The Failure of Democracy

What we are witnessing in real-time is the abject failure of representative democracy.  It's now abundantly clear to all but the most oblivious of comfort seekers, that global political dealers will not take any definitive action to resolve this ongoing globalized economic fiasco, until they are forced to do so.

Of course, by that time, it will be far too late.

The Last Bull Market: Bullshit

Having brought it up recently, I will now ground and pound my assertion that America's main export right now is .999 fine grain Bullshit.  Case in point, the only winner out of this impending election will be the advertising firms and media outlets that are raking in hundreds of millions of dollars from all of the disinformation spewing forth daily about the election.  Given that both parties and respective candidates are taking every precaution to assiduously avoid the truth regarding the nation's dire financial situation and eroding global status as a world superpower, one can only agree wholeheartedly with Ron Paul's characterization of the "One Party System".   Similarly, back in June, I pointed out that both Robama and Obamney are owned by their own base of special interest groups, assuring that regardless of who gets elected it will be all sides against the undefended middle.

BTFD: Fool Me Five Times - Shame on Me

Back in early 2008, the VIX (options fear gauge) was in an uptrend and I said that if it breaks out above the triple top, then Wall Street will shit a brick.  We know what happened next.

Bernanke and Draghi, the new Cheech and Chong

Today, we face a similar yet far more ominous scenario, instead of uptrending - indicating increasing investor anxiety - the VIX has been downtrending to multi-year lows indicating increasing investor complacency in the face of far greater risk than what we faced in 2008 i.e. systemic, sovereign failure v.s. bank failure.  All due, I might again add, to Central Banks' unrelenting injections of monetary dopium that have literally stoned the markets into oblivion - the markets have been "hot boxed" by Bernanke and Draghi.  And need I state the obvious point that when the breakout occurs above that downtrend line, there will be a lot more stained underwear and bricks for the patio:

Meanwhile, this was an important day for Wall Street, because it's the last day of the third quarter and therefore the last chance for large investors to notify hedge funds of redemptions before end of year.  No surprise, it was an up day as funds tried to squeeze out the last few pennies to mark-up the quarter.  And given the oft-cited massive underperformance of hedge funds this year, you can expect that not a small amount of money will be flowing out of stock market-oriented funds into "alternative strategies" like perhaps selling VIX option premia, as some morons illustrated above have been doing ad infinitum - which as we saw in 2008, worked great until they walked away leaving all of us holding the bag.  

So, it's a key juncture for the market because the remaining surviving hedge funds appear to have gone all in after the QE3 announcement, yet they will be facing off against their less fortunate hedge fund brethren who right about now will be getting notified that their new job is as night manager at Arby's, thereby requiring them to liquidate their remaining stock inventory into a low volume, overbought market.  

All In

Below is the ISE call/put ratio showing a major reach for upside call options coinciding with Bernanke's latest shock and awe.  The 10 day moving average (yellow line) reached a multi-year high - Booyah Skidaddy !:

Speaking of low volume, below is an update on our picture perfect bearish rising wedge, which now meets all of the "ideal" specifications - reversal of prior trend, three touches of upper trend line, two reaction lows, converging trend lines, low volume, overlapping waves etc.  As we see in the lower pane, volume had been trending ever lower to multi-year lows, but then recently it spiked up again.  Unfortunately for the little piggies on Wall Street it's increasing on the downside, which is not a good sign for hedge funds and skynet computer bots who now have to figure out who gets out the door first...and let's face it, these types are not known for their civility...

p.s. It's not just the markets that are stoned at this juncture.  The overwhelming preoccupation of the typical man-boy into this inferno is who won the fucking game last night.  Present company excepted of course...unless, you are reading this after the fact...

Then There Were None

I just read this pathetic apology for Private Equity given by ZeroHedge, and I almost shit an Ayn Rand.  This post is Exhibit A that you can have all of the best facts and data in the world, but without judgement you're just a cub bear playing with his dink.  The apology centers around blaming public pensions for investing in private equity funds as an asset class, therefore giving public sector employees no right to criticize private equity firms.  Dare I state the obvious that public sector employees are not portfolio managers and don't control day-to-day asset allocations?  And apparently ZH who constantly deride Bernanke's "repressive" 0% interest rate regime, which has impoverished millions of retirees, doesn't see the connection with pension funds crowding into non-traditional investments i.e. "private equity".

Nickel and Dimed: On (Not) Getting By In America [Excellent read, by the way]

First off, let's dispense with the bullshit, "private equity" used to be called leveraged buyout (LBO), but the industry got such a bad reputation for gutting the U.S. that they rebranded themselves so that the Lost Boys of the Idiocracy wouldn't look as stupid for defending the industry.  Secondly, need I state the always-omitted most obvious fact that public employees would be the last ones to say anything about outsourcing private sector employees, since (Federal) public jobs can't be legally outsourced in the first place - duh!!!  In other words, you are far more likely to get a visceral opinion on LBO outsourcers by asking the guy wearing the orange bib at Home Depot, who took a 60% reduction in pay and benefits from his job in the factory v.s. asking someone who is fat and happy working for the Federal Government knowing their job can't be outsourced.   Now that I think about it though, that's the most likely reason for anyone wanting Mitt Romney as President - he is an expert at outsourcing so now he can outsource what's left of the middle class i.e. the public sector workers.  Brilliant !  And if the millions of Americans in the private sector who have already been outsourced are not the most vociferous critics, perhaps it's because they are too busy subsisting and don't have the time to write a blog or otherwise blow smoke up everyone's ass (I know, mea too culpa).  Let's face it, that "unsuccessful" part of America is largely hidden from world view.  We don't want potential immigrants to realize that the "American Dream" is really just a lottery, after all...

Having not grown up in the U.S., I can tell you how it works in the entire world outside the U.S. Instead of getting rid of industries, governments are actually focused on gaining new industries - that's right it's a new concept.  How do these apologists for Private Equity think that Asian nations gained so many U.S. industries?  Hint: it wasn't because they wanted to be American.  It was because they were not focused on quarterly earnings statements and because they didn't want an entire nation of Starbucks baristas.  Or go ask the Germans what it took for the past 20 years as they held onto their manufacturing base even as every Anglo-American economist excoriated successive German Governments for not taking the easy path and adopting the 'American Model'.  In the end Germany is already vindicated for making the effort (and yes less profit in the interim) to become more competitive, focusing on high-end manufacturing and otherwise preserving their middle class.

