Must Read – The Wall Street Examiner http://wallstreetexaminer.com Busting the myths Wed, 24 Aug 2016 02:23:54 +0000 en-US hourly 1 35992186 Surprise! New Home Sales Surge 12.37% To 654k SAAR, Back To 1995 Levels http://wallstreetexaminer.com/2016/08/surprise-new-home-sales-surge-12-37-654k-saar-back-1995-levels/ http://wallstreetexaminer.com/2016/08/surprise-new-home-sales-surge-12-37-654k-saar-back-1995-levels/#respond Tue, 23 Aug 2016 14:42:40 +0000 http://anthonybsanders.wordpress.com/?p=1630 New home sales surprised most analysts this morning.

The post Surprise! New Home Sales Surge 12.37% To 654k SAAR, Back To 1995 Levels was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

New home sales surprised most analysts this morning. New home sales rose 12.37% in July to 654k units SAAR.

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The median price for new homes sold fell -5.12% and the months supply of new homes fell -12.2%.

While the median price for new home sales has risen to above the levels seen during the housing bubble, mortgage purchase applications are lower than during the housing bubble (although purchase applications have been rising since 2015).

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The Northeast and South saw the biggest gains with the West reporting no gains.

How bad was the housing and mortgage credit bubble burst? New home sales are finally back to 1995 levels.

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Adjusted by population growth, new home sales are back to the 1991 recession as Logan Mohtashami points out.

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And considerably below 1963 levels when adjusted for population.

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The tightening of credit standard since 2007 helps explain, in part, the decline in mortgage purchase applications and the stalled new home sales recovery.

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Left to right: Hamish Linklater plays Porter Collins and Rafe Spall plays Danny Moses in The Big Short from Paramount Pictures and Regency Enterprises

Left to right: Hamish Linklater plays Porter Collins and Rafe Spall plays Danny Moses in The Big Short from Paramount Pictures and Regency Enterprises

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

The post Surprise! New Home Sales Surge 12.37% To 654k SAAR, Back To 1995 Levels was originally published at The Wall Street Examiner. Follow the money!

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Fear! Another $4 Trillion Of Asset Purchases May Be Needed By Fed In Another Severe Recession http://wallstreetexaminer.com/2016/08/fear-another-4-trillion-asset-purchases-may-needed-fed-another-severe-recession/ http://wallstreetexaminer.com/2016/08/fear-another-4-trillion-asset-purchases-may-needed-fed-another-severe-recession/#respond Tue, 23 Aug 2016 12:16:20 +0000 http://anthonybsanders.wordpress.com/?p=1619 A new Fed working paper suggests that another $4 trillion in QE will be enough to reverse the next recession.

The post Fear! Another $4 Trillion Of Asset Purchases May Be Needed By Fed In Another Severe Recession was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

As we approach the annual Jackson Hole symposium for the Federal Reserve (this year’s theme is “Designing Resilient Monetary Policy Frameworks for the Future,”) the Fed released a working paper titled “Gauging the Ability of the FOMC to Respond to Future Recessions.”   2016068pap In this paper,  the author (David Reifschneider) finds that “simulations of the FRB/US model of a severe recession suggest that large-scale asset purchases and forward guidance about the future path of the federal funds rate should be able to provide enough additional accommodation to fully compensate for a more limited [ability] to cut short-term interest rates in most, but probably not all, circumstances.” And the amount of the large-scale assets purchase would be … $4 trillion.

In other words, The Fed would have to purchase ANOTHER $4 trillion in assets. The Fed’s asset purchases (or Quantitative Easing [QE]) have totaled $4.5 trillion as of today, the majority of which happened following the house price and credit bubble explosion in late 2007 and 2008. To be exact, $3.56 trillion added (net) since September 3, 2008.

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But despite a Fed Funds Target rate of 25 basis points from December 2008 to December 2015 (the Fed Funds Target rate was raised in December to 50 basis points or 0.50%) and a $4.46 trillion expansion of The Fed’s asset balance sheet,  core personal consumption expenditures YoY remains at 1.57%. That was a lot of effort by The Fed to generate 1.57% core PCE growth.

So, the finding of The Fed’s David Reifschneider is that even MORE asset purchases will be needed for the next severe recession. Since The Fed’s activities (and global pressures) have already pushed interest rates close to the zero-bound.

Since September 10, 2007, the US Treasury actives curve has fallen over 350 basis points on the short-end of the curve and over 250 basis points at the 10 year tenor (maturity).

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Unless the US moves to negative nominal rates at the short-end, more and more asset purchases will generate less and less positive results.

Here is a chart of the US Dollar since 2007.

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On the unemployment side, the U-3 unemployment rate has fallen to the natural rate of uemployment, so there isn’t a lot of room for further declines. Of course, a severe recession would like cause a large increase in unemployment again.

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So, there you have it. Another severe recession will require The Fed to engage in the purchase of another $4 trillion in Treasury Notes (and perhaps agency mortgage-backed securities). But unless interest rates rise before the next severe recession, there will be little room to move without going to negative interest rates.

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Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Why These Gold Companies Are Insanely Attractive Right Now http://wallstreetexaminer.com/2016/08/gold-companies-insanely-attractive-right-now/ http://wallstreetexaminer.com/2016/08/gold-companies-insanely-attractive-right-now/#respond Mon, 22 Aug 2016 20:39:14 +0000 http://moneymorning.com/?p=235793 Gold is having an incredible year, with global demand hitting 2,335 tonnes in the first half of 2016.

For investors looking to increase their exposure to the yellow metal, these gold companies are a superior choice.

The post Why These Gold Companies Are Insanely Attractive Right Now was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.

