Tag: finance

Authored by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

Positivist Delusions

[ed. note: this article was originally published on March 5 2013 – Bill Bonner was on his way to his ranch in Argentina, so here is a classic from the archives]

We’re still thinking about how so many smart people came to believe things that aren’t true. Krugman, Stiglitz, Friedman, Summers, Bernanke, Yellen – all seem to have a simpleton’s view of how the world works.

 

A bunch of famous people with a simpleton view of how the world works…who not only seriously think the economy can and should be “planned”, but arrogantly believe they are the ones who should do it. It’s a bit like the crazy guy who doesn’t know he’s crazy.

 

They believe they can manipulate the future and make it better. Not just for themselves… but also for everyone else. Where did such a silly idea come from?

After the Renaissance, Aristotelian logic came to dominate Western thought. It was essentially a forerunner of positivism – which is supposedly based on objective conditions and scientific reasoning.

“Give me the facts,” says the positivist, confidently.

“Let me apply my rational brain to them. I will come up with a solution!”

 

Beyond the Herald’s Cry

This is fine, if you are building the Eiffel Tower or organizing the next church supper. But positivism falls apart when it is applied to schemes that go beyond the reach of the “herald’s cry.”

That’s what Aristotle said: Only a small community would work. Because only in a small community would all the people share more or less the same information and interests.

In a large community, you can’t know things in the same direct, personal way. You have no idea who made your sausage or what they put in it. You have to rely on “facts” that are no longer verifiable by direct observation or personal acquaintance. So it’s hard for people to work together in the same way.

In a large community, central planners’ “facts” are nothing more than statistical mush, wishful thinking, and theoretical claptrap – like WMD, GDP, the unemployment rate, and the Übermensch.

Large-scale planning fails because the facts upon which it is built are always unreliable and often completely bogus. It fails also because people don’t really want it.

 

Hidden Agenda

In a small community, the planners and the people they are planning for are close enough to share the same goals. But in a large community, the planners are a small minority. And in a large community, the planners usually have their own agenda… often a hidden one.

They call for stricter law enforcement… while getting campaign contributions from the prison industry. They seek a cure for cancer… and depend on the pharmaceutical industry for job offers. They promote a united Europe… and hope to be its head man.

Large-scale planning provides almost countless opportunities for corruption. But it’s not the dirty dealing that dooms it. It is that the planners don’t know (or care) what people really want… and don’t have the means or the information necessary to achieve it anyway.

 

Friedrich Hayek did extensive work on the nature and distribution of knowledge as a follow-up to his decade-long debate with socialist economists. The latter were never able to refute the arguments that showed that central economic planning is literally impossible. And yet, here we are, with central planners at the helm everywhere in the world. The explanation is not that they somehow convinced themselves of their own BS (although some of them sure did) – the explanation is that there is a hidden agenda.

 

As Nobel Prize-winning economist Friedrich von Hayek observed, the “public information” used by central planners is empty… and most often misleading. But the problem is much more basic than the quality of the information or the corruption involved.

When we think of what people “want,” we are not talking about their conscious, stated desires. We are speaking of what they might be able to get… if allowed to do so… given the facts on the ground.

People in Hell may want ice cream; they won’t get it. But people will do the best they can with what they have to work with. Large-scale central planners can’t help them. Partly because they don’t know what the conditions in the man’s private Hell really are. And partly because they don’t have any ice cream.

You might better describe this process of getting as much of what you want as possible as the progress wrought by evolution, where trials and errors result in “the best we can do.” Not perfect. Not the end of history. Just another step toward a future that is unknowable.

 

The Fatal Conceit

Large-scale central planners fail because they believe three things that aren’t true.

First…that they understand the current conditions (wants, desires, hopes, capabilities, resources) of the community they are planning for.

Second…that they know what the community’s future ought to be.

Third…that they are capable of creating the future they want.

 

The fatal conceit – the erroneous belief that is it actually possible to plan an entire economy.

 

None of those things is more than mere illusion. Together, they constitute what Hayek described as the “fatal conceit that man is able to shape the world around him according to his wishes.”

Central planners cannot know current conditions because that would require an infinite amount of information. It would require, as British philosopher Samuel Bailey wrote in 1840, “minute knowledge of a thousand particulars which will be learnt by nobody but he who has an interest in knowing them.”