Globalization Has Already Failed the Majority on This Planet AND The Majority in the U.S.

Globalization has already turned the U.S. economy into a lottery and permanently offshored hundreds of entire industries, yet apologists for the Globalized Ponzi Model are still debating whether or not that is a bad thing.  So let me put this whole discussion in a way that any Simple Jack can understand - it's only "ok" when they outsource everyone else's job, but when they come for your job, suddenly it's not such a great fucking idea anymore.  Apparently some people have to find out the hard way...

The End Game For the Marketing Based Economy - No One Needs a Middle Man
Ironically, the best recent example of why not to take outsourcing to its maximum limit comes from none other than ZeroHedge.  As one would expect, it was only a matter of time before the Chinese manufacturers cloned American designed products (i.e. created a parallel assembly line) and started selling them directly to consumers, bypassing the middleman e.g. Apple and other shell marketing companies.  After all, the foreign companies have the intellectual property, they have the manufacturing know-how, what else do they need - a brand logo?  Stay tuned for future events when consumers buy everything directly from foreign suppliers, causing U.S. corporate profits to collapse like a cheap tent.

The Angel Heart School of Ayn Rand Management [Revisited]
For those outside the U.S. I have no doubt it's impossible to reconcile the poverty statistics already baked into reality and the continuing denialism of the U.S. Corporate Class not wanting to make the connection between mass outsourcing and the nascent jobless depression.  And I can tell you that it all boils down to latent guilt that this generation can't bring itself to admit that they auctioned off their own country - they did it.  So they will continue to make up excuses and reinvent all new Voodoo Economic theories until the last day when Louis Cypher (aka. reality) shows up and forces them to own up to this overwhelming catastrophe.

P.S. I'll have an MBA and a coke to go - keep the change...
Lastly, as far as private equity aka. leveraged buyouts go, like any leveraged investment they work great until they don't work at all.  In other words as long as the economy is expanding and cash flows are staying the same or growing then the model works.  However, as soon as the economy stalls out, these will be the first companies to fail because they have high contractually fixed interest costs and therefore once cash flows decline below interest costs (or usually before, when debt covenants are breached), then they are bankrupt.  Again, for the greedbots investing in these things (debt side or equity) it's all about timing and incentives - and  suffice to say, no one is getting paid to think long-term.  Or put it another way, I guess the ADHD Twitter generation defending the always "efficient allocation of capital" has already forgotten 2008 when global investors were gobbling up Goldman's subprime CDO's which only had the shelf-life of about 3 months before they imploded - now that's high finance !  

Bernanke's Bargain

In my last post I asserted that the policy of "Extend and Pretend" is a Faustian Bargain and that the bill is now long overdue.  Here's what I mean...

Mass Complacency @Max Risk

This (Brief) Suspension of Reality Sponsored By Global Central Banks, iPhoney5, ESPN, South Park and The Kardashians.

The Policy of "Extend and Pretend" Employed Since 2008 Is Merely a Faustian Bargain - The Bill Is Past Due, But We Seem To Have Conveniently Forgotten Our Side of the Bargain

How Much Will It Cost:   How Much Do We Have...

The VIX Options Volatility (Fear) Gauge:  

Fear has left the building (far right) - back down to the same level it was at the market's all time high in October 2007.  The major spike up is the 2008 Lehman crisis.

Never Cry Brown Swan Event

As anyone can see from the title of this blog, my core prediction is that a market collapse is inevitable and imminent.  Some would say that it's a cop out to say this could occur at "any time" without being more specific.  However, in fairness to me, predicting the collapse of the global economy down to the last minute is essentially an impossible task.  Some would say that it's a fool's errand to make such an attempt at all, but my primary assertion is that the risks at this juncture far outweigh the rewards and it's better to be prepared in advance.  Bear in mind however, that this risk:reward posture is the exact opposite of what global central banks want people to believe.  They need people to believe that rewards far outweigh risks so that they can stimulate the "animal spirits", levitate the markets, and thereby invoke the "trickle down" wealth effect wherein the minority of wealthy people who still own assets buy their baubles and otherwise shower bread crumbs on the masses.

Business As Usual

Coming out of the 2008 debacle, or what I call the "test", I fairly quickly became bearish again on the economy and markets, because it was clear that all policy-makers had done after 2008, was a massive damage control operation which merely papered over (literally) the underlying problems.  As we all know, amazingly there have been no major structural changes to the markets in the intervening period and they haven't even put in place the Volcker Rule to prevent banks from speculating with depositor money.  Also, as we know, certain banks took the opportunity to become even larger - and therefore "Too Bigger To Fail".    The definition of insanity is to keep doing the same (stupid) things over and over again, expecting a different result.

Time is Not On The Side of Comfort Seekers Hiding From Reality

Therefore, I have viewed the passage of time to be a major liability for the global markets because 1) it was allowing the underlying imbalances (speculation, carry trades, debt accumulation etc.) to resume their upward trend again - which they have and 2) because it would lead to an overwhelming widespread complacency in the markets, media and public that somehow all of the underlying issues have been resolved.  As I commented recently, there is nothing like a rising stock market to make everyone feel fat and happy, obviously disproportionately so those who actually gain from the rise in wealth.  Just the fact that the European debt crisis has magically disappeared from headlines in recent weeks - despite the fact that there has been no underlying structural changes made to the over-leveraged nature of the debt impaired economies - is Exhibit A of complacency at this juncture.  

Exhibit B is the VIX chart above which shows that stock market (options VIX) volatility is back down to a level last seen at the all time stock market high in 2007.  And it has revisited this level several times in the past few weeks.  Could it go lower?  Certainly, but the all time low in the past fifteen years was ~10 whereas the high was ~80.  So according to the VIX we have about 4 more points of anxiety easing potential, versus 65+ points of "oh shit, not again !" potential.

Massive Dopium - What Could Go Wrong?

