The Wall Street Examiner » Latest Business Headlines Get the facts. Tue, 23 Dec 2014 02:11:28 +0000 en-US hourly 1 I’m Not Buying It—–Not The Wall Street ‘Rip’, Nor The Keynesian Dope Wed, 17 Dec 2014 21:56:56 +0000 This is a syndicated repost courtesy of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here.

First comes production. Then comes income. Spending and savings follow. All the rest is debt…….unless you believe in a magic Keynesian ether called “aggregate demand” and a blatant stab-in-the-dark called “potential GDP”.

I don’t.  So let’s start with a pretty startling contrast between two bellwether data trends since the pre-crisis peak in late 2007—debt versus production.

Not surprisingly, we have racked up a lot more debt—notwithstanding all the phony palaver about “deleveraging”.  In fact, total credit market debt outstanding—-government, business, household and finance—-is up by 16% since the last peak—from $50 trillion to $58 trillion. And that 2007 peak, in turn, was up 80% from the previous peak (2001); and that was up 103% from the business cycle peak before that (July 1990).

Yes, the debt mountain just keeps on growing. It now stands 4.2X higher than the $13.6 trillion outstanding just 24 years ago.

As a proxy for “production” I am using non-durable manufactures rather than the overall industrial production index for three good reasons. The former excludes utility output, which incorporates a lot of weather related noise, and also excludes oil and gas production, which, as we are now learning, embodies a whole lot of debt. Besides, if the US economy has any hope of growing, non-durables should not still be migrating off-shore at this late stage of the global cycle; nor are they subject to fashion or lumpy replacement cycles like cars and refrigerators.

Moreover, the virtue of the industrial production index is that it is a measure of physical output, not sales dollars which reflect inflation; or if deflated into “real” terms, the data points are not distorted by Washington’s fudging and finagling of the prices indices.

So how are we doing on production of things the American economy consumes day-in-and-day out?  Well, at the most recent data point for November, production had soared…….all the way back to where it was in January 2003!

That’s right. Domestic output of food and beverages, paper, chemicals, plastics, textiles and finished energy products (e.g. gasoline), to name just a few, has experienced no net growth for nearly 11 years.

Now that’s a lot more informative than the Keynesian GDP accounts, which presume that government output is actually worth something and that do not know the difference between current period “spending” derived from production and “spending” funded by hocking future income, that is, by borrowing.

Stated differently, the current capitalism suffocating regime of Keynesian central banking and extreme financial repression has created systematic bias and noise in the so-called “in-coming data”. These distortions are the result of mis-allocations and malinvestments reflecting artificial sub-economic costs of debt and capital. The resulting bubbles and booms, in turn, cause highly aggregated measures of economic activity to be flattered by the unsustainable production, spending and investment trends underneath at the sector level.

Thus, during the peak-to-peak cycle between 2000 and 2007, industrial production was reported to have generated a modest 1.5% per year growth rate. But that was almost entirely accounted for by construction materials and defense equipment. Production of non-durable manufactured goods during that period, by contrast, expanded at just a 0.2% annual rate.

But, alas, defense production inherently destroyers economic wealth, whether it provides for the national security or not. And the housing and commercial real estate construction boom did not add to permanent output growth and wealth at all; it amounted to a bubble round trip that has gone nowhere on a net basis during the last 11 years. And the graph below which documents this truth is in nominal terms, meaning that real private construction spending for residential housing, offices, retail and other commercial facilities actually declined by 10-15% after inflation during that period.

Stated differently, bubble finance does not create growth; it funds phony  booms that end up as destructive round trips.

Yet, here we are again. The graph below reflects production of oil and gas, coal and other mining products including iron ore and copper. It has soared by 35% since the 2007 peak, and accounts for virtually all of the gain in industrial production ex-utilities over the last seven years.

Yet the plain fact is, the above explosion of mainly oil and gas production did not reflect the natural economics of the free market, and certainly no technological innovation called “fracking”. The later wasn’t a miracle; it was just a standard oilfield production technique that was long known to the industry, if not to CNBC. It became artificially economic during recent years only due to the massive and continuous distortions of both commodity prices and capital costs caused by the world’s central bankers.

Indeed, there are two charts which capture the central bank complicity in the latest bubble distortion of the “in-coming” data. These are the charts of plunging junk bond yields and soaring oil prices which materialized after the world’s central banks went all-in powering-up their printing presses after September 2008.

At the time of the 2008 financial crisis, what remained of honest price discovery in the capital markets caused a hissy fit among traders and money managers—–who had been stuck when the music stopped with hundreds of billions in dodgy junk bonds issued during the prior bubble.  Accordingly, yields soared to upwards of 20% when massively overleveraged LBOs and other financial engineering gambits went bust.

Needless to say, that urgently needed cleansing was stopped cold in its tracks when Bernanke tripled the Fed’s balance sheets in less than a year after the Lehman crisis, and then officially adopted ZIRP and the greatest spree of debt monetization in recorded history. The resulting desperate scramble for yield among professional money managers and home gamers alike caused nominal interest rates on junk to be driven to levels once reserved for risk free treasuries.

But it wasn’t cheap debt alone that fueled the energy bubble. The 10- year graph of the crude oil marker price (WTI) shown below is an even greater artifact of central bank financial repression. The unprecedented global credit expansion since 2005, and especially after the financial crisis in China and the EM, caused several decades worth of normal GDP expansion to be telescoped into an artificially brief period of time.

As a result, demand for industrial commodities temporarily ran far ahead of new capacity—–even as the latter was being fueled by low-cost capital. That’s why iron ore prices, for example, soared from $20 per ton prior to the China boom to $200 per ton at the peak in 2012, and have now plummeted all the way back to $60 ton. This implosion is still not over. Owing to this extended period of artificial sky-high prices for  the iron ore commodity, the massive investment boom they triggered in mining capacity and transportation infrastructure is still coming on-stream, adding even more increments to supply even as prices plunge.

Call it “operation twist” compliments of central bank bubble finance. It embodies a temporally twisted imbalance of supply and demand that inherently results from false prices in the capital and commodity markets.

Yet this condition is neither sustainable nor stable. Indeed, now we see the back side of this central bank bubble cycle as capacity races past sustainable consumption requirements, causing prices, profits margins and new investment to plunge in a violent correction. Iron ore is just the canary in the mine shaft. The same thing is true of nickel, copper, aluminum and most especially hydrocarbon liquids.

So the oil price chart below does not represent a momentary dip. This time the central banks are out of dry powder because they are at the zero  bound or close in the greater part of world GDP, while the lagged impact of the bloated industrial investment boom continues to pour into the supply-side.

Needless to say, the emerging worldwide liquidation of the energy bubble will hit the highest cost provinces first—-which is to say, the shale patch and oils sands of North America. When drilling rigs start being demobilized by the hundreds rather than just by the score—-and its only a matter of weeks and months—the present the US mining production index shown above will bend back toward the flat-line just as housing and real estate construction did last time around.

Stated differently, there is no “escape velocity” in the forward outlook—– notwithstanding the delusional expectations unloaded again this afternoon by Yellen and her merry band of money printers. Much of what meager production and job growth there has been in recent years will soon be taken back as the energy bubble comes back to earth.

Needless to say, the Keynesian pettifoggers at the Fed and the other central banks around the world see none of this coming. So once again in its post-meeting statement, the Fed majority could not bring itself to let go of ZIRP, choosing to assert that it will remain “patient” as far as the eye can see—– while presiding over a meaningless policy change which might be called  N-ZIRP. That is, almost free money, and just as destructructive.