In a note last week, UBS echoed its earlier assessment that gold has indeed “entered a new bull run,” as I shared with you last month. The precious metal had a spectacular first half of the year, with total global demand reaching 2,335 tonnes, the second highest on record, according to the World Gold Council (WGC).

Despite this, gold is still under-owned, accounting for only 3% of total ETF assets under management, UBS writes. The group adds there is room for new or returning market participants who might have cleared out their gold positions during the recent bear market.

Driving the bull run, according to the group, are “a prolonged period of depressed real yields” and “elevated macro uncertainty.” These are themes I’ve returned to many times in the past six months, with global government bond yields continuing to drop below zero and economic and geopolitical unrest advancing following the Brexit referendum and ahead of the U.S. presidential election this November.

Confidence in monetary policy and appetite for government debt continues to erode. According to Zero Hedge, foreign central banks dumped a record $335 billion in U.S. Treasuries during the last year. The top seller in June was China, which cleared $28 billion in Treasuries off its balance sheet. Over the same period, the world’s second-largest economy added to its official gold reserves – 500,000 ounces in June alone – in an effort to diversify its holdings.

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Investors should take heed of the fact that even central banks have become net buyers of gold. It’s always been my recommendation to maintain a 10% weighting in your portfolio – 5% in gold bullion and another 5% in gold stocks.

A Superior Way to Gain Exposure to Gold

One of the best ways to play gold, I believe, is royalty and streaming companies. As a reminder, these gold companies serve as specialized financiers to explorers and producers. In return for upfront financing, they can receive one of two different types of payments. In one way, they can receive a royalty, or percentage, on whatever future sales the debtor company makes during the life of the mine.

In another way, they can buy a stream of precious metals at a low, fixed price. Discounts on gold, for instance, could be as much as 75%. This has typically been the preferred method for paying back the royalty company.

Some of our favorite names in this space include Franco-Nevada Corp. (NYSE:FNV), Silver Wheaton Corp. (NYSE: SLW), Royal Gold Inc. (Nasdaq: RGLD), and Sandstorm Gold Ltd. (NYSEMKT: SAND), all of which have outperformed underlying gold for the 12-month period.

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Better Allocators of Capital

Royalty and streaming companies show great opportunity on the upside but avoid many of the risks and operating expenses that explorers and producers must deal with.

Interestingly, they all employ a small group of technically skilled mining geologists, engineers, metallurgists, and financial mining executives to analyze and monitor their investments.

Because they’re not responsible for buying mining machinery and building, operating, and maintaining mines, they have a much lower total cash cost per ounce of gold than miners do. (In this context, cash cost refers to operational expenses that are paid using cash, rather than credit.) Their overhead is kept at a minimum, and they have some of the highest sales per employee in the world. As you can see below, their debt per share is much lower than senior miners Newmont Mining Corp. (NYSE: NEM) and Barrick Gold Corp. (NYSE: ABX) – the Army to royalty companies’ more agile and tactical Navy SEALs. Barrick cut $3.1 billion in debt last year and is on track to pay down an additional $2 billion this year.

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Their margins have typically been much larger than traditional explorers and producers, allowing them to remain profitable even during gold bear markets.

Take Sandstorm, one of the younger royalty companies. Its second-quarter cash cost per ounce of gold was a mere $261, giving it operating margins of $994 per ounce.

Compare this to Barrick, the world’s largest gold producer. Barrick reported cash costs of $578 per ounce, nearly double that of Sandstorm – and Barrick has some of the lowest costs compared to other miners, according to Motley Fool.

Mining Companies Royalty Companies
Benefit of gold price increase X X
Benefit of new deposit discovery X X
Benefit of increased production X X
No sustaining costs X
No exploration costs X
No capital expense overruns X
Fixed cash costs X

Investors like royalty companies because they’re a skilled team of former miners and mining executives who generate substantially greater gross margins and have materially fewer employees, with less general and administrative expense.

Further, they offer spectacular optionality. They often buy an asset with a payload over 10 years. However, these deposits often extend for 30 years, so they have potential for a much bigger payback. If the mining company expands production, it’s free additional cash flow, and if they make a large discovery near the producing mine, the royalties have free upside growth.

A New Entrant

Just as there still might be ample scope for gold investors to participate in the market, one CEO is betting there’s still room for another entrant into the precious metals royalty company space. Long-time precious metals commentator David Morgan recently helped found Lemuria Royalties, which reported in June that it had acquired its first silver royalty from a Peruvian mine operated by a subsidiary of Fortuna Silver Mines.

In January of this year, Morgan summed up his reasoning for establishing a new royalty company: “We favor the streaming and royalty companies a great deal because the risk is very low relative to, let’s say, an exploration company or even a producing company.”

This is precisely why we continue to find the royalty business model very attractive.

Money Morning Editor’s Note: Frank Holmes is chief executive officer and chief investment officer of U.S. Global Investors Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets, and infrastructure. He has been profiled by FortuneBarron’sFinancial Times, and other publications. If you want commentary and analysis from Holmes and the rest of the U.S. Global Investors team delivered to your inbox every Friday, sign up to receive the weekly Investor Alert at www.usfunds.com.

 

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The post Why These Gold Companies Are Insanely Attractive Right Now appeared first on Money Morning – We Make Investing Profitable.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Bubbles In Bond Land——A Central Bank Made Mania, Part 1 http://wallstreetexaminer.com/2016/08/bubbles-bond-land-central-bank-made-mania-part-1/ http://wallstreetexaminer.com/2016/08/bubbles-bond-land-central-bank-made-mania-part-1/#respond Mon, 22 Aug 2016 20:30:17 +0000 http://davidstockmanscontracorner.com/?p=117295 Sometimes an apt juxtaposition is worth a thousand words, and here’s one that surely fits the bill.