I will spare you my usual diatribe, but I have littered this blog with posts indicating that the amount of fiscal and monetary stimulus being applied is unprecedented in U.S. and World history.  So the analogy I would give of the world economy is that of a morbidly ill patient whose sole rehabilitation program involves ever-larger doses of morphine to mask the underlying deteriorating condition.  How else can we look at it?  Should we assume that adding more 'easy money' to the world economy will incentivize less borrowing and otherwise resolve the underlying debt problem?

Dude, Where's My Market?

Another key reason for concern at this juncture is the fact that the markets due to the overwhelming takeover by High Frequency Trading (HFT) computers, are in a very fragile state.  The prices that exist today in an extremely low volume environment dominated by HFT bots trading back and forth with each other on millisecond boundaries, are not necessarily the prices that will exist when motivated real sellers come to the market with large blocks of stock to sell.  As we found out during the 2010 Flash Crash, the "market" as it were, disappeared rather abruptly.  

BTFD - So Says Don Hays

For those looking for a good counterpoint argument to my bearish thesis, this is your lucky week.  Yesterday, Don Hays, one of the most respected market advisors, gave some (very rare) free advice.  He sees the market having 10% (max) near-term downside with 30% upside thereafter i.e. a new all time high in the markets within 12 months.  Most people on Wall Street subscribe to Don Hays' advisory so you can assume that what he said yesterday has already been fully digested by Wall Street.  Also, a 10% downside, 30% upside scenario is IDEAL from the hedge fund perspective.  First, it gives some initial downside which they can use to monetize their hedges and thereby gain a relative edge on the underlying market.  At that point, being freed of the hedges, they take the 30% rocket ride higher into year end BIG BONUS time.  Perfect.

The End of the World Only Comes Once - And You Can't Make Any Money Off Of It

Before I rebut his thesis, keep the most important factoid in mind, which is that when it comes to the markets, the media takes its cue from Wall Street who in turn pay these advisory services like Don Hays for their market advice.  Wall Street's time horizon is the current bonus season (i.e. 3 months) and as ZeroHedge just indicated, due to this year's unusual Central Bank induced head fakes and sector rotations, The Street is now fighting for its own survival.  Therefore, they are only tuned into those strategies that can make the most amount of money in the least amount of time and tuned out to the larger macro risk hanging over the world economy like a Damocles Sword.  So unlike 2007 when everyone on Wall Street had a plan on how to profit from the demise of subprime, today despite macro risks which are 10x higher, no one has a macro-based profit plan and hence are oblivious to the risk.

Don Hays' main bull thesis is based on monetary stimulus, market sentiment and valuation.  

1) Monetary Stimulus - my rebuttal on this one is above i.e. prescribing more of the same "go juice" that got us into this mess, is at best a short-term strategy that will inevitably end catastrophically.  What better proof that Central Banks have these people conditioned like Pavlov's Dog to reflexively salivate whenever stimulus is added. 

2) Valuation - as in earnings relative to stock prices.  These valuations are predicated on earnings estimates which can change at a moment's notice.  Market strategists base their market predictions on earnings predictions; however, when the market tanks, they just revise down their earnings projections in light of new "economic conditions" i.e. it's a circular reference.  Meanwhile, profit margins are at their highest point in U.S. history so to assume stocks are "cheap" is to assume that profits are not mean reverting, which (un)fortunately, they are.

3) Sentiment - I just showed in the chart above that market sentiment is extremely complacent and he somewhat agrees.  However, he thinks that one little spike in anxiety will be enough to engender another run higher in the markets.  His fatal error is using the past 50 years of data as his baseline which includes the largest artificially inflated economic expansion in human history, without any comparison.  Suffice to say, that when the real buying opportunity arrives, few people will have the capital and fewer still will have the desire to own stocks.

The U.S. Lottery

The top 1% of Americans have twice as much wealth as the bottom 80%.  

The top 10% control 73% of wealth ~ three quarters of the country.  

All You Need to Know...

In my last post I asserted that the U.S. "Ownership Society" is actually just a (not so) cleverly disguised lottery.  In this post, I wanted to show graphically what I mean.  So, I took this pie chart wealth distribution data and turned it into the percentiled chart that you see above.  On the left, the bottom percentiles, on the right are the top percentiles by population.

Shhh, don't tell anyone, it's a secret

Being a lottery, the key for the various policy-makers, media spin-masters and corporate slave masters who keep this shit rig together, is to constantly brainwash the wage enslaved masses that they too can one day join the 10% or 5% or 1% of Americans who actually have (all of the) positive net worth.  Because when the day comes that people decide that there is no chance they can "win" and therefore it's no longer worth playing, well then the game will end, most abruptly.  More to the point, recent studies show that "socialist" countries such as Canada and many across Western Europe, now enjoy more upward mobility than the U.S.  And as the article states, the depth of poverty in the U.S. is the distinguishing factor.

No Wealth = Subsistence = 3rd World 

As we see, over half the U.S. has zero or negative net worth which implies no buffer against adversity and therefore a subsistence way of life.  As one would expect, due to relentless industrial arbitrage aka. "free trade", a substantial number of Americans are becoming an extension of the Third World only living in the U.S. v.s. overseas.  Bear in mind that these figures are from 2007, so the trend has only worsened in the meantime.  Having no capital or store of wealth means that the current generation has inadequate resources to bootstrap the next generation to a better way of life, ensuring an endless cycle of poverty.

It's Either a Lottery or a Slave Society - I Can't Make Up My Mind

And given that they have no wealth, it should come as no surprise that Mitt Romney's "47%" pay no taxes i.e. you can't get blood from a stone and most of these people work at (multiple) minimum wage jobs or are elderly and worked their entire lives.  These are the people who do the heavy lifting and make businesses run day to day, so that people at the top of the Ponzi Scheme can continue living the dream.  So for the vast majority of people the price of the lottery ticket is 40 years of grueling, unrewarded hard work with nothing at the end to show for it, except some politician telling them they are worthless, literally.

