Why I’m Looking Forward to the Next Big Crash
First, the Dow dropped 190 points on Monday – or 1%. It was threatening to close below 18,000 for the first time in almost three weeks. We’ll wait to find out. Yesterday, a London-based magazine and a TV station interviewed us. Both asked if we were “pessimistic.”
“Of course not,” we replied. “We expect today’s financial system to fall apart in a terrible crash and depression. But we’re looking forward to it.”
This was not exactly the answer they were looking for… And there’s not enough time in an interview to explain why this view makes any sense at all. The audience must have thought we had lost our mind.
We also had a meeting with our old friend and editor of the Gloom, Boom & Doom Report Marc Faber yesterday. He helped make sense of our “pessimism.”
“The system is corrupt,” he said. “The government. The banks. The central banks. Big business.”
More Ominous Charts
We have decided to expand a bit on our recent post about “ominous charts” and show a few more charts that should at least give one pause. We hasten to add that none of them should be seen as timing indicators. It must be stressed that we continue to be in unprecedented situation, with central banks worldwide cutting interest rates to the bone with policy rates in the major currency areas having been kept at or near zero for an unusually long time period.
Party on dudes!
Painting by Vasily Alexandrovich Kotarbinsky
“The top 25 hedge fund managers made more than all the kindergarten teachers in the country,” declared President Obama in a discussion of poverty at Georgetown University. Calling them “society’s lottery winners,” he proposed to hike their taxes.
Predictably, battle lines have been formed between two polarized sides. One side—let’s call them the Gauche for convenience’s sake—is unhappy with the pay disparity. CBS News, in an almost neutral tone, asks, “Which group provides more value to America?” The reader is supposed to somehow answer that question, presumably in favor of teachers. Gawker goes much farther, calling hedge fund managers the biggest gangsters of all. It asserts, “It is, as the myth goes, capitalism at its most pure …”
The imposing HQ of the US Federal Reserve. Central banks are socialist central planning institutions, and are subject to the constraints the socialist calculation problem imposes on all planners. An economy with a central bank is no longer a free market economy – it is at best a hampered market economy.
Photo credit: Susan Candelario
Fed chief Janet Yellen is talking about raising rates. From USA Today:
“If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target,” Yellen said in a speech at the Providence Chamber of Commerce in Rhode Island.
She added, however, that after the first hike, “I anticipate that the pace [of subsequent increases] is likely to be gradual. […]
Yellen said that “it will be several years” before the Fed’s benchmark rate is back to normal – which is close to 4% in an economy that’s performing well.”
Janet Yellen levels her rate-hike gaze at us …
Photo credit: Kevin Lamarque / Reuters
RFID Technology fur Use in Currency Becomes More Sophisticated
The 500 euro banknote barely circulates in Europe – this is to say, it is rarely seen in everyday commerce. However, it does exist, and makes the handling of large amounts of cash easier. Not surprisingly, it is said to be highly popular with various criminal organizations, although as far as we are aware, there is no hard evidence of this. Rather, it seems to be an assumption, if a sensible one.
Hitherto, the ECB was mainly interested in the possibility of employing RFID tags in banknotes for security reasons (to make forging them more difficult), and as passive tracking devices, ostensibly in order to be able to track money used by organized crime so as to prevent money laundering.
10 euro bill after 10 secs of microwave treatment
Image via dvd-svcd-forum.de
US Dollar – Positioning and Sentiment
Between the summer of 2014 and its recent peak in March this year, the US dollar index was a one-way street – a blow-off like move that mainly mirrored the equally relentless decline in the euro, which has been suffering from the ECB’s misguided ministrations. The euro has the by far largest weighting in the dollar index (nearly 58%). In the meantime, euro area money supply growth has begun to significantly exceed US domestic money supply growth (year-on-year growth in money TMS: euro area 12.4%, US dollar 7.5%) and interest rate differentials have turned in the dollar’s favor as well, so the revival of the dollar does make some sense from a fundamental perspective – only the size of the move has been a surprise. Recently the dollar has gone through its biggest correction since the rally began. Below we will take a look at a wide range of relevant positioning and sentiment data to illustrate where things now stand.