The planners have nothing like that. Instead, they have a body of public knowledge, which, as we have seen, is nothing more than popular theories, claptrap, and statistical guesswork.

As to the second point – that the central planners are blessed with some gift that tells them what the future should be for complete strangers – we pass over it without argument.

 

Waiting for the Future

Of course, each man always does his best, at his own level, to shape his world in a way that pleases him. One will want a fat wife…and likely get one. One will want a fortune…and maybe get it, if he is lucky and diligent. One will want to spend his time playing golf…that too, may be within his means.

Each will try. Each will win, lose, or draw, depending upon the circumstances. And the future will happen. But the central planner steps in to try to impose his version of the future. This is a huge mistake.

 

Have you ever asked yourself why we still don’t have the Jetson’s flying cars? The most likely answer is that progress has been set back by more than a century by the imposition of central economic planning. The amount of capital that has been wasted and consumed because of it is simply staggering. It is quite amazing that with perhaps one third or less of the population actually generating real wealth under extremely hampered conditions today, there is still a remarkable rate of progress overall. It is testament to the power of the market economy. Imagine where we could be if it were unfettered.

 

Where evolution is taking us, no one knows. But the large-scale central planner thinks he knows where it ought to go… and he doesn’t mind giving it a shove, disrupting the plans of millions of people in the process.

And as soon as the smallest bits of time and resources are shanghaied for the central planner’s ends rather than those of individual planners, the rate of evolutionary progress slows.

The trials that would have otherwise taken place are postponed or canceled. The errors that might have been revealed and corrected are not discovered. The future has to wait…

 

Extravagant Schemes

But the real danger is this: People are easy to deceive, especially when they only have access to “public information.” Out of range of the herald’s voice, they have no more idea of what is going on than the planners.

They are encouraged to believe that the collective plans are beneficial. Often, they go along with the gag – for decades – even as the evidence of their daily lives contradicts its premises and undermines its promises.

 

Several of the world’s most ruthless central planners and mass murderers: Hitler, Pol Pot, Stalin, Mao Zedong, Lenin, Kim Il-Sung

 

Even worse: To encourage compliance, ruthless planners – think Lenin, Hitler, Stalin, Mao, Pol Pot, Kim Jong-il – begin purges, cleansings, regulations, famines, deportations, disappearances, tortures, drone attacks, and mass murders.

But their plans are wrecked anyway. Because not only do they retard the future, they also don’t lead to the outcome the planners expect.

 

Breaking a Few Eggs

Typically, the designers argue that the people must make sacrifices but that it will all come right in the end. As Lenin said, “You can’t make an omelet without breaking some eggs.”

People go along with breaking a few eggs (particularly if they belong to someone else) for a while. Ultimately, the problem is the omelet: It never makes it to the table. No “workers’ paradise” ever happens. The War on Drugs (or Poverty…or Crime…or Terror…or Cancer) ends in a defeat, not a victory. Unemployment does not go down.

And if any of these grand programs “succeeds,” it does so at a cost that is far out of balance with the reward. Why do these plans fail? Because that’s not the way the world works.

Life on Earth is not so rational that it lends itself to simpleminded, heavy-handed intervention of the naïve social engineer. Bridges are designed. So are houses. And particle accelerators. Economies are not.

 

Are there actually things the planners are good at? Unfortunately, yes…

Photo credit: Department of Defense

 

It is also true that humans can design and achieve a certain kind of future. If the planners at the Pentagon, for example, decided that a nuclear war would be a good thing, they could bring it about. The effects would be huge. And hugely effective.

But this is the only kind of alternative future that planners are capable of delivering – one that pulverizes the delicate fabric of evolved civilized life.

via http://ift.tt/1SkfnRX Tyler Durden

As the following chart showing the collapse in trading revenue across the banks who have reported Q1 earnings so far shows…

 

… it has been a very bad start to the year for America’s largest, too big to fails/too big to prosecute.

It has been just as bad for bank employees, but while most US banks have seen the occasional drib and drab here and there, nothing compares to Barclays, which in the past 4 months has fired a stunning 8,000 workers.

But while in 2016 the pain is prevalent, as many traders are scared the next round of pink slips may just cost them their job, it’s not all doom and gloom especially when one recalls that, on average, most traders are paid far better than 99% of all other jobs.