Needless to say, the promise of almost free money for the carry trades is all the Wall Street speculators needed to hear. Within a minute or two, the robo-traders and gamblers managed to put a half-trillion dollars of fairy-tale money back on the screen.

But here’s the thing. The meaning of the oil crash is that the central bank fueled bubble of this century is over and done. We are now entering an age of global cooling, drastic industrial deflation,  serial bubble blow-ups and faltering corporate profits.

So if some headline grabbing algos want to hyper-ventilate because the clueless money printers in the Eccles Building have now emitted the word “patient”, so be it. But why would you pay 20X for bubble bloated profits which have already peaked, and which will be subject to fierce global headwinds as far as the eye can see?

Indeed, the Fed’s lunatic assurance this afternoon that the Wall Street casino will have had free money for 76 months running, and that it will remain quasi-free long thereafter only means that the current financial bubbles in virtually every class of “risk assets” will become even more artificial, unstable and incendiary.

In any event, it ought to be evident by now that “potential GDP” is a fairy tale and that N-ZIRP has no more chance of generating that magic ether called “aggregate demand” than did ZIRP. We are at “peak debt” in nearly every precinct of the world economy, and that means that central banks cannot close this wholly theoretical and imaginary gap; they can only blow dangerous bubbles trying.

What counts is production of real goods and services based on honest prices and the efficient utilization of labor and capital resources. And it  goes without saying that cannot happen under the current  central banking regime of false prices and drastic misallocation of economic resources.

The current illusion of recovery is a result mainly of windfalls to the financial asset owning upper strata, the explosion of transfer payments funded with borrowed public money and another supply-side bubble—-this time in the energy sector and its suppliers and infrastructure.

But that’s not real growth or wealth. Indeed, the faltering truth about the latter is better revealed by the fact that the American economy is not even maintaining its 20th century level of breadwinner jobs. And the real state of affairs is further testified to by the lamentable trend in real median household incomes. That figure—-not distorted by the bubble at the top of the income ladder——is still lower than it was two decades ago.

So much for the Keynesian rap. Yet that’s about all that underpins the latest Wall Street rip.

Breadwinner Economy - Click to enlarge

]]> 0
Wall Street Traders and Pundits Shocked To Discover That Greece Has A Financial Crisis Wed, 10 Dec 2014 02:50:11 +0000 Read more →

This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

Lee Adler discusses the market’s reaction to discovering that Greece has a financial crisis and China engaged in a qualitative margin call. You’ll find out what these shocking and unforeseeable events mean for the market in this revealing video report.

Subscribers may click here to open or right click to download this video and play in your media player.

To listen to audio only, click here.

To see samples of past videos on a delayed basis go to our Youtube channel.

Why should you subscribe? Here’s how one subscriber puts it.

Today’s RFWS was absolutely outstanding. (I’m glad I actually watched this one rather than just listening while running.) When it comes to financial journalism, Lee, you remain an island of sanity in a huge sea of crap. Thanks.


Subscription prices will be going up in mid September. Join now and lock in the current price! Use the form below.

If you are not a subscriber and would like to see or hear not only today’s program but all weekly video programs, click this button to start your subscription. It takes less than a minute to complete the signup form and start watching or listening to all Radio Free Wall Street programs. To learn more click here or join and listen right now. By clicking this button, I agree to the Wall Street Examiner’s Terms of Use.

3 month subscription to Radio Free Wall Street podcasts, renewing automatically unless canceled. Price: $39.00




Please send your questions and suggestions for future programs.

[contact-form] ]]> 0
This Time It’s The Same: Like The Housing Mania——The Subprime Shale Bubble Is In Plain Sight Mon, 08 Dec 2014 21:54:01 +0000 This is a syndicated repost courtesy of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here.

]]> 0
Why QE Doesn’t Work Mon, 08 Dec 2014 19:18:57 +0000 This is a syndicated repost courtesy of Money Morning. To view original, click here.

Quantitative easing doesn’t work.

That’s a tough pill to swallow – especially for the world’s central bankers who continue to aggressively employ QE strategies in hopes of economic growth.

U.S. Federal Reserve Chairman Ben Bernanke staked his whole chairmanship on the supposed efficacy of QE in spurring an economic recovery. In fact, he was so convinced he deployed three rounds of it. That added $2.5 trillion to the Fed’s balance sheet.

Then there’s Japan, which is now in the grips of recession. Despite an ill-fated QE program between 2001 and 2006 that didn’t work, the Bank of Japan is starting to more aggressively pursue this tactic.

QE hasn’t happened yet in Europe. But European Central Bank president Mario Draghi has made it clear that QE is now a matter of when, not if.

But the world’s central bankers continue to operate on a false premise. Namely, that money printing in itself sparks inflation.

And that’s not the case…

Why QE Doesn’t Trigger Inflation

Central bankers’ main goal is to combat deflation and spur economic growth. Specifically, foreign central banks want to arrest the deflation crisis that has plagued Japan for 20 years, and reverse a dangerous disinflationary trend in Europe before it becomes the next Japan.

They think QE will trigger inflation. QE aims to flood the banking system with money and push down interest rates so borrowing is more attractive. This will supposedly revive an ailing economy.

The problem is the Fed-induced cash infusion is just sitting on bank balance sheets.

You see, inflation is “too many dollars chasing too few goods.” The key word is “chasing” – the QE dollars aren’t chasing anything. There’s low velocity of money.

The Federal Reserve’s attempts with QE are a perfect example.

“You can print all the money you want, but if people are not borrowing it, if they’re not spending it, then your economy is collapsing, even with money printing,” CIA economist Jim Rickards told Money Morning earlier this year. “The Fed doesn’t know what they’re doing.”

Richard Koo is an economist at the Nomura Research Institute. He has referred to the problems facing world economies as “balance sheet recessions.”

In the current economy, businesses and consumers are paying down debt. And appropriately so. The financial crisis that slammed so many of them was largely precipitated by an overextension of credit and large debt loads.

That’s why flooding the banking system with money as QE does won’t work. Even at low interest rates, and with the monetary base growing so much, consumers and businesses don’t want to borrow.

why QE doen't workThat leaves the banking system awash with unborrowed savings.

This can all be seen in a comparison of the money supply, the monetary base, and private lending.

Editor’s Note: The U.S. economy is setting up for a 25-year Great Depression, and the Fed hasn’t been of much help with its QE push. CIA economist Jim Rickards tells you how you can weather this coming economic storm here…

“Traditional economics teaches these three indicators should move together,” Koo writes in his book The Escape from Balance Sheet Recession and the QE Trap: A Hazardous Road for the World Economy.“But this correlation between these three indicators has broken down completely in the post-Lehman world.”

The accompanying chart shows this. The monetary base has far outstripped private lending. This is what happens in the deleveraging of a balance sheet recession. And money printing isn’t the remedy in these extraordinary times.

This is why inflation won’t suddenly happen overnight in Japan and the Eurozone.

Surely the yen will fall and so will the euro. It’s already happening.

But that’s because of investor sentiment. Investors expect inflation, and are shorting the currency in droves. This doesn’t mean inflation is taking hold.

How to Invest in a QE-Crazy Environment

There are a couple of steps investors can take to benefit from a world where central banks have become addicted to QE and easy money policies.

The first is to hold precious metals. Money Morning Chief Investment Strategist Keith Fitz-Gerald said gold is one of your best bets in times of crisis.

