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via Zero Hedge http://ift.tt/1qII2zT williambanzai7

By: Brad Thomas at: http://ift.tt/146186R

We are repeatedly reminded by many so-called “experts” that the stock market is in a bubble, and that when central bank quantitative easing programs end stock markets will “crash.”

However, it would appear that the only bubble is people’s uncertainty of the future and their desire to hold large sums of cash. These high cash levels equate to a huge pool of marginal buyers, rather than sellers, for stocks and other “real” assets.

With more buyers than sellers the most likely next big move for stocks is up, not down. This will be the case until equity markets are overbought. Thus, until that time we should not concern ourselves with any material downside.

One of my guiding “mantras” is a quote from the famous value investor John B. Templeton:

Bull markets are born in pessimism, grow in skepticism, mature in optimism, and die in euphoria.

If one can simply identify where we are on this continuum then everything else falls in place! Yes, it does seem simple, but the hard part is interpreting the data and sentiment to discover where we are. In order to do this one needs to have been through a few market cycles to know what conditions of optimism and euphoria are all about.

I started trading in the mid 1980s and I have been through everything between now and then. Yes, it has been one hell of a ride. However, courtesy of this “journey” I know what optimism/euphoria is all about (thank the TMT bubble for that) and what all previous market tops had in common.

Contrary to popular belief the common trait wasn’t that they were expensive, rather it was that too many people owned stocks. Markets reach stages where they quite literally run out of buyers and that is when they are prone to significant downside movements.

So let’s have a look at a few indicators which will shed light on how the market is positioned – i.e. the “ratio of weak to strong hands”. Previous market tops were characterized by high levels of consumer confidence. Granted no one indicator is perfect and free of “noise”, however, it does seem that once the Conference Board Consumer Confidence Index reaches the 110 level the market is in danger of serious downside and investors should be very cautious of being over invested in stocks. Note where the index currently sits – right bang in “neutral” territory.
 

Yes, it is difficult to comprehend but, if consumer confidence is anything to go by, we are probably only half way through the current bull market! This may seem a wild assertion but it is backed up by what investors are doing with their savings.

When optimism is high people feel certain about the future and as a consequence they invest a high proportion of their savings in the stock market. High levels of fear/uncertainty or a lack of confidence is associated with a high proportion of peoples’ savings in cash or equivalents.

This week I couldn’t help but notice the following article in the Washington Post on 18 July:

The first paragraph of the article reads:

Americans are holding more cash in their bank accounts than they have at any other point over the last two decades, a new study found. The average checking account balance reached $4,436 at the end of last year, nearly double the average balance of $2,100 seen over the last 25 years, according to a new report from Moebs Services, an economic research firm. Prior to 2003, checking account balances pretty much hovered around $2,000, according to the report.

Cash levels more or less the highest in a generation! This isn’t “typically” the sort of condition that occurs anywhere near the end of an equity bull market! The same tone of this article was echoed by the following on Yahoo Finance on 21 July:

However one looks at it – cash is still a way more popular investment alternative than stocks:

Bankrate.com released the results of a new survey about how secure Americans feel about their personal finances compared with 12 months ago. According to the results, Americans overall chose cash as their favourite long-term investment. In fact, 1 in 4 Americans prefer cash investments for money they will not need for at least 10 years. Stocks came in third with 19% of the vote.

Nearly 40% of 18-29 year-olds say cash is their preferred way to invest money they don’t need for at least 10 years, despite the fact that the S&P 500 has gained 17% over the past year while the yield on cash investments is below 1%.

Getting back to Templeton’s quote “bull markets are born in pessimism, grow in skepticism, mature in optimism and die in euphoria” – if these articles and the Consumer Confidence index are anything to go by then we are nowhere near a condition of optimism perhaps at best we are still in skepticism!

Yes, it is very hard to comprehend this given that the S&P is up well over 100% in some 5 years but we should be very careful of jumping to the conclusion that the stock market and sentiment move in a lockstep or linear fashion. I think that many investors are under the mistaken belief that the performance of the stock market translates directly to sentiment.

