The Wall Street Examiner » Wall Street Examiner Exclusives http://wallstreetexaminer.com Get the facts. Thu, 28 Aug 2014 02:37:50 +0000 en-US hourly 1 The Bull Market Will End When The Fed and Friends Decide, Then We Get To Pay For Their Madness http://wallstreetexaminer.com/2014/08/the-bull-market-will-end-when-the-fed-and-friends-decide-then-we-get-to-pay-for-their-madness/ http://wallstreetexaminer.com/2014/08/the-bull-market-will-end-when-the-fed-and-friends-decide-then-we-get-to-pay-for-their-madness/#comments Wed, 27 Aug 2014 20:24:41 +0000 http://wallstreetexaminer.com/?p=205182 We all know the market is rigged. We may not like it, but facts is facts. The world’s largest central banks have thoroughly rigged the game. They figured out they could do it and they have used QE as an instrument of market manipulation, particularly stock market manipulation, since 2009. On the surface, the idea was to promote “Trickle Down.” Only it doesn’t work. The trickle pools at the top.

Eventually the lack of trickle forms a bulging bubble and display of wealth disparity becomes so great that even central bankers, who are difficult to shame, become embarrassed enough to stop pumping it to even greater extremes. Only, when you prick a bubble, it doesn’t just gradually drain out. It explodes like the goo spewed on a mirror from a giant pustulous teenaged facial boil when squeezed.

Bears are fond of the idea that market rigging works until it doesn’t, that somehow, things just become so extreme that the stock market and economy just spontaneously combust, but sadly, in economic matters, there is no justice. There is no restitution or retribution. There is only power.

Power corrupts, and the corrupt exercise power to their own ends. That principle drives this bull market. It’s about the aggregation of wealth in the hands of the corrupt and powerful. And there are none so corrupt, or more powerful, than central bankers. They are the minions of the puppet masters. We are the puppets, dancing as they pull the strings.

So if you think that this patently manipulated bull market will just suddenly and spontaneously end, and that the manipulators will suddenly get their due, please disavow yourself of that quaint notion. Yes, prisoners will be taken when the end comes, but those who are in power will remain in power. A few will retire, as Robert Rubin, Larry Summers, Timothy Geithner, Alan Greenspan, and Ben Bernanke once did. But as always, a new class of manipulative power mongers and their sycophants waits in the wings to take their places.

If you don’t think that the Fed is the cause of bear markets as well as bull markets, you are kidding yourself. Markets don’t spontaneously combust. They fall when the Fed decides. And the Fed has decided. Normally in such cases we’d expect that the market would top out and begin to fall within the next 12 months. The timetable is not “data dependant,” as the current mastermind, Mrs. Akerloff, says. The decision has been made. They’re shutting this down, data be damned.

However, there are two wild cards this time. The Fed has two partners in the market manipulation business. The BoJ and ECB both are manning the pumps into the same liquidity pool. The BoJ apparently intends to keep pumping after the Fed stops. The ECB is threatening to start pumping, although it’s debatable whether its rules would permit the outright securities purchases that so directly impact the markets. So we don’t know yet how these wild cards will impact things. We must continue to watch tehir actions closely.

As for crashes, it’s arguable that the Fed would want a crash but crashes occur because the Fed cannot control the unwinding of the bubble. Crashes are a side effect of that. The Fed is aware of the risk, but it accepts it, believing that it can reverse the course of things when the time comes. Perhaps the next time the time comes it will be too late, because this time they have gone too far.

Let’s look at the evidence showing that the market tops out when the Fed decides and not by some accident of fate.

The Fed has posted historical time series data on its balance sheet on the web since 2002. I have been tracking it every week, and even every day on the NY Fed’s daily operations pages, ever since. So I’ve managed to accumulate some familiarity with the details of the Fed’s operations and their direct and indirect impacts on the markets. It’s a matter of careful observation. As the great scientist philosopher, Professor Lawrence Berra, said, “You can observe a lot by watching.”  There’s no rocket science involved. These are processes that unfold slowly before our very eyes. The answers are there for those who bother to watch carefully.

