IEX Records Its Highest Volume Day Yet

In a curious departure from convention, the Goldman-backed, HFT-evading pseudo dark pool IEX, made famous in Michael Lewis’ blockbuster “Flash Boys” has decided to post daily volume stats of its operations. And whether it is due to the advertising by the iconic bookwriter, or because increasingly more brokers are switching over to IEX, it appears that new trading venue is gaining traction: according to its own reporting, on April 15, IEX recorded its highest volume day yet, recording nearly 38 million single-counted trades.

Granted the data is only available for April, but what is clear is that unlike most other trading venues which are having significant problems with boosting their volumes, for IEX, at least early on, this is not an issue.

Of course, the overall orderflow still are tiny in context, but the early trend is visible, and as more traders migrate to IEX it is almost assured that the exchange will become an increasingly more popular venue for the likes of the Schwabs of the world who suddenly, after five years, figured out that HFT is nothing but a cancer and is demanding a non-frontrunnable venue.

The other statistics reported by IEX are as follows:




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Bail-Ins Approved By EU Yesterday – Coming In UK, U.S. And Globally

Today’s AM fix was USD 1,299, EUR 938.58 & GBP 773.03 per ounce.               

Yesterday’s AM fix was USD 1,311.50, EUR 950.43 & GBP 784.06 per ounce.

Gold dropped $23.80 or 1.79% yesterday, closing at $1,302.90/oz. Silver lost $0.37 or 1.85% yesterday to $19.62/oz.



Gold in U.S. Dollars – April 15 to April 16, 2014 – (Thomson Reuters)

Gold was pinned at $1,300 an ounce, well off Monday’s high at $1,330.90. The sharp sudden price fall yesterday in early afternoon trade in London (see chart) was attributed to more peculiar computer-driven concentrated selling of huge tranches of gold futures contracts on the COMEX, which then saw heavy stop-loss orders placed by momentum traders.

Data from Nanex shows that gold futures contracts with a notional value of nearly $500 million dollars were sold in minutes. This, not surprisingly, hammered gold futures down over $12 and led to the futures exchange having to halt gold trading for 10 seconds. This sudden price fall resulted in gold falling  below its  200-day moving average (DMA) and to selling by momentum traders piling in and shorting gold.

Gold quickly recovered from the concentrated selling with buyers stepping up to take on the liquidators. Demand appears to be ticking up and holdings in the SPDR gold fund rose by 0.6 tons to reach 806.82 following a three-week downtrend in holdings. Assets rose by 1.8 tons on Monday to 806.22 tons, the first inflow the fund has seen since March 24th.

Gold’s losses were kept in check by fears of further escalation of tension in Ukraine. Our warning yesterday of conflict and a civil war in Ukraine was echoed by Putin and Medvedev overnight.

Gold in Euros – Jan, 2009 to April 16, 2014 – (Thomson Reuters)


Ukrainian forces began a military crackdown against what are being called pro-Russian separatists in the eastern regions of the country. The so-called ”anti-terrorist” operation is the new government’s response to people, some armed, taking control of administrative and police buildings in the East.

The local parliaments of the Donetsk and Lugansk regions elected the creation of independent, sovereign states, and called for referendums on ceding from Ukraine, much like the events in the Crimea.

Ukrainian troops retook state buildings from ethnic Russians in the eastern Donetsk region yesterday. White House spokesman Jay Carney said while the U.S. is considering military assistance to Ukraine, lethal aid isn’t an option at this time.


Thursday will see 4 way talks in Geneva, hosting senior representatives from Ukraine, Russia, the EU and U.S. It is hard to see how progress will be made given that economic sanctions remain and look set to intensify.

Yesterday, these not inconsequential geopolitical risks and robust physical demand internationally could not overcome the speculative selling and possible high frequency trading (HFT) manipulation on the COMEX.

Bail-Ins Approved By EU Parliament Yesterday – Deposits Over €100,000 Vulnerable
Yesterday the EU Parliament adopted three key texts outlining common rules on how to restructure and resolve failing banks.

