Why the Federal Reserve should be audited – New York Post 08-31-15

Salient to Investors:

The Fed needs to be audited to determine if it has manipulated financial markets, which is not in its jurisdiction.

Autonomy for the Fed ended when it started playing footsie with Wall Street. The bubble in stock prices was created by years of risky Fed policy. Even the FRB of St. Louis has concluded that QE has not helped the economy, but QE did force savers into the stock market.

On 8/24/15, the Dow was down 1,089 early in the day before closing 588 points down. Mysterious and massive overnight buying of S&P futures – a remedy proposed by Robert Heller in 1989 helped the Dow rise 442 on 8/25/15 before closing down over 200 points. More mysterious buying of S&P futures overnight helped stocks open higher on 8/26/15 and close higher.

William Dudley’s comments were wrongly attributed to the recovery because they were made after the stocks had already risen and fell when he dismissed the idea of more QE.

Money managers do not want stocks to drop right before their performance is locked in and reported to clients.

The Fed helping the market too often is dangerous because a) traders start perilously believing there is no risk in the stock market, b) investors have no way of knowing the true value of stocks, and c) elite Wall Street insiders always know what the Fed is doing and thus profit at the expense of ordinary investors.

Read the full article at http://nypost.com/2015/08/31/why-the-federal-reserve-should-be-audited/

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Fareed Zakaria GPS – CNN 08-30-15

Salient to Investors:

Fareed Zakaria said:

  • The US economy has recovered nicely.
  • A 2014 UCLA study found that many black and Latino students face almost total isolation from white and Asian students and middle-class peers.
  • Much more Saudi oil wealth has gone into pernicious causes over the last 30 years than Iranian oil wealth.
  • Tharman Shanmugaratnam says half of the Muslim population in Britain lives in the bottom 10% of its neighborhoods by income.
  • The UN estimates the average woman needs to have 2.1 children to maintain the population of a developed country. Every EU country is below that level, though France has one of the best rates in Europe. Demographers say that it is difficult to get people to have children using just financial incentives.
  • Pew predicts that by 2050, populations in Greece, Portugal and Germany will have dropped by double-digit percentages. The UN predicts over-65s in Europe will increase to more than 25% of the population by 2050, Japan’s will increase to more than 33%.
  • The US will be demographically vibrant and growing for decades. Pew predicts that America’s population will grow by 27% from 2010 to 2050 due to immigration and a relatively younger population. The CDC says the US fertility rate hit a record low in 2013.
  • The World Wildlife Fund says half of the earth’s wildlife has been lost in the past 40 years.

Elliott Abrams at the Council on Foreign Relations said:

  • Obama is turning away from America’s responsibilities around the world. Poland, Czechoslovakia, the Balkans, feel less safe facing Russia; Australia, Vietnam, South Korea, Japan feel less safe facing China; Israel, the Gulf Arabs feel less safe facing Iran.
  • The US is asking for nothing and getting nothing on human rights in the Iran and Cuba deals.

Peter Beinart at Haaretz, New America and CNN said:

  • The polls show Obama is much more popular around the world than George W. Bush, while America is more popular than it was.
  • The Iran nuclear deal is a major accomplishment akin to Nixon and China.

Meghan O’Sullivan at Harvard said:

  • Strategic restraint might make sense in a world where the US does not have much at stake, or US allies are active in promoting US interests, or where world order is self-perpetuating; but we don’t live in that world. International order is not in good shape and the Middle East is significantly worse off than 7 years ago.
  • The Iran nuclear deal has very real flaws; including the fact that Iranians get all their benefits up front in exchange for a promise to stick to the deal for a decade or longer.

Gideon Rose at Foreign Affairs said:

  • The international order is not fraying. The US is the world’s strongest power by leap years, with a defense budget equal to the next 7 nations combined. The US and its allies account for 75% of global defense spending. Core allegiances and alliances in the major industrial and economic centers are intact and thriving.
  • Much of the Middle East is no longer a core American strategic interest and US direct involvement there is not necessarily improving things.
  • The Iran nuclear deal is not great but is dramatically better than all the realistic alternatives.