Don't Worry About the Middle Class, There Isn't One

When you add in the Federal Government Debt which equates to ~$50k/person, then 80% of Americans have negative net worth and are technically bankrupt.  Meanwhile the job destroyers who outsoured their way to the top of the wealth pyramid, unfortunately offshored entire industries, making the long awaited jobs recovery a never-ending delusion.  

The American Pipe Dream

When you break it down per person it gets even more ludicrous.  Here is a pie chart showing the share of American wealth per person between the 80% and the 1% (i.e. based on the percentages above, it's a 183:1 ratio).  

Is this a Great Fucking Lottery, or What?

P.S. Some people say that posts like this are "Class Warfare" and UnAmerican.  Not at all, similar to the winding down war in Afghanistan, I recognize that the class war is well over and the troops are coming home.   

Now the real wars can begin.

Occupy Wallshington v2.0

Apparently Wall Street's Tokyo Rose and other apologist haven't gotten the message yet.  They still think that OWS is unclear on its goals.

While I am not an official member of Occupy Wall Street, using basic principles of commonsense and decency it's not hard to come up with a relatively immutable set of reforms that need to be considered.

And as you can guess from the title it's not just Wall Street that will be "a-Changin'":

1) Reinstate the Glass-Steagall law which was implemented during the 1930s and strictly separated banking from speculation.  It worked just fine for over 60 years.

2) Implement a Flat Tax of 30% on income above $150k.  Honest people already pay that amount anyway

3) End the IRS Offshore Tax Amnesty Program.  All offshore bank account holders should be given 90 days to move the money back to the U.S. paying all past due taxes and penalties, or lose citizenship.

4) Fire Ben Bernanke.  Central Banksters need to learn that the money supply is not Wall Street's candy store.  Given that we just came through the worst financial crisis in 60 years, one would have thought that they would realize that inventing clever new ways to give speculators more leverage, is a bad idea.

5) Implement true campaign finance reform and eliminate the SuperPac idiocy.  This may require a constitutional amendment, since the Supreme Court just proved that it's now part of the (political) problem as well.

6) Force the Government to adopt the findings of its own bipartisan deficit commission (which it hasn't).

7) No more bailouts.  If speculators and banksters take risk then they need to deal with the consequences.  

8) Impose a 30% immediate tariff on China and other export mercantilist countries e.g. those countries that have no environmental or labor protections.  As I have said before, a nation that trades openly with other nations which have no environmental or labor protections, will itself end up with no protections i.e. through industrial arbitrage.  

Those are just a few basic common sense policies, which if adopted would start moving the U.S. back to being a real country again, rather than the latent special-interest-group controlled clusterfuck that it has become.

I have no doubt that all of the above policies will eventually be implemented, because they make too much obvious sense.  It's just a question of how long it takes and how bad things have to become before we get there...

Ponzi Supernova: Full Retard x 11

As depicted by the theme of this blog, we are now witnessing geopolitical/economic/environmental meltdown in real-time.  It's an accelerating train wreck that has the public paralyzed - frogs in boiling water.  Their only recourse is American Idol, South Park and Faux News 24x7. 

No sooner had I written my most recent diatribe against the alpha males who bulldozed their way to the top by repeating the same moronic strategies over and over again, than I am presented with yet more mind boggling examples.

First off, with respect to Monetary Policy, I was remiss in not pointing out the most egregious (albeit obvious) aspect of the latest policy moves.  Which is the constantly overlooked fact that monetary policy - cheap money - got us into this mess in the first place.  Once again, it's the signature of the Idiocracy to believe that the way to get out of a problem is to just apply MORE of the same bad policy that caused the problem to begin with.  As a reminder, both the ECB (via OMT) and the Fed (via QE3) this past week declared that they will print as much money as necessary to resolve these ongoing debt problems that were created by easy money.  

With respect to Fiscal Policy, that Full Retard moment has been building for years across all Western Nations.  However, the recent climactic moment occurred when none other than Larry Summers - Dean of Harvard and a key architect of the 2008 meltdown, said that the best way for the U.S. to get out of debt is to borrow MORE money.  

I try not to get too political since I have outright disgust for the two party pseudo-democratic system, but when Mitt Romney indicated that his election platform involves yet another tax cut for the wealthy, I almost shit a brick.  Bush's tax cut from a decade ago is still baselined into the recurring deficit and requires ongoing borrowing i.e. it's a tax cut paid for by America's grandchildren.  And apparently paying for 60% of the Federal budget (borrowing the rest) is just too much burden for today's 'taxpayer'.  So, they need a bigger break.  Leave aside the fact that the wealthy, including Romney himself, already pay a lower tax rate than the middle class and they keep their real money in offshore bank accounts paying 0% tax.  Meanwhile, lest we forget, Bernanke's latest lubing of the stock market (and all risk assets) is a direct income benefit to the wealthy and a commodity inflation tax on the middle class.

The Economist Goes Mad Magazine

Speaking of insanity, the subject that spawned this latest diatribe - geopolitics.  Just this week "The Economist", in examining the recent spate of Anti-American protests across the entire Muslim world, declared that the best response for the U.S. was to interfere MORE in the region.  So again, the best response to a failed policy leading to widespread anarchy, poverty and disillusion is to just double down on the same bad policy.  To be specific, "The Economist", which is ostensibly an economics-oriented magazine devoted an entire article giving glib armchair general advice on how the U.S. should provide military support to the rebels in Syria.  I didn't realize that the pencil necked geeks at "The Economist" were military strategists.  Of course, the same magazine was a proponent of U.S. involvement in Libya where the U.S. embassy was just blown up.  Who knew that intervention could have such high and immediate ROI?  And dare I state the obvious, but if a Danish cartoon or homemade video on YouTube can cause a billion Muslims to go apeshit, then stay tuned for a lot more cartoons and homemade videos...

Wow, this shit is melting down in real time and the only thing preventing public acknowledgement of the fact is the new season of NFL football commanding attention.  Also redirecting attention away from reality is the impending election to determine which of two Harvard buffoons will be the best spokeman for the 14,000 special interest groups operating in D.C.