The laws make up what has become more commonly known as Europe’s banking union and include the creation of a Single Resolution Mechanism and a €55 billion Single Resolution Fund for banks in difficulty. The law was approved by the parliament with 570 votes in favour and 88 against.


Importantly and little commented on is the fact that they also include the Bank Restructuring and Resolution Directive, which seeks to shift the burden of bank failure from taxpayers to creditors – both bond holders and depositors.

Another key piece of legislation approved yesterday was the Directive on Deposit Guarantee Schemes, which says that bank deposits up to €100,000 will remain protected from any loss that a bank may incur. This means that deposits over €100,000 are now vulnerable to bail-ins and deposit confiscation.


Now shareholders and creditors including depositors over the €100,000 level will be the first to face losses from a bank failure and there remains a real risk of that in the EU.


goldcore_bloomberg_chart2_10-12-13.png (606×384)

European banks have been recapitalised but should the sovereign debt crisis return or a new global systemic crisis happen, à la Lehman Brothers, individual banks may again face capital shortages – see here.


“Bail in will be the main way to solve the problems,” said Swedish MEP Gunnar Hökmark. “Bank resolution will be funded by creditors via bail ins and will also by resolution funds which will be funded by banks for banks.”

“Bail-in” enshrined in the two laws, means that the bank’s owners – the shareholders, and creditors –  the bondholders and depositors, will be first in line to absorb losses banks will incur, before outside sources of finance may be called upon.

The two EU laws on bank resolution will also require banks to finance reserve funds to cover further losses, but only after bail-ins have been used.

Bail-In Regimes are coming in the EU, the UK, the U.S. and internationally  …
Bail-In Short Guide: Protecting your Savings In The Coming Bail-In Era
Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications




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New York AG Sends Subpoenas To HFT Firms Including Tower, Jump and Chopper

Now the vacuum tubes are really in trouble. Bloomberg reports that the NY AG Schneiderman is making good on his threat to go after (it remains to be seen if this is more than a publicity stunt, and actual enforcement actions follow) several New York HFT firms. Bloomberg reports:

  • NY AG SAID SEEKING INFO ON SPECIAL ARRANGEMENTS WITH DARK POOLS
  • NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING JUMP TRADING
  • NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING CHOPPER
  • NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING TOWER RESEARCH

Surely Goldman was in no way aware of this coming crack down wave on HFT traders when it washed its hands of the entire industry, and effectively gave up on the trading space in its current format.

We doubt this will go anywhere – after all go after HFTs and the rigged market gets it – but the idea of a vacuum tube doing a perp walk is strangely appealing.




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“Pro-Russian Separatists” Attack Ukraine Soldiers With Guns, Molotov Cocktails, Local TV Station Reports

Having been on the receiving end of Ukraine special forces for the past 48 hours, it appears the “pro-Russian separatists” have decided to fight back.

  • PRO-RUSSIAN SEPARATISTS ATTACK UKRAINE SOLDIERS: HROMADSKE
  • PRO-RUSSIAN SEPARATISTS ATTACK UKRAINE MILITARY BASE: HROMADSKE
  • SEPARATISTS USE GUNS, MOLOTOV COCKTAILS IN MARIUPOL: HROMADSKE
  • SEPARATISTS ATTACK SOLDIERS IN E. UKRAINE’S MARIUPOL: HROMADSKE

Considering the source is a local Ukraine TV station, one should take the news reported by Bloomberg, with a big grain of ketamine, however also considering the 3:30pm ramp appears to be late today (or was front run repeatdly earlier on in the day), this may just be the “bullish” catalyst the “market” needs to close at the day, if not all time, highs.

More as we see it.




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GM Seeks Immunity From Lawsuits Due To Bankruptcy

While the law has been something the US government and General Motors have been willing to ‘bend’ or break in the past (absolute priority ‘shifts’ in bankruptcy), we suspect this latest move by Mary Barra’s new GM will do more PR damage. Simply put, as many suspected given Barra’s testimony and comments in the past, Reuters reports that General Motors Co will ask a bankruptcy court to block any litigation of the alleged deaths associated with the ignition switch problem since they are related to the automaker’s pre-2009 bankruptcy. Of course, as we noted here, the Feds are probing the company over whether they knowingly committed bankruptcy fraud.