“Gold has been proven to be a great crisis hedge and one that is more perfectly correlated to interest rates, which are, in turn, driven by inflationary pressures and global risk,” Fitz-Gerald said. Check out his“secret” gold investing strategy.

And as always when looking for stocks to buy, Fitz-Gerald suggests buying those “need-to-have” investments that won’t be fazed by central banks’ poor decisions. “Need-to-have” companies address global trends and fulfill widespread needs.

For example, look at ABB Ltd. (NYSE ADR: ABB). This Swedish multinational energy and utility company is going to be a crucial player in keeping the lights on as the global electrical grid expands in developing countries and emerging markets. This is where you can find long-term value.

Bottom Line: QE doesn’t work, at least not in the way the Fed has sold it to us. The Fed has proven that it’s asleep at the wheel in driving a real recovery, and you’d be wise to invest in companies that won’t be playing by their rules. That makes it more important than ever for investors to build their portfolios for long-term value, and include investments with a built-in hedge against tumultuous markets.


Up Next: The U.S. is setting up for an imminent $100 trillion collapse. At least, that’s what the post-9/11 CIA operation “Project Prophecy” shows us. This operation helped foil a 2006 London terrorist attack, and warned of the 2008 recession well before the fall of Lehman Brothers. Now it has spotted signs that a 25-year Great Depression is in our future, and you’ll want to do all you can to preserve your wealth before the storm comes.CIA economist Jim Rickards tells you how to here…

The post Why QE Doesn’t Work appeared first on Money Morning 

]]> 0
We’ve Habituated to a Rigged, Fraudulent Market Mon, 08 Dec 2014 03:36:00 +0000 This is a syndicated repost courtesy of oftwominds-Charles Hugh Smith. To view original, click here.

Fraud generates risk, and risk eventually breaks out in the “safest” parts of the financial plumbing, the ones nobody gives a second thought to because they’re “low risk.”

Let’s go all the way back to the last time a central banker actually spoke the truth in public: December 5, 1996, 18 long years ago. It was on that day that Federal Reserve Chair Alan Greenspan gave a typically dry speech that hinted stocks could actually become overvalued (gasp!) due to irrational exuberance and subsequently plummet when rational valuations returned:
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?

Global stock markets promptly sold off hard at the shocking revelation that stocks might actually become subject to unexpected and prolonged contractions. This sharp reaction to a fundamental truth about markets–that they are prone to the irrational exuberance of participants, and the computer trading programs keyed to this momentum magnify the irrationality–caused central bankers to avoid any upsetting truth from then on.

For the past 18 years, all we have heard is a relentless spew of lies, obfuscations, misdirections and toxic propaganda from central bankers, the most famous examples being we will do whatever it takes and when it becomes serious, you have to lie.

But soon, evasive reassurances were not enough, and central banks had to intervene with unprecedented force to keep markets from collapsing to their “true price discovery” levels. The Fed issued $23 trillion in backstops, guarantees and loans, and other central banks chipped in more trillions. Tens of trillions of credit-money was created and pumped into the financial system to keep gravity from laying waste to trillions of dollars in phantom collateral and assets.

Since the 2008 Global Financial Meltdown, central bankers have polished the craft of combining stealthy intervention in the markets and propaganda threats of unleashing unspeakable powers–the oft-repeated and now tiresome we will do whatever it takes.

What few dare to say in public is this intervention and manipulation amounts to officially sanctioned fraud on a global scale. We have become habituated to the fraud because it now plays out on a daily basis: the slightest whiff of weakness in global stocks is immediately met with some central banker or another issuing yet another promise that the unspeakable powers of central banks is poised to be unleashed yet again, inflating overvalued markets to new highs regardless of any real-world conditions.

There are two analogies that help explain our ready acceptance of this coordinated fraud: helicopter parents and a rigged casino.

Central banks act as anxious helicopter parents, hovering above their failing child, the stock market, lest it collapse in a heap the moment central banks stop “helping” it stay aloft with trillions of dollars in free money for financiers and a relentless shrill, keening cry of we will do whatever it takes to keep their precious darling from suffering any real-world consequences.

Thanks to daily central bank intervention, stock markets act as rigged casinos in which players are openly invited to join the roulette game and bet on red–the ball always drops accordingly. Punters can’t believe how easy it is to score essentially guaranteed gains, day after day, as the rigged casino pays out. Message boards are filled with punters’ gleeful confidence in the central banks’ guarantee that the stock market can only loft ever higher, and that there is no such thing as irrational exuberance.

In effect, the exuberance of punters piling into central bank-rigged markets is entirely rational, because the central banks have destroyed lower-risk returns and encouraged punters to play in their no-losses casino.

We’ve habituated to this global fraud with the greatest of ease because it benefits us. Who can turn down the promise of guaranteed gains forever?

That no market can keep rising forever has been banished from the central bank lexicon. Central banks can push markets higher forever with their unspeakable powers.

Nice, but as I often note here, risk cannot be disappeared, it can only be masked or transferred to others. As I have explained, risk has been transferred to the currency markets, which are too large for central banks to manipulate as easily as stock markets.

The immorality of participating in fraud in never mentioned. It’s not very nice to upset the deliriously confident punters who keep betting on red and winning by telling them they are engaging in and abetting fraud. You can’t fault winning, even if it’s all a transparent fraud.

But fraud generates risk, and risk eventually breaks out in the “safest” parts of the financial plumbing, the ones nobody gives a second thought to because they’re “low risk.” At some point, the ball will drop in a black slot, and keep dropping in a black slot as incredulous punters keep “buying the dip” and betting on red.

Using unspeakable powers to generate global fraud is not as sustainable as punters imagine. Those who don’t believe in risk can alternatively ponder karma as a guide to the future. 

]]> 0
The Fed’s policy trajectory is tied to global recovery Sun, 07 Dec 2014 21:33:00 +0000 see post), US labor markets are continuing to heal, suggesting that the rate "normalization" should be a serious consideration for the central bank. However the recent deterioration in commodities, especially energy, is "importing" global disinflation to the US.]]> This is a syndicated repost courtesy of Sober Look. To view original, click here.

The latest US payrolls report presents a challenge for the Fed. As discussed back in April (see post), US labor markets are continuing to heal, suggesting that the rate “normalization” should be a serious consideration for the central bank. However the recent deterioration in commodities, especially energy, is “importing” global disinflation to the US (see post). In particular, the Saudi commitment to retake lost market share has sent shock waves through the oil markets (see post).

GCC is a diversified commodity index (source: barchart)

As a result, longer-term market-implied inflation expectations have fallen substantially.

The latest declines in expectations came after the recent FOMC minutes already showed increasing concerns at the central bank:

FOMC: – “Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations.”

At the same time payrolls in the US are growing at a rate approaching the pre-recession peak (though still materially below what we saw in the 90s).

In fact the divergence between payrolls growth and inflation expectations is currently unusually high. Payrolls are driven by stronger US domestic economy, while inflation expectations are impacted by external factors, which creates this disconnect.

Red dot represents the current situation

This mismatch is causing a dissonance for policymakers and market participants, adding to the disagreement on the timing of liftoff. Current market expectations for the first hike now point to Q3 of 2015.

Source: CME

However if inflation expectations persist at these levels or worsen, it will be nearly impossible for the Fed to move on rates – irrespective of how much labor markets improve. The bet represented in the chart above is that energy prices will stabilize and/or growth in wages improves substantially by next summer – pushing breakeven expectations higher. But such an outcome, driven to some extent by factors external to the US, is far from certain.