You might be asking – how has the stock market managed to advance as dramatically as it has over the last 5 years? I think to a large extent this has been driven by corporate buybacks. Many companies have been aggressively buying back their own stocks over the last 5 years which has dramatically reduced the liquidity of stocks to trade. So with liquidity in shares being dramatically reduced it doesn’t take much in the way of buying pressure to push prices higher.

This leads us to a very interesting situation and looming disaster for those who aren’t invested in stocks! Consumers (who are ultimately the buyers of stocks) have the highest cash levels in a generation, combined with the liquidity of stocks that is probably the lowest in a generation and you have the recipe for the best is yet to come in the stock market. Yes, the rally in stocks is likely to continue for many months and the performance may well rival what we have seen over the last 5 years!

– Brad

 

“Fear and euphoria are dominant forces, and fear is many multiples the size of euphoria. Bubbles go up very slowly as euphoria builds. Then fear hits, and it comes down very sharply. When I started to look at that, I was sort of intellectually shocked. Contagion is the critical phenomenon which causes the thing to fall apart.” – Alan Greenspan

via Zero Hedge http://ift.tt/1zOBT6m Capitalist Exploits

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

The following story is a warning as to why centralized power is so dangerous. It doesn’t matter whether the power is political or corporate, overly centralized power in all forms must be resisted whenever it appears. The worst of all worlds is when centralized political and corporate power unite in an unholy alliance, which is what has happened to America in recent decades. When this occurs, the combined forces of oligarchy simply begin to rapaciously feast on the citizenry with zero accountability. This is a fair description of the United States in 2014.

The primary problem with centralized power is that sociopaths (for obvious reasons) gravitate toward, and greatly covet, positions of power. Once entrenched in such positions, they are able to act upon their perversions with general immunity, and if they are caught, are often left in positions of power by others who at that point “own them” via blackmail. This of course is nothing new, it is how the game of power, politics and economics has been played since the beginning of time. It is also why decentralization of power is the natural evolution we as a species must embrace in order to build a better world.

Enter Timothy DeFoggi, the one-time cybersecurity director of the U.S. Department of Health and Human Services, who received several awards for his government “service” over the years. The self-proclaimed man of “many perversions,” frequented a child porn site called PedoBook where he “exchanged private messages with other members expressing interest in raping, beating and murdering infants and toddlers.”

More from Wired:

 

via Zero Hedge http://ift.tt/1sMialf Tyler Durden

Over the weekend, we reported that Iceland’s Bardarbunga volcano, located under Europe’s largest glacier, Vatnajökull, has started to erupt with the Iceland met service warning of yet another possible pyroclastic cloud, one which will likely snarl transatlantic air traffic as happened after the 2010 eruption of Eyjafjallajokull and the 2011 smaller but just as damaging Grimsvotn volcano eruption.

Well, as Icenews reports, a fissure eruption has started in the Holuhraun lavafield north of Dyngjujökull. Newly formed crevasses were spotted in surveillance flyovers by scientists yesterday and at that time geophysicist Magnús Tumi Guðmundsson estimated that the magma intrusion which had been monitored for the previous week was moving only 2 kilometres under the surface. 

The magma has now breached the surface and the volcanic eruption has been confirmed by scientists in the field. The low frequency tremors suggests the eruption is located outside the glacier. The blaze can be observed in Mila’s webcameras, two of which are trained on Vatnajökull glacier’s Bárðarbunga area.

According to the National Commissioner of the Icelandic Police the eruption is thought to be coming from a 3-400m long fissure with direction to NE-SW according to first reports.

While not much is visible in the following live webcasts of the volcano, as it is currently night over Iceland, the magma glow can be distinctly seen from various angles:

 

More from Visir:

Lava eruption has begun in Holuhraun, north of Dyngjujökull. The Met office confirms that and webcams in the area show that lava is braking it´s way up on the surface.

 

First news from the Civil Protection in Iceland tell us that the Lava is making it’s way up on the surface in a 400m long area north of Dyngjujökull.

 

The eruption is located on an ice-free zone which tells us that no ice is being melted so far causing floods in rivers in the north of Iceland. “This is probably located on the north end of the lava tunnel that moves from under Dyngjujökull. The eruption is located on an ice-free zone” says Rögnvaldur Ólafsson from the Civil protection in Iceland.