As Reuters reports,

General Motors Co said it would ask a U.S. bankruptcy court to bar plaintiffs from proceeding with lawsuits against the automaker for claims related to any actions before it filed for bankruptcy in 2009.

 

The plaintiffs have alleged that they bought or leased vehicles that contained an ignition switch defect. The defect has been linked to the deaths of at least 13 people and resulted in the recall of 2.6 million GM vehicles.

 

 

GM said it would shortly file a motion in the Bankruptcy Court for the Southern District of New York to enforce an injunction contained in its sale order, which the company said bars plaintiffs from suing the reorganized company for any claims related to the predecessor company.

Of course, there is still the bankruptcy fraud probe…as we noted before,

Federal authorities are investigating whether General Motors hid an ignition switch defect when it filed for bankruptcy in 2009, The New York Times reported on Saturday.

 

The Justice Department’s investigation of the automaker includes a probe of whether GM committed bankruptcy fraud by not disclosing the ignition problem, a person briefed on the inquiry told the Times on Friday, the paper said.

 

Authorities are also investigating whether GM understated the defect to federal safety regulators, the Times said.

 

 

The investigation is being run by FBI agents and federal prosecutors who worked on the fraud case against Toyota that ended in a $1.2 billion settlement last week, the paper said.

We wait with baited breath for outcome of this decision and how GM will spin this – and if the US government will bend the law once more… this time in favor of the families of the dead.




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Moldova’s Transnistria Region “Approves” Appeal To Russia For Independence

As the EU seeks a closer association with Moldova, the 97% pro-Russian state of Transnistria (that we first warned was next here) is accelerating its move towards independence. As Bloomberg reports, despite condemnation by Moldova's government of the "direct defiance", the Transnistria Assembly has approved an appeal to Russia to recognize the region's independencee. Neighboring Romania is "worried" and there are growing 'actions' by the so-called "Supreme Soviet" in the region's capital.

 

Who is next?

 

As Bloomberg reports,

Moldova’s breakaway pro-Russian region of Transnistria has appealed to Russian President Vladimir Putin to recognize its independence after Russia’s annexation of Crimea.

 

The appeal by the Parliament of Transnistria, city and district council members and community associations “express the aspirations of the people of Transnistria” and is based on the results of referendums held in 1991, 1995 and 2006, the parliament of the unrecognized state said on its website.

 

 

The Transnistrian parliament’s appeal is a “direct defiance” of Moldova’s territorial integrity and efforts to settle the territorial dispute, the country’s government said in a statement on its website.

 

 

Russia has maintained troops in Transnistria since the 1992 military conflict with Moldova as part of a peace-keeping force that includes Moldovans, Transnistrian militants and Ukrainian military observers.

However, it seems the Transnistrian and Moldovan government is busy with other matters… Nina Shtanski (minister for foreign affairs) and Deputy Chairman of the Central Transnistria Olga Radulov made news after agreeing to model clothes in a local charity auction – "I do not believe that the main task of the members of the government – to show clothes," – said the prime minister.

You decide…

 

In summary, a nation bordering Russia is being chased by the European Union for closer association… a region in that nation is extremely populated by a pro-Russian citizenry and they are seeking independence and closer association with Russia… 'activists' are taking action in the region's capital… the government is deloring the "direct defiance" – how dare people have free will? And a neighboring nation is worried of the consequences…

Ring any bells?




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It’s Official: America is an Oligarchy and NOT a Democracy or a Republic

We noted last year:

American democracy – once a glorious thing – has devolved into an oligarchy, according to two leading IMF officials, the former Vice President of the Dallas Federal Reserve,  the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others.

But don’t take their word for it …

A new quantitative study by Princeton’s Martin Gilens and Northwestern’s Benjamin Page finds that America is not a democracy … but is an oligarchy.