What makes the timing of liftoff particularly difficult to estimate is the value of the US dollar.

Source: barchart

With a number of major central banks either easing or expected to begin easing monetary policy (diverging from the Fed), the rise in the relative value of the dollar will continue. That will bring inflation expectations even lower by weakening US import prices and pressuring commodities. If the strong dollar can make goods and to some extent services from abroad cheaper, there is less incentive for US-based firms to raise wages. Tapping cheaper markets abroad becomes more profitable.

And as the expectations of liftoff draw closer, the dollar will strengthen further, making it more difficult for the Fed to pull the trigger (what some refer to as a “self-correcting” mechanism). It’s hard to envision the Fed acting unilaterally in the sea of looser monetary policy worldwide. The policy trajectory of the US central bank is therefore tied to a large extent to the global recovery, which remains elusive for now.

The Fed officials are keenly aware of premature policy tightening by a number of central banks, who were forced to reverse their decisions later.

Source: @themoneygame (Business Insider), Deutsche Bank

What some of these central banks didn’t count on was the global nature of disinflation, over which they had little or no control (see chart). In the Fed’s case, such a reversal would severely undermine the FOMC’s credibility, sending policymakers back to the drawing board.

Sign up for Sober Look’s daily newsletter called the Daily Shot. It’s a quick graphical summary of topics covered here and on Twitter (see overview). Emails are distributed via and are NEVER sold or otherwise shared with anyone.

]]> 0
What the Economic Numbers are Really Telling Us Sun, 07 Dec 2014 14:34:08 +0000 This is a syndicated repost courtesy of Money Morning. To view original, click here.

Peaking along with retail sales are the economic numbers that abound in the final weeks of each calendar year.

The year closing out and the year ahead are sending off their last and first indicators, respectively, of the state of the economy.

Adrift in the year-end deluge are the true signs of economic health…

By the Numbers

A stronger than expected employment report closed a week in which both the Yen and oil continued to drop. November payrolls grew by 321,000, much higher than expectations of 230,000, and the prior two months were revised upward by 44,000. Other notable positives were average hourly earnings rising by 0.4% month-over-month (versus expectations of 0.2%) and 2.4% year-over-year and the average work week rising to 34.6 hours, back where it was before the 2008 crisis.

The economy has added an average of 228,000 jobs per month over the last year, hardly a blockbuster rate in a population of 300 million, but enough to reduce the unemployment rate to 5.8% with the employment participation rate is still hovering at 40 year lows of 62.8%.

A closer reading of the report showed that part-time jobs rose by 77,000 while full-time jobs dropped by 150,000. Huge numbers of Americans are still being shut out from the recovery with 2.8 million out of work for more than six months and another 6.9 million working part-time because they couldn’t find full-time work. Five years after the financial crisis these jobs numbers are nothing to write home about, but better late than never. The real question is whether this report will start a break-out to stronger numbers or was flattered by seasonal factors. The debate will now intensify regarding how the Fed can justify keeping interest rates at zero in the face of strong job growth and increasing signs that wage growth is beginning to set in.

The Dow Jones Industrial Average pushed forward to another record close, adding 131 points or 0.7% on the week to 17,958.79. The S&P 500 added 8 points or 0.4% to a new closing high of 2,075.37. The Nasdaq Composite Index peeled off 11 points or 0.2% to end the week at 4,780.76 (largely due to a rare weekly loss in Apple, Inc. (NYSE: AAPL)) while the small cap Russell 2000 added 9.2 points or 0.8% to close at 1,182.43. Trading volumes were generally muted as investors begin to wind things down for year end.

The Treasury yield curve, which has been signaling a slowdown all year, continued to flash warning signs after the jobs report. The two-year yield popped by 10 basis points to 0.647% after the report, its highest level since April 2011. As recently as mid-October, at the depths of the mini-panic, this yield was a low as 0.244%. The two-year note is considered the market’s gauge of expectations about the timing of the Fed’s interest rate hikes and clearly markets read the November report as moving forward the day when the Fed will act. A flattening yield curve normally signals a slowing economy and the yield curve continued to flatten as well. The 2/10 curve was down to 175 basis points and the 2/30 curve dropped to 234 basis points, below the levels it traded at when Lehman Brothers failed in September 2008.

Yet the stock market is sending a completely different signal even as commodities, including the most important commodity of all, oil (and everything related to it like the Russian Ruble) keeps falling. The CBOE Volatility Index (the VIX) plunged to a three-month low of 11.82, sending an all-clear signal to risk-takers. CNBC is now on “Dow 18,000″ watch until further notice as a parade of Happy Faces tell its declining viewership why they should keep piling into overvalued stocks in our now booming economy.

These Retailers (and their stocks) are Stumbling…

Despite press reports crowing about how consumers and retailers are going to benefit from the plunge in gas prices, significant parts of the retail sector are struggling badly. Teen retailers Abercrombie & Fitch Co. (NYSE: ANF), Aeropostale Inc (NYSE: ARO) and American Eagle Outfitters (NYSE: AEO) reported more bad results this week, reflecting the problems facing retailers dependent on mall traffic for sales.

Other parts of the retail world also reflected the continuing impact of ecommerce on the industry as well as their own management miscues. Perhaps the most interesting news wasJ. Crew Group Inc.’s decision to write down the value of its retail stores by 57% or $536 million while leaving the value of its online operations untouched. The company was taken private in a $3.1 billion leveraged buyout in 2011. Other retailers continue to feel the impact of radical changes in the industry landscape. J.C. Penney Company, Inc. (NYSE: JCP) saw its stock fall by 16% by Thursday night after being downgraded by Goldman Sachs and is now down 28% year-to-date.

With sales still 30% below 2011 levels, e-commerce growth slowing and core customers not increasing their spending significantly, JCP appears to be stuck in a rut in its return to its pre-Ron Johnson strategy. These problems were also seen at Sears Holdings Corp (NYSE:SHLD), which announced a $548 million loss for its quarter ended Nov. 1 compared with a $534 million loss a year earlier. SHLD’s revenues dropped to $7.21 billion from $8.27 billion a year mostly attributable to store closings and lousy same-store sales (the Land’s End spin-off accounted for about 1/3 of the difference). While the company is holding out hope that selling a bunch of its stores to a REIT will solve its problems, this is a pipe-dream as the proceeds of about $1.5 billion would only cover 12-18 months of losses. After rising from $32.67 to $42.81 on November 7 on the REIT announcement, SHLD stock has steadily retreated and closed the week back at $33.31. Investors aren’t buying what Eddie Lampert is selling anymore.

In a further sign that value continues to shift from the material to the immaterial world, Uber raised $1.2 billion of additional capital at a $40 billion valuation this week. This would make it more valuable than all but 31 companies currently traded on the Nasdaq Composite Index. This may not seem out of line in view of the recent IPO of Alibaba Group Holding Ltd (NYSE:BABA) whose stock has almost doubled since its IPO in September to a $270 billion market cap, but we are likely to look back at this like we do at 2000 Internet stock valuations when the current central bank-induced stock market spell is broken.

Where the Bubble is Thinnest

Barron’s ran a cover article this week entitled “Crash? This Time Is Different” arguing that while valuations of Internet stocks are high today, they are not as extended as they were 15 years ago at the height of the Internet Bubble. Today, Barron’s argues, the bubble is in private rather than public market valuations. The truth is that the valuations of all social media stocks are ridiculous whether they are privately or publicly held.

