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:

Mutual Assured Destruction

One of the early doctrines of the U.S.-Soviet Cold War was the concept of Mutual Assured Destruction (M.A.D.).  This took root during the great armament build-up of the '50s and '60s when both sides were trying to outdo each other on the size and quantity of megaton warheads.  By the end of the build-up phase, combined they could destroy the entire planet many hundreds of times over.  So you could say that M.A.D.  was a crude if not automatic doctrine for that era.  Eventually it yielded to softer doctrine such as detente, to alleviate the underlying tensions.

Not to belabor the history lesson, but the key implicit benefit of the M.A.D. doctrine was that it would prevent a "sane" nation from going all in against their opponent, knowing full well that if the other side had nothing left to lose, they would blow up the planet.  During that M.A.D. era (~1950-1980) there were many skirmishes between both sides - aka. proxy wars (Korea, Suez, Vietnam, Six Day War, Yom Kippur War etc. etc.); however, both sides were very careful to avoid direct military confrontation.  The Cuban Missile Crisis was close enough.   

M.A.D. Class Warfare

Now apply that same doctrine to the stealth class warfare that has been ongoing in the U.S. for the past 30+ years.  Apparently the history lesson was not assimilated by today's 1% wealthy/political class, because they appear to be under the delusion that class warfare is a figment of the imagination and/or commie leftists.

All denialism aside, the fact remains that the 1% already went all in against the middle class, short of the burial ceremony.  In other words they already crossed the point of no return.

But of course they are obscenely oblivious to that fact.  How else to explain the Obama campaign touting its 3+ year "recovery" that buried the middle class in debt, outsourced 5 million jobs and otherwise only benefited top wage earners.  They can't even do basic fucking math.  And how about the Republicans running with a mega-millionaire candidate who made his fortune "right sizing" the middle class, keeps most of his money offshore, and only pays 15% tax on the money he keeps in the U.S.?  Totally oblivious.

(What's Left of) The Middle Class Doesn't Need the Job Destroyers

Given that this system still retains some vestiges of democracy however diluted by special interest groups, the fact remains that the 1% "job destroyers" still require the implicit buy-in of the middle class, especially in the event of any future "adverse" market events.  Yet, under the doctrine of Mutual Assured Destruction, they have foolishly left the middle class with only one remaining rational option - which is to wait until the next "event" and pull the plug on this entire shit show.

P.S. on the subject of QE 3x (or whatever version we face currently), there has been a lot of debate as to whether or not the Wizard-o-Bernank is finally out of bullets.  ZH had a couple of articles here and here and I saw a similar discussion in Barron's.  I will just inveigh with some basic math that if the Federal Government is going to continue running $1.3 trillion dollar deficits (aka. new bond issuance), then Fed monetization programs equal to that amount are not stimulative, they simply prevent new bonds being issued into the private market.  Any amount of monetization less than the deficit would in fact be contractionary, as new bonds will enter the private market and "crowd out" other investments.

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 ?

It was good (for some) while it lasted

What follows is an updated version of my very first post from late 2006.  Clearly, in hindsight, the events that followed that original post during 2007/2008 were bad, but did not collapse the global Ponzi Scheme.  The market has a way of testing us to separate the truly greedy and stupid from those who have learned their lesson.  That's what I believe 2008 was - a test.  It was a wake up call, and a last chance for all of us to accept reality.  For those who heeded the warning and otherwise changed their ways by paying down debt and adopting a more sustainable lifestyle, then likely they will survive what comes next.  For those who did not heed the warning, i.e. those still worshipping at the altar of greed or otherwise "bought in" to the status quo, they are going to be what we referred to in 2001 as  - "FC.com".  The most important point is that the over-leveraged structure and incentives of the Global Financial Ponzi have not been resolved one iota, except to become ever more leveraged by shifting the onus for debt accumulation from private citizens to  sovereign governments in addition to global Central Bank monetization programs injecting $3 trillion+ of "hot money" into the financial markets.  Unfortunately, the Idiocracy of the day can't complain that they had no advance warning that a collapse could happen...because one already occurred and they simply ignored it.