And some are certainly more equal than others.

Below we present a breakdown of the highest paying trading jobs, based on an analysis from UK-based Emolument, which has examined London traders’ salary and bonus data at Director level to provide a glimpse into their remuneration profiles. As expected, dealing with more complex financial products provides the best pay. Across every single trading desk, traders receive bonuses that range from 40% (repo traders) to 113% of their annual salary (flow rates traders).

Some other findings:

• Traders specialising in products with a relatively low level of complexity, executed mainly via automated trading systems are paid the least, still totalling an impressive £221,000 annually.
• Predictably, trading in exotics, some of the most intricate products available, relies heavily on highly sophisticated and technical traders.
• Being paid 1.7 times more than more straightforward repo products traders makes up for the extra stress and hard work.

At the end of the day, it’s all about the bonuses:

Across all trading desks, basic salaries are in a similar range. Bonuses is where the real gap occurs. Highly incentivised, trading Directors on an exotics desks will expect a bonus roughly equal to their annual salary, while repo traders are likely to earn bonuses totalling 50% of annual salaries only.

Alice Leguay, COO & Co-Founder at Emolument.com said: ‘Automation is coming to finance – artificial intelligence, robotics and new disruptive technology are taking over some of the traditional trading functions. We have seen many flow credit and flow rates trading desks  being made redundant as banks are under pressure to adopt these new automated solutions in order to cut costs and boost efficiency. For now, the more complex and high value tasks are safe and well rewarded and we do need the human touch in the work place, but there is no telling what technologies will be available to trading floor staff in the coming year. Traders should focus on constantly developing their technical skills and concentrate on high value tasks in order to make themselves indispensable.’

* * *

So for all those traders who still demonstrate a unique skillset (can make money and don’t spend 8 hours a day on twitter) congratulations: you may be in luck for a few more years. For all those others who are about to lose their jobs to Johnny 5 or some malfunctioning Secaucus-based vacuum tube, or a pimply 22 year old Math PhD, our condolences: McDonalds is hiring.

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As we’ve covered extensively in the past (here and here), home prices and vacant offices in Calgary have been a complete disaster as a result of the collapse in oil prices. Recall the troubling divergence in home prices that Calgary is experiencing in relation to other major cities in Canada.

And also, vacancy rates ebb and flow with the price of crude.

 

And now with the price of crude hovering around $40/bbl, CBRE Canada estimates that Calgary’s downtown office vacancy rate was 20.2% as of March 31, nearly twice as high as the 11.8% a year ago. This means that one in five offices is now vacant.

It says vacancies are at historic highs, with eight million of the downtown area’s 41 million square feet of office space available and subleases making up close to half of what’s on offer

With three million square feet of office space under construction still, experts say that it could be well over a decade before the market rebalances.

Calgary’s downtown commercial office space vacancy rate has
risen to 20.2%, according to CBRE.

As CTV News adds, “it’s the first time since 1983 that more than one fifth of office space was available in downtown Calgary, and the city is on track to hit a new record above the 22 per cent rate hit that year”, citing Greg Kwong, regional managing director at CBRE.

“It’s going to get a little bit worse before it gets better,” said Kwong. “Unless oil jumps back to $80 a barrel, I don’t think we’ll go down to the teens.”

Or, we may, if oil goes back to $30 or lower.

How bad is the damage: “prices have dropped to an average of $20.97 per square foot for high-end class A office space from $29.23 in the same quarter a year ago, CBRE added.”

The dramatic reversal in the local markets, duly reported here for the past year, has caught Kwong by surprise, and he is stunned at how quickly Calgary’s market has reversed from the 2009-2014 trend, when it had the lowest vacancies and highest rental rates in Canada.

“It was amazing how robust the market was in November 2014, and literally within four or five months it was amazing how ugly it got here,” said Kwong.

Alas, that’s what happens when the one commodity that powers the city’s economy has its price cut by 60%.

Meanwhile, Calgary’s office market has been hit hard as oil and gas companies continue to cut jobs and consolidate office space due to low crude prices. Barclay Street Real Estate released a report Tuesday saying MEG Energy is trying to sublease more than 300,000 square feet, Shell Canada more than 183,000 square feet and Penn West Energy 73,000 square feet.