Below is a graph of the Fed’s balance sheet from 2002 to 2008 showing that the stock market topped out in 2007 when the Fed pulled the plug on balance sheet growth. It then became even more aggressive when it drained its System Open Market Account in 2008 while funding non traditional direct loan programs, but keeping the overall assets level. That draining of the SOMA crippled the Primary Dealers and the markets spiraled out of control until the Fed reversed course. There was clear cause and effect between the Fed’s actions and the 2007-09 bear market.

Fed Assets and SPX 2003-08 - Click to enlarge

Fed Assets and SPX 2003-08 – Click to enlarge

The weekly data for 1996-2002 is also available. Make no mistake. The Fed also triggered the 2000-2003 bear market. After watching the internet and technology bubble spiral out of control in late 1999 and early 2000, the Fed decided that enough was enough and pulled the punchbowl in 2000, halting its balance sheet growth altogether for 9 months in the year 2000. It started growing its assets modestly in 2001 and after, but it was too little to have any market impact as it added less than $5 billion per month. The pendulum had swung and the Fed was content to allow it to run its course. The markets would turn when the selling had exhausted itself in 2003.

Capture

 

From 2003 through 2006, the Fed expanded its balance sheet by $150 billion at a fairly steady rate of $3.125 billion per month. Contrast that to $100 billion plus per month under the various incarnations of QE in recent years. Miracle of miracles, from 2003 to 2007, the stock market recovered on its own, as if by magic, without heavy handed Fed intervention. But in 2007, the Fed again pulled the punchbowl, and it blundered in 2008 when it shrank the System Open Market Account and starved the Primary Dealers of cash when they needed it most, rendering them unable to make and maintain orderly markets.

The Fed could have restored order to the markets simply by restoring that cash it had drained from the dealers as it did under QE1. It then could have stepped aside and let the markets and US economy go through the natural cyclical process of healing as they always had done unfailingly in the past. This time the manipulators had a technological revolution in energy production at their backs, but have never acknowledged its impact. Instead, the Fed and its sycophants have undeservedly given all the credit for recovery to Bernanke, with the megalomaniac himself leading the chorus. They are wrong, but we must await the slowly unfolding judgment of history to show that.

Since  2007, with the madman Bernanke in charge, we’ve seen not one but three massive expansions of the Fed’s balance sheet. Making matters worse, the ECB and BoJ mimicked Bernanke, creating monstrous imbalances throughout the world. Their universal solution to the problem of too much bad debt was to extend and pretend, adding more and more debt to the towering inferno of debt that was the problem in the first place. There will be a price for this madness, and we will all learn first hand what that will be, in due time.

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The Real Force Behind US Economic “Growth,” Such As It Is, Is Not The Fed http://wallstreetexaminer.com/2014/08/the-real-force-behind-us-economic-growth-such-as-it-is-is-not-the-fed/ http://wallstreetexaminer.com/2014/08/the-real-force-behind-us-economic-growth-such-as-it-is-is-not-the-fed/#comments Tue, 26 Aug 2014 22:05:37 +0000 http://wallstreetexaminer.com/?p=206435 Industrial Production - Click to enlarge

Industrial Production – Click to enlarge

As the stock market has scooted off into Fed driven bubble territory over the past year, industrial production, on the surface at least, appears to be expanding quite nicely. After briefly going negative in mid 2013, the annual growth rate turned upward and has been accelerating, reaching 4.3% in July. This measure is by units of production, therefore no inflation adjustment is required. It’s a pretty impressive performance for the nation’s factories, mines, and utilities.  Can the Fed take credit for that growth, or was there something else that drove it?

The answer is that Fed is not only not responsible for that growth, it is responsible for once again putting us in grave danger. The financial engineering bubble the Fed has enabled does not create real wealth, it only transfers it from one class of economic actors to another. In this case, it has gone from a dwindling middle class to the bankers and corporate plutocrats who control the levers of power. That’s a story which I have covered in these pages for years. You know the details.

The industrial production data provides some real insight into the drivers of real growth in the US economy, such that it exists.

Media pundits and the Wall Street establishment like to back out defense and aviation to arrive at a core figure for industrial production, but as Alan Tonelson pointed out, while extremely volatile, their contributions to the total index are relatively small and have little impact on the trend over time. I like to deconstruct the index differently to get a better idea of how the US economy is really doing.