The wonder is that some of the so-called smartest investors in the world, including some very savvy hedge funds, are buying into the hype at these absurd levels. In 1999 and 2000, 632 technology companies went public; in 2013 the figure was just 43 and in 2014 just 46. Market changes have allowed companies to acquire huge market valuations before they go public. By the time they can pick the pockets of retail investors, they are already trading at stratospheric valuations that virtually guarantee huge losses in the years ahead. We have seen this movie before and it ends badly every time for the buyers while the investment bankers and venture capitalists make off like the bandits they are.

As Barron’s writes, “the most dangerous words on Wall Street are ‘This time is different.'” The truth is that the exorbitant valuations in both the private and public market for social media stocks reflects a wider overvaluation phenomenon in a world where central banks are printing money like drunken sailors and economic growth is consistently sluggish. Believe me, this time will not be different and these stocks should be avoided or sold short (using puts of course since the market can stay irrational longer than you can stay solvent).

Stocks have diverged from bond and commodity prices against a very fragile geopolitical backdrop. Investors are still counting on central bankers like Mario Draghi to bail them out. There is a reason that markets feel like 2000 and 2007 to experienced practitioners – they are overvalued and setting themselves up for a sharp reversal in 2015. Investors should not wait to react to the handwriting on the wall. The accelerating collapse of the yen and the sharp drop in oil prices are sending strong deflationary and destabilizing signals. Markets are living on borrowed time.

The post What the Economic Numbers are Really Telling Us appeared first on Money Morning 

]]> 0
New York City: Aggressive “Broken Windows” Policing but Carte Blanche for Banksters Sat, 06 Dec 2014 16:00:05 +0000 This is a syndicated repost courtesy of New Economic Perspectives. To view original, click here.

Kansas City, MO: December 6, 2014

New York City exemplifies two perverse criminal justice policies that drive many criminologists to distraction. It is the home of the most destructive epidemics of elite financial frauds in history. Those fraud epidemics hyper-inflated the housing bubble and drove the financial crisis and the Great Recession. The best estimate is that the U.S. GDP loss will be $21 trillion and that 10 million Americans lost their jobs. Both numbers are far larger in Europe. The elite “C Suite” leaders of these fraud epidemics were made wealthy by those frauds through bonuses that measured in the billions of dollars annually.

The most extraordinary facts about the catastrophic fraud epidemics, however, is New York City’s reaction to the fraud epidemics. Not a single Wall Street bankster who led the fraud epidemics has been prosecuted or had their fraud proceeds “clawed back.” Not a single Wall Street bankster who led the fraud epidemics is treated as a pariah by his peers or New York City elites. New York City’s elected leaders have made occasional criticisms of the banksters, but Mayor Bloomberg was famous for his sycophancy for the Wall Street banksters that made him wealthy. In 2011, Mayor Bloomberg attacked the “Occupy Wall Street” movement for daring to protest the banksters.

“‘I don’t appreciate the bashing of all the hard working people who live and work here and pay the taxes that support our city,’ said Bloomberg, during a press conference in a Bronx library.

‘The city depends on Wall Street.’

‘Jamie Dimon is one of the great bankers,’ said Bloomberg. ‘He’s brought more business to this city than any banker in (the) modern day. To go and picket him, I don’t know what that achieves. Jamie Dimon is an honorable person, working very hard, paying his taxes.’

Bloomberg also questioned why the protestors were picking on wealthy bankers and other corporate titans.

It is, of course, depraved to claim that because banksters are made wealthy through fraud and pays a small portion of that wealth in taxes they should not be held accountable for those frauds because they are important to local finances. The claim becomes all the more risible when we take into account that under Dimon’s leadership JPMorgan became infamous for engaging in and facilitating billions of dollars in tax evasion that cost many governments, including NYC, enormous amounts of tax revenues. As a final indignity, most of the purported amounts that JPMorgan paid in settlements with DOJ are actually paid by the U.S. Treasury because DOJ allowed JPMorgan to treat large amounts of those payments as tax deductible. DOJ’s senior leadership used this as one of their cynical means of making the settlements paid by the banks appear far larger than they actually were.

In 2012, Mayor Bloomberg, in response to an expose and protest of Goldman Sachs’ corrupt culture by an insider (Greg Smith), publicly championed Government Sachs and its CEO (Lloyd Blankfein) who shaped that culture. The following passage is taken from Bloomberg’s report on Mayor Bloomberg.

“New York City Mayor Michael Bloomberg visited Goldman Sachs Group Inc. (GS)’s headquarters in Manhattan in a show of support after a departing employee publicly criticized the firm’s culture yesterday.

‘The mayor stopped by to make clear that the company is a vital part of the city’s economy, and the kind of unfair attacks that we’re seeing can eventually hurt all New Yorkers,’ said Stu Loeser, a spokesman for the mayor.

Bloomberg visited the firm today about 11 a.m. and met with Chief Executive Officer Lloyd C. Blankfein and numerous employees, Loeser said.

Greg Smith, an executive director who sold U.S. equity derivatives to clients in Europe, the Middle East and Africa, wrote in a New York Times opinion piece that he is leaving the firm after 12 years. Smith assailed the company’s treatment of clients and blamed Blankfein and President Gary D. Cohn for losing hold over the bank’s culture.

The reality was the Dimon and Blankfein were leading two of the world’s largest, most prestigious, and most destructive criminal enterprises. Nevertheless, as their repeated, massive felonies become more evident every month and as the Libor and FX conspiracies demonstrate that the CEOs of our largest banks are running criminal enterprises, their elite peers have not only failed to denounce the banksters but have instead demonized those who try to restore the rule of law in America as Nazis.

The crisis is marked by exceptional recidivism by these banks and banksters, the rapid progression of fraud in terms of severity and its spread through the elite banks, and the creation of a massively corrupt culture in banking and their political allies in which even the largest and most destructive frauds are ignored and the perpetrators are shielded from even the mildest forms of accountability. To sum it up, NYC exemplifies the moral depravity, endemic criminality, and resultant breakdown of the criminal justice system that “broken windows” theory predicts. “Broken windows” theory, however, is not applied by its conservative proponents to elite white-collar crime. When the SEC (purportedly) adopted the “broken windows”) theory, the same conservatives that give the theory rapturous support when it leads to the mass arrests of poor minorities for the most trivial of offenses become apoplectic in their rage against holding elites accountable for lesser offenses.

This class-based rush to shield elite white-collar criminals from even the mildest forms of administrative accountability (the SEC uses “broken windows” as a PR slogan, not a reality) while simultaneously adopting an ultra-aggressive policy of arresting mostly poorer Blacks and Latinos for the most minor of offenses (e.g., selling small numbers of cigarettes from broken packs). The proponents of using “broken windows” to arrest large numbers of minorities for minor property offenses almost never demonstrate any awareness of the obvious obscenity and disaster of allowing banksters to grow wealthy by defrauding with impunity. Eric Garner ends up dead because the police arrest him for selling goods without paying sales tax (amounting to several hundred dollars in lost government revenue over the course of a year). The fraud epidemics cost that drove the financial crisis and the Great Recession cost our Nation $21 trillion – and no senior banker who led the frauds in even arrested. (As I have explained, the Department of Justice and the FBI do target a tiny slice of the mortgage fraud “mice” – particularly those of disfavored minorities like Russian-Americans – for prosecution.)