Image via Istock
A Safe and Up-and-Coming Place
“I love it here in Medellín,” said an American woman in her 50s. “It feels safe. The people are nice. The weather is great. And the prices are low.”
This was the same report we got from other Americans we met in the city. (We weren’t there long enough to have much of an opinion of our own; we’re on our way to London now.)
“I just wanted to get some money out of the U.S.,” she continued. “The way things are going, I feel like I need a bolt hole somewhere. I don’t really have that much money, but I’m investing a quarter of it down here.
“You can just look at this place and see that it is on the way up. When I’m in the U.S. it always feels to me that it is on the way down.”
Back in his heyday, Colombian drug lord Pablo Escobar spent $2,500 per month merely on rubber bands to bundle up his growing stacks of dollars.
Photo credit: Prensa Caracol
Orban Comes Riding Into Town
For many years Hungarian president Viktor Orban has been a thorn in the side of the EU for his, let us say, idiosyncratic insistence to ignore its diktats at every opportunity. This is not to say that we are particularly fond of Orban’s policies or political style, although the mere fact that he goes on the nerves of the bureaucrats in Brussels is of course a major plus.
In one respect Orban proved especially irksome to the ruling classes in Brussels and the rest of Europe: he interfered in the formal “independence” of Hungary’s central bank, and he actually made the banks pay up for the mortgage lending disaster. The latter move was clearly populist and has the obvious drawback of giving people the impression that they bear no personal responsibility for their actions. On the other hand, the banks did make it appear to their customers that taking out Swiss franc denominated mortgage and consumer loans was a virtually risk-free affair, and many financially not overly sophisticated people fell into the trap thus laid for them. Consider the following sub-prime mortgage loan ad Austria’s Raiffeisenbank ran in Hungary in 2007:
We don’t care about your income! NINJA loans, Hungarian style.
… Troubles Our Sleep …
It is the vision of what the United States will be like when the authorities have obliterated almost three millennia of monetary progress and have their boots on our necks.
Here’s Peter Bofinger, a leading German Keynesian economist, in Der Spiegel magazine:
“With today’s technical possibilities, coins and notes are in fact an anachronism. They made payments incredibly difficult, with people wasting all sorts of time at the cashier as they wait for the person ahead of them to dig through their belongings to find some cash, and for the cashier to render change (rather than, for example, waiting for someone to find the right credit card, complete the transaction, and wait for approval).
But the additional time is not the largest benefit of the elimination of cash. It dries out the markets for moonlighting and drug trafficking. Almost a third of the euro cash in circulation consists of 500-euro notes. No one needs those for shopping; light-shy figures use them for their activities. [Also] it would be easier for central banks to impose their monetary policies. At this time, they cannot push interest rates appreciably below zero because the savers would hoard cash. If there is no cash, the zero bound is eliminated.”
They said they were going to make me an advisor ... Bofinger discovers they lied to him.
Painting by Zdzislaw Beksinski
A Big Dow Theory Divergence
We briefly want to show a few charts that have caught our eye recently. This is by no means a comprehensive market update (we plan to provide one soon). Here is something though one doesn’t see all too often: the Dow Industrials and Transportation averages have diverged from each other for about six months running. To be sure, no valid Dow theory sell signal has been given yet. For that to happen both averages need to break their previous reaction lows in concert. However, divergences at peaks are a “heads up” signal. Charles Dow would probably at least raise one eyebrow and frown a little.
Image via cnbc.com
More Articles of Interest:
- Cameron's New Thought Police
- Switzerland is the Ultimate Safe Haven for Liberty and Wealth
- Ominous Stock Market Charts
- A Vision of Monetary Hell …
- “Hello Dictator” - Leader of Socialist Superstate Project Meets Magyar Renegade
- Is the Dollar's Correction Already Over?
- RFID-Chipped Banknotes Fit For “Remote Cancellation”
- Is the Fed Going to Raise Mortgage Rates?
- Are You Guilty of Crimes Against the Young?
- This Former Home of Drug Kingpin Pablo Escobar Is a “Buy”