And once the bankruptcies begin in earnest, it will only get worse.

For now Calgary largely an outlier in Canada’s downtown office market, with Toronto’s vacancies up only slightly in the quarter to 5.3%, while Vancouver’s dropped to 8.8%, according to CBRE. However, we all know the “Vancouver story” by now.

Ultimately the real number is even worse as vacancy rates also don’t account for the unknown amount of near-empty office space that companies haven’t tried to sublease because there’s no market for them, said Kwong. “You’ll see some buildings where there are five people on a 40,000-square foot floor,” he said.

But not for long. As for the immediate future, things are only set to get worse:

Dan Lannon, a senior vice-president at real estate company Colliers International, said with about three million square feet of office space under construction, the downtown core could have 11 million square feet of empty offices in 2018. That’s the equivalent of about 647 NHL rinks.

 

“The fact is we’re adding a lot of office space to our market that our city really doesn’t need,” said Lannon.

With Calgary absorbing an average of about 550,000 square feet of office space per year over the past 15 years, Lannon said it “could be well over a decade before the city returns to a balanced market.”

And that assumes oil returns to its historic prices.

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Excerpted from 50-Year Wall Street Veteran Joe Rosenberg's Op-Ed via The Wall Street Journal,

It takes an immigrant like me to parse the poison that Bernie Sanders is peddling to the naive youth of this country. It takes someone who has experienced socialism’s failures firsthand—as I did, initially as a small child, later as a young adult—to see why Sen. Sanders is succeeding: We elders, immigrants and native-born alike, have failed to teach our children and grandchildren about the economic history and false promises of the myriad forms of socialism that infest our world.

More than 75 years ago, I landed at Ellis Island as a 6-year-old child. My family had fled the despotism of National Socialism that had been foisted onto the gullible (albeit literate) German people. We were far from the only victims of collectivism. As all of us know but some refuse to admit, collectivism destroyed the economies of places like China, Russia and Cuba, and ruined the lives of millions of people.

Nine years after I arrived in America, the new state of Israel came into existence, making Jews like me both proud and curious. When I was 18, imbued with idealistic fervor, I decided to help the young nation grow and prosper by working the soil. Off I went to further the goals of social justice by joining a kibbutz, or communal farm. There the painful reality of the maxim Karl Marx popularized, “from each according to his ability, to each according to his needs,” hit home.

As an example of kibbutz ideology: Does it make sense for a person running the washing machines in the laundry to be receiving exactly the same pay and living benefits as someone who might be the community doctor after going to medical school? That may sound like an extreme example, but the same principles apply throughout the economic structure of a collectivist economy. Unlike Chinese or Russian collectivism, Israel’s was voluntary—but insane nonetheless.

I left Israel three years later, in 1954, because I was an American citizen and the time had come for me to serve my country. I was drafted and inducted into the U.S. Army. After two years of active duty, stationed back in my native Germany, I realized that my future lay in the capitalist U.S., not in Israel.

I came to see that I needed a college degree to get ahead in the competitive society of my home country. Because I had to work during the day to support myself and my family, I attended classes in the evening, taking eight years to get a bachelor’s degree in finance and an M.B.A. While going to night school, I got my first Wall Street job.

My Wall Street is the real Wall Street—not the imaginary one that Bernie Sanders demonizes daily. My Wall Street is a place filled with opportunities to succeed, even for an immigrant like me without any connections or relatives in the business. Here, I could reach the pinnacle of my profession based on merit.

Unlike a certain politically ambitious Brooklynite-turned-Vermonter, I did not have to denigrate others to advance my career. To the contrary, I found wonderful mentors who were happy to reward me for hard work. Much of the job was difficult and far from fun. But I rose—and occasionally fell a bit—based on what I produced, not how many people I could get to toe some party line.

My experience is far from unique. I have many colleagues who left supposed paradises, socialist countries like China, Russia and Greece, and now strive to succeed on Wall Street. They’re seeking not a handout but a piece of the American Dream, just as I did. When I entered the business Wall Street was a far clubbier place than today. It has increasingly become a meritocracy open to people of every background.

Sen. Sanders ought to ask some of the immigrants who work on Wall Street what they think about the opportunities that this country affords, rather than going to college campuses and attacking the financial industry to further his own political ends. He should ask some recent immigrants from India and the emerging world what the true meaning of income inequality is.