The “strategy” of ignoring or even praising the banksters’ enormous frauds while aggressively arresting the poor for the most minor of property offenses is obviously indefensible on every conceivable basis. The strategy is grotesquely unfair and the elimination of the rule of law for banksters has caused catastrophic harm and will cause even greater harm in the future.

But what of the other prong of the strategy that led to Garner’s death? The costs of that strategy are typically ignored. The benefits of that strategy are the subject of intense debate. The proponents of mass arrests of disproportionately poor Blacks and Latinos for minor property offenses had a superb and unprincipled PR machine. Police Commissioner Bernard Kerik, eventually admitted his guilt to a series of felonies. The NYPD PR machine claimed that NYC’s reduction in reported crime was produced by “broken windows” policing. The reality was that most major municipal areas that did not employ “broken window” strategies reported substantial reductions in crime in the same time period. Further, the police in many cities were employing new strategies during this same time period, so attributing causality to the reported crime reductions (a) to police strategies in general or (b) any particular police strategy is generally unreliable. (Criminologists also know that reported crime levels are often unreliable. Local officials frequently game the numbers and Kerik later confessed to committing many acts of deceit in connection with other events.)

In addition to arresting large numbers of poorer, darker-colored citizens for mostly minor property crimes under the rubric of “broken windows,” NYC followed a strategy of massively increased “stop and frisks” of disproportionately poorer Blacks (50%) and Latinos (30%). By 2011, the NYPD was conducting 684,000 humiliating “stop and frisk” actions in a single year (nearly 1874 per day – with an average of 1500 of those being Blacks and Latinos). Only a small percentage of these humiliations result in successful prosecution. To its credit, the Cato Institute has excoriated the NYPD’s stop and frisk policies. The average large bank’s C Suite has a dramatically higher crime incidence than does a street in Harlem. All the property crimes committed cumulatively by Black and Latino residents of Harlem over the last 400 years were exceeded in the typical minute of the Libor fraud and cartel.

To this systematic anti-prioritization of criminal justice resources that causes the NYPD to ignore the most destructive property crimes in history that are (disproportionately) committed by elite whites and focus overwhelmingly on the least destructive property crimes committed in parts of the city (disproportionately) inhabited by Blacks and Latinos one must add “stop and frisk,” the outright racist effects of the sentencing disparity for powder v crack cocaine, and the emphasis on arresting drug sellers overwhelmingly in poorer areas inhabited disproportionately by Blacks and Latinos. Collectively, the strategy means that policing in NYC is aimed overwhelmingly at Blacks and Latinos, creates the constant humiliation of young Blacks and Latinos, makes it inevitable that large sections of these communities will view the police as the problem rather than the solution, and produces the self-fulfilling prophecy of leading to grossly disproportionate numbers of Black and Latino males having criminal records that impair their ability to get jobs and form well-functioning families. The resultant hostility between the police and much of the community means that both groups feel that they are under siege by the other.

Other members of the broader community – and that includes many Blacks and Latinos – support the NYPD police strategies. Many crimes do cause serious financial and/or personal injury. Some property crimes (minor burglaries of homes while no one is home) that cause little financial loss can cause other serious harms because the victims feel violated and unsafe. Most crimes by Blacks and Latinos are committed against Blacks and Latinos.

Repeatedly humiliating male minorities through “stop and frisk” operations and arrests for trivial offenses – people who know that they are prioritized as targets because they are poor Blacks and Latinos – has to produce a combination of rage and a deep belief that the police’s actions are not legitimate but a form of racial and ethnic degradation. This means that arresting such individuals is inherently dangerous – and police know it. Police are taught to be aggressive and dominating in such encounters and to view every arrest as a dangerous encounter with someone that may cause them grievous or even fatal injury.

It is generally wrong to think of the police in such arrests as swaggering thugs. The police and the minority being arrested often share mutual terror. As the person being arrested struggles or flees the police officers’ fear spikes. It is unusual for police to be seriously harmed during arrests, and far more likely that the suspect will be harmed, but every police officer is told multiple stories about situations in which a police officer was hurt or killed during what seemed to be a routine arrest. As humans, we are primed to respond to narrative, not statistics.

How one responds to the death of Blacks and Latinos being arrested in such struggles depends almost entirely on which of two rival perspectives one takes. While I know that many readers will hate this sentence, I urge readers to understand that both perspectives are rational given the framing of the issues. Each group comes away from the police encounter with the minority suspect more strongly convinced of the truth of their own framing of the issues. The police see the resistance to their authority by someone who is violating the law (no matter how minor that violation) as deeply offensive and view supporters of the criminal who (a) violated the law (no matter how trivial) (b) defied the officers’ authority and commands, (c) further violated the law by resisting arrest, (d) “forced” the officers into a dangerous confrontation where (e) the officers felt fear and sometimes terror, which (f) led to the unintended death of the criminal who was resisting arrest, (g) which will haunt the officers for the rest of their lives, (h) exposing them to public hate, (i) blighting and perhaps even ending their career, (j) exposing them to state and federal criminal investigation and possible prosecution, (k) civil suits, while (l) “playing the race card” and claiming that the officers were bigots. From the police perspective, the death of the criminal at the hands of the police is a tragedy brought on by the criminal.

(Yes, I know that “suspect” would be a more accurate term than “criminal.” However, “criminal” is the word the police will use and believe. This tendency is even more extreme when it comes to our drone strikes where the U.S. “defines” whoever we kill as “terrorists.”)

From the police perspective, the arresting officers are the victims and the attacks on them for doing their duty – a duty to enforce laws devised by society, not them – and a duty that puts their lives at risk, is a grotesque injustice compounded by an outrageous smear claiming that they acted as they did due to racial animus. People who defend the criminal and attack the police are morally depraved. The police see their elite critics as ingrates and hypocrites who want the police to act aggressively when the critics’ lives and property are at risk but feel free to second guess them after the fact when things go tragically wrong in confrontations with minorities.

The same kind of logic chain, can be done from the perspective of Blacks and Latinos who correctly see the NYPD strategy as counter-prioritizing criminal justice resources. The NYPD uses its resources in a manner that is irrational from any societal perspective. The NYPD’s use of resources is fundamentally based on class, but it also inherently leads to concentrating police on the (overwhelmingly minor) crimes of poor Blacks and Latinos.

Criminal justice scholars, particularly those who from a police or intelligence background, understandably often share the police perspective rather than the critics’.

“‘Everyone is just demonizing the police,’ said Maki Haberfeld, a professor of police studies at John Jay College of criminal justice. ‘But police follow orders and laws. Nobody talks about the responsibility of the politicians to explain to the community why quality-of-life enforcement is necessary.’”

“Quality-of-life enforcement” means “broken windows.” “Everyone,” is not, of course “demonizing” and everyone is not demonizing all “police.” Dr. Haberfeld knows that the problem from the perspective of many Blacks and Latinos is that “police follow orders.” Those “orders” constitute the NYPD strategy that causes the police to counter-prioritize the use of their resources.