Here’s a quick visual overview from the study:

In other words, when the fatcats want something, it will probably happen.  But when the little guys want something … not so much.

Highlights from the study:

A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. This paper reports on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues.

 

***

 

Economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence. Our results provide substantial support for theories of Economic Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.

 

***

 

Very few studies have offered quantitative evidence concerning the impact of interest groups based on a number of different public policies.

 

***

 

Prior to the availability of the data set that we analyze here, no one we are aware of has succeeded at assessing interest group influence over a comprehensive set of issues, while taking into account the impact of either the public at large or economic elites – let alone analyzing all three types of potential influences simultaneously.

 

***

 

The chief predictions of pure theories of Majoritarian Electoral Democracy can be decisively rejected. Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all.

 

By contrast, economic elites are estimated to have a quite substantial, highly significant, independent impact on policy.

 

***

 

These results suggest that reality is best captured by mixed theories in which both individual economic elites and organized interest groups (including corporations, largely owned and controlled by wealthy elites) play a substantial part in affecting public policy, but the general public has little or no independent influence.

 

***

 

When a majority – even a very large majority – of the public favors change, it is not likely to get what it wants.  In our 1,779 policy cases, narrow pro-change majorities of the public got the policy changes they wanted only about 30% of the time. More strikingly, even overwhelmingly large pro-change majorities, with 80% of the public favoring a policy change, got that change only about 43% of the time.

 

***

 

Our findings probably understate the political influence of elites.

 

***

 

What do our findings say about democracy in America? They certainly constitute troubling news for advocates of “populistic” democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.

 

***

 

If policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.

No wonder the chairman of the Department of Economics at George Mason University said that politicians are not prostitutes, they are pimpspimping out their services to the highest bidder.

The Supreme Court is not much better: their allowance of unlimited campaign spending allows the oligarchs to purchase politicians more directly than ever.

Moreover, there are two systems of justice in Americaone for the big banks and other fatcats, and one for everyone else.

And not only do we not have democracy, but we also no longer have a free market economy.  Instead, we have fascism, communist style socialism, kleptocracybanana republic style corruption, or – yes – “oligarchy“.




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“Fed Policies Have Made The Rich Much Richer”, Fed President Admits

Despite Janet Yellen's meet-and-greet with the unemployed and criminal classes, the absence of Ben Bernanke has seemingly empowered several Fed heads to be just a little too frank and honest about their views. The uncomfortable truthsayer this time is none other than Dallas Fed's Fisher:

  • *FISHER SAYS FED POLICIES HAVE MADE THE RICH 'MUCH RICHER' (but…)
  • *FISHER: UNCLEAR IF FED POLICIES WILL BENEFIT THE MIDDLE-CLASS

We wonder how President Obama, that crusader for fairness, equality and all time Russell 2000 highs, will feel about that? In the meantime, just like the Herp, QE is the gift that keeps on giving.. and giving… and giving… to the 0.001%.

All of this, of course, coincides awkwardly with Bernanke's heartfelt "admission" that "my natural inclinations, even if it weren’t for the legal mandate, would be to try to help the average person." As long as helped to boost the wealth of the non-average billionaire., all is forgiven. "The result was there are still many people after the crisis who still feel that it was unfair that some companies got helped and small banks and small business and average families didn’t get direct help,” Bernanke said. “It’s a hard perception to break." The truth, as again revealed by Fisher, will not help with breaking that perception.