The Best Rally $7 trillion can Buy
Granted, it has been one hell of a market rally since 2009 - recovering 85% of the previous 2007 high.  Staggeringly, the price tag here in the U.S. alone when combining fiscal and monetary stimulus comes to roughly $7 trillion.  That equates to around $23,000 for every man, woman and child in the U.S.  Add in the elimination of 5 million jobs which fell straight to the corporate bottom line, and soon you are talking real money.  As one would expect of a Ponzi Scheme, the benefits of the past 3 years of Extend and Pretend accrued to only a fraction of people, while the remainder struggled under ever increasing debt loads and diminishing job prospects.  Nevertheless, I must apologize for having been consistently premature in forecasting the demise of Extend and Pretend.  I clearly had no clue how much money policy-makers would be willing to throw away in a vain attempt to sustain the unsustainable.  That said, on a historical time scale, this forecast will be considered real time...

Which Gets Us Back to My Original Post (with minor updates)
The global Ponzi Scheme is unraveling and the rate of decline will accelerate exponentially. The first leg down was from 2000-2002, and the second leg down was 2008, but that was just a minor taste of what is yet to come. I am compelled to write now to describe the coming phase for two reasons: 1) because I think the pieces are now in place for an imminent decline 2) In case there is anyone, even one person, who reads this and benefits from the conclusions.

At this juncture, what most take for granted as the "status quo" is largely an illusion propagated by unprecedented ongoing fiscal and monetary stimulus.  The global economy is nowhere near being self-sustaining and therefore debt levels are non-amortizing meaning additional borrowing is needed to refinance prior borrowing plus new spending.  Therefore, what most people take for granted as the standard way of life, is neither scalable nor sustainable.  Once other nations decided they wanted a seat at the big table, then the clock started ticking on our consumption-oriented lifestyle.

From a longer-term perspective, the U.S. economy peaked in the late 1960s and early 1970s in terms of industrial output (manufacturing), real median wages, and innovation. This trend was very apparent during the 1970s, but since the early '80s has been obscured by the massive "blowoff top" the Elliot Wave folks call a (terminal) fifth wave. Unable to rely upon innovation and manufacturing capability, starting with Reagan, the U.S. has been financing the last 30+ years' prosperity with debt and outsourcing (aka. estate sale). Debt at all levels (personal/household, local government, federal government), relative to income levels, is at the highest levels in U.S. history.  Meanwhile organic job creation when adjusted for ongoing debt accumulation, is virtually non-existent.

The party looked to be stalling out in 2000-2001, but the Fed engineered another "recovery" by taking interest rates down to 1% (lowest level in history) and encouraging consumers to borrow yet more money to finance the current pseudo-recovery. The latest 3+ year Obama economic illusion is a pseudo-recovery, because it is not self-sustaining. How else to explain that in the 3rd year of an economic "expansion" government deficits equate to 10% of GDP?   All of this debt, used to finance consumption, the Bush tax for the ultra wealthy, two wars etc. etc. severely limit the Fed's ability to stimulate the economy.  Apparently very few economists, let alone people, comprehend how debt shifts consumption from the future to the present. Only debt that is spent to build/buy productive assets will enhance the growth of the economy. Debt spent to finance consumption is a burden on the future economy.

Meanwhile, the global 'economy' resembles a classic Ponzi (pyramid) scheme, in that a lucky few at the top are prospering at the expense of the majority at the bottom. In order to continue however, a Ponzi pyramid requires unrelenting growth. Meanwhile, the short-sighted wealthy sponsors of this Ponzi scheme are eagerly commoditizing every factor of production and job function so that they can package and sell the income streams and move the money to offshore cash accounts.  This year, even as the minimum wage stands at a mere $7.25/hr and is lower (inflation adjusted) than it was in 1973, Wall Street is still taking home massive bonuses, despite almost collapsing the global economy back in 2008.  Meanwhile the jobs of the majority at the bottom are being commoditized and rationalized, both through outsourcing and automation. Land fills are topping up with cheap junk and destroying the physical environment, while developing nations are competing to see who can offer the lowest wages and worst working conditions, in their bid to get a ticket to this insane lottery. Don't get me wrong, I understand that economic rationalization is a crucial part of capitalism, and I am not against private enterprise, however all levels of government have been induced to look the other way to ensure high returns on capital at the expense of returns on labour. This is classic 'Supply Side' economics aka. 'favour the employer over the wage earner'.

All of the above last point is moot, however, because all Ponzi schemes eventually fail. They fail because there are diminishing marginal returns to growth. Also, the scheme requires ever-increasing numbers of low income workers to expand the bottom of the pyramid. This constant flow of low wage workers into the world economy has increased profit margins to the highest levels in history, as high income workers in developed countries are swapped out for low income workers in developing countries. Beleaguered American workers, in a bid to maintain their lifestyles, have turned to debt in all forms. It's becoming ever more apparent that this strategy has now reached its predictable bad ending.  Once we fall off that cliff into the depression, Dr. Bernanke won't have the tools to rescuscitate the patient. The American middle class will be dead on arrival (as will the middle class across most Western nations).