Last year Japan lost another 272,000 of its population as it marched resolutely toward its destiny as the world’s first bankrupt old age colony. At the same time, the return on Japan’s 40-year bond during the first six months of 2016 has been an astonishing 48%.

The post Bubbles In Bond Land——A Central Bank Made Mania, Part 1 was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here. Reposted with permission.

Sometimes an apt juxtaposition is worth a thousand words, and here’s one that surely fits the bill.

Last year Japan lost another 272,000 of its population as it marched resolutely toward its destiny as the world’s first bankrupt old age colony. At the same time, the return on Japan’s 40-year bond during the first six months of 2016 has been an astonishing 48%.

That’s right!

We aren’t talking Tesla, the biotech index or Facebook. To the contrary, like the rest of the Japanese yield curve, this bond has no yield and no prospect of repayment.

But that doesn’t matter because it’s not really a sovereign bond anymore.These Japanese government’s bonds (JGBs) have actually morphed into risk free gambling chips.

Front-running speculators are scooping up whatever odds and sots of JGB’s that remain on the market and are selling them to the Bank of Japan (BOJ) at higher and higher and higher prices.

At the same time, these punters face virtually no risk. The BOJ already owns 426 trillion yen of JGB’s, which is nearly half of the outstandings. And that’s saying something, given that Japan has more than one quadrillion yen of government debt which amounts to 230% of GDP.

Moreover, it is scarfing up the rest at a rate of 80 trillion yen per year under current policy, while giving every indication of sharply stepping-up its purchase rate as it segues to outright helicopter money.

It can therefore be well and truly said that the BOJ is the ultimate roach motel. At length, virtually every scrap of Japan’s gargantuan public debt will go marching into its vaults never to return, and at “whatever it takes” in terms of bond prices to meet the BOJ’s lunatic quotas.

The Big Fat Bid Of The World’s Central Banks

Surely, BOJ Governor Kuroda will go down in history as the most foolish central banker of all-time. But in the interim the man is contributing—-along with Draghi, Yellen and the rest of the central bankers’ guild—-to absolute mayhem in the global fixed income market.

The effect of their massive bond purchases or so-called QE policies has been to radically inflate sovereign bond prices. The Big Fat Bid of central bankers in the benchmark government securities sector, in turn, has caused drastic mispricing to migrate into the balance of the fixed income spectrum via spread pricing off the benchmarks, and from there into markets for converts, equities and everything else.

Above all else, the QE driven falsification of bond prices means that central banks have supplanted real money savers as the marginal source of demand in the government bond markets. But by their very ideology and function, central bankers are rigidly and even fiercely price inelastic.

For example, the madman Draghi will pay any price—-absolutely any price—–to acquire his $90 billion per month QE quota. He sets the price on the margin, and at present that happens to be a yield no lower than negative 0.4% for a Eurozone government security of any maturity. Presumably that would include a 500-year bond if the Portuguese were alert enough to issue one.

Needless to say, no rational saver anywhere on the planet would “invest” in the German 10-year bund at its recent negative 20 bps of yield. The operational word here is “saver” as distinguished from the hordes of leveraged speculators (on repo) who are more than happy to buy radically over-priced German bunds today.

After all, they know the madmen at the ECB stand ready to buy them back at an even higher price tomorrow.

Yet when you replace savers with central bankers at the very heart of the financial price discovery process in the benchmark bond markets, the system eventually goes tilt. You go upside down.

The Fiscal Equivalent Of A Unicorn—–“Scarcity” In Sovereign Debt Markets

That condition was aptly described in a recent Wall Street Journal piece about a new development in sovereign debt markets which absolutely defies human nature and the fundamental dynamics of modern welfare state democracies.

To wit, modern governments can seemingly never issue enough debt. This is due to the cost of their massive entitlement constituencies, special interest racketeers of every stripe and the prevalence of Keynesian-style rationalizations for not extracting from taxpayers the full measure of what politicians are inclined to spend.

Notwithstanding that endemic condition, however, there is now a rapidly growing “scarcity” of government debt—-the equivalent of a fiscal unicorn. As the WSJ noted:

A buying spree by central banks is reducing the availability of government debt for other buyers and intensifying the bidding wars that break out when investors get jittery, driving prices higher and yields lower. The yield on the benchmark 10-year Treasury note hit a record low Wednesday.

“The scarcity factor is there but it really becomes palpable during periods of stress when yields immediately collapse,’’ he said. ”You may be shut out of the bond market just when you need it the most.’’

Owing to this utterly insensible “scarcity”, central banks and speculators together have driven the yield on nearly $13 trillion of government debt—or nearly 30% of total outstandings on the planet—into the subzero zone. This includes more than $1 trillion each of German and French government debt and nearly $8 trillion of Japanese government debt.

Nor is that the extent of the subzero lunacy. The Swiss yield curve is negative all the way out to 48 years, where recently the bond actually traded at -0.0082%.

So we do mean that the systematic falsification of financial prices is the sum and substance of what contemporary central banks do.

Forty years from now, for example, Japan’s retirement colony will be bigger than its labor force, and its fiscal and monetary system will have crashed long before. Yet the 10-year JCB traded at negative 27 bps recently while the 40-year bond yielded a scant 6 basis points!

When it comes to government debt, therefore, it can be well and truly said that “price discovery” is dead and gone. Japan is only the leading edge, but the trend is absolutely clear. The price of  sovereign debt is where central banks peg it, not even remotely where real money savers and investors would buy it.

The world is even poorer ... In yield terms...after Brexit

Still, that’s only half the story, and not even the most destructive part. The truth of the matter is that the overwhelming share of government debt is no longer owned by real money savers at all. It is owned by central banks, sovereign wealth funds and leveraged speculators.