Remember, it's for Main Street…

US Income Gap Soars To Widest Since "Roaring 20s"

 

Record US Income Inequality In One Chart

 

Shopping With Bernanke: Where QE Cash Ends Up Tells Us Who Benefited

 

Just keep repeating to yourself – The government is here to help and Yellen is for the little guy…

 




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With 103 Mentions Of “Weather”, It Is Time To Rename The ‘Beige Book’ To The ‘Weather Book’

While overall the beige book was an absolute snoozer, almost as boring as Yellen’s earlier appearance at the economic club of New York, and its core message were quite bullish, namely that:

  • EIGHT OF 12 FED DISTRICTS SAY GROWTH `MODEST OR MODERATE’
  • FED SAYS ECONOMIC GROWTH `INCREASED IN MOST REGIONS’ OF U.S.
  • FED SAYS LABOR MARKET CONDITIONS `MIXED BUT GENERALLY POSITIVE’

… confirming that the Beige Book contributors did not get the “ignore the dots” memo, the only “exciting” thing that everyone was looking for: what the Fed thought about the weather. Because with 103 instances of the word “weather” in the report (granted less than the 119 in February), it sure thought a lot.

Some examples:

  • Consumer spending increased in most Districts, as weather conditions improved and foot traffic returned.
  • Manufacturing improved in most Districts. Several Districts reported that the impact of winter weather was less severe than earlier this year.
  • Demand for food production declined in the Boston, Richmond, and Dallas Districts; however the drop was primarily weather related.
  • New York and Dallas reported especially strong increases. New York, Philadelphia, Cleveland, and Richmond cited the inclement weather as a factor reducing home sales and therefore mortgage borrowing.
  • Agricultural reports were mixed, as weather disruptions delayed crop plantings and shipments of commodities.
  • Retail sales in New York rebounded strongly from weather-depressed levels, while cold weather continued to hold down consumer spending in Cleveland.
  • Sales of cars and light trucks picked up in recent weeks as the weather improved and consumer traffic returned to dealerships.
  • Some contacts suggested that cold weather had decreased travel.
  • The Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and Dallas Districts noted that lingering winter weather hampered business activity, but the impact was less severe than earlier this year.
  • The Chicago District indicated that steel production recovered from a weather-related slowdown and capacity utilization returned to its expected levels.

The embarrassment continues in the full book (link). Luckily, there was only one case of “pig virus”

Full April beige book word cloud:




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About That “Strong” March Retail Sales “Bounce”: Good Thing Summer’s Coming!

Submitted by David Stockman via Contra Corner blog,

What would we do without the Wall Street Journal? Do people actually pay for this lame-brained noise?

Retail Sales Surge as Consumers Rev Up Growth

Indicator Posts Best Monthly Growth Since September 2012

In fact, we are now entering the fifth season of head-fakes about “escape velocity” acceleration in as many years. Yet the Wall Street stock peddlers and their financial media echo boxes are so fixated on the latest “delta”—that is, ultra short-term “high frequency” data releases—that time and again they serve up noise, not meaningful economic signal. The former is perhaps good for a pre-open futures ramp by the algos upon the 8:30 AM headline release, but nearly useless as to the real direction of America’s struggling economy.

The WSJ headline writer quoted above might have at least noted the context in which the 1.1% seasonally mal-adjusted bounce for March was reported yesterday. It seems that even giving allowance to what the Fed believes to be the ”insufficient” level of consumer inflation in recent months that the February starting point for yesterday’s report was down nearly 1% from its level last September. So when the winter storms are all said and done and the inflation adjusted retail number for March is published, it will be back to about $183 billion on the graph below—a level obtained around Columbus Day last fall. It’s a good thing summer’s coming!

The larger point here is that the Kool-Aid drinkers keep torturing the high frequency data because they are desperate for any sign that the Fed’s $3.5 trillion of QE has favorably impacted the Main Street economy. And that’s important not because it might mean some sorely needed income and job gains for middle America, but because its utterly necessary to validate the Fed’s financial bubble. Without ”escape velocity” thru and sustainably above 3-3.5% GDP growth, there is no chance of a corporate earnings re-acceleration or the 20-30% gain in S&P 500 profits that are baked into the current forward PEs ($130 per share vs. reported LTM of $100).

Yet is it really not that hard to strain the noise out of the numbers. The starting point is to recognize that the Keynesian economists’  almost maniacal focus on monthly releases and quarterly GDP numbers has always been a giant mistake— and not only because they are so consistently and significantly revised after the fact owing to plugs, guesses and imputations in the early releases. The real problem is structural because quarterly GDP numbers are based on 90-day rates of ”expenditure”. The latter contains huge oscillations in the economy’s inventory stocking and destocking function, and therefore can drastically mis-convey the underlying trends.