Lastly, with respect to iPhoney 5 (really 6, but who's counting), as expected, the Idiocracy really, really wants one:

Patience - The Deflation Freight Train Is On The Way

If this (below) were a stock, would you buy it?  I would.  It's a thirty year uptrend (although only 20 years are shown), and it appears to be on the verge of going parabolic.  Granted parabolic blow-offs ALWAYS end badly, however, on a 30 year scale the height of the blowoff top could be very large indeed.  

It's actually an inverted chart of long-term (30 year) treasury yields, which if you believe anything and i mean anything on the internet, it's about to collapse imminently due to Ben Bernanke's most recent actions i.e. yet again, everyone expects imminent hyperinflation.

Unfortunately, when it really counts, the Idiocracy never gets it right and whenever there is consensus on anything, prudence dictates to believe and/or do the exact opposite.  The masses are looking down the tracks expecting inflation, even as the deflation express is boring down on them from the other direction.

The Global Credit Bubble is Collapsing

As I have said before, what the above chart really shows is that despite his grandest efforts, Ben Bernanke - student of the Great Depression is losing the global battle against deflation.  Granted that is not an intuitive conclusion, given that he has monetized $3 trillion in debt with another $1 trillion on the way.  Except, the only problem is that the U.S. bond market is $35 trillion, the global market is $82 trillion, and annual issuance of Federal Debt alone is +$1.1 trillion.  

If Bonds Collapse, Why Wouldn't Treasuries Collapse Too?

Ah yes, the ultimate recurring question.  If something is going to collapse, everyone wants/needs it to be Treasuries.  Unfortunately, I don't write this blog based on what I want, I base it on reality.  The chart above is exhibit A.  Exhibit B is the tsunami of cash that will be heading straight for the Treasury market on the other side of the Minsky Moment which is long overdue - and yes will coincide with the blow-off top in the inverted chart above.  Exhibit C is Japan which has twice the magnitude of debt (relative to GDP) as the U.S. and has been monetizing debt off and on for 15+ years, but is still in deflation.  Exhibit D is the fact that Treasuries continue to trade inverse to the stock market i.e. they are the ONLY risk off U.S. asset  Exhibit E is the fact that in 2008, Treasuries were the only (U.S.) asset that increased in value  Exhibit F is probably the most important factoid which is that in extreme deflation, real yields could be heading higher while nominal yields are going lower.   Exhibit G is the overwhelming consensus across the Idiocracy that Treasuries must collapse sooner rather than later (and are no doubt betting that way).  Ok, this is getting boring...you get the point.  

What is Bernanke Really Afraid Of?

I have been a harsh critic of Bernanke's all along, for his role as primary dopium dealer to Wall Street.  That said, I do believe that tapping Wall Street's vein is his means, not his ends.  This guy really understands deflation and he knows that if he loses this battle (and he will), then we are all fucked company in a way few of us really want to understand.

The scariest chart on the internet is below.  What this chart shows plain as day is that despite all of the hand wringing and hyperbole over inflation, the velocity (circulation) of money is collapsing.  This means that while there are more dollars in circulation, each one is sitting idle longer and longer and therefore the Fed is pushing on the proverbial string - or as I say, pounding sand up their ass.

Fabricated Rally - Now in Sudden Death Overtime

So for some reason, the vast majority are only considering the consequences if Bernanke succeeds, which they automatically assume he will.  That in itself is unfounded belief, since ever-increasing stimulus has been applied in the past decade and all it does is boost risk assets, each time for shorter duration.  I updated the chart below to show all of the various monetization programs that have occurred in this cycle - on top of 0% interest rates.  It's plain as day on the chart that every time the markets stall out, one or more Central Banks throws more cash at risk assets in a vain attempt to force them higher.  It's clearly a lurching uptrend with each leg higher of shorter duration despite ever more stimulus being applied i.e.  the marginal impact of each dollar/Euro of stimulus is clearly diminishing.  Moreover, this time around, the (HFT) machines substantially priced in the current stimulus, yet volume is just now spiking (lower pane), indicating that hedge funds desperate to make up for lost time, are now embracing the rally.  So unlike past market rallies where hedge funds were first and small investors were last (aka. buying at the top).  This time, small investors stayed away, machines were first in and hedge funds are showing up late.  Lastly, but most importantly, Central Bankers have no control over the most important variable of all - the output gap.  As expected, it's a subject that to date is seldom discussed or even acknowledged, but in the fullness of time when the Idiocracy realizes that their ephemeral jobs are more important than their ephemeral gold/silver profits, it will be the leading cause of stained underwear.

INVEST AT YOUR OWN RISK

Ponzi Supernova

The Global Ponzi is going supernova in every direction - geopolitical, economic, domestic politics, socio-cultural - you name it.  In every direction, the extremes of reasonability are being tested to the maximum.  And why wouldn't they be given that the same brute force strategies that worked this far, are being recycled over and over again, each time with more assertion.  Nowhere is this strategy more apparent than with the "alpha males" who sit atop most corporations and nation states.  These are men who bulldozed their way to the top not with talent or insight or wisdom, but with pure aggression and determination.  Of course, this type of behaviour is not new, but what differentiates this era from all previous is that this has been the longest uninterrupted economic expansion in human history.  It has also been one of the least volatile due to the massive over-use of fiscal and monetary stimulus which has artificially smoothed the business cycle and otherwise unduly rewarded leveraged financial strategies and risk taking.  Contrary to ingrained popular belief however, each passing day of massively accumulating economic imbalances only makes the model less stable and less sustainable.

Careful What You Wish For

In most other periods in history, historians have had to parse the tea leaves to divine the underlying motives for various actions and events.  Not so, this era.  The Idiocracy is blunt and crass about its motives.  Probably the most cynical recent example was the hanging of Saddam Hussein in 2006 for gas attacking Kurdish civilians during the 1980s Iran/Iraq war, during a time when he was being actively supported by the U.S. military and using mustard gas procured from the U.S.  And his primary liaison with the U.S. during the Iran/Iraq war was Donald Rumsfeld working for Reagan and then became Secretary of Defense under George W. Bush....Therefore, given the prevailing level of cynical transparency of motives, it's in no way difficult to predict the future course of events (beyond the immediate timing), because it's clear that the Alpha Dogs at the top only know how to keep doing the same thing over and over again until it fails catastrophically.  Consider the U.S. war in Afghanistan.  The 1980s Soviet fiasco in that region was still in living memory, the CIA having been a catalyst in the outcome of the war.  Yet, that factoid didn't stop U.S. war hawks at the behest of the Neo Cons from blundering straight into it, with hardly a second thought.  And what the hell happened to the "Powell Doctrine", Colin Powell's post Gulf War checklist for going to war?  In historical terms, that "suggestion list" had the shelf life of about :15 minutes.  Powell was Bush's Secretary of State at the initiation of both the Iraq and Afghanistan entanglements, yet almost every tenet of his self-named doctrine was (and still is) violated.