In fact, take away energy and the rest of the US economy isn’t doing that well. In some ways, it’s not growing at all. What growth there is appears entirely due to the energy boom and its ripple effects. Thank goodness for that boom and the technological changes that led to it. Environmentalists may feel differently, but without that growth in energy the US economy would be in even deeper trouble than it is.

The energy boom deserves far more credit for what growth there is in the US than does the Fed, but you will never hear the Fed’s cheerleaders acknowledge that. It’s also the most likely reason that the US is doing better economically than Europe and Japan. Both the BoJ and ECB have tried massively stimulative monetary policies over the past 5 years with little impact. Europe and Japan have been swinging between no growth and contraction for the entire time since 2009 while the US has seen modest expansion.

Here are a few charts that shed some light on the facts. First, manufacturing, now growing at a rate in excess of 4% has finally crawled back to the peak levels of 2007, just before the US economy collapsed. However, the June seasonal peak was below the level of 2007′s peak. While manufacturing is back to where it was in 2007, it’s no stronger, and the US and the rest of the world are a lot bigger now than they were 7 years ago. Relative to population growth, US manufacturing and the jobs that go with it, are still lagging.

Manufacturing Production Index- Click to enlarge

Manufacturing Production Index- Click to enlarge

Electric Power generation is necessary not only for industrial and commercial activities, but for our regular needs and wants of daily living. There are few things which we do at work or at home for which electricity does not play a role. Consequently, electric power generation had been in a secular growth trend from the inception of the measure in 1974 until 2008. But then that all come to a standstill. We use no more electric power today than we did in 2008, in spite of the US population being about 6% greater now than then. The question is whether the flattening of this trend is a matter of greater technological energy efficiency, or forced conservation and reduced demand due to the pressure on real household incomes. It’s probably a little of both, but the trend suggests that across the entire wealth spectrum the experience of economic growth has been extremely limited. We have seen lots of income data supporting that conclusion. Only those near the top of the curve have experienced “growth.”

Electric Power Generation- Click to enlarge

Electric Power Generation- Click to enlarge

The real driver of whatever growth we have seen in the US in the past 6 years has been in getting oil and gas out of the ground and into the economic stream. Since 2009, energy production has risen by over 50%. Oil and gas extraction has been growing so fast that its share of industrial production has risen from 26% in 2006 to nearly 30% today.

Oil and Gas Production Index- Click to enlarge

Oil and Gas Production Index- Click to enlarge

At some point this trend will begin to slow. I don’t pretend to know when that will be, but when it does, the US economy is likely to look a lot less rosy than it appears today. Non Energy industrial production is just about back to 2007 levels after a strong growth spurt in the last 12 months. Even though direct energy production is removed from the index shown below, it’s likely that the ripple effects of the energy production boom played a role in this growth.

Non Energy Industrial Production- Click to enlarge

Non Energy Industrial Production- Click to enlarge

Does this lack of growth since 2007 justify the stock market being 28% higher today than it was in 2007. When the Fed and its partner major central banks, the BoJ and ECB finally pull the punchbowl will prices come back to earth with a thud? I think the answer to that is “yes,” but for those of us in the markets, timing is the issue, which I cover in the Professional Edition.

What about the growth in energy capacity, that is, the construction of all those oil and gas wells that are required to produce that energy? What impact has that had since 2007?

Immense.

Capacity has grown by 50% since 2008. It looks like this.

Industrial Capacity- Oil and Gas Production - Click to enlarge

Industrial Capacity- Oil and Gas Production – Click to enlarge

Ask yourself where the US economy would be without this enormous investment and without the tremendous annual increases in actual production.

While the Fed is behind the enormous ramp in stock prices since 2008, the Fed’s cheerleaders give it far more credit than is deserved for the economic “recovery” that has left too many Americans behind. That “recovery,” like so many booms in history, is largely due to an accident of technology, an innovation so great that it has driven economic growth in the US for the past 5 years. We know this because growth in those parts of the world lacking in oil and gas reserves, or where for other reasons this technology has not been widely adopted, have not grown, while the US has. Likewise, in those areas of the US where there are oil and gas resources, growth has been far faster than in areas where there is not. A prime example… without oil and gas, there would be no low tax economic miracle in Texas.