During the past 18 quarters for example, real inventory change has ranged from -$207 billion to +$127 billion, with points up and down the range during the interim. So a far more sensible use of even the flawed GDP data is to look at the year-over-year numbers for real final sales. That captures the trend and thereby filters out the four fake GDP accelerations that Wall Street has been gumming about since the end of the recession.

Here are the numbers.  During the year ending in Q4 2010—the first year of “recovery”—real final sales expanded at a 2.0% rate. The next year there was no acceleration. Real final sales in the year ended in Q4 2011 was 1.8%—then it slightly bounced to 2.5% in 2012. And then, despite the initially reported big GDP acceleration in the second half of 2013, no such thing actually happened.

In fact, the four quarter gain in real final sales as of the most recent reporting on Q4 2013 was just 1.9%; and given the weak spending data already in for Q1 2014, its virtually certain to weaken even further during this quarter. In short,  based on any reasonable and adult assessment of the numbers for the last 51 months, there has been no acceleration whatsoever. The economy is bumping along the bottom at 2% and that’s it.

Moreover, the problem with the 2% trend who’s name cannot be spoken is that it invalidates the entire bubble recovery scenario in which the inhabitants of the Eccles Building and their Wall Street overlords are completely invested. What has actually happened since the fall-winter 2008 crisis is that there was a drastic and unavoidable one-time liquidation of excess business inventories and phony jobs that had built-up during the Greenspan housing and credit bubble years, but that was nearly over by June 2009. This is documented in detail in Chapter 28 of my book, The Great Deformation (see pp 583-588, “The False Depression Call That Petrified Washington”).

Since then, the natural regenerative forces of our $17 trillion  capitalist economy have been slowly inching output, income and employment forward at the aforementioned 2% rate— if you believe the official inflation data, and well less than that in reality. But the Fed’s massive money printing spree has nothing to do with it because the credit expansion channel of monetary policy transmission is broken and done.

As I have repeatedly mentioned, once “peak” business and household leverage ratio where reached in 2007-2008, the Fed’s massive liquidity injections operated almost exclusively through the Wall Street speculation channel. And that is exactly what has lead to forlorn quest for “escape velocity”.

The trailing 12 months reported EPS for the S&P 500 in Q4 2011 was about $90 per share, and today it is about $100. But while earnings have grown only 5%/year on a mechanical basis, and hardly at all after giving allowance to the massive, cheap-debt fueled stock buybacks in the interim, the broad market has bubbled upwards by more than 40%. In other words, its now extended out on the same peaks—about 19X trailing profits—that were obtained before the crashes of 2000-01 and 2008-09.

Nevertheless, the Wall Street talking heads can’t help themselves with the constant ridiculous refrain that the consumer is back, and its soon off the races:

The linchpin of economic growth, the consumer, is back,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.

Oh, really. Real wage and salary income is only 2% above its level 73 months ago when the economy last peaked. And after a salutary rebound in the savings rate during the Great Recession, the household savings rate has been drawn down to its unsustainable bubble lows. But pettifoggers like Rupkey just keep pouring the Kool-Aid.

So the Fed sponsored Wall Street bubble inflates to its final asymptote. When the inevitable bust occurs, it will trigger a sharp retrenchment in business inventories, investment and consumer spending, but  the usual suspects will say its time to restart the Keynesian Clock. That being the one that is now permanently broken but never acknowledged by our rulers in the Wall Street-Washington corridor— who long ago threw sound money and the laws of economics to the winds in a desperate attempt to hang on to ill-gotten power and wealth.

In any event, in today’s post by Jeffrey Snider, it is evident that we just had winter; that the three month retail spending average including the ballyhooed March bounce was the second weakest of this century, and that the fifth annual spring time leap into “escape velocity” is nowhere in sight.

 

ABOOK Apr 2014 Retail Sales wout Autos Jan Mar




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