained wages on Main St
• Relative asset price performance next year will be highly dependent on speed & magnitude of liquidity withdrawal; since Bear Stearns event, expanding Fed balance sheet has led the outperformance of High Yield versus Treasuries, of Growth versus Value, of US equities versus RoW equities and so on.
• Table of QE winners & losers below illustrates the excess returns from 2 secular themes of “growth” & “yield”; low economic growth has boosted “growth” stocks, e.g. biotech, tech; low interest rates have  boosted “high yielding” assets such as high yield bonds.
  
• Fed balance sheet about to reverse and global balance sheet same in 2018; and the massive outperformance of “QE winners” versus “QE losers” had frayed in recent months (e.g. growth>value) & quarters (e.g. US>RoW)

• The strong Q4 tactical case for asset/regional/style rotations ultimately dependent on inflation & interest rates rising (e.g. 10-year Treasury yield moves toward 3%) as low unemployment rates in the US, UK, Germany, Japan finally cause wages to accelerate and the Fed & ECB to tighten more aggressively in 2018; we strongly doubt this is the secular base case, however.
• Thus we fear Disruption, Demographics, Debt continue to prove deflationary, tying the hands of the central banks & keeping rates low (e.g. 10-year Treasury hugs 2%); if so, speculative bubbles in the bull market leadership of Tech, EM debt, High Yield are likely to occur.

via http://ift.tt/2xVdPs9 Tyler Durden

An Accountant Smells a Rat

Written by Peter Diekmeyer, Sprott Money News

 

Twenty years ago, Doug Noland was so worried about imbalances surrounding the dot.com boom that he began to title his weekly reports “The Credit Bubble Bulletin. Years later, he warned the world about the impending 2008 crisis.

However a coming implosion, he says, could be the biggest yet.

“We are in a global finance bubble, which I call the grand-daddy of all bubbles,” said Noland. “Economists can’t see it. They can’t model money and credit. However, to those outside the system, the facts are increasingly clear.”

Noland points to inflating real estate, bond and equity prices as key causes for concern. According to the Federal Reserve’s September Z.1 Flow of Funds report, the value of US equities jumped $1.5 trillion during the second quarter to $42.2 trillion, a record 219% of GDP.

 

Noland’s Credit Bubble thesis

Noland may be right. A report by the International Institute of Finance released in June estimated that global government, business and personal debts totaled $217 trillion earlier this year. That’s more than three times (327%) higher than global economic output.

Adding to the complexity is the fact that not all debts are fully recorded. For example, according to a World Economic Forum study, the world’s six largest pension saving systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to experience a $224 trillion funding shortfall by 2050.

Noland’s warnings come during a time of exceptional public trust in governments, central banks, regulators and other institutions. Market volatility is trending at near record lows.

In June, Federal Reserve Chair Janet Yellen spoke for many when she said that she did not see a financial crisis occurring “in our lifetimes.”

 

Unburdened by “econometrics groupthink”

So why would Noland, who during his day job runs a tactical short book at McAlvany Wealth Management, see things that government, academic, and central bank economists don’t?

One possibility is because Noland, who studied accounting and finance in college and began his career as a CPA at Price Waterhouse, is not an economist.

He is thus not burdened with the “dismal science’s” limitations.

 

Although Noland eventually completed an MBA and some doctoral studies, he was never forced to buy into the econometrics groupthink that plagues the profession.

Noland is thus free to incorporate historical, financial, geographical and other data into his analyses.

Another possible reason is that Noland (unlike almost all professional economists who missed both major market implosions/recessions of the last two decades) doesn’t hide it when he makes a bad call.

 

Stepping away from the pack

Indeed, the Credit Bubble Bulletin web-site hosts issues dating back to the late 1990s. This policy of tracking how previous forecasts play out over time enables Noland to learn from previous prescient calls, but also from ill-timed projections or mistakes.

It has also spawned a consistently-constructed narrative that identifies credit growth as the key metric surrounding systemic instabilities, which strengthened over time.