Dr. Haberfeld knows that the police frequently do not enforce the “laws.” They do not do so for two primary reasons. First, as Edwin Sutherland explained 75 years ago in his presidential address to sociologists that announced the concept of “white-collar crime,” the police typically do not enforce laws against the massive white-collar crimes committed by elites. Second, even under a “broken windows” regime the police do not arrest large numbers of those they have probable cause to believe have committed some criminal offense. Women, girls, whites, and social elites are all less likely to be arrested for minor criminal offenses. The police frequently warn and chastise rather than arrest. If they always arrested suspects for whom they had probable cause to believe had committed minor blue collar crimes a huge percentage of males of every race, ethnicity, and class would have juvenile arrest records. Prosecutors exercise even greater discretion and often refuse to prosecute cases. I do not know of any criminologist, prosecutor, police officer, or judge who favors the police arresting, and the prosecutors prosecuting, every case in which anyone is apprehended who the prosecutors believe committed a crime.

As financial regulators, we did not take an enforcement action against every violation of law and every unsafe and unsound act we discovered even when we believed we could establish those violations. We did, however, require supervisors to explain why they did not believe such an enforcement action if the violations were continuing. I do not know of any regulator who believes that we should take an enforcement action in every case where we find a violation or unsafe and unsound act. We were, as we can now tell with the benefit of seeing many other regulators in (in)action, vigorous regulators who believed in the rule of law for everyone. We also believed in justice, the exercise of judgment, and the desirability of not making mountains out of molehills. We successfully distinguished between matters like liar’s loans (long before they were called by that name) – which we drove from the industry because only a fraudulent lender would make such loans – and minor, typically unintentional violations of rules that the lender’s managers were happy to remedy and try to avoid in the future. Underwriting quality is not a molehill – it is the essential function to be a prudent, profitable, and non-predatory lender.

Dr. Haberfeld’s last complaint, if accurate, represents a major advance among NYC politicians.

“Nobody talks about the responsibility of the politicians to explain to the community why quality-of-life enforcement is necessary.”

Politicians used to rush to “explain” that we must target the most minor offenses of poor Blacks and Latinos and humiliate male Blacks and Latinos hundreds of thousands of times every year in “stop and frisk” confrontations in NYC. This was supposedly “necessary” to prevent a (mythical) rapidly increasing epidemic of violent crime by young, predominately minority “superpredators” who were deliberately dehumanized as “feral” by inventors of this “moral panic” such as James Q. Wilson (one of the co-developers of “broken windows”). These claims ignored the actual epidemics of crimes of the Wall Street elites (the true “superpredators”) that devastated the Nation. The phrase “criminal justice system” is an oxymoron when we allocate our resources in a manner that is inherently unjust and certain to fail against the elite offenders who cause incomparably greater financial losses and maim and kill more people than do blue collar criminals.

I am not aware of Dr. Haberfeld ever upbraiding the NYPD or Attorney General Holder for failing “to explain to the community why quality-of-life enforcement is necessary” on Wall Street. If she has done so I hope she will contact me and I will pass on to my readers her efforts to explain that necessity.

American elected officials are becoming increasingly aware that the drug war is insane and causes terrible injury to our Nation and catastrophic harm to several other nations. It is hard to find a public official who will now defend the racist policies we followed in punishing crack cocaine far more severely than powder. Sadly, as recently as 2010, the Fraternal Order of Police disgraced itself by attacking legislation that simply reduced the 100:1 disparity.

Dr. Haberfeld was one of the important advisors in the DEA’s failed drug wars. I stress that the DEA’s failure was inevitable and not the product of Dr. Haberfeld’s advice. The only way to “win” the drug war was not to engage in it. Given the 9/11 attacks and her background as an Israeli intelligence specialist, Dr. Haberfeld now works largely in the anti-terrorism field.

Criminologists debate whether “quality-of-life enforcement is necessary” or disastrous in the blue-collar crime context. Criminologists generally do not agree that research has demonstrated any such “necess[ity].” Criminologists increasingly recognize the extreme costs inflicted on society of applying the racialized and class-driven counter-prioritization of “broken windows” strategy in the manner used by the NYPD.

Ironically, the “broken windows” strategy worked far better in the context of elite white-collar, e.g., in our response to the control fraud epidemic that drove the savings and loan debacle and our crackdowns on junk bond and liar’s loan frauds. “Broken windows” strategies against elite white-collar crimes have far fewer drawbacks than they do in the blue-collar sphere. Conservative proponents of “broken windows” strategies against blue collar crime, however, rarely mention elite white collar crime. Sadly, Sutherland’s observations about the unwillingness of elites to take elite white-collar crimes seriously and the resultant enormous cost of such crimes remains largely true 75 years later.

The “broken windows” strategy against blue collar crime and the related strategies that have made it inevitable that criminal justice enforcement will be unjust and will fail against elite white-collar criminals also makes it inevitable that large numbers of Blacks and Latinos and the police will be largely unable to understand each other and work together. The frames of the police and large numbers of Blacks and Latinos are not simply different, but inherently contradictory under these police strategies.

Even if we assume that “politicians” actually had (and accepted) a “responsibility” “to explain to the community why quality-of-life enforcement is necessary” the politicians’ efforts would fail. Dr. Haberfeld does not seem to understand that she is demanding that Black and Latinos communities accept the NYPD’s policies, and their framing of the issues, as valid. Note that she uses the world “community” rather than “communities.” Why would Blacks and Latinos ever agree that a system in which 80% of the “stop and frisk” humiliations are inflicted on their children constituted “criminal justice?” Why would Blacks ever agree that the 100:1 crack/powder cocaine disparity was “criminal justice?” Whey would Blacks and Latinos ever agree that a drug prosecution effort that disproportionately targeted their children for arrest for drugs represented “criminal justice?” Why would Blacks and Latinos ever agree that “quality-of-life enforcement is necessary” for poor minority communities while Wall Street elites grow wealthy and devastate our Nation, particularly Black and Latino communities, with impunity? Why would Blacks and Latinos ever agree that ending the rule of law for banksters represents “criminal justice?”

What does “quality-of-life enforcement” actually mean? When the NYPD, overwhelmingly, humiliated Blacks and Latinos an average of 1,500 times daily through “stop and frisk” encounters, what happened to the quality of their life? What happened to the quality of life of all the Blacks and Latinos who witnessed those humiliations? What happens to the quality of life of Blacks and Latinos when their kids are far more likely to be arrested for drug crimes than white kids with the same incidence of drug use? What happens when their kids spend far longer in prison because they use crack while the white kids use powder cocaine? What happens to the quality of life of the Blacks and Latinos targeted by predatory lenders when the lenders’ CEOs’ crimes go unpunished?

How many Blacks and Latinos must we incarcerate and even kill for trivial offenses in order to optimally improve the “quality of life” of Blacks and Latinos? Why does spending the City’s scarce dollars in this strategy of repression improve the “quality of life” in Black and Latino communities more than using those dollars to create jobs?

Who seriously believes that the failed drug war, net, adds to the “quality of life” in the City? Who thinks it adds to the “quality of life” in cities throughout Mexico and Colombia?

The Black and Latino communities have heard, ad nauseum, “politicians” “explain” why “quality-of-life enforcement” is supposedly “necessary” in their communities. They have heard the thunderous silence of the proponents of this claim – the failure to even attempt to “explain” why “quality-of-life enforcement” is not necessary on Wall Street. They do not accept the validity of the explanations and they know full well why the NYPD refuses to even try to enforce the rule of law on Wall Street.

It is time for the NYPD to listen to explanations from the Black and Latino communities about the reality of the NYPD’s criminal injustice system. The Black and Latino communities would love a NYPD that made the reduction of serious blue collar and white collar crimes in the City its top priorities. If the NYPD adopts a strategy that does not require the Black and Latino communities to accept the NYPD’s current (false) framing that defines their communities as the City’s problem and Wall Street as the City’s paragon, then the police and the Black and Latino communities’ framing of the issues will no longer be inherently contradictory. Cooperation and mutual respect in struggling against the most serious crimes becomes a realistic possibility if the NYPD is willing to evolve and embrace the equal application of the rule of law to everyone in the City.