This lucky accident of technological history is completely independent of the Fed’s policies of QE and ZIRP. Those policies were not necessary for this boom in energy. It was going to happen regardless of the level of interest rates or the mountains of cash the Fed pumped through Primary Dealer trading accounts. Historically normal interest rates and money creation would not have slowed this boom one iota.

Conversely, had the Fed never instituted ZIRP and QE, the massive financial engineering asset bubble currently putting the world at renewed risk never would have happened. With the boom in energy rippling out into the US economy, this bubble and its high frequency trading, stock option buybacks, and the immoral crushing of the nesteggs of America’s elderly, was wholly unnecessary. The dislocations that will result when the world’s central banks finally relent from these policies will extract another terrible price, a price that did not need to be paid. It is only a matter of time.

We can already guess the excuse which the Fed’s cheerleaders and apologists will have then. It will be that the Fed did not do enough.

These policy makers, these economists, these media pundits, simply refuse to consider the facts. They dare not question their models and their false heroes. They are incapable of admitting error. They are incapable of embarrassment. They have no conscience and no shame. These are the qualities of our economic policy makers and those in the self congratulatory media echo chamber who aspire to be like them. It is why we will simply go on careening from one crisis to the next from generation to generation.

As individuals and money managers with consciences all we can do is protect ourselves from those crises as best we can. We must arm ourselves with the facts and act upon them when the times require.

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New Home Sales and Charts- Is The Housing Industry on the Brink? http://wallstreetexaminer.com/2014/08/new-home-sales-and-charts-is-the-housing-industry-on-the-brink/ http://wallstreetexaminer.com/2014/08/new-home-sales-and-charts-is-the-housing-industry-on-the-brink/#comments Tue, 26 Aug 2014 14:33:34 +0000 http://wallstreetexaminer.com/?p=206389 New home sales for July were reported at a seasonally adjusted annual rate of 412,000.  The consensus expectation of Wall Street economists had been for a rate of  427,000.  The media put a downbeat face on that news, reporting that new home sales were unexpectedly down in July, falling 2.4%.

Actual unit sales in July as surveyed totaled 37,000. That compared with 33,000 in July 2013 for a year over year gain of 12.1%. That reversed a year and a half long decline in sales momentum that had actually turned negative earlier this year, with the year to year decline exceeding -9% in April.

From June to July, sales dropped by 3,000 units or 7.5%. That performance was far stronger than the June-July 2013 sales decline of 23%. It wasn’t materially different than the average July decline of -6.8% over the past 10 years, including the years in which the market collapsed.

Overall this was not as bad a performance as the headlines suggested. None of the media reports indicated that July’s data showed a reversal of downward sales momentum. However, keeping things in perspective, current sales are only at a rate of about one third of the levels seen at the top of the housing bubble and about half the rate seen in the 1992-2002 decade before the housing bubble took off. This remains a perilously weak market. The gains of the past couple of years have been meagre in a historical context.

Below are several charts showing the latest actual, not seasonally adjusted data on new home sales, along with related series and a few questions. I’ll let you fill in the blanks.

First, did new home sales in July really arrest the downward momentum of the past year or was the upward blip merely a reaction to sharply lower mortgage rates in July, which will prove temporary? Will sales ever get past a level equivalent to about 1/3 of the sales at the top of the bubble? Which is normal, then, now, or neither?

New Home Sales- Click to enlarge

New Home Sales- Click to enlarge

Are new home sales a leading indicator of job growth? Does the failure to make a new high in sales for this “recovery” suggest that the economy has peaked?

New Home Sales and Jobs- Click to enlarge

New Home Sales and Jobs- Click to enlarge

Single family housing starts always exceed sales due to custom builds. At the top of the bubble in 2006 the July start/sales ratio was 1.6. Today it’s around 1.68. That’s below last years July level of approximately 1.73, but still well above the norms of 1995 to 2006. Are builders overbuilding again? Will this lead to another retrenchment?