Bernie Sanders and I are poster children for what poor Jews from Brooklyn or Germany can accomplish in this great land of opportunity. So I ask him: Please stop tearing down the country that has been so good to both of us.

via http://ift.tt/22AdqAl Tyler Durden

“Central bankers may have their hearts in the right place, but no matter how much more they do, they end up with more debt and no progress,” rages CNBC’s Santelli which, as Vine Street’s Yra Harris notes, “is enabled by a potemkin village of counterfactuals,” before embarking on the most vitriolic take-down of the “atavistic remnant of a colonial past” – The IMF. Simply put, as Santelli exclaims, “the world has really lost its way,” and  Harris is in full agreement, concluding with a simple message to the world’s central banks – “Stop!”

 

Put down any sharp objects and ensure there is no fluid in your mouth as Yra and Rick unleash 210 seconds of uncomfortable fact-bombs on the American public… (as Santelli laments “I never saw anyone’s veins pop like that before.”

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By EconMatters

 

Citi Research fails to address the Fundamentals side of the equation, the Doha Meeting is Meaningless in the overall scope of the Oil Market.

Pay Attention to the declines in U.S. Production over the next 4 Months. Along with the drop in Rig Counts which are at record lows, and the lag effect between the drop in Rig Counts and U.S. Production Declines.

The Decline in Gasoline Stocks is reflective of the Strong Demand for Gasoline given these low prices relative to the last 10 years of historical prices. Compare Gasoline demand with this time last year, and demand is only going to strengthen into the heart of the Summer Driving Season.

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Submitted by Eugen von Bohm-Bawerk via Bawerk.net,

In the latest semi-annual Keynesian incantation spewed out by the world’s best pseudo-scientists, we learn that growth has been too slow for too long and that in itself is the cause of slow growth.

First, they promote debt-funded consumption because spending – money supply/credit and velocity – is equivalent to nominal GDP growth, and as long as you have nominal GDP growth you can always add more debt to the existing stock ad infinitum. That obviously came crashing down in 2008. At that important juncture, which proved to even the most ingrained and indoctrinated Krugmanite that something was seriously wrong with the economic model a proper re-set would be the only route toward sustainable prosperity. Instead of taking the honest path, countercyclical policy measures, both fiscal and monetary, aimed at maintaining and even expanding debt on top of the bloated and highly unsustainable level that existed at the 2008 inflection point.

As parasitical, id est consumptive, debt got thrown a lifeline by the global central bankers with the explicit condonation by the like of the IMF, it is no wonder growth has been weak or even absent in the aftermath of reaching debt saturation. Old structures have been cemented and new capital formation mal-invested.

Specifically from the latest IMF report on the global economy, we learn that “…persistent slow growth has scarring effects that themselves reduce potential output and with it, consumption and investment…” circulus in probando!

IMF now expect world growth to be 3.2 per cent in 2016, down from 3.6 per cent by their October outlook.

The most recent US projection tells you everything you need to know about the credibility of IMF, or dare we say mainstream, forecasting. While the IMF slashed the expected growth for 2016 by more than 40 basis points compared to their October release, to 2.4 per cent they will still be way off even upon release of the report. The US economy probably did not grow at all in the first quarter and as we will show in an upcoming report, the US economy is already in, or at the very least heading straight into a recession.

Why so optimistic? There are two reasons.

First, being taught from the scriptures of Keynes they believe the business cycle is solely driven by animal spirits and if they can somehow change people’s perception of the world by providing a rosy outlook the world will automatically become better. Magic. We call it Goebbelnomics.

 

The second reason is less insincere and more technical. In the New Testament of the scripture, originally written by Ragnar Frisch it is postulated that all economic processes can be mathematically deduced in a complex web of equations, commonly known as an econometric model. An economic model is nothing more than an extrapolation of historical data and does not tell us anything worth knowing, such as upcoming structural shifts and unsustainable economic processes.

We looked at the rate of growth in Japan since 1980 and all IMFs forecast for Japan since 1990 and plotted them. The result is unsurprising, but striking nonetheless.