 

“The eruption is not a big one, but we urge people to be safe and not go to near the eruption,” says Rögnvaldur. “There are chances of explosions.”

A comprehensive 3D seismic map of the volcano after the jump:

 

So will this explosion affect your flight plans, or the air quality above you? Here is a real time wind map over Iceland to help you decide.

via Zero Hedge http://ift.tt/1pnTOR8 Tyler Durden

…In Foreign Bribery.

 

As OECD notes,

The most widely accepted estimate of global bribery puts the total at around USD 1 trillion each year (World Bank, 2004). In the developing world, bribery amounts to around USD 20 billion to USD 40 billion a year – a figure equivalent to 15-30% of all Official Development Assistance (World Bank, 2007). 

 

Corruption in awarding business contracts has social, political, environmental and economic costs which no country can afford. Serious consequences result when public officials take bribes when awarding contracts to foreign businesses for public services such as roads, water or electricity. A USD 1 million dollar bribe can quickly amount to a USD 100 million loss to a poor country through derailed projects and inappropriate investment decisions which undermine development.

Source: OECD

via Zero Hedge http://ift.tt/1sM0Mgu Tyler Durden

Submitted by John Rubino via The Dollar Collapse blog,

Excerpted From The Money Bubble: What To Do Before It Pops by James Turk and John Rubino:

In a very real sense, it is fractional reserve banking and not money itself that is the root of so many of today’s evils. Whenever fractional reserves are permitted, the banking system – including the one that exists today throughout the world – comes to resemble a classic Ponzi scheme which can only function as long as most people don’t try to get at their money.

A Better System
Now, is this critique of the current monetary system just impotent ideological whining over something that, like the weather, can’t be changed? Or could fractional reserve banking and the resulting need for economic central planning actually be replaced by something better? Specifically, how could a banking system without fractional reserve lending accommodate depositors’ demand that their money be there when they want it and borrowers’ desire for 30-year mortgages which would tie up those deposits for decades? And could this market operate without the need for government oversight and management?

The answer to that last question is yes. A better financial system is possible, and here’s how it would work:

First, today’s commercial banks would split into two types. “Banks of commerce” would take deposits and keep them safe for a fee, like the goldsmiths of old. “Banks of credit” would pay interest on deposits and lend out depositor money, but would have to match the duration of deposits with the duration of loans. Deposits that can be withdrawn anytime (a checking account for instance) could only be used to fund a loan which the bank can “call” on demand, while longer-term deposits (say a 5-year CD) would be matched to longer-term loans like a business term loan or 5-year mortgage. Really long-term loans like 30-year mortgages would be funded with deposits for which the bank would have to pay up in order to convince a depositor to part with his or her money for such a long time.

The resulting mortgage would carry a high enough rate to provide the bank with a small profit, which would make 30-year mortgages both expensive and hard to get. But the case can be made that they should be hard to get. Buying a house – or anything else that requires capital for extremely long periods – should require a hefty down payment, other liquid assets as collateral and a solid income stream. This coverage would give the bank the ability to foreclose and realize more than the value of the loan, which would protect its ability to repay its depositors, thus making depositors more willing to tie up their money for long periods.

Such a society would be a lot less prone to excessive debt accumulation and inflation, bank runs would be far less frequent and government deposit insurance would be much less necessary. It would, in short, be a saner world in which individuals managed their own finances, saved with confidence and borrowed only for highly-productive uses, while two sharply-differentiated types of banks facilitated wealth protection and real wealth creation rather than paper trading.

Today’s investment banks and hedge funds, meanwhile, would be set free to speculate with their investors’ money to their hearts’ content, making fortunes when they succeed and collapsing when they fail, with no public stake in either outcome. They would be seen as high risk/high reward propositions and their customers and investors would participate with eyes wide open. No entity would be “too big to fail” because the banking system would be insulated from the vicissitudes of more volatile investment markets.