Noland’s ability to step away from the pack is far from unique. Indeed, almost all of the loudest and most eloquent warnings related to the global financial system come from non-economists.

Jim Rickards, author of The Road to Ruin, The New Case for Gold and Currency Wars, also got his initial training as an accountant. Ian Gordon and Niall Ferguson both studied history.

Robert Prechter, founder of Elliott Wave International studied psychology. Nassim Taleb, author of The Black Swan and Antifragile, did his Ph.D. thesis on the mathematics of derivatives pricing.

 

A $10 trillion Fed balance sheet, military confrontation?

So how will this all play out? Noland believes that markets will eventually seize up as in 2008. Interest rates will then rise sharply as the much ridiculed “bond vigilantes” finally appear on the scene.

The practical effect will be that the Federal Reserve’s balance sheet, far from shrinking as is currently projected, could actually expand, to as high as $10 trillion and possibly more.

Noland’s track record in this respect is impressive. The last time the Fed talked about unwinding its balance sheet back in 2011, he inked a column titled “No Exit” which predicted that the policy would fail (it did), an article which remains on his web-site to this day.

The inevitable unwinding of the global credit bubble, whether done through inflation or debt write-offs, could create considerable misery, the kind of which most Americans living today have never seen.

Noland fears that in a worst-case scenario, this could lead to war, as politicians seek to distract the public from their oversight failures.

 

Few constraints on credit growth

It all comes down to the massive explosion in system credit, says Noland, which has expanded far beyond the traditional fractional reserve system to include repos, reverse repos, government sponsored entities and other shadow banking system products.

“Back in the old days, you had some constraints on the amount of credit in the system,” says Noland. “However, many of these institutions now have the ability to create literally unlimited leverage.”

Whether the ex-accountant will prove right is an open question.

 

However, if Noland does turn out to have bungled his call, we will at least be able to study where he made his mistakes – by reading those old Credit Bubble Bulletin back-issues.

 

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

 

An Accountant Smells a Rat

Written by Peter Diekmeyer, Sprott Money News

 

via http://ift.tt/2xVTq6j Sprott Money

Thanks to Goldman, Disney, and3M, The Dow has surged this morning, topping 22,500 for the first time as Nasdaq has suffered since Europe closed…

 

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

Via The Daily Bell

Puerto Rican authorities are blaming the White House for not properly responding to the disaster caused by Hurricane Maria. Trump, in turn, tweeted that about the poor leadership within Puerto Rico and claimed the politicians were just trying to score political points.

There have been unverified reports that officials in Puerto Rico were, in fact, holding back supplies unless there were accompanying photo opportunities.

And among all the pointing fingers and he said she said, the people of Puerto Rico are getting at least some aid.

That is because while governments fight, obstruct, and grandstand to advance their political careers, real people help.

Puerto Rican native and pop star Daddy Yankee delivered what FEMA, and the government of Puerto Rico could not. He gave $100,000 in assistance to feed the people whose homes were destroyed, who were left without power or water after the hurricane struck over a week ago.

The money provided food to roughly 9,000 families in Toa Baja, an impoverished town of 80,000 people near Puerto Rico’s capital, San Juan…

Each family on Saturday received 59 pounds of food, not including rations of water too. The box of food included rice, pasta, tuna, beans, beef and milk. Food Bank officials say it’s enough to feed a family of four for a week.

But the pop-star didn’t stop there. While he was touring the food bank, the director mentioned how she was desperate for diesel fuel to run the generators. She had only enough to provide electricity to the building for two more hours. Without power, 25,000 pounds of food stored in the freezers of food bank would have been at risk of going to waste.

So Daddy Yankee’s entourage made some phone calls and delivered 200 gallons of fuel, enough diesel to run the generators for another week.

“We got the diesel! We got the diesel!” the pop star proclaimed at the Food Bank. “We can’t wait for the government.”

Maybe it was the bureaucracy of government, or maybe it was their political positioning. Maybe it was government’s typical incompetence and lack of preparations. But the government failed to deliver help to the people they claim to keep safe. Disasters like these are government’s time to shine. This is why the government is so vital, they tell us.