As to the latter, do not mistake the repo-style funding deployed by speculators with genuine savings. To the contrary, their purchasing power comes purely from credit (repo) extracted from the value of bond collateral, which, in turn, is being driven ever higher by the Big Fat Bid of central banks.

What this means is that real money savings—– which must have a positive nominal yield—-are being driven to the far end of the sovereign yield curve in search of returns, but most especially ever deeper into the corporate credit risk zone in quest of the same.

The Pure Lunacy Of Mario Draghi

Nowhere is the irrational stampede for yield more evident than in the European bond markets. After $90 billion per month of QE purchases by the ECB, European bond markets have been reduced to a heap of raging  financial market lunacy.

It seems that Ireland has now broken into the negative interest rate club, investment grade multinationals are flocking to issue 1% debt on the euro-bond markets and, if yield is your thing, you can get all of 3.50% on the Merrill Lynch euro junk bond index.

That’s right. You can stick your head into a veritable financial meat grinder and what you get for the hazard is essentially pocket change after inflation and taxes.

Remember, the average maturity for junk bonds is in the range of 7-8 years. During the last ten years Europe’s CPI averaged 2.0% and even during the last three deflationary years the CPI ex-energy averaged 1.2%.

So unless you think oil prices are going down forever or that the money printers of the world have abolished inflation once and for all, the real after-tax return on euro junk has now been reduced to something less than a whole number. It might be wondered, therefore, whether the reckless stretch for “yield” has come down to return free risk?

Well, no it hasn’t. Yield is apparently for desperate bond managers and other suckers.

In fact, among the speculators who wear big boy pants the bond markets are all about capital gains and playing momo games. It’s why euro junk debt—-along with every other kind of sovereign and investment grade debt—-is soaring. In a word, bond prices are going up because bond prices are going up. It’s an utterly irrational speculative mania that would do the Dutch tulip bulb punters proud.

In the days shortly before Draghi issued his “whatever it takes” ukase, for instance, the Merrill Lynch euro high yield index was trading at 11.5%. So speculators who bought the index then have made a cool 230% gain if they were old-fashioned enough to actually buy the bonds with cash.

And they are laughing all the way to their estates in the South of France if their friendly prime broker had arranged to hock them in the repo market even before payment was due. In that case, they’re in the 1000% club and just plain giddy.

BofA Merrill Euro High Yield Index 2016

Does Mario Draghi have a clue that he is destroying price discovery completely? Do the purported adults who run the ECB not see that the entire $20 trillion European bond market is flying blind without any heed to honest price signals and risk considerations at all?

Worse still, do they have an inkling that the soaring price of debt securities has absolutely nothing to do with their macroeconomic mumbo jumbo about “deflation” and “low-flation”?  Or that they are in the midst of a financial mania, not a ” weak rate environment” due to the allegedly “slack” demand for credit in the business and household sectors?

In fact, European financial markets are being stampeded by a herd of front runners who listen to Draghi reassure them on a regular basis that come hell or high water, the ECB will buy every qualifying bond in sight at a rate of $90 billion per month until March 2017. Full stop.

Never before has an agency of the state so baldy promised speculators literally trillions in windfall gains by the simple act of buying today what Draghi promises he will be buying tomorrow.

And that will be some tomorrow. As more and more sovereign debt sinks into the netherworld of negative yield and falls below the ECB’s floor (-0.4%), there will be less supply eligible for purchase from among the outstanding debt of each nation in the ECB’s capital key.

This is price fixing with a vengeance. It is no wonder that repo rates recently have plunged into negative territory.

But here’s the thing. The geniuses at the ECB are not cornering the market; they are being cornered by the speculators who are recklessly front-running the central bank with their trigger finger on the sell button.

Everything in the European fixed income market—sovereign and corporate—– is now so wildly over-priced and disconnected from reality that the clueless fools in Frankfurt dare not stop. They dare not even evince a nuance of a doubt.

So this is a house of cards like no other. Greece remains a hair from the ejection seat, yet everything is priced as if there is no “redenomination” risk.

Likewise, with the European economies still dead in the water, and notwithstanding some short-term data squiggles in the sub-basement of historic trends, the debt of Europe’s mostly bankrupt states is priced as if there is no credit risk anywhere on the continent outside of Greece.

Well then,  just consider three fundamentals that scream out danger ahead. Namely, public debt ratios continue to rise, GDP continues to flat-line, and the Eurozone superstate in Brussels continues to kick the can and bury its member states in bailout commitments that would instantly result in political insurrection in Germany, France and every other major European polity were they ever to be called……

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Dark Dynamics http://wallstreetexaminer.com/2016/08/dark-dynamics/ http://wallstreetexaminer.com/2016/08/dark-dynamics/#respond Mon, 22 Aug 2016 13:16:38 +0000 http://kunstler.com/?p=6528 What the world is witnessing, without actually paying much attention, is the death of our debt-based economy — that is, borrowing the means to thrive in the now from a future that can’t really furnish it anymore.

The post Dark Dynamics was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of KUNSTLER. To view original, click here. Reposted with permission.

What the world is witnessing, without actually paying much attention, is the death of our debt-based economy — that is, borrowing the means to thrive in the now from a future that can’t really furnish it anymore. The illusion that the future would always provide was a legacy of the cheap energy era. That era ended in 2005. The basic promise is broken and with it the premise for living as we had been. The energy available today, especially oil, is no longer cheap enough to run the industrial economies designed to run on it. Any way that you look at the dynamic, Modernity loses.

With oil under $50 a barrel, and gasoline under $3 a gallon (back east), the public apparently thinks that the Peak Oil story is dead and gone. But when it costs $75 a barrel to pull the stuff out of the ground, and the stuff only sells for $47 a barrel, the oil companies’ business model doesn’t really work. The shale oil companies especially have been gaming the system by issuing bonds that pay relatively high interest rates in an investment climate where almost nothing else offers enough yield to live on, especially for pension funds and insurance companies. Two little upward bumps this year in the price of oil toward the $50 range prompted a wish that the good old days of high-priced oil were coming back, that the oil business would be profitable again.