Central banks in such a 100-percent reserve world would either be completely unnecessary or serve a sharply-defined, very limited function of issuing paper currency 100-percent backed by gold/silver reserves and standing ready to exchange one for the other upon request. No need to be a lender of last resort because the banking system is sound and stable. No need to intervene in currency markets to fool citizens into treating valueless paper as a savings vehicle because paper, as a warehouse receipt for real assets, will have intrinsic value. Booms and busts would be fewer and less devastating, reducing the need for government programs in response. Debt levels would be miniscule by today’s standards, and therefore easily serviced from profitable activities. This hypothetical world, in short, is more modest and far more sustainable. All in all, it’s an attractive, completely feasible vision.

via Zero Hedge http://ift.tt/1ljqRF4 Tyler Durden

Shortly after Obama admitted to the world he has no strategy how to deal with ISIS, about two weeks after the “humanitarian” bombing of Iraq started, he rushed into a meeting of his National Security Council. Two and a half hours later, the meeting has finished and we hope the president finally does have a strategy, one that isn’t determined solely by Qatari natural gas pipeline interests.

Here, courtesy of Mark Knoller, is who was present at the NSC meeting (and how):

WH posts list of participants in Pres Obama’s National Security Council meeting this afternoon/evening on Iraq, ISIL and Syria. Ran about 2½ hours.

• The Vice President (via secure video)
• Secretary of State John Kerry (via secure video)
• Secretary of Defense Chuck Hagel (via secure video)
• Attorney General Eric Holder
• Secretary of Homeland Security Jeh Johnson (via secure video)
• White House Chief of Staff Denis McDonough
• National Security Advisor Susan Rice
• U.S. Permanent Representative to the United Nations Samantha Power (via secure video)
• White House Counsel Neil Eggleston
• Director of National Intelligence James Clapper
• Director of the Central Intelligence Agency John Brennan
• Chairman of the Joint Chiefs of Staff Martin Dempsey (via secure video)
• Vice Chairman of the Joint Chiefs of Staff James Winnefeld
• Director of the National Counterterrorism Center Matthew Olsen
• U.S. Central Command Commander Lloyd Austin (via secure video)
• Director of the Office of Management and Budget Shaun Donovan
• Deputy National Security Advisor Antony Blinken
• Assistant to the President for Homeland Security and Counterterrorism Lisa Monaco
• Deputy National Security Advisor for International Economics Caroline Atkinson
• Deputy Secretary of State William Burns
• White House Coordinator for the Middle East, North Africa, and Gulf Region Philip Gordon
• Assistant to the President and Director of the Office of Legislative Affairs Katie Fallon
• Deputy Assistant Secretary of State for Iraq and Iran Brett McGurk
• U.S. Ambassador to Iraq Robert Stephen Beecroft (via secure video)
• Suzanne George, Executive Secretary and Chief of Staff of the National Security Council

Meanwhile, we must admit that we doubt Obama was honest when he said there is no strategy. Alas, the White House has a very clear strategy of what to do in Iraq. Here it is:

 

1. Cite humanitarian crisis as excuse to intervene
2. Drop a nominal amount of humanitarian aid
3. Drop a lot of bombs
4. More bombs

— Charles Davis (@charliearchy) August 28, 2014

via Zero Hedge http://ift.tt/1C821ND Tyler Durden

Aside from his “we don’t have a strategy” comment, the loudest statement President Obama made this afternoon appeared to be his choice of a “taupe” jacket. However, with everyone discussing Obama’s “tan pan”, we wonder isn’t the President’s ‘green’ fixation a more relevant topic?

Forget Orange, Green in the new Black…

Green Jackets and Health Care and a $15 Minimum Wage (oh and a Maserati) for all…

 

h/t @convert_trader

via Zero Hedge http://ift.tt/1C7Y5fX Tyler Durden

Just when you thought it couldn't get any worse… In a veritable deluge of data from Japan tonight, there is – simply put – no silver lining. First, Japan's jobless rate unexpectedly jumped to 3.8% – its highest since Nov 2013 (despite the highest job-to-applicant ratio in 22 years). Then, household spending re-collapsed 5.9% for the 4th month in a row (showingh no sign of post-tax-hike-recovery). Industrial Production was up next and dramatically missed expectations with a mere 0.2% rebound after last month's plunge (-0.9% YoY – worst in 13 months), quickly followed by a 0.5% drop in Japanes retail trade MoM (missing hope for a 0.3% gain). That's good news, right? Means moar QQE, right? Wrong! Japanese CPI came hot at 3.4% YoY with energy costs and electronic goods 'hyperinflating' at 8.8% and 9.1% respectively. As Goldman's chief Japan economist warns, "the BOJ doesn’t have another bazooka," adding that "The window for reform may already have been half closed." We're gonna need another arrow, Abe!

