I made the mistake of putting a market prediction out on this site a long while back – saying that I expected we would begin our next collapse around November 10. I was wrong – early on that call, but as subscribers know, we’re always fine-tuning models.
Still, just because we’re early isn’t a bad thing. The S&P closed yesterday below where it was on November 10, after all. But the downside potential (although a Santa Rally is possible) is starting to look like a higher probability event.
The trend-leading Baltic Dry Index is down to 887 – so around those 2007-2008 levels. This means seat belts should be fastened.
Right now, the only story in the markets is the collapse in the price of oil. It was trading in the $59 range this morning. Back when I expected the collapse to begin it was around $78. Then, by November 15th, it was down to $75. By the end of November, we had touched $65 and this morning we took out $60.
Two words for the critics of my call: Piss off. Yes, Nov. 10 was a bit early. Better a bit early than a second late.
Longwave economics is based on overall – general – moves of the economy. .Individual stocks will always go to the moon, and there were stocks that rallied even in the Housing Bubble Collapse.
The Oil Collapse upon us now will be interesting to see: What $59 oil means (if you followed the links previously offered) was that drilling outfits would begin to “lay down” rigs in here. And from there things will take a bit of time, but sure as a snowball on a mountain, there’s an oil price avalanche building.
No small portion of it can be laid at the dirty feet of the Republican Party: The House passes a $1.1-trillion dollar spending bills which basically gives five major banks the opportunity to hold up the public again with another made-up crisis.
My friend and author Howard Hill (one of the world’s first financial engineers) explains that you have only to look at Greece to see how the public fleecing has gone global.
There, bonds were in trouble, so those who piled on to short positions made money. And then, the bondholders were eventually made whole by the EU…which is what all that German Constitutional Court stuff was about: Was it really a crisis when the bondholders didn’t lose, the short players made oodles, and the only loser was all citizens of the EU who had to pay for the wild-eyed gambling?
You tell me.
Consider the budget charade in Washington and this is particular:
Statement from FDIC Vice Chairman Hoenig on Congressional moves to repeal swaps push-out requirements
In 2008 we learned the economic consequences of conducting derivatives trading in taxpayer-insured banks. Section 716 of Dodd-Frank is an important step in pushing the trading activity out to where it should be conducted: in the open market, outside of taxpayer-backed commercial banks. It is illogical to repeal the 716 push out requirement. In fact, under 716, most derivatives — almost 95% — would not be pushed out of the bank. That is because interest rate swaps, foreign exchange and cleared credit derivatives can remain within the bank. In addition, derivatives that are used for hedging can remain in the bank. The main items that must be pushed out under 716 are uncleared credit default swaps (CDS), equity derivatives and commodities derivatives. These are, in relative terms, much smaller and where the greater risks and capital subsidy is most useful to these banking firms.
Derivatives that are pushed out by 716 are only removed from the taxpayer support and the accompanying subsidy of insured deposit funding — they will continue to exist and to serve end users. In fact, most of these firms have broker-dealer affiliates where they can place these activities, but these affiliates are not as richly subsidized, which helps explain these firms’ resistance to