The Obvious is not Obvious to the Idiocracy

The latest example is Netanyahu in Israel.  Here is a guy who on paper and on TV thinks and acts like he is the smartest guy on the planet.  He puts on a hell of show, I have to admit.  Yet, for all that, he is a clueless fucking moron - a danger to himself and everyone around him.  Even today, as U.S. embassies are lighting up across the Middle East like the Fourth of July, Netanyahu is doing his level best to corner Obama and otherwise coerce the U.S. into backing Israeli action in Iran.  This is the latest careful what you wish for moment.  Apparently the brilliant Netanyahu doesn't realize that Iraq and Afghanistan are still smoldering embers just waiting to burst back into flame at any moment.  He also doesn't see the connection between a desperate Syria, cornered Iran, and otherwise melting down Arab world in need of a common enemy at which to direct society's growing pent up rage.  A Democrat-leaning friend (also Israel supporter) just told me that he agrees with the consensus (on the right) that Obama is anti-Israel.  To which, I said that George W. Bush who started two lingering conflagarations in the region and embraced Israel purely out of Born Again Messianism, was no friend to Israel.  But apparently that history lesson playing out in real time, is still not obvious.

Bernanke - World's Greatest Alchemist

Finally, back to my favourite subject the illusion-formerly-known-as-the-economy.  Mitt Romney, yet another alpha male who outsourced his way to the high life, in a fit of terminal dumbness, made the comment a few weeks ago that he would fire Bernanke, if elected.  So guess what Bernanke just did today - he lit a fucking fire under the stock market to the tune of over a trillion dollars of new funny money, which (in theory) guarantees Obama will get re-elected.  Apparently, Romney hasn't picked up on the obvious fact that Obama's popularity ratings are 99% correlated to the stock market and that (short term at least) Bernanke controls the stock market - duh !!!  And I say this is all in theory, because Bernanke, is this era's ultimate example of an over confident fool who has convinced himself (and most everyone else) that subsidizing financial speculation over and over again, carries no risk.  Monetary stimulus inflated both the DotCom bubble and the housing/subprime/Lehman bubble and here we go again it's inflating yet another massive disconnect between economic reality and fantasy.  In each of the prior cases, the economy and markets barely survived, yet somehow this South Park addled society didn't get the fucking message and therefore needs to be wiped out entirely before it learns the lesson once and for all.  There is no free lunch.  

All of this shit show is again, packaged under careful what you wish for, because all of these Neo Cons, Corporate CEOs, Wall Street hedge fund managers, Central Banksters and political con men are just alpha males doing what got them to the top i.e. the same thing over and over again, each time with more force...until such time as it blows up in their faces.  And biologists will be the first to tell us that in a "game changing" adverse scenario when the societal deck gets shuffled, alpha males are the least resilient, presumably because they are not used to stress - having delegated that artifact of success down to the rest of us.

P.S. No, I am not getting bullish on the market - given the latest Bernanke stimulus - even between now and election time.  If there was ever a time to pull the plug on this clusterfuck that would surprise the most people, it would be 

right

about

now.

iPhoney World

Today's headlines brought to you by iPhoney 5...

Euros to be printed in 4-ply rolls - soft and cushiony
In the main story of the week, Europeans are deciding how much money they will print to allow insolvent nations that borrowed too much money, to borrow more money but at lower interest rates.  This way, they can incentivize these nations to stop borrowing so much.  This program will allow all Europeans to assist these insolvent nations in their over-spending spree.  In line with socialist principles, the costs will be very equally distributed via flat tax, otherwise known as inflation.  In his best imitation of Manuel from Fawlty Towers, Spain's PM Rajoy is now telling everyone that his country doesn't need the money - Que ?

More dollars printed in 4-ply rolls

In related news, U.S. Fed. policy makers meet tomorrow to decide how much money they will print to maintain the illusion of U.S. solvency.  To date, they have printed $2.8 trillion, however, that is not deemed enough, since the government is still borrowing $1.1 trillion and has borrowed $5 trillion in the past 4 years.  So the Federal Reserve is behind in its money printing.  Fed Chairman Ben Bernanke is expected to once again admonish politicians that they are spending way too much money and if they don't become more responsible, he will print less money for them in the future.  Meanwhile, politicians fret that they are heading for a fiscal cliff which would mean that they would be automatically required to balance the budget and otherwise live within their means.  The 'fiscal cliff' which used to be called 'fiscal responsibility' (before it was rebranded by the Idiocracy), is causing a major crisis for the markets and other special interest groups.

At long last, iPhoney 5 - life can begin !
Lastly, after a year's wait, Apple introduced iPhoney 5 which would have been iPhoney 6, except last year's version was dubbed iPhoney 4S since it was identical to the iPhone 4.  The latest version is slightly thinner and slightly larger, but otherwise identical to the previous iPhoney's.  At the  official unveiling, one Apple engineer enthused that the iPhone is this generation's space program:

"Just as the space program made quantum leaps from Mercury to Gemini to Apollo, each iteration of the iPhone is a major leap forward.  Forty three years ago, Neil Armstrong stepped onto the moon.  Today, after only a year of design and development, we added an extra row of icons".

In a swipe at Obama, another engineer chimed in - "We made this".  But a sly reporter called him out when he said "Wasn't this actually made by underpaid wage slaves in China?".  The engineer was offended and confused, since he was Asian American.  The first engineer retorted: "Technically that's true, but we came up with the idea of another row of icons - Steve Jobs is dead, you know".  At which point, the entire room full of uber geeks bowed its head in reverent silence.