Single Family Housing Starts to Sales- Click to enlarge

Single Family Housing Starts to Sales- Click to enlarge

Most of the price increases of new homes of the past 3 years have been due to increasing square footage. Price increases of new homes are now moderating. Did we just experience a bubble in house sizes? How big is too big? Are US home builders repeating the past error of US automakers making the product bigger to boost profits forcing potential buyers shift to smaller, more efficient and convenient rentals?

The nominal year to year gain in median sale prices stood at 2.9% in July. Price increases have slowed in 2014 from the bubble like increases of mid 2012-2013 as affordability becomes an issue. A rise in mortgage rates could virtually shut down the Us single family housing construction industry which is already fragile and potentially overbuilt in both size and number.

New Home Prices- Click to enlarge

New Home Prices- Click to enlarge

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Radio Free Wall Street Sniffs The Hot Air Coming Out of Jackson Hole http://wallstreetexaminer.com/2014/08/sniffing-the-hot-air-coming-out-of-jackson-hole/ http://wallstreetexaminer.com/2014/08/sniffing-the-hot-air-coming-out-of-jackson-hole/#comments Mon, 25 Aug 2014 19:36:43 +0000 http://radiofreewallstreet.fm/?p=4241

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

With all the hot air coming out of Jackson Hole, Lee Adler reminds us to stay focused on the things that matter. He illustrates what we know for a fact about central bank policies and markets, and their likely directions.

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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.

Bob

CORRECTION: In the first chart in this video I calculated the ECB’s contribution incorrectly in converting to the dollar equivalency, resulting in the ECB’s contribution being underweighted in the composite graph. The total percentage change in central bank balance sheets over the period was 126%, not 185% as stated in the video. The direction of the composite line did not change and the angle of the line did not change materially. Only the scale is different. This does not impact the analysis in any way. In fact, an argument can be made that the ECB should be underweighted because it does not have a Primary Dealer system and has not yet done outright asset purchases to any meaningful degree. Here is the updated chart.

Aggregate Central Bank Balance Sheet - Click to enlarge

Aggregate Central Bank Balance Sheet – Click to enlarge

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Record Low Initial Unemployment Claims Correlate With Looming Stock Market Collapses http://wallstreetexaminer.com/2014/08/record-low-initial-unemployment-claims-correlate-with-looming-stock-market-collapses/ http://wallstreetexaminer.com/2014/08/record-low-initial-unemployment-claims-correlate-with-looming-stock-market-collapses/#comments Thu, 21 Aug 2014 15:46:44 +0000 http://wallstreetexaminer.com/?p=205983 Contrary to conventional wisdom, extremely low initial unemployment claims have an ominous track record. Since the initial unemployment claims data first set a record low in September 2013, I have pointed out that record low claims suggest a distorted, overheated, bubble top economy. On each occasion over the past 42 years when claims have reached a similar level at this time of year, the stock market has subsequently collapsed within a few months.

The overheating that has been indicated in the claims data for months has also recently shown up in the JOLTS data. The excesses and distortions are real in certain sectors of the economy. In any bubble economy, when the sectors that are in the most extreme bubbles begin to weaken, it has been only a matter of time until the entire bubble driven economic house of cards collapses.

The headline, seasonally adjusted (not actual) number for initial unemployment claims for the week ended August 16 was 298,000. That was 10,000 less than the consensus guess of Wall Street economists. In the usual game of expected versus reported numbers, the market didn’t know what to make of that. It’s irrelevant anyway, since the kneejerk reaction usually only lasts 20 minutes until the market gets back to whatever it was doing in the first place.

It’s the big picture that matters, and here the actual, not seasonally finagled numbers, which the Wall Street captured media ignores, shows claims still near the levels reached at the top of the housing/credit bubble in 2006. That’s after 11 months of nearly continuous record readings. Since September 2013 when the number of claims first fell to a record low, the data has suggested that the central bank driven financial engineering/credit bubble has reached a dangerous juncture.