And yet reports run rampant of corruption of local officials, and the refusal of local police to protect people from looters and robbers.

The governments of Puerto Rico, San Juan, and the United States all proved ineffective in delivering the most basic necessities to the people affected by the disaster. And time after time we see that people who put their trust in government, people who depend on authorities as their backup plan, are let down.

In this instance, people were simply lucky that someone rich enough cared enough to do something to save them.

But the best advice is still to be prepared yourself for the most likely disasters. Do a little prepping for unfortunate circumstances which might befall you and your family. Cash, protection, and of course food and water should be on hand to last you at least a week, or significantly longer if properly rationed.

via http://ift.tt/2xaVgfo TDB

While JPMorgan CEO Jamie Dimon said he "would fire" any employee found trading Bitcoin, Goldman Sachs' leadership is embracing reality as WSJ reports the bank is weighing a new trading operation dedicated to bitcoin and other digital currencies.

On the heels of IMF Chief Christine Lagarde's comments that:

"… the technology itself can replace national monies, conventional financial intermediation, and even puts a question mark on the fractional banking model we know today… So I think it may not be wise to dismiss virtual currencies."

Bitcoin's price has continued higher – erasing the losses from China and Jamie Dimon's comments…

And now, according to people familiar with the matter, The Wall Street Journal reports that Goldman Sachs is the first blue-chip Wall Street firm preparing to deal directly in this burgeoning yet controversial market.

“In response to client interest in digital currencies we are exploring how best to serve them in this space,” a Goldman spokeswoman said.

Goldman’s effort is in its early stages and may not proceed, the people said. The firm’s interest, though, could boost bitcoin’s standing among investors and fuel the debate around digital currencies, which were initially viewed as havens for illicit activity but are pushing further into the mainstream investment world.

Goldman’s seeks to serve a growing cadre of institutional investors wagering on bitcoin.

Its effort could eventually entail a team of traders and salespeople making markets in bitcoins much as they do Japanese yen or shares of Apple Inc.

Keeping abreast of the day-to-day cryptocurrency market could also position Goldman to capitalize on further development of this market. Digital-currency proponents envision a world where coins will be widely accepted by online retailers and companies will use the tokens for cross-border commerce.

Some 70 hedge funds now invest in cryptocurrencies, according to Autonomous NEXT.

Already, a handful of nonbank finance firms, such as DRW Holdings LLC’s Cumberland Mining and Genesis Global Trading Inc., broker bitcoin trades for institutional investors that want to buy or sell larger amounts than exchanges could handle.

That is a role that banks could easily step into.

*  *  *

This is going to be hard for Dimon to swallow…

GOLDMAN SACHS SAID TO WEIGH BITCOIN TRADING OPERATION: WSJ

wait what… http://pic.twitter.com/WKyrfDIHca

— zerohedge (@zerohedge) October 2, 2017

But we do suggest a slight hesitation to the squid embracing another illiquid asset-class. We suspect as far as volatility goes – you ain't seen nothing yet.

With its fixed-income division revenues down 21% from last year through June, dragged down by poor performance in commodities and currencies (both near record lows in volatility), it appears Goldman is looking for another asset – with volatility – to trade.

WSJ also notes that Goldman’s effort involves both its currency-trading division and the bank’s strategic investment group, the people said. That suggests the firm believes bitcoin’s future is more as a payment method rather than a store of value, like gold.

via http://ift.tt/2yj8KLr Tyler Durden

Days before last week's Kurdistan referendum, Iran took steps to isolate and punish the Iraqi Kurdistan region and the government in Erbil (KRG). This included closing Iranian airspace to northern Iraq's two international airports and sending Iran's elite Revolutionary Guard forces to conduct drills along the northwest border with Kurdistan, but in the early hours of Monday Iran dramatically escalated its military build-up along the border by deploying dozens of tanks supported by artillery – this according to a Kurdish government official and Iranian state television.