General Stanley McChrystal said:

  • In combat, soldiers are much more frightened of the enemy than their sergeant.
  • You want personnel confident enough in their relationships and in what they do to be able to operate effectively.
  • Personnel must have confidence in the competence of their leaders, and more importantly their values.
  • The confidence of personnel is undermined when they see a difference between what senior management says it will do and what it actually does, or if they believe senior leadership is uninformed.
  • Key to being a leader is personal discipline and empathy.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://www.cnn.com/TRANSCRIPTS/1508/30/fzgps.01.html

Contra Corner Gets Some Company – The NYT Highlights Four Who Saw it Coming – David Stockman’s Contra Corner 08-26-15

Salient to Investors:

David Stockman writes:

  • Expect a central banker to soon herald that more monetary heroin is coming, triggering a market rally and pronouncements that its “correction” is over. It will take time for the market to lose its unwarranted faith in central bank omnipotence. However, money will now be made by selling the rips and no longer by buying the dips.
  • This time is different because the 50-day and 200-day moving averages have been decisively breached, the great global credit boom is fracturing, and central banks are powerless to reverse the downward deflationary spiral.
  • The Fed is out of ammunition and is powerless to reverse the global deflation and stop a US recession in the next year or two. Any reversion to QE would unleash monetary hell and signal that the last 6 years of radical monetary policy have failed, except for feeding Wall Street speculators with free money for carry trades.
  • China’s PBOC has shot its wad and is struggling to prevent a massive outflow of flight capital and the internal deflation of its giant credit bubble.
  • The ECB’s bond buying campaign has left most of Europe mired in its long-standing socialism.
  • Media recognition is growing that the great global deflation is well underway.

Read the full article at http://davidstockmanscontracorner.com/contra-corner-gets-some-company-they-nyt-highlights-four-who-saw-it-coming/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Thursday

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‘Don’t overburden central banks,’ says India’s Rajan – BBC News 08-25-15

Salient to Investors:

Raghuram Rajan at Reserve Bank of India said:

  • Central banks’ use of cheap money to tackle economic problems, rather than painful reform, has to stop and continuation risks doing more harm than good.
  • Central banks cannot carry the whole burden and may not have the tools to deal with demographic change and deep changes in productivity.

Read the full article at http://www.bbc.com/news/business-34056740

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What next for the global economy after China market woes? – BBC News 08-25-15

Salient to Investors:

Global growth is changing but we are not on the verge of a global recession. UK and US growth is solid, and the Eurozone is staging a weak recovery.

China’s stock market drop says little about the health of the Chinese economy and matters little to investors outside China, because foreign ownership is very limited, and to Chinese investors, who are a tiny subset of the Chinese people.

Independent analysts estimate China GDP at closer to 5%, still a healthy rate of growth for an economy which is now much bigger. If growth is 5%, then global growth is not in danger. If it is 3% or lower then the markets will fall more.

China is wise to partially uncouple the renminbi from a rising dollar because the dollar is likely to continue rising and other Asian currencies are weak. Chinese manufacturing data last week was poor but other data, especially consumption, is healthier.

The lowest commodity prices since 1999 are either signalling a slowdown in growth or increase in supplies. Lower fuel and food prices boost real household disposable incomes. Low commodity prices are an almost unambiguously good thing for the developed world, but not for the emerging world.

Saudi Arabia’s attempt to drive higher-cost US shale producers out of the market by keeping its production high has failed.

US shale production was powered by high oil prices, no longer an engine, and easy credit, still an engine.

Supporting stock prices is not a Fed responsibility, so to delay hiking rates in September may damage its credibility and make the eventual task harder.

Read the full article at http://www.bbc.com/news/business-34053879

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Signs, Long Unheeded, Now Point to Risks in U.S. Economy – New York Times 08-25-15

Salient to Investors:

More and more analysts are pointing to problems in China and other markets as posing a real threat to the American economy.

Raoul Pal at the Global Macro Investor said the global GDP pie is shrinking and cites the dollar’s upward move against nearly all emerging-market currencies. In past emerging-market booms and busts the party always ends when the dollar takes off, and loans in relatively cheap dollars that financed real estate and consumption booms are no longer available and so growth slowed. Viz Latin America in the 1980s, Southeast Asia in the 1990s.

Merrill Lynch said that for the year through August 19, the worst-performing investments in dollar terms were Brazilian equities -45%, Russian bonds -43%, Indonesian equities -26%, Turkish and Korean equities – 25%, and Mexican equities -22% versus US equities +8.7%: all driven by the gradual slowdown in the Chinese economy.

4 out of 5 of the world’s largest banks are Chinese according to their 2014 balance sheets. McKinsey estimates the Chinese debt ratio at 280+% of GDP.