 

Japanese unemployment jumps to highest since Nov 2013…

 

But the job-to-applicant ratio is at its highest since 1992 (no incentive to work?)

 

Blowing the idea that "slack" is creating deflation out of the water.

Household spending then collapsed 5.9% YoY… 4th month in a row…

As Bloomberg notes, Inflation-adjusted household income fell 6.2% in July y/y, extending its slide to a 10th month in a row, according to data released today by Japan’s statistics bureau.  That is the longest period of declines since at least 2004

Retail Sales dropped and missed again…

 

• Credit creation slowed as Loans rose only 1.95% YoY – slowest since March

But don't expect Moar QQE… as inflation is on fire…

• MNI: JAPAN JULY CPI ELECTRONICS GOODS +9.1% Y/Y VS JUNE +8.0%
• MNI: JAPAN JULY CPI ENERGY COSTS +8.8% Y/Y VS JUNE +9.6%
• MNI: JAPAN JULY CPI TVS +11.8% Y/Y VS JUNE +8.0%
• MNI: JAPAN JULY CPI FOOD EX-PERISHABLES +4.3% Y/Y; JUNE +4.1%

But apart from that… what a total disaster… only – we are sure – to be met with some glib comment from the Japanese politicians that the recovery is on track and there are signs of recovery…

*  *  *

Wondering how this ends… here's Bloomberg Briefs Tom Orlik ( @TomOrlik ) discussing the future for Japan with Goldman Sachs' chief Japan economist Naohiko Baba

Why Japan May Catapult From Deflation to Stagflation
ONE ON ONE TOM ORLIK, BLOOMBERG ECONOMIST

A heroic attempt to lift Japan’s economy out of deflation may succeed only in pushing it into stagflation. Goldman Sachs’ chief Japan economist Naohiko Baba tells Bloomberg Economist Tom Orlik why he thinks reviving growth will be tough.

Q: What’s your assessment of Abenomics’ progress so far?

A: Monetary and fiscal stimulus has provided a boost to the markets but the real economic impact is short lived. Structural reform is most important and progress has been limited. Discussion of the Trans-Pacific Partnership has been delayed. There’s been very little progress on labor market reform. We’re seeing higher labor force participation, but that reflects a recovery trend in place from before the start of Abenomics. The impact of reforms has been very limited.

Q: Do you think the Bank of Japan can hit its 2 percent inflation target?

A: I am skeptical. The CPI has already declined from its April peak. The BOJ says it will come down to around 1 percent over the summer then rise again from the second half of the fiscal year. They expect higher wages to make the difference. My view is the CPI will fall to around 0.8 percent to 1 percent and then stay there. I don’t expect the wage channel to work. If you look at the spring wage negotiations this year, despite a big government push, the results were disappointing. In 2015, weaker profits will mean reduced funds for firms to pay higher wages. My guess is that July 2014 wage growth could be the peak.

Q: If inflation goes off track, what will the BOJ do?

A: They will keep their program in place through 2016, make it open ended. They might adjust the composition of purchases, buy more ETFs. It’s difficult for them to increase the size of their JGB purchases. Banks have already sold a large part of their government bond portfolio. Liquidity in the market is low. If they can’t increase the size of their program significantly, the BOJ doesn’t have another bazooka.

Q: How do you assess the impact from April’s tax increase?