Initial Claims and Stock Prices- Click to enlarge

Initial Claims and Stock Prices- Click to enlarge

Thanks to their focus on the made up seasonally adjusted (SA) numbers, news media press release repeaters have given little indication that by historical standards the numbers have represented a danger sign. They have recognized the record levels but the media echo chamber continues to present that as positive, rather than the danger sign that it is.

Here are the actual numbers, along with the data showing why those numbers are so troubling.

According to the Department of Labor, “The advance number of actual initial claims under state programs, unadjusted, totaled 248,759 in the week ending August 16, a decrease of 20,709 (or -7.7 percent) from the previous week. The seasonal factors had expected a decrease of 9,357 (or -3.5 percent) from the previous week. There were 281,164 initial claims in the comparable week in 2013. ”

Initial Unemployment Claims- Click to enlarge

Initial Unemployment Claims- Click to enlarge

Actual initial unemployment claims were 11.5% lower than the same week a year ago. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between approximately -5% and -15%. The current number is centered within trend norms.

The actual week to week change last week was a decrease of 20,700. A drop is normal for that week of August. Going back to 1998, that week has always shown a decline. The current figure is stronger than the 10 year average change for this week of August of a decrease of 13,000.

New claims were 1,794 per million workers counted in July nonfarm payrolls. This compares with 1,851 per million in this week of 2007, which was when the housing bubble was on the verge of collapse, and 1,852 per million in the comparable week of 2006, around the top of the bubble. In September 2013, this figure set a record low. In each ensuing week the numbers remained at or near record levels. The current number was a 40 year record low for this week. In fact, total weekly initial claims have only been this low in August in 1972 and 1973, 1987, 2000, and 2007. Each period preceded a stock market collapse. As a percentage of the employed workforce, claims have never been this low in August.

Initial Claims Per Million Workers- Click to enlarge

Initial Claims Per Million Workers- Click to enlarge

With record readings having persisted for 11 months, let’s just say that the actual numbers have given us fair warning that the Fed sponsored financial engineering bubble may not have much longer before it too begins to deflate. The numbers persisted at extreme levels at the tops of the last two bubbles for a year before the collapses got rolling. The foundations were already beginning to crumble by the time the first anniversary of record readings rolled around. Based on those standards, time is not on the bulls’ side.

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Lee Adler Talks About The Fed’s Rigor Mortis Market With Lindsay Williams http://wallstreetexaminer.com/2014/08/lee-adler-talks-about-the-feds-rigor-mortis-market-with-lindsay-williams/ http://wallstreetexaminer.com/2014/08/lee-adler-talks-about-the-feds-rigor-mortis-market-with-lindsay-williams/#comments Wed, 20 Aug 2014 17:16:32 +0000 http://wallstreetexaminer.com/?p=205901 Lindsay Williams of South Africa’s Fine Business Radio and CNBC Africa chatted with me today about the Fed, the end of QE, and inflation.

Listen here or the player below.

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Wall Street Journal Posts Opening For Fed Reporter http://wallstreetexaminer.com/2014/08/wall-street-journal-posts-opening-for-fed-reporter/ http://wallstreetexaminer.com/2014/08/wall-street-journal-posts-opening-for-fed-reporter/#comments Wed, 20 Aug 2014 15:57:41 +0000 http://wallstreetexaminer.com/?p=205892 Allow a moment for both Tweets to load.

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Loan Liars http://wallstreetexaminer.com/2014/08/loan-liars/ http://wallstreetexaminer.com/2014/08/loan-liars/#comments Tue, 19 Aug 2014 00:22:32 +0000 http://radiofreewallstreet.fm/?p=4121 This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

This note came in from a subscriber tonight.

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.

Bob

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No, this isn’t about liar loans. It’s about the liars in the financial “news” media who twist the facts to suit whatever their point happens to be that day. Here are the facts about bank lending in the US. It’s anything but “soft.” The credit bubble has grown to unprecedented proportions. It is even bigger today than in 2007. If that was dangerous, what’s this?

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Time Has Come To Bury Caesar http://wallstreetexaminer.com/2014/08/its-time-to-bury-caesar/ http://wallstreetexaminer.com/2014/08/its-time-to-bury-caesar/#comments Sun, 17 Aug 2014 19:26:01 +0000 http://wallstreetexaminer.com/?p=205612 Friends, Romans, countrymen, lend me your ears;
I come to bury Caesar, not to praise him.