Japan, opting for monetary stimulus to restructure their economy away from exports toward domestic consumption on back of a forced dollar deprecation emanating from the Louvre Accord (sounds familiar?) crashed in 1990. It was a structural shift, but IMF's models looked to recent history and consistently projected rapid growth. It was not until the mid-2000s, nearly 15 years after the fact that models got enough low-growth data into their sample to adjust forecasts accordingly. Ironically, that was just in time for another structural shift hitting the Japanese economy, which was obviously also completely missed by models guided by rear-view mirror. Just as a wave hitting the shoreline, economic forecast rises rapidly while only gradually abating toward the new reality.

Any honest person working with such models know their gross limitations and how awful their track-records are. Still, these are the tools guiding the world’s central planners when they micromanage economies, be it fiscal or monetary expansion.

They are obviously completely clueless, but still act with an extravagant level of hubris simply because they believe the scripture and their models.

via http://ift.tt/1NdxSFm Tyler Durden

In January we pointed out "the last bubble standing," as China's crashing equity market had spurred massive inflows – directed by a "well-meaning" central-planning committee's propaganda – sparking a massive bubble in Chinese corporate bond markets (in an effort to enable desperately weak balance-sheet firms to roll/refi their debt and keep the zombies alive). That has now ended as China's junk bond risk has soared to 5-month highs with its worst selloff since 2014. As HFT warns, "we should avoid junk bonds."

China’s high-yield bonds are in the midst of their worst two-month selloff since the end of 2014 and investors say they have yet to fully price in the risk of defaults as the economy slows. The gap reached a four-month high of 379 basis points, from as low as 352 on Jan. 19, as at least seven companies reneged on bond obligations this year, up from one in the same period of 2015.

 

As Bloomberg details,

“Most high-yield bonds haven’t fully priced in default risks,” said Zhao Hengyi, Shanghai-based deputy director of the bond fund department at HFT Investment Management Co., which oversees 46.9 billion yuan ($7.2 billion) of assets. “We should avoid junk bonds.”

 

Premier Li Keqiang has pledged to pull support from zombie firms that have wasted financial resources and dragged on economic growth, which is slowed to 6.7 percent in the first quarter. Chinese companies must repay a total of 31.3 billion yuan of bonds rated AA- or lower this year, the most on record, according to Bloomberg data based on rankings from the nation’s four-biggest rating firms. Corporate notes rated AA- or lower are considered as junk bonds in China.

 

China’s corporate debt burden is heavy, but if you have a lot of savings and lending, the leverage compared with countries without high saving rates is not very high, People’s Bank of China Governor Zhou Xiaochuan told a briefing in Washington on Thursday. The PBOC has lowered benchmark interest rates six times since 2014, driving a record rally in the bond market and underpinning a jump in debt to 247 percent of gross domestic product.

 

At least 37 Chinese firms postponed or scrapped 35.2 billion yuan of planned note sales through April 13, compared with nine companies pulling 12.4 billion yuan a year ago, data compiled by Bloomberg show. About half of the cancellations took place this week after state-owned China Railway Materials Co. halted its bond trading Monday.

 

“The recent default events have hurt investors,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing. “So it’s natural for bond yield spreads to go up.”

As BofA warns however, there are signs that the risk-free rate in China may have bottomed and that the credit spread is widening.

This may check any enthusiasm in the market, in our view. We consider the latest rally to be tactical and we don’t recommend that investors chase it. We maintain our year-end target for HSCEI of 9,000 and, for SHCOMP, 2,600.

 

Chart 1 shows the 5-year Chinese Government Bond (CGB) yield vs. CSI300. At the risk of oversimplifying, we separate the market’s behaviors into two phases: before mid-2013, Phase I; post mid-2013, Phase II. We judge that market confidence in fundamentals, i.e., the earnings outlook, was generally strong in Phase I; but weak in Phase II.

 

 

In Phase I, the bond yield generally correlated positively with CSI300’s performance. When the yield rose, investors, in general, believed that the economy was strong enough to endure some tightening. As a result, they were willing to continue to bid for stocks for a while.

 

On the other hand, in Phase II, investors were much less confident: when the yield rose, the market almost immediately came under pressure; when the yield fell, the rebound was mostly muted (except the artificial rally from mid-2014 to mid-2015, underpinned by perceived implicit government guarantees) and often with a significant lag. Actually, since mid-2015, despite the sharp drop in rates, A-shares have continued to be under pressure.