The Kurdish official confirmed the tank build-up, saying "The tanks can be seen from the Kurdish side.” And Iranian state TV on Saturday indicated that Iran and Iraq would cooperate in joint drills and the establishment of heightened border security, to the point that Iran would "receive Iraqi forces that are to be stationed at border posts”.

#Iran|ian military drill on Kurdistan Region border (Haji Omaran Crossing Border) despite business being conducted as usual.#TwitterKurds http://pic.twitter.com/UCrL1HPXvl

— Kurdistan 24 English (@K24English) October 2, 2017

Iranian government officials had warned just prior to last week's referendum that, “The republic of Iran has opened its legitimate border gates on the premise of the consent of the federal government of the Iraqi state. If such an event [referendum] happens, these border gates from the perspective of the Islamic Republic of Iran would lose its legitimacy." It appears Iran is now making good on its threats as it worries that an independent Kurdistan at its border would be a destabilizing force concerning Iran's own sizable Kurdish minority.

Last week multiple videos and images surfaced in Iranian social media purporting to show Iranian state police and security forces deploying to the Kurdish towns in Iran's north. Multiple reports indicate pro-Kurdistan demonstrations took place in various Kurdish Iranian towns in response to the Erbil government's referendum, something strictly banned and thus a rarity in the Islamic Republic. Iran's Kurdish population numbers over 6 million out of a total population of about 80 million people – most of which are concentrated in a northwest strip of land which runs along the border with Iraqi Kurdistan as well as in a small northeast pocket.

#Kurdistan:1000s of Iranian police forces have arrived in the city of #Mahabad after Kurds in the region celebrated the #KurdistanReferendum http://pic.twitter.com/GoH17RTWso

— Thomas van Linge (@ThomasVLinge) September 27, 2017

Kurds in the #Iran-ian Kurdish city of Baneh (Bana) celebrate in support of the #KurdistanReferendum on independence.#TwitterKurds http://pic.twitter.com/mMQiGuFW3i

— Kurdistan 24 English (@K24English) September 25, 2017

According to Iraqi Kurdish network Rudaw English, Iran launched a major crackdown with dozens of arrests reported in Iran's northwest region in the days following the referendum:

Two Iranian Kurdish political parties and a human rights watchdog all reported “scores” of arrests after thousands took to the streets in Kurdish cities of Iran chanting Biji Kurdistan, long live Kurdistan, and waving Kurdistan flags to celebrate the success of the independence referendum next door. Flying the Kurdistan flag and singing the national anthem are forbidden in Iran. 

Iranian intelligence and security forces have set up a joint command center “for the purpose of identifying and arresting the organizers of the demonstrations,” the Democratic Party of Iranian Kurdistan (PDKI) stated. They are reportedly analyzing video footage of the gatherings. 

Furthermore it appears that Iranian TV sent a message to its broader Kurdish population indicating that all activities were being monitored by authorities:

The Kurdistan Human Rights Network (KHRN) reported that Iranian police were closely monitoring the demonstrations that attracted rare attention in the country. “Iranian state television on Tuesday acknowledged the rallies, a rarity in the Islamic Republic broadcast,” the group stated. 

As we previously explained, the Kurdish referendum pushed Iraq into the arms of Iran when the relationship between the Iraqi Prime Minister Haidar Abadi and Iranian officials was at its lowest level. But after the KRG's insistence on pushing forward with moves toward independence, Abadi sees in Iran the only sincere partner to count on, and can rely on the Iranian Army and Revolutionary Guards Corps (IRGC) in the case of any military escalation against Kurdistan, particularly in the disputed Iraqi cities, with Kirkuk at the top of the list.

Map source: Iran Times

Baghdad is confident that Iraqi Kurdistan President Masoud Barzani didn’t take this step without a blessing from the Americans, despite official US opposition to the referendum. It seems Washington decided to swap its relationship with Baghdad with that of Erbil because it won’t be able to support both at the same time.