While the new phone was announced yesterday, it won't go on sale for a two more weeks, but already tent cities are forming outside Apple stores to get the new phone.  The price on the black market for the iPhoney 5 has reached $6,000, whereas the price of the iPhone 4 has plunged to $1.50 since it is now technologically obsolete, having only four rows of icons.  (Coincidentally, $1.50 is the manufacturing cost of both phones).

FYI, Apple has asked consumers over 40 years of age to stay away from the stores for a few weeks, or risk humiliation by asking all of the uber Geeks if they work there, while mumbling incoherently why this fucking store has no cashier.  As always, Apple employees will be camouflaged as consumers and randomly milling around the store.

Straight to 11
In a rare agreement, the ECB, Fed and Apple have decided that if their current LTRO/ESM/QE/iPhoney 3,4,5,6,7 programs don't get the economy going, then they are all jumping straight to 11:

Let Them Eat Stocks

Not pretty -  Lurching to a top with overlapping waves.  

I guess $7 trillion+ of combined monetary/fiscal stimulus doesn't buy what it used to...

The amount of b.s. flying around these days due to the election, is out-of-control.  Apparently the only thing still made in the U.S.A. is bullshit.  

The most egregious lies being told, of course, surround the economy - each side telling their version of the untruth while reality is assiduously avoided.  The fact remains that both political parties want to avoid the truth regarding this pseudo-recovery because both sides have special interest groups and political interests face down in the public trough. 

Happy Belated Labor Day

Just today, another monthly jobs report that was far below expectations - the latest reminder that all of the money being wasted on Extend and Pretend, is completely bypassing the middle class.  

Let's Do Some Reality-Based Accounting

Going back to 2007, prior to the collapse, GDP was $14 trillion and the Federal Deficit was $400 billion.  

Then came the collapse, which wiped out 9 million jobs and took the stock market down 57% from the top.

So the question on the table is what was the ROI from the trillions spent on this "recovery"?

GDP - National Income Fully Recovered and Then Some

GDP in 2011 was $15 trillion, roughly $1 trillion more than in 2007

Stock Market - almost fully recovered

As of this writing, the stock market has recovered ~87% of its losses from the crash (chart above).  Granted when you compare this 2009 rally to the 2003-2007 rally there is no comparison.  That one was a smooth uptrend with minor pullbacks on steadily rising volume.  This one has been a lurching clusterfuck as the Wall Street junky vomits on itself every few months while waiting for the next round of monetary dopium.  Notice volume in the lower pane - collapsing like a cheap tent as real buyers exit and leave the HFTs to cannibilize themselves...

Only 4 million jobs recovered - still missing 5 million

The (ongoing) Fiscal Cost (not counting monetary dopium)

The recurring deficit, increased by $900 billion (from $400 billion to $1.3 trillion)

The total debt increased $5 trillion during the period

Inquiring Minds Want to Know - How Many Jobs Does $900 Billion Buy?

So instead of the net new 4 million jobs that have been created, how many jobs should have been created given the expansion in the deficit?  At $50k apiece, $900 billion equates to 18 million jobs if paid for directly.   I realize that many consider it  socialism to buy jobs outright, so apparently the best alternative is to just throw the money down the shit hole instead.  

Therefore, the ROI in terms of jobs for this "recovery" is $.22 on the dollar (i.e. $.78 loss).  And we all know where the rest of the money went...

One Man's Loss is Another Man's Gain

As usual, the stock market gained on today's bad jobs news, because thanks to all of the "lazy laid off people", Wall Street can now expect some more dopium from the Bennie Bernank next Thursday.  The Bernank and his cohort at the global central banks don't know that financial leverage is an extremely dangerous short-term proxy for real economic growth.  That lesson lies in front of them.

Is this a great fucking economy or what ?

iPhoney Rally and Recovery - Price: $666

Four years ago, Wall Street due to its infinite greed and malfeasance, crashed world markets and almost destroyed the global economy.  In the event, government stepped in and used taxpayer resources to save the day.  The entire bailout put hundreds of billions of taxpayer (middle class) dollars at risk.

Fast Forward Four Years, and What Has Changed?

For Wall Street:

- Four year stock market rally

- Corporate profits off the charts

- Business as Usual 

For Main Street:

- $5 trillion of additional Federal Government debt added since early 2009

- $2 trillion of additional Federal Reserve Debt ("balance sheet expansion") 

- 5 million FEWER jobs

- Economy fully outsourced with no sign of real job creation whatsoever
- Middle Class net worth back at 1989 levels

Never Save a Snake From Drowning - It Will Bite

In other words, since the crash in 2008, the Middle Class has been stuck with an additional $7 trillion of TOTAL debt, courtesy of "extend and pretend", all the while being outsourced at the behest of the financial services industry that the Middle Class itself bailed out.  

Twisted Irony: Wall Street's HFT (High Frequency Trading) Monster is Off the Leash...

Due to HFT levitation of the stock market, Wall Street's benchmark is moving out of reach.  Now the fate of Wall Street's end-of-year bonanza rests not just on one stock, but on one product - iPhone 5.  Fortunately, iPhone 5 is "1" better than iPhone 4, so the Idiocracy will have to get one.  

Today Apple hit 666: Wall Street's Lucky Number

And, Right On Time: The "Gifted Minority" aka. those who created this latent clusterfuck, now expressing "disdain" at the burgeoning indolents piling up on their door step
http://www.zerohedge.com/news/art-cashin-new-normals-new-populism-165-million-state-dependents

This is the Angel Heart school of Management - run around "right sizing" people to oblivion and then disavow any impact on the broader economy.  And just wait until these toolbags realize that they are next in line at the soup kitchen.  Oh Shit !!! I thought we were screwing over everyone else - not me !!!  History will not be impressed by a generation of overpaid salesmen who outsource their nation's economy and unwittingly their own jobs with it.  And I have no doubt in the fullness of time, they will get the story straight on who is the grasshopper and who is the ant.