Here is what happens next:
The stock market has been in a bearish rising wedge since 2009, supported only by enormous amounts of ongoing monetary and fiscal stimulus.  This is a dangerous market, because volatility is near recent years' lows and most investors are lulled into a false sense of security. Once the move to the downside begins, it will go far lower, far faster than the vast majority predict.

Once the stock market tanks, the economy will stall out and fall into severe depression, accompanied with massive layoffs. The Fed is now out of ammo, therefore prices of all risk assets are set to decline, including stocks, corporate bonds, commodities and precious metals. The Fed will eventually panic because their credibility is spent.  Bernanke's approval rating is 70% going into this debacle, but he will soon be the number one blamegoat for this fiasco.  Monetary policy is without doubt the biggest ponzi scheme ever invented and it's shelf life is quickly dwindling.  The Fed will likely eventually resort to printing and distributing hard currency, meanwhile governments worldwide are already engaging in competitive debasement of their currencies. Therefore, beyond the initial deflationary credit collapse, I will eventually be looking to be a buyer of gold and silver (via CEF - Central fund of Canada) or GLD.  Eventually could be measured in years...

Looking out further, people will lose their homes and jobs en masse and discontent will rise to levels last seen in the Great Depression. The major difference however, is that Depression-era people were hardy folk with useful manual labor skills. Also there were still a large proportion of family farms and farm jobs that were largely self-sustaining. Today's population of IT managers (me), accountants and Starbucks baristas won't have any useful skills to fall back on in a basic survival-based economy. Therefore, crime and violence will sky-rocket and personal security will become a high priority for everyone.

Looking out a couple of years:

1) The U.S. will abandon Iraq and Afghanistan to the terrorists

2) The Middle-East will descend into chaos beyond anything heretofore imagined

My strategy:

1) Avoid the stock market, invest in short-term Treasuries

2) Look for a large pullback in gold/silver and then start averaging in to CEF/GLD

3) Invest in personal security

Good Luck.  We all need it.

This Time Will Be Different

[Update: August 27th, 2012]

Central Banksters meet in Jackson Hole this week to debate another round of monetary dopium.  Wall Street is making the usual (self) destructive threats as to what will happen if they don't get their next fix on time.

Historically the Fed doesn't act this close to an election, so the junkies on Wall Street may be forced to go cold turkey...

When I say things will be different, I am talking about the public's inevitable "response" to the ongoing greed-orgy at Main Street's expense.  No surprise, the overpaid gamblers on Wall Street and their proxies in Washington are oblivious to the seething rage lurking just below the surface - a dry tinderbox that they keep feeding...merely in need of a random spark...

Nothing has Changed
Just last week (under the radar), it was announced that the Volcker Rule, intended to put an end to banks speculating with depositors' money, has now been pushed back to the end of this year.  Meanwhile, full implementation won't be due until July, 2014, almost two years from now !  In other words, best case scenario (assuming it ever happens), it will take over 5 years from the depths of the largest bailout in U.S. history to finally get Wall Street to stop gambling with public money.  Wow, anyone who calls me a pessimist  at this juncture, either has a frontal lobotomy or is free-basing Prozac...

[Original Post: May 10, 2012]

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.

Brown Swans Flocking [Again]

I just read this timely article "The Perils of Overconfidence" in which a Wall Street sophist once again tells us that predicting the future is a fool's errand (scroll down past all the bullshit to the bottom of the article).  Apparently trying to avoid being ass raped by Wall Street for the fifth time in a row, is the *new* overconfidence.  This "no one can predict the future" bullshit is exactly the mentality engendered by "Fooled by Randomness" (aka. the Black Swan Event), as described in the original post below.  I say it's timely, because from a contrarian standpoint, this is also the type of mindset we should expect Wall Street to adopt at a critical juncture when facing overwhelming (and highly obvious) risk.  Let's be clear, Wall Street greedbots have to believe the Black Swan theory in order to keep their eye on the prize, which is the end of year bonus.  That is their overriding incentive, because after all, hedge funds are just call options - heads they win and score a big bonus - tails they underperform the market/crash the fund, and walk away.