Supporting Erbil is more attractive to the US and its regional allies (particularly Saudi Arabia), in the hope that the Kurdish Iraqi move would trigger the appetite of the Kurdish Iranians (and the Syrian Kurds who are already on this same path). If this happens and we observe an uprising in Iran, which the Saudis would certainly support, the Iranian economy and that of the government of Baghdad will both be under severe pressure.

Iran supported Barzani in 2014 and provided him with weapons (at a time when the US was denying any support to Iraq, during the 6 months after the fall of Mosul in 2014), but it is today in an undeclared war against Erbil, fully behind Baghdad’s measures and supporting future escalation and punitive steps.

via http://ift.tt/2xVR8Ef Tyler Durden

Authored by Lance Roberts via RealInvestmentAdvice.com,

As the stock market hits all-time highs in its 2nd longest bull market run in history, the lift of asset prices has surely lifted the economic prosperity of all. Right?

Not really.

New reports from the Hamilton Project and The Federal Reserve show the real problems facing Americans today.

First, the Hamilton Project as noted by Pedro Nicolaci Da Costa last week:

“An expansion that began, believe it or not, more than seven years ago has extended a longer-run trend of wage stagnation for the average US worker, despite a sharp drop in the official unemployment rate to 4.4% from an October 2009 peak of 10%.

 

No wonder the recovery seems so lopsided, particularly given economic inequality levels not seen since before the Great Depression. After adjusting for inflation, wages are just 10% higher in 2017 than they were in 1973, amounting to real annual wage growth of just below 0.2% a year, the report says. That’s basically nothing, as the chart below indicates.”

The problem with this, of course, is that if wages aren’t rising at a pace fast enough to offset the costs of maintaining the “standard of living,” individuals are forced to turn to credit to fill the gap. As I showed recently, this wasn’t a problem initially but now is THE problem for an economy that is roughly 70% driven by personal consumption.

“Therefore, as the gap between the “desired” living standard and disposable income expanded it led to a decrease in the personal savings rates and increase in leverage. It is a simple function of math. But the following chart shows why this has likely come to the inevitable conclusion, and why tax cuts and reforms are unlikely to spur higher rates of economic growth.”

The Federal Reserve Reveals The Ugly Truth

Every three years the Federal Reserve releases a survey of consumer finances that is a stockpile of data on everything from household net worth to incomes. The 2016 survey confirms statements I have made previously regarding the Fed’s monetary interventions leaving the majority of Americans behind:

“However, setting aside that point for the moment, how valid is the argument the rise of asset prices is related to economic strength. Since companies ultimately derive their revenue from consumers buying their goods, products, and services, it is logical that throughout history stock price appreciation, over the long-term, has roughly equated to economic growth. However, unlike economic growth, asset prices are psychologically driven which leads to “boom and busts” over time. Looking at the current economic backdrop as compared to asset prices we find a very large disconnect.

 

Since Jan 1st of 2009, through the end of June, the stock market has risen by an astounding 130.51%. However, if we measure from the March 9, 2009 lows, the percentage gain explodes to more than 200%. With such a large gain in the financial markets we should see a commensurate indication of economic growth – right?”

“The reality is that after 3-massive Federal Reserve driven “Quantitative Easing” programs, a maturity extension program, bailouts of TARP, TGLP, TGLF, etc., HAMP, HARP, direct bailouts of Bear Stearns, AIG, GM, bank supports, etc., all of which total more than $33 Trillion, the economy grew by just $2.64 Trillion, or a whopping 16.7% since the beginning of 2009. The ROI equates to $12.50 of interventions for every $1 of economic growth.”

The full Federal Reserve report can be found here,  but I have selected a few of the more important charts for the purpose of this post.

While the mainstream media continues to tout that the economy is on the mend, real (inflation-adjusted) median net worth suggests that this is not the case overall. Despite surging asset prices, household net worth has only recovered back to 1995 levels.

But even that view is highly optimistic as the recovery in net worth has been heavily skewed to the top 10% of income earners.

While many economists have tried to explain the plunging labor force participation rate (LFPR) was a function of“baby boomers” entering into retirement, such is hardly the case given the collapse in net worth of those in that age group. It’s not that they don’t want to retire, they simply can’t afford to.