Criminology can help. The mother of all serious crime “hot spots” in NYC can easily be mapped using Geographical Information System (GIS) software. The system would generate nice tight crimson circles around the C-Suites of the twenty largest Wall Street banks and bank holding companies.

]]> 1
Urban Carmel’s Weekly Market Summary Sat, 06 Dec 2014 15:27:00 +0000 This is a syndicated repost courtesy of The Fat Pitch. To view original, click here.

Coming into this week, SPY had been above its 5-dma for 30 days in a row. This was a new record, unlike any streak the index has ever seen. We reviewed prior examples of these streaks earlier; our conclusion was that the streak rarely marked the top in the market, meaning there were higher highs immediately ahead after the streak ended. But the index also struggled in the following weeks, often trading lower (the full post is here).

The set up we had been looking for after the streak ended was the first touch of SPY’s 13-ema. That has been a reliable buy point which we have highlighted many times in the past. That occurred on Monday, with SPY at 205.5. By Wednesday, SPY had already gained $2.50.

That may not seem like much of a gain, but consider the context. In the past 4 weeks (since November 10), SPY has gained $4, but more than $2 of that gain occurred overnight on November 21 following announcements from both the PBOC and ECB to provide greater stimulus. Without that one gap, SPY is up less 1% in the past month.

Overall, the trend remains higher for both the main US indices and well as for a majority of the individual sectors. All of the US indices except RUT made new highs in the past week; all of the sectors except energy have made new uptrend highs in the past two weeks.

New highs imply limited resistance. After all, there are no prior buyers holding unprofitable shares at a higher price. So the main risk to trend is whether it is overextended. NDX may be the clearest example that it perhaps is. As the leader, NDX has the highest rate of appreciation; last week, it met its 2014 trend line, and this week, while SPX and DJIA closed higher, NDX closed lower.

NDX, by the way, still has not touched it’s 13-ema since coming out of the October low. That’s a set up worth watching into next week.

The Dow is also up against it’s trend line;  moreover, it normally has resistance at its upper Bollinger, which is now just 0.1% higher. The trend is clearly up, but note the loss of momentum in RSI and MACD.

The same set up in the Dow also exists in SPY. The trend is higher; moreover, note how the index hugged the top trend line in June and July and again in late August and into September. With strong seasonality into year end, it would not be surprising to see SPY hug the top trend line for several more weeks.

The trend line shown above extends back 9 months. Interestingly, SPY is also up against a trend line extending back nearly 5 years. Again, there are no unprofitable buyers at current levels, but the rate of appreciation may be reaching its multi-month as well as its multi-year limit.

The chart above is on a weekly timeframe. Note that SPY is now up 7 weeks in a row. This is rare. In the past 10 years, this has only happened 4 other times. What happens next? In the past 4 cases, 3 closed lower the following week; the one positive case gained just 0.06% and then lost 1.6% two weeks later (data from Chad Gassaway).

Let’s look at more examples, starting most recently. The vertical lines denote a 7 week up streak. Since 2004, the index has mostly struggled after the streak ended. Perhaps not immediately, but over the next weeks and sometimes longer. There is one exception where the index closed only slightly lower for two weeks and then zoomed higher (February 2013). Some of these streaks occurred before very long chop (2004) or major market tops (2007 and 2011).

There were only two examples of 7 week streaks in the late 1990s. In 1997, the index closed down one week and then went higher, but it was still trading at the same level 6 months later (green line). In 1998, the index moved higher in week 8 and then settled into a 13-week long choppy trading range (yellow highlight).

Since 1980, there have only been three other cases; in two, SPY generally struggled for many months and in the other it did not (this was 1985, early in a new bull market).

Overall, in 8 of these 10 examples, SPY struggled to retain any gains over the next two months or longer, and in two SPY basically continued higher. We should stress that in all 10 cases, the end of the 7 week streak did not mark an exact top; the index always made a higher high in the weeks ahead. That means that investors should be looking to accumulate on near term weakness, at least for a trade.

One more technical set up related to SPY is that it is again within 1% of a “round number” (e.g., 1900, 2000. 2100). In the past, these milestones have provided psychological resistance. There has been a minimum drawdown of 3%, but often much more. We often look for a retrace to the middle of the Bollinger, in this case about 4% lower (1980 on SPX). About half of these have started before the round number was formerly hit.

These technical patterns are arriving just as sentiment is once again becoming heated. This is to be expected when the index is up 12% in 7 weeks. The weighted put/call ratio for equities is now at an extreme where SPY often turns (chart from McMillan).

Moreover, inflows into equity ETFs and mutual funds reached $44b over the past 6 weeks. Inflows have been positive all 6 weeks; in the past 20 months, inflows extended into week 7 only three times: mid-August 2013, mid-July 2014 and mid-September 2014. Those occurrences are shown below with the subsequent drawdown.

Combining inflows and equity put/call ratios, among other indicators, is the basis for Sentimentrader’s “dumb money” indicator. That indicator hit a fresh 2014 high this week. There is reason to suspect that bullish sentiment is reaching an extreme where the index either makes little progress or retraces.

We are now into December and the end of the year is near. This time period is particularly strong from a seasonality standpoint. The index might suffer a drawdown (the average since 2000 is 3.6%) but closes higher more than 80% of the time. When the index is in an uptrend, SPY has only closed more than 1% lower twice since 1980 and both times it regained all those losses and then some in January (a full post on this is here).

The only week in December that is not seasonally strong is coming up now (chart from Sentimentrader).

The week after last month’s NFP release was uncharacteristically strong. However, over the last two years, the week following the release of NFP (which was this week) has been weak; two days later, SPY has been higher than Friday’s close just 27% of the time (chart from Chad Gassaway).

Finally, an excellent post from Brett Steenbarger, discussing both breadth and sentiment, is worth reading closely (link). It highlights, using different metrics, some of the same issues discussed in this post.

In summary, when the market has been up 7 weeks in a row, it has gone on to at least one more higher high. This tendency will be aided by end of year seasonality. Weakness this week would therefore be a set up. But equity inflows and investor sentiment as measured by things like put/call suggest that gains may not be large or sustained for long.

Our weekly summary table follows.

]]> 0
Withholding Tax Collections Continue To Run Red Hot Fri, 05 Dec 2014 19:10:56 +0000 The Federal Government’s withholding tax collections continued to strengthen in November. The blockbuster jobs number should have been no surprise to the market had it paid attention to this data, which of course it doesn’t. The annual growth rate this week was around 6.4% in nominal terms and probably 3.4-3.9% in real terms, unless you believe the government’s inflation data. In that case the real growth rate would be closer to 4.5%.

Click here to download complete report in pdf format (Professional Edition Subscribers) including illustrative charts and clear, cutting edge analysis that you can use to gain an edge in the market. Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. 30 day risk free trial for new subscribers. Click here for more information.

3 month subscription to the Wall Street Examiner Professional Edition, Money-Liquidity-Real Estate package, renewing automatically unless canceled.

Price: $89.00

By clicking this button, I agree to the Wall Street Examiner’s Terms of Use.

Enter your email address in the form to receive email notification when Professional Edition reports are posted.


]]> 0