Ben Bernanke wrote it for all the world to see in November 2010 as the Fed announced QE2. QE would stimulate housing and cause stock prices to rise, leading to increased consumer confidence and spending. Here are his exact words:

higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion. 

- The Washington Post

The world knows this as the “trickle down” effect.

My position has always been that Bernanke was either an idiot or a criminal. Since he was a graduate of MIT and Professor at Princeton, there’s a good chance that he’s not an idiot, but history is replete with geniuses who had idiotic ideas born of the personality disorders and delusions that often accompany great intellects. As Oscar Levant famously said, “There’s a fine line between genius and insanity.”  I don’t know what motivated Bernanke, but we can add a third possibility to idiocy or criminality–insanity.

Regardless of what drove these policies, enough time has now passed that there’s sufficient evidence to be able to tell whether QE/ZIRP/Trickle Down worked or not in practice. Some of us were appalled at these clownish monetary experiments then, and subsequent trends have indeed been horrifying. We now know that Bernanke’s “trickle down” theory is bullshit, just like all of his other bogus theories and and explanations for what caused the Great Depression and why he never understood the credit and housing bubbles over which his predecessor and he presided.

Sadly, Bernanke isn’t alone in his delusions. Such delusional thinking is rampant among central bankers, government policy makers, and economists in general. The fields of politics and economics have a magnetic attraction for delusional, narcissistic, megalomaniacs. The rest of society pays a never ending price.

The evidence today could not be clearer about the foolishness of QE, ZIRP, and “Trickle Down.”

It is true that more people have jobs, but most of those new jobs are at lower pay. Real wages and salaries have only recovered to 2008 levels when the economy was in the midst of collapse. Since 2010 when Bernanke made his QE2 statement, real wages and salaries have grown by a TOTAL of just 4.5%. In contrast in the 4 years of the housing bubble recovery from the 2001-03 recession, when there was no QE, real wages and salaries grew by 9%. Even that was fake. When the Fed drove rates to zero, worker salaries collapsed.

ZIRP/QE Have Not Helped Wages - Click to enlarge

ZIRP/QE Have Not Helped Wages – Click to enlarge

It’s true that consumer spending has risen, but real retail sales per capita are below the levels of the 2002 recession. In fact, the annual growth of real retail spending per capita has actually slowed from a robust 5.8% in November 2010 to 1.6% in July 2014. Sure, the wealthy are spending more and we know more tourists are coming to the US to shop, boosting total retail spending and stimulating the growth of retail, hotel, and restaurant jobs. Whoopee. But the fact is that most Americans are not spending more. Excluding those at the top, Americans are earning less and spending less. Bernanke’s trickle has pooled at the top.

Last week the consumer sentiment data continued to confirm that consumers know when they’re being bullshitted. As central bank manipulation of financial markets and interest rates has increased, consumers have grown consistently more dour about the outlook for 15 years. A few did brighten in their assessments from 2011 to 2013 but they turned more pessimistic over the past year while the stock market boomed. Americans know a fraud when the see one, just as declining sentiment from 2004 to 2007 showed that increasing numbers recognized that the housing bubble was a fraud.

Consumer Sentiment Shows Trickle Down Fraud- Click to enlarge

Consumer Sentiment Shows Trickle Down Fraud- Click to enlarge

“Trickle down” is one of those big frauds. Its chief proponent, Ben Bernanke, is a proven fraudster, and so are all the central bankers, policy makers, and economists who follow in his tracks and sing his praises. Americans know it, and their hopelessness only grows, rightfully so. Our policy makers are either clowns or, worse, criminals. So let’s bury the lies already. Maybe if we face reality we have at least a chance to get this right. Sadly, it’s probably already too late.