The trouble is that high oil prices — say, over $100 a barrel, as it was in 2014 — crush advanced economies, so that demand for oil crashes, and with it productive activity. Without productivity, the debts issued by companies (and even governments) don’t get repaid. There really is no “sweet spot” in this energy cost equation.

A lot of wishful thinkers would like to believe that you can run contemporary life on something beside oil. But the usual “solutions,” solar and wind energy, don’t pencil out, especially when you consider that the hardware for running them — the photovoltaics, charge controllers, batteries, turbines, and blades, can’t be mass-produced and distributed without the very fossil fuels they are supposed to replace.

These matters add up to the essential quandary of our time. It has expressed itself in falling standards of living for what used to be the middle class, most particularly in the USA. European countries have tried to work around this problem with their rigid bureaucracies for keeping those already employed from losing their jobs. In France, Spain, and Italy, this has only made it much harder for people under 30 to get a job. The jobs picture for millennials in the USA is not much better, though there’s no structural job-protection for their elders who are still working here. They live in abject fear of termination by the HR ghouls of the big corporations.

Sooner or later the younger generation will explode in rage at the system and there is no telling what the result will be. We’re already seeing it in the black ghettos, where decades of accrued social dysfunction make the anomie and purposelessness — of young men especially — much worse. The newer loser class of people who once had good jobs and now have poor prospects of ever getting them back gets swept up in the mania for their incoherent champion, Trump, who shows no sign of understanding the essential quandary of our time. The tragedy of Trumpism is that the man so poorly represents a large group of Americans with genuine woes and grievances. And the larger tragedy of our country these days is that events did not prompt better leaders to step forward.

The explanation may be that people who actually understand the dark dynamics spinning out are rather pessimistic about the our ability to carry on under the familiar disposition of things. Hillary represents the forces in our national life that want to pretend that nothing is wrong, that all the splendid rackets of the day — Federal Reserve interventions, corporate debt-fueled stock buybacks, military log-rolling, medical racketeering, the college loan Ponzi, pension fund levitation, primary dealer bank interest rate arbitrage, agribiz Frankenfood proliferation — can just grind along like some old riverboat banger engine keeping the garbage barge of American life afloat. Thus, Hillary is shaping up to be the patsy of the century, likely to preside, if elected, over the biggest blowup of established arrangements that world has ever seen.

The debt problem alone is absolutely certain to express itself in at least three major ways: the crash of equity markets, the collapse of the bond markets, and the loss of faith in the value and meaning of whatever money you’re using. Any of those events would turn the economic life of the linked advanced economies upside down. Any of them could occur during the 2016 US election season.

Support Jim Kunstler’s writing by visiting Jim’s Patreon Page!

It’s Out !
World Made By Hand (Fourth and Final)

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New Interview with JHK about The Harrows of Spring

Praise for A History of the Future:
Kunstler skewers everything from kitsch to greed, prejudice, bloodshed, and brainwashing in this wily, funny, rip-roaring, and profoundly provocative page- turner, leaving no doubt that the prescriptive yet devilishly satiric A World Made by Hand series will continue.” — Booklist

HistoryoftheFuture_Thumb

My local indie booksellers… Battenkill Books (Autographed by the Author) … or Northshire Books
or Amazon

Also: Published as an E-book for the first time!
The 20th Anniversary edition
With an entertaining new introduction by the author

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Bargain Price $3.99

Amazon Kindle …or … Barnes & Noble Nook …or… Kobo

Support Jim Kunstler’s blog by visiting Jim’s Patreon Page!

 

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Redfin: Home Sales Decline 12% In July (Don’t Panic … Or Panic!!!) http://wallstreetexaminer.com/2016/08/redfin-home-sales-decline-12-july-dont-panic-panic/ http://wallstreetexaminer.com/2016/08/redfin-home-sales-decline-12-july-dont-panic-panic/#respond Mon, 22 Aug 2016 12:39:20 +0000 http://anthonybsanders.wordpress.com/?p=1600 According to Redfin, home sales tanked 12% in July (MoM) and 10.9% (YoY).  

The post Redfin: Home Sales Decline 12% In July (Don’t Panic … Or Panic!!!) was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

According to Redfin, home sales tanked 12% in July (MoM) and 10.9% (YoY).  

redfinhomesales

Here is Redfin’s chart.

National-Home-Sales-year-over-year

Yes, the July -10.9% YoY decline kind of sticks out like a sore thumb. Particularly when median sales price ROSE by +5.3% YoY in July.

Nela Richardson, Redfin’s chief economist, claims there is no reason to panic. The slowdown last month has more to do with this year’s calendar than buyer demand. Most of the drop is due to the fact that business days, when people usually close on home sales, were fewer in July. Because the month started on a Friday, there were five full weekends plus one national holiday, leaving only 20 days available for home closings.

True, but let us not forget the new federal disclosure rules designed to simplify the financial reporting involved in purchasing homes and give buyers more time to understand mortgage documents could also trigger delays in closings as real estate agents, lenders, title companies, and lawyers shift how they handle loans. When combined with fewer days available to close, the combined effect could be jarring.

Like a 12% Month-over-month decline in national home sales.

Calendar delays and the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA rules governing disclosures can creates delays culminating in a “calendar crisis” that may not be a crisis at all.