 

Now, interest rates appear to be experiencing upward pressure. If they indeed move up noticeably, we would expect market sentiment to weaken fairly quickly.

 

The key question for us is, if interest rates indeed rise noticeably, will the market resort to the Phase I thinking, i.e., believing that the growth is strong enough to handle the rise? While we cannot rule out the possibility, we believe that this is unlikely, given the tentative stabilization of macro conditions and the continued surge in debt.

We leave it to Xia Le to conclude,

"The equity rout merely reflects worries about China’s economy, while a bond market crash would mean the worries have become a reality as corporate debts go unpaid," said Xia Le, the chief economist for Asia at Banco Bilbao. "A Chinese credit collapse would also likely spark a more significant selloff in emerging-market assets."

 

"Global investors are looking for signs of a collapse in China, which itself could increase the chances of a crash… This game can’t go on forever."

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Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Asher Edelman just penned a powerful endorsement of Bernie Sanders in the The Guardian titled, I’m the real-life Gordon Gekko and I support Bernie Sanders.

So who is Asher Edelman? According to the paper:

Asher Edelman is an art collector and financier. He worked on Wall Street from 1962 to 1988 and taught a course at Columbia University School of Business titled Corporate Raiding: The Art of War. He is one of the inspirations for the Gordon Gekko character in the film Wall Street. 

Now here’s some of what he wrote regarding the state of the U.S. economy and the 2016 presidential election:

Banking is the least understood, and possibly most lethal, of all the myriad issues at stake in this election. No candidate other than Bernie Sanders is capable of taking the steps necessary to protect the American people from a repeat of the recent debacle that plunged the nation into a recession from which we have not recovered.

 

The potential for a depression looms heavily on the horizon. As a trained economist who has spent more than 20 years on Wall Street – and one of the models for Gordon Gekko’s character – I know the financial system is in urgent need of regulation and responsibility. Yet Hillary Clinton is beholden to the banks for their largesse in funding her campaign and lining her pockets. The likelihood of any Republican candidate taking on this key issue is not even worthy of discussion.

 

The recession of 2007-2016, and the persistent transfer of wealth from the 80% to the 1% is, mostly the result of banking irresponsibility precipitated by the repeal of the Glass-Steagall Act in 1999. The law separated commercial banking (responsible for gathering and conservatively lending out funds) from investment banking (more speculative activities).  

 

Remarkably, today the derivatives positions held by the large banks approach 10 times those of 2007-2008. In four banks alone, they exceed the GDP of the entire world. This is the interesting consequence when unchecked risk management rests in bankers’ hands.

 

Wait, there’s more. After the collapse of 2008, the Federal Reserve invested more than $15tn to save the banks under the guise of monetary stimulation. At the same time, little or no funds were channeled to the needs of the American people. Yet today we face another crisis of liquidity. This time Europe will break first, followed by their highly leveraged US colleagues. Meanwhile, the bottom 80% of Americans remain mired in a recession, having seen no increase in their incomes during the last 20 years.

 

Poverty is at its highest level since the 1930s (in some areas of the country, higher). More than 30% of all children live with families subsisting below the poverty level. Employment is at a new all-time low (the percentage of employed persons is at about 49%, having been at more than 52% prior to 2008).

 

Dodd-Frank provides the necessary structure with which to begin. Enforce it. Put teeth into bank regulation. Determine the acceptable level of risk at which banks can operate. Make management, not underlings or stockholders, responsible for violating the law. Encourage the Justice Department to be clear in seeking appropriate penalties for financial crimes in large institutions, not by fines alone but by the prosecution of those executives responsible.

 

Split up the banks that are speculating with depositor and government funds. Investment banks are supposed to risk investors’ money but commercial banks should return to lending fairly and carefully to help create a foundation for future growth. Bernie Sanders is the only independent candidate who escapes the malaise of being bought. He is paid for by the people and represents their interests. And you can take that to the bank.

Despite my reservations regarding Senator Sanders on certain issues, one thing is perfectly clear. He’s the only one running who genuinely wants to reign in the out of control financial services sector, and the only one who will aggressively prosecute bank executives. To me, this isn’t a side issue, and I agree with Mr. Edelson when he says:

Banking is the least understood, and possibly most lethal, of all the myriad issues at stake in this election.

via http://ift.tt/1Sk2dEj Tyler Durden