Albert Edwards at Société Générale said:

  • China’s naked support of its stock market bubble confirms that the Chinese growth engine was stopping: once you encourage an equity bubble, it will collapse.
  • The Japanese yen’s sharp drop against the dollar in autumn 2014 was an alarm bell because Japanese exports compete aggressively with currencies in Thailand and Korea, and so a precursor to the Chinese currency move. One of the causes of the Asian emerging market crisis in 1997 was ending their currency pegs with the yen.

Jeffrey Sherman at DoubleLine said:

  • The spike in junk bond yields last summer as equities rose was a warning sign.
  • Given slow growth in China, the outlook for growth in the US is extremely fragile and not in a good position to survive an increase in interest rates.

David A. Stockman said:

  • China can now manufacture 1.1 billion tons of steel, almost twice domestic demand and versus 100 million tons in the late 1990s.
  • Iron ore is the canary in the steel mine, signalling the violence of the global deflation that is underway. The price correction to just under $100 a ton creates problems for big iron ore-producing countries like Australia.

Read the full article at http://www.nytimes.com/2015/08/26/business/dealbook/signs-long-unheeded-now-point-to-risks-in-us-economy.html?ref=topics

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This Swan Is White! – Seeking Alpha 08-25-15

Salient to Investors:

Ivan Martchev at Navellier & Assoc writes:

  • Last week’s equity collapse was predicted by the dramatic increase in the spread between junk bonds and Treasuries. Credit spreads are good overall indicators.
  • The sell-off in junk bonds was caused by weak commodity prices: new capacity in hard commodities and energy has been financed with junk bonds and with disappearing cash flows.

Read the full article at http://seekingalpha.com/article/3463346-this-swan-is-white

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Forget The Dips, Sell The Rips – David Stockman’s Contra Corner 08-24-15

Salient to Investors:

David Stockman writes:

  • The S&P 500 has sliced through both the 50-day and 200-day moving averages. 2130 on the S&P 500 will prove to be a generational high.  CAT, China, European luxury brands, the NASDAQ Biotech Index are shorts.
  • Expect the Fed to announce they are well short of the their magic 2% on the PCE deflator and so defer a September rate increase: not because there is too little inflation but because it is scared about the stock market fall. This will catalyze a frenzy of dip buying, claims the market has bounced off support is ready to resume the bull market. Do not buy the dip.
  • In the past 15 years CPI has risen by 2.5% annually if you include housing and rent inflation. The Fed hurts savers and retirees in order to keep Wall Street gamblers in free carry trade money, hoping to generate economic growth by giving the 1%  wealth effect windfalls.
  • The Wilshire 5000 has gained more than $15 trillion of market cap during the last 6 years, while the total value of all corporate equity in the US economy has risen by more than $20 trillion – substantially passing the two earlier stock market bubbles – despite having virtually nothing to do with the long-term trends in the US economy, weak at best.
  • Zero interest rates can do nothing about global deflation caused by massive malinvestment generated by years of zero interest rates and central bank financial repression. The central banks have created a monumental falsification of prices in virtually every asset class, while divorcing the financial market from the real economy.
  • The post-2009 recovery is the final and radical expansion of the growth and capital spending bubble underway around the world since the early 1990s. Since 2013, the massive capital spending bubble driven by central bank policy has begun to roll-over. The cliff-diving phase of commodity and industrial prices and profit margins has only just begun, and worldwide capital spending will be plunging sharply for years to come. Chinese and Korean shipyards will soon be bankrupt, Australia and Brazil are heading for depression.

Read the full article at http://davidstockmanscontracorner.com/forget-the-dips-sell-the-rips/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday

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Mapping Fallout From ‘Black Monday’: Who Was Hardest Hit? – Foreign Polict 08-24-15

Salient to Investors:

Bill Bishop at Sinocism said:

  • China’s stock market has historically been irrelevant both to the domestic Chinese economy and the global economy.
  • China has tarnished its reputation with its bungled response to its stock market plunge.

Damien Ma at the Paulson Institute said it is premature to conclude the Chinese economy is in a major crisis, but key is how China stabilizes the real economy and pushes through economic reforms.

Read the full article at https://foreignpolicy.com/2015/08/24/mapping-fallout-from-black-monday-who-was-hardest-hit-china-stocks-plunge/

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Sentiment Building to Deport Nation’s Billionaires – The New Yorker 08-24-15

Salient to Investors:

Andy Borowitz reports that the University of Minnesota’s Opinion Research Institute found that Americans hold US billionaires in the lowest ever esteem, and the majority would like to see them deported.

Read the full article at http://www.newyorker.com/humor/borowitz-report/sentiment-building-to-deport-nations-billionaires

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