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Initial Unemployment Claims Deteriorate, Flashing Warning Signal http://wallstreetexaminer.com/2014/08/initial-unemployment-claims-deteriorate-flashing-warning-signal/ http://wallstreetexaminer.com/2014/08/initial-unemployment-claims-deteriorate-flashing-warning-signal/#comments Thu, 14 Aug 2014 15:44:00 +0000 http://wallstreetexaminer.com/?p=205222 The string of record low initial unemployment claims which began last September may have ended this week. After nearly 11 months at extremes that have only existed before at the top of the internet/tech bubble in 1999-2000 and the housing bubble top in 2006-07, initial claims backed off slightly. The question is whether this is just a temporary blip, or the beginning of economic weakening that in the past two instances of such extreme readings, ultimately led to economic collapse and monetary interventions.

The overheating that has been indicated in the claims data for months has also recently shown up in the JOLTS data. The excesses and distortions are real in certain sectors of the economy. In any bubble economy, when the sectors that are in the most extreme bubbles begin to weaken, it has been only a matter of time until the entire bubble driven economic house of cards collapses.

The headline, seasonally adjusted (not actual) number for initial unemployment claims for the week ended August 9 was 311,000. That was 6,000 more than the consensus guess of Wall Street economists. So they were very close to the mark this week.

The actual numbers, which the Wall Street captured media ignores, shows claims still near, but slightly above the levels reached at the top of the housing/credit bubble in 2006. That’s after 11 months of nearly continuous record readings. Since September 2013 when the number of claims first fell to a record low, the data has suggested that the central bank driven financial engineering/credit bubble has reached a dangerous juncture. If this is the beginning of a movement away from those levels rather than just a blip, then it’s likely to be the beginning of the end.

Initial Claims and Stock Prices- Click to enlarge

Initial Claims and Stock Prices- Click to enlarge

Thanks to their focus on the made up seasonally adjusted (SA) imaginary numbers, news media press release repeaters have given little indication that by historical standards the numbers have represented a danger sign. In recent weeks the headline writers finally recognized the record levels, but the media echo chamber presented that as positive, rather than the danger sign that it is.

Here are the actual numbers, along with the data showing why those numbers are so troubling.

According to the Department of Labor, “The advance number of actual initial claims under state programs, unadjusted, totaled 268,837 in the week ending August 9, an increase of 20,960 (or 8.5 percent) from the previous week. The seasonal factors had expected an increase of 2,317 (or 0.9 percent) from the previous week. There were 282,756 initial claims in the comparable week in 2013. ”

Initial Unemployment Claims- Click to enlarge

Initial Unemployment Claims- Click to enlarge

Actual initial unemployment claims were 4.9% lower than the same week a year ago. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between approximately -5% and -15%. The current number is at the weaker side of the bubble trend but it is still within trend norms.

But there is less reason to feel sanguine in the week to week change. The actual week to week change last week was an increase of 21,000. That is materially worse than the 10 year average change for this week of August of an increase of 2,100.

While most weeks of the year almost always move in the same direction, the late July early August weeks have been swing weeks, sometimes increasing, sometimes decreasing. The current week fared poorly not only versus the average for this week but it was also comparatively even weaker than the comparable weeks of 2013 and 2012, both of which had declines of several thousand. That was evidence that the labor market was still improving in those weeks. In contrast, the current reading was the second worst performance for this week since 1998. One week does not a trend make or break, but it definitely should get our attention.

New claims were 1,939 per million workers counted in July nonfarm payrolls. This compares with 1,915 per million in this week of 2007, which was when the housing bubble was on the verge of collapse, and 1,881 per million in the comparable week of 2006, right at the top of the bubble. In September 2013, this figure set a record low. In each ensuing week the numbers remained at or near record levels. The figure for the week ended August 2 was an all time record low for that week, dating from the 1970s. Over the next several weeks we should find out if the current reading was the beginning of a trend away from those extremes and toward signaling a weakening economy.

Initial Claims Per Million Workers- Click to enlarge

Initial Claims Per Million Workers- Click to enlarge

With record readings having persisted for 11 months, let’s just say that the actual numbers have given us fair warning that the Fed sponsored financial engineering bubble may not have much longer before it too begins to deflate. The numbers persisted at extreme levels at the tops of the last two bubbles for a year before the collapses got rolling. The foundations were already beginning to crumble by the time the first anniversary of record readings rolled around. Based on those standards, time is no longer the friend of the recent trend.

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