The “economic recovery” story is also extremely fragmented when looking at median incomes. According to the Fed survey, median household before-tax incomes have fallen from near $55,000 annually to roughly $53,000 currently.

Again, the real story becomes much more apparent when incomes are broken down into deciles.

Interestingly, the ONLY TWO age-groups where incomes have improved since 2007 is for those two groups of 65 and older. Again, this suggests that the plunge in the LFPR is not a function of “retirement” as individuals are working well into their retirement years, not because of a desire to work, but due to necessity.

Despite the mainstream media’s rhetoric the surging stock market, driven by the Federal Reserve’s monetary interventions, has provided a boost to the overall economy. The reality is quite different.

Since the bulk of the population either does not, or only marginally, participates in the financial markets, the “boost” has remained concentrated in the upper 10%. The Federal Reserve study breaks the data down in several ways, but the story remains the same.

The median value of financial assets for families has fallen sharply since the turn of the century.

Except for those in the top 10 percent of the population.

While the Federal Reserve hoped that inflating asset prices would boost consumer confidence, consumption, and economic growth, the problem is that with falling incomes and rising costs of living, the ability to save and invest eluded the majority of families.

Again, the benefit of the Federal Reserve’s interventions was clearly concentrated in the top 10%.

When looking at the financial landscape of families, the future does not look bright. The percentage of families with retirement accounts is at the same level as it was in 2000, despite surging asset prices. Again, this is a function of the disparity between incomes and the cost of living.

But once again, for the top 10%, the last five years has been a windfall. However, it is interesting to note that values dropped in 2013 despite the surge in asset prices. The 80th percentile performed better.

Lastly, as discussed recently, there is a deep flaw in the Bureau Of Labor Statistics adjustments to the employment report and little evidence to support the “birth/death” model which has accounted for roughly all of the job growth since 2009. The assumption is that each month individuals are either starting or closing a business that is not reflected in the more normalized employment data. The problem, however, is that the number of families that owned business equity has been on the decline since 1992.

Well, except for those in the top 10%.

The lack of economic improvement is clearly evident across all data points. However, it has been the very policies of the current and past administrations that have fostered that wealth divide more than anything else. While the ongoing interventions by the Federal Reserve propelled asset prices higher, and fueled the demand for risks, the majority of American families were left behind.

Tax Cuts Won’t Work This Time

This is also why Trump’s recent tax cut policy will fail to fuel the economic prosperity he is hoping for. With the bottom 80% of the population still earning below $50,000 on average, a tax cut will do little to increase their consumption in the economy. Those in the top 20% may well see a tax-savings from the reform but they are already consuming at a level that will likely not change to any great degree.

As David Stockman pointed out this past week:

“The Donald’s new tax reform airball promises to make the filing with the IRS more palatable to rank and file America. Yet 101 million taxpayers (69%) have no exposure to the complexity of the IRS code at all. They owe virtually nothing.

 

And I mean nothing. Among the 148 million income tax filers, the bottom 53 million owed zero taxes in the most recent year (2014), and the bottom half (74 million) paid an aggregate total of just $45 billion.

 

By contrast, the top 4% or 6.2 million filers paid $802 billion in Federal income taxes. That amounted to nearly 58% of total Federal income tax payments.”

While the financial media incessantly drones on about the rise of the stock market, what is missed is that after two devastating bear markets many families no longer have the capacity to participate (particularly after following Wall Street advice).

Furthermore, the structural transformation that has occurred in recent years has likely permanently changed the financial underpinnings of the economy as a whole. This would suggest that the current state of slow economic growth is likely to be with us for far longer than most anticipate. It also puts into question just how much room the Fed has to extract its monetary support before the cracks in the economic foundation begin to widen.

“The chickens have likely come home to roost.” 

 

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

US Construction Spending inched higher in August (+0.5% MoM) from a downwardly revised 1.2% MoM plunge in July.

Despite the modest uptick, 2017 remains the worst year for Construction Spending growth since 2010…

“Recovery?”

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