Tool Time Award: Barry Ritholtz
Barry today was joining the ground and pound on Niall Ferguson for writing this week's cover article on Newsweek telling Obama to "Hit the Road".  Ritholtz claims that Ferguson inaccurately interpreted government payroll numbers by not adjusting for census workers - good point Barry - Yahtzee!  Meanwhile, in coming out swinging, Ritholtz makes a major amateur mistake (or deliberate oversight?) of his own, that other Obama apologists have made these past years when comparing this recovery to past ones i.e. he claims that relative private job growth has been better than the past two recessions, but he doesn't adjust for debt (deficit) accumulation.   The real story is that if past policymakers had been willing to run a MASSIVE 10% of GDP deficit over the past 60 years, there would not have been ANY prior recessions for Barry to compare to in the first place...

Then There Were None 
Lastly, debating "relative recoveries" using self-selected parameters is merely a callous parlour game for fat and happy academics who still have a job.  The fact is that this "recovery" has been an abysmal failure which should come as no surprise given that the overwhelming beneficiary of government deficit spending has been Corporate profits.  How the hell can there be an economic recovery when the entire deficit is falling straight to the bottom line and bypassing the Middle Class?  The only thing the average person sees is the fucking tab at the end of the day.  As fully expected, the Globalized Ponzi Scheme is unraveling and hence benefiting fewer and fewer people, until eventually there will be no one left to take the other side of the debate.

P.S. This One Goes To Eleven
Per above, for those who say that the deficit does not fully equate to 10% of GDP - first, adjust GDP for the amount of the deficit and it's darn close i.e. An honest man doesn't assume that borrowed money is real GDP (although economists do), because once you assume debt is income, then it's only a matter of time before someone comes along and says we can borrow to infinity - oh wait, Larry Summers already did.

BTFD: Take It To the Limit One More Time

As one would expect at a critical juncture, the markets are eerily calm.  Volume and volatility are at multi-month and multi-year lows.  It's times like these when it's tempting to doze off, wander aimlessly at the beach, or otherwise assume everything is A-OK.

Meanwhile, as usual, the financial pundits at large are pontificating upon all of the various 'indicators' du jour to parse the tea leaves and determine what it all means.  And of course, they are ignoring the bigger picture context and the looming Tsunami that bears down upon us with each passing minute.

So while not one to dwell on the minutia, I will nevertheless lay out some key indicators at this juncture that have me less than sanguine, not withstanding the flatlining market.

Attenuation

This current flat lining of the market is exactly what we would expect at a critical top in the market.  It's the concept of attenuation (loss of signal) writ large.  As I have shown for some time now, the Russell 2000 small cap market is attenuating in tighter and tighter fractals.  And the German DAX is clearly doing so as well:

R2K

DAX

Junk Rally:

This latest rally leg, which represents the tiny far right "v" in the two charts above was led by the worst performing stocks of the past year e.g. Research In Motion, Caterpillar, Cummins and First Solar.  Meanwhile, the top performing stocks of the past several months i.e. the high dividend paying stocks such as Philip Morris, Kimberly Clark and yes WalMart were all rolling over.  So when considered relative to the the non-existent volume, clearly it was a short-covering rally, not the start of a new bull market in Blackberries. The high dividend, consumer non-discretionary "safe haven" stocks always hold up the longest...

New Highs Diverging

The following chart shows the New Highs - New Lows (black line) against the market.  Most of the time, the line tracks the stock market well - as it should.  Look to the far right.  This divergence indicates a narrowing of breadth, as one would expect as fewer and fewer stocks are participating in the rally.

Transports Still Lagging Industrials

A lot of people have noted that there has been a major Dow Theory non-confirmation for months now - wherein the Industrials are trending higher and the Transports are trending lower.  The key point I would make is that at the recent top in April, the Transports were the last sector to "tick higher" before the whole market rolled over.  What did Transports do today?  They outperformed the market...

The Dollar Wrecking Ball is Coiling

They call the much maligned U.S. dollar the "wrecking ball" on Wall Street because when it rallies it takes away all of Wall Street's treats and goodies.  Two ways:  First it kills earnings for multinationals which have to translate foreign earnings back to U.S. dollars at a steeper conversion rate.  Secondly, it kills the beloved carry trades in which dollars are borrowed at 1% in the U.S. and "invested" abroad at 5x the interest rate.  Add in copious leverage, wait 12 months and shit a massive bonus on Dec. 31st.

The dollar is in an uptrend off of a well-established base:

Gold

It's a shame about gold.  It's the most beloved trade of our time - the Dotcom trade of the 2000s.  There are more ads on the internet for gold than for car insurance and boner pills put together.  The markets have been in "risk on" mode since early June yet as you see below gold is going nowhere, despite the fact that Hedge Funds and China are are once buying gold in quantity.  Shouldn't that mean that gold is going up?  Hedge funds buying gold during "risk on" just means that they will be puking it out under "risk off", as margin calls force them to sell anything that isn't bolted down.  And gold is not a liquid asset.  Also, gold is priced in dollars, meaning any dollar rally automatically lowers the price of gold, so gold would have to outperform the the dollar in a flight to safety.  As for EWI, they say that gold will either go up or down from here - ok, thanks...Lastly, gold tanked 30% in 2008, so again, am I to believe this time will be different?  Other than that, gold is great...

Those Terrible Treasuries 

If we think the dollar is maligned, well Treasuries are outright despised.  Mostly because despite all of the great 'reasons' treasuries should tank, they refuse to do so.  Just the other day the greatest bond guru of all time (according to CNBS), Bill Gross, indicated he was shorting Treasuries.  Well, he was wrong last year, so I am not sure why we would believe him this year, unless we had the attention span of a coked up flea...  He readily admits in the LA Times article that you have to own treasuries in a slowing economy.  Well, guess what's coming.   Clearly, the main (unspoken) reason why Treasuries are universally "hated" by Wall Street is because no one can make any money off of them (income-wise).  What other reason can there be to short the one and only asset class that held its value through 2008 unless you assume 2008 can't happen again ?  

So what are Treasuries doing now?  They are correcting off of a multi-year high i.e. they are trading inverse to stocks, exactly as one would expect of a safe haven.  My overall Treasury thesis is here (Invest at your own risk).

Long-term (30 year) Treasury ETF: TLT