A: There was front-loading of purchases ahead of the tax increase and then payback afterward. That’s a temporary impact. The bigger worry is the fall in real income from the tax increase and higher inflation. That’s a longer-lasting impact. Second quarter GDP growth was very weak. If you take out the positive contribution from inventory buildup, real growth was minus 11 percent on a quarter-on-quarter annualized basis. That’s much worse than after the 1997 tax increase.

Q: It seems like Abenomics so far has not been good for households.

A: Real wages are falling 3 percent a year. Real disposable income was down minus 8 percent year on year in the June household survey. It is as if Japan’s economy is heading into stagflation. That’s good for managing debt, bad for quality of life. As households see quality of life fall, it may negatively affect the approval rating f r the Cabinet. That will make it harder to push painful structural reforms. The window for reform may already have been half closed.

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1wKEiTB Tyler Durden

Has Germany had enough? Hot on the heels of Mario Draghi’s ‘demands’ that EU leaders undertake “structural reforms” to boost competitiveness and overcome the legacy of Europe’s debt crisis, German Finance Minister Wolfgang Schaeuble unleashed perhaps the most worrisome statement tonight for all the free-money-party-goers – the music is about to stop. In an interview with Bloomberg TV, Schaeuble blasted “Europe needs to find ways to foster growth,” adding that “the ECB has reached the limit in helping the Euro Area.” In a clear shot across the bow of his ‘core’ cohort, Schaeuble said he “understood” Hollande’s demands but shot back that “monetary policy can only buy time.”

As WSJ notes, the French are seeking aid…

Growth in France had already ground to a halt in the first quarter, and Paris now says the persistent weakness means it won’t be able to meet its deficit reduction target this year.

 

“We can’t deny that certain geopolitical risks are playing a very important role at the moment. There are indicators of an economic slowdown,” Mr. Schaeuble said in a joint press conference with Mr. Sapin.

 

…

 

French President Francois Hollande has proposed holding a euro-zone summit to discuss using the flexibility of EU treaties to slow the pace of deficit reduction. Mr. Schaeuble avoided saying whether Germany would approve a more flexible approach for any country in particular.

 

“Nobody has a lesson to give to anyone else because everyone knows the rules,” Mr. Schaeuble said.

 

Germany has been reluctant to give up on fiscal discipline without seeing results from French promises to make structural changes to the economy in areas like labor law and welfare benefits. Europe last year already granted France a two-year delay to 2015 to bring its deficit within the EU rule of 3% of economic output–a target France is now likely to miss.

 

Mr. Sapin said the French president’s request for a euro-zone meeting is to discuss the currency bloc’s problems as a whole, not France’s specifically.

 

“It’s in no way a demand for an extension–that I can tell you straight away,” Mr. Sapin said.

Which means only one thing – it is a demand for an extension… which perhaps explains Schaeuble’s extreme tone this evening (bia Bloomberg):

• *SCHAEUBLE SAYS  HE ‘UNDERSTANDS’ HOLLANDE’S EU ECONOMIC PLAN
• *SCHAEUBLE SAYS EUROPE NEEDS TO FIND WAYS TO FOSTER GROWTH
• *SCHAEUBLE SAYS ECB HAS REACHED LIMIT IN HELPING EURO AREA
• *SCHAEUBLE SAYS MONETARY POLICY CAN ONLY BUY TIME

As he explains:

 

“Monetary policy can only buy time,’’ Schaeuble said in the interview yesterday.

 

“Liquidity in markets is not too low, it’s even too high. Therefore I think monetary policy has come to the end of its instruments and therefore what we urgently need is investments, regaining confidence by investors, by markets, by consumers.”

“I don’t think ECB monetary policy has the instruments to fight deflation, to be quite frank,” Schaeuble said.

Schaeuble said he’s confident that “my French colleagues will do what’s needed in line with the rules that have been agreed again and again.”

“It’s very important that we all know in Europe — every member state — that we have to stick to structural reforms and enhance competitiveness, even in Germany.”

Yet another nail in the coffin of any large scale sovereign asset purchase scheme…

*  *  *

With pressure from the French on Draghi to do “whatever it takes” again (for real this time) it appears this is as clear a message from Zee Germans that they won’t stand for anymore.

via Zero Hedge http://ift.tt/1qH9vC5 Tyler Durden