On the other hand, the economy is barely limping along, so an alternative explanation is that the housing bubble is bursting. Let’s wait for the August numbers to tell which explanation is correct.

dontpanic_1024

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Dying Money Velocity Began In 1995 With Massive Mortgage Credit Expansion http://wallstreetexaminer.com/2016/08/dying-money-velocity-began-1995-massive-mortgage-credit-expansion/ http://wallstreetexaminer.com/2016/08/dying-money-velocity-began-1995-massive-mortgage-credit-expansion/#respond Mon, 22 Aug 2016 11:16:25 +0000 http://anthonybsanders.wordpress.com/?p=1572 M2 Money Velocity (GDP/M2 Money Stock) peaked back in Q3 of 1997.

The post Dying Money Velocity Began In 1995 With Massive Mortgage Credit Expansion was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

M2 Money Velocity (GDP/M2 Money Stock) peaked back in Q3 of 1997. And it has mostly gone down hill from there.  As of Q2 2016, M2 Money Velocity is at the lowest point in history.

m2vlfpr

Why?

One explanation for the decline in velocity is the decline in labor force participation since early 2000 when labor force participation peaked.  Fewer people participating in the labor force (as a percentage of the population) makes it more and more difficult to maintain velocity since GDP is lower despite the expansion of money.

Why is labor force participation declining? First, our population is aging and more and more people are retiring. Second, more and more students decided to attend and/or stay in school given the lousy jobs market.  Third, some people have just given up trying to find a job and would prefer to rely on the state for food, housing, healthcare, etc.

A closer look reveals some bad AND good news. Labor force participation for ages 25-54 has been declining since 2007 (but showing some improvement in 2016). On the other hand, LFP for ages 65 and above (many of whom were pushed back into the labor force as a result of the financial crisis and housing bubble burst) has been growing steadily since 2008.

lfpagegr

Actually, the economic world turned before labor force participation peaked in early 2000 and M2 Money Velocity peaked in 1997.  A key economic indicator, core personal consumption expenditures YoY,  was above 4% in the early 1990s only to fall to around 2% around 1995 prompting the Clinton Administration to enact policies leading to a dramatic increase in mortgage credit (creating a credit bubble) as a stimulative measure. This was the Clinton National Homeownership Strategy: Partners in the American “Dream.” nhsdream2 That turned into a nightmare for millions of American families.

pcegryoy

1995 was the beginning of the incredible housing credit bubble that catastrophically exploded in 2008.

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Core personal consumption expenditures (cPCE) YoY sagged after 1989 and hit 2% by mid 1990s and has struggled to reach 2% on a consistent basis ever since. As a result, GDP has been compromised and the massive expansion of mortgage credit helped created a massive house price bubble which burst … and things have never been the same since.

zoneofbubble

And with the fall of the House of Usher cards, mortgage equity withdrawal has fallen as well (putting a damper on personal consumption expenditures.

mewmd

Remember, housing is a consumption good (to serve as shelter), not a productive asset like a factory. Trying to create economic growth through housing is a poor choice. So much so that The Federal Reserve is left blowing asset bubbles instead of stimulating actual economic growth.

bubblezone

Here is President Bill Clinton, father of the credit bubble, singing “I’m a Lumberjack and I’m OK.”

billclinton_020816getty

 

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Fischer Signals 2016 Rate Hike With Economy Nearing Fed Goals (1.57% YoY Versus Target Rate Of 2%) http://wallstreetexaminer.com/2016/08/fischer-signals-2016-rate-hike-economy-nearing-fed-goals-1-57-yoy-versus-target-rate-2/ http://wallstreetexaminer.com/2016/08/fischer-signals-2016-rate-hike-economy-nearing-fed-goals-1-57-yoy-versus-target-rate-2/#respond Sun, 21 Aug 2016 19:45:14 +0000 http://anthonybsanders.wordpress.com/?p=1592 According to Bloomberg, Federal Reserve Vice Chairman Stanley Fischer signaled that a 2016 rate hike is still under consideration

The post Fischer Signals 2016 Rate Hike With Economy Nearing Fed Goals (1.57% YoY Versus Target Rate Of 2%) was originally published at The Wall Street Examiner. Follow the money!

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Is that Stanley Fischer of The Federal Reserve or Jenna Fischer of “The Office?”

According to Bloomberg, Federal Reserve Vice Chairman Stanley Fischer signaled that a 2016 rate hike is still under consideration, saying the U.S. economy is already close to meeting the central bank’s goals and that growth will gain steam.

“We are close to our targets,” Fischer said in a speech at the Aspen Institute in Aspen, Colorado on Sunday.

“Looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes,” he added, without giving explicit views on his rate outlook.

While the economy has done “less well” in moving toward the Fed’s 2 percent inflation target, Fischer said the central bank’s preferred price benchmark, minus food and energy costs, at 1.6 percent was “within hailing distance of 2 percent.”

corepce

Or a Maxwell Smart used to say in the TV show, “Missed it (the 2% inflation target) by that much!”

Well, Stan, core personal consumption growth YoY has only hit the 2% target briefly in Q1 2012 since the end of The Great Recession. So, 1.57% PCE growth is longer away than Fischer’s hailing distance of 2% target growth.

pcegryoy

Perhaps it was Jenna Fischer (Pam Beesley from The Office) who said 1.57% is within hailing distance of 2%.

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Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Our Society Is Sick, Our Economy Exploitive and our Politics Corrupt http://wallstreetexaminer.com/2016/08/society-sick-economy-exploitive-politics-corrupt/ http://wallstreetexaminer.com/2016/08/society-sick-economy-exploitive-politics-corrupt/#respond Sun, 21 Aug 2016 17:32:00 +0000 http://wallstreetexaminer.com/?guid=ddb93565461adc2812fa8bce46274fc3 Any society that tolerates this systemic exploitation and corruption as "business as usual" is not just sick--it's hopeless.

The post Our Society Is Sick, Our Economy Exploitive and our Politics Corrupt was originally published at The Wall Street Examiner. Follow the money!

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This is a syndicated repost courtesy of oftwominds-Charles Hugh Smith. To view original, click here. Reposted with permission.

Any society that tolerates this systemic exploitation and corruption as “business as usual” is not just sick–it’s hopeless.
In noting that our society is sick, our economy exploitive and our politics corrupt, I’m not saying anything you didn’t already know. Everyone who isn’t being paid to deny the obvious in public (while fuming helplessly about the phony cheerleading in private) knows that our society is a layer-cake of pathologies, our economy little more than institutionalized racketeering and our politics a corrupt auction-house of pay-for-play, influence-peddling, money-grubbing and brazen pandering for votes.
The fantasy promoted by do-gooders and PR hacks alike is that this corrupt system can be reformed with a few minor policy tweaks. If you want a brief but thorough explanation of Why Our Status Quo Failed and Is Beyond Reform, please take a look at my book (link above).
If you want an example of how the status quo has failed and is beyond reform, it’s instructive to examine the pharmaceutical industry, which includes biotech corporations, specialty pharmaceutical firms and the global corporate giants known as Big Pharma.
I hope it won’t come as too great a surprise that the pharmaceutical industry isn’t about cures or helping needy people–it’s about profits. As a Big Pharma CEO reported in a brief moment of truthfulness, We’re in Business of Shareholder Profit, Not Helping the Sick
Here’s an excerpt from the article:
“Already this year, Valeant has increased the price of 56 of the drugs in its portfolio an average of 66 percent, highlighted by their recent acquisition, Zegerid, which they promptly raised 550 percent. Not only does this have the unfortunate side effect of placing the price of life-saving drugs out of reach for even moderately-insured people, but it has now begun to call into question the sustainability of this rapidly-spreading business model.
Since being named CEO in 2008, Valeant has acquired more than 100 drugs and seen their stock price rise more than 1,000 percent with Pearson at the helm.”
Longtime correspondent John F., M.D. has been sending me a steady stream of media accounts of pharma companies jacking up prices by 400% and 500%, even though the medications are off-patent and have been around for years or even decades.
John F. explains the context:
“The Epi-Pen (or the generic equivalent) is the only thing that people with severe allergies – including many children – can carry that will save their lives if used at the start of a severe allergic reaction. There is no substitute. The maker, Mylan, has increased the price six-fold over the past few years. Epinephrine is a very old generic drug. It is the packaging that makes it patentable. There is absolutely no reason for the cost to make Epi-Pens to have increased.
People who have had a life-threatening allergic reaction to food or insect stings need these – they are absolutely essential to save their lives. Epinephrine has been generic since I was in medical school in the ’70s, yet the FDA have allowed the manufacturer to increase the price 600% in the last few years.
There is a generic substitute for the Epi Pen now, but they jacked the price of it up to around $400 (it’s near the end of the article). These kits are cardboard boxes with two plastic syringes with one needle each, with a little medicine in them. I can’t imagine they cost more than $10 to make, and they have been around since I was in medical school in the ’70s, so it’s not like they must recoup extensive research costs.”
“I wrote to you about the huge increase in price of colchicine, an excellent drug for people with gout, and sometimes the only drug they can use, which is generic, but the FDA allowed a manufacturer to jack the price to the sky in the past 12 months. Now, the two major pharmacy benefit companies are dropping it from coverage. I can’t emphasize this enough – this is the only drug some patients can take for a disease that sometimes is life-threatening (can cause kidney failure), and by all rights should be ten cents a pill or less.”
Unsurprisingly, pharma sales have been soaring. Take cheap generic drugs and jack up the price by 400%, and it’s no surprise that sales have risen from $550 billion annually in 2004 to over $1 trillion in 2014.
All of the exploitation, deception and corruption has been well documented in dozens of reports and books. Here is a small sampling of recent titles on the sickness of our pharmaceutical/”healthcare” systems, the political system that funds and enforces these pathological systems and the tragic consequences of these pathologies.
The Truth About the Drug Companies: How They Deceive Us and What to Do About It(Dr. Marcia Angell, The New England Journal of Medicine)
How We Do Harm: A Doctor Breaks Ranks About Being Sick in America (Dr. Otis Brawley, chief medical and scientific officer of The American Cancer Society)
Less Medicine, More Health (Dr. H. Gilbert Welch)
Here is a sampling of the reviews posted by readers on Amazon re: Overdosed America:
I have been a physician for 10 years. I have seen my profession gradually being taken over by the pharmaceutical industry. I have seen countless patients harmed – alas even killed – by drug reactions and polypharmacy.
I have sat and listened to countless drug representative presentations that were outright falsehoods and misrepresentations. It has been months – maybe even years that I have had available to me a medical education conference that was not somehow tainted by drug company money and therefore propaganda.
I have repeatedly had patients in my office begging me for medication that they do not need. They want it simply because it was on TV News last night – and came with a promise of metaphysical salvation. I spend much time every day dissuading patients from taking medication they simply do not need – indeed may even cause real medical problems.
The issues that are discussed in this book are very very real – and the scary part is I do not see my fellow physicians doing a single thing to address these huge problems.
*     *     *     *     *    
Abramson gives specific examples where published drug studies focus on recipients non-representative of typical (target) users – eg. younger, and less prone to adverse reactions. Sometimes the reported data show (if one has the time to read carefully) that the true targets do WORSE with the medication, and this finding is obscured by positive results with the more numerous (atypical) younger selected test patients.
Other medical research reporting ploys utilized by drug companies include: 1)reporting initially positive results, while omitting adverse subsequent outcomes, 2)combining serious (when increased) and minor (when decreased) adverse event numbers to cover up problems, 3)comparing a strong dose of a new medicine with an inappropriate weak dose, comparing a new drug with a placebo, instead of existing efficacious drugs, 4)not reporting negative drug trials, 5)failing to point out that lifestyle changes often provide much better results than drugs, and 6)pulling advertising from medical journals running unfavorable articles.
*     *     *     *     *    
As a consumer who believed until recently was an “informed consumer,” I was shocked to discover that the information I was getting on the National Institute for Health’s website “pubmed.org” was less than definitive when it came to clinical trials. With Dr. Abramson’s book, I now understand that those clinical trials, which most doctors depend on in helping them treat their patients are wildly distorted.
I applaud Dr. Abramson for writing this book. Just as Rachel Carson’s book “Silent Spring” served as a catalyst for supporting changes in how we respect our environment, physicians, consumers and politicians should read this book and take action to protect our nation’s health.
The political corruption that enables and enforces this sick, exploitive system society is equally obvious and well-documented. Sir Angus Deaton, recipient of the 2015 Nobel Prize in economics, recently summarized the innate corruption of the American status quo in a Scientific American article (Sept. 2016 issue): How Inequality Threatens Civil Society: A spiral of slow growth and rent-seeking by powerful interests pose a danger to democracy (subscription required; or try to find a print copy at a library)
“In the U.S., we spend enormous sums on health care, much of which has little or no effect. This system is fiercely defended by those whose incomes and power come directly or indirectly from the nearly one-fifth of American GDP that health care absorbs.
The very size of the health care and financial sectors gives them political power that makes them very difficult to control. These sectors then become engines of inequality, generating huge rewards for some while slowing growth and undermining innovation.”

Any society that tolerates this systemic exploitation and corruption as “business as usual” is not just sick–it’s hopeless. No, you can’t fix this layer-cake of pathological deception, exploitation, corruption and racketeering with the usual pathetic “reforms” offered by lobbyists, insiders and think-tank lackeys: the status quo is itself the source of the sickness and the rot.

My new book is #18 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition) For more, please visit the book’s website.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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A Default Spree Is Coming… And It’s Going to Be Ugly http://wallstreetexaminer.com/2016/08/default-spree-coming-going-ugly/ http://wallstreetexaminer.com/2016/08/default-spree-coming-going-ugly/#respond Sun, 21 Aug 2016 13:55:50 +0000 http://moneymorning.com/?p=235657 Junk bonds may be rallying but it has little to do with corporate credit quality, which just keeps deteriorating.

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This is a syndicated repost courtesy of Money Morning - We Make Investing Profitable. To view original, click here. Reposted with permission.

Junk bonds may be rallying but it has little to do with corporate credit quality, which just keeps deteriorating.

As of the end of August, 113 companies had defaulted on their debt in 2016, already matching the total number of defaults from 2015. The year-to-date default count was also 57% higher than a year earlier.

In case anyone is paying attention (it appears they are not), the last time defaults were this high was in 2009 when 208 companies failed during the financial crisis.

Standard & Poor’s is now projecting that the annual default rate will hit 5.6% by June 2017 with 99 junk-rated companies expected to default in the 12 months ending June 2017. That would significantly exceed the 79 U.S. companies that defaulted in the previous 12-month period ending June 2016, which resulted in a 4.3% default rate.

While low oil prices are a major contributor to this ugliness, energy companiesonly accounted for 57% of the defaults in the 12 month period ending in June 2016.

That means that there is plenty of distress to go around…

The Fed Has Everything to Do With It

Even more disturbing is the fact that defaults are rising rapidly while many leveraged companies continue to enjoy low borrowing costs courtesy of the clueless Federal Reserve.

If interest rates were remotely normalized, the default rate would already be well above 5% and heading to the high single digits. None of this appears to bother investors, who are chasing yield in the rare places they can find it, which is always in all the wrong places.

As a result, the normal spread-widening that occurs when defaults spike is not occurring; which is a very unhealthy phenomenon because it signals high levels of risk-taking and complacency on the part of investors.

The history of the modern junk bond market teaches that most of the returns are earned in compressed periods after the market suffers a sharp sell-off.

The rest of the time, investors are pushing water uphill as they invest in securities that offer poor-to-mediocre risk-adjusted returns until the point when the bottom falls out and they suffer catastrophic losses.

There is good reason why very few credit hedge funds or other large investors made any money in junk since mid-2014, when the market began a sharp sell-off that coincided with the slide in oil prices and the slowdown in China.

This sell-off ended early this year when the market began to rally based on the realization that the Federal Reserve lacks the intellectual capacity to understand the consequences of its own policies or the moral courage to change them.

Why This Yield Chase Is a Bad Idea

And investors are chasing zombies because numerous companies are not generating enough cash flow to reduce their debts or repay them when they mature. Instead they are just living on fumes and waiting for the day of reckoning when their debt matures and they can’t pay it back.

More of them will hit the wall when their debt comes due and they can’t refinance it at a reasonable interest rate because they are financially weak.

Standard & Poor’s is telling us that more of these companies are heading to the bone yard. Investors should be selling rather than buying this risk.

Junk bond market complacency mirrors stock market complacency. The stock market is expensive. The Shiller Cyclically-Adjusted Price/Earnings Ratio is currently 27x, a level is has only reached before in 1929 and 2000 before crashing to the ground.

For some reason, investors think it is a good idea to chase expensive stocks over a cliff because other asset classes such as bonds offer even worse alternatives. I have news for them – it is not a good idea, it is a terrible idea. Smart investors understand the value of holding cash and avoiding losses and waiting for a better entry point.

Now is the time to be patient and avoid taking unnecessary risks.

The world is a dangerous place. Markets are fragile. Sit tight and wait for opportunities. They will come.

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The post A Default Spree Is Coming… And It’s Going to Be Ugly appeared first on Money Morning – We Make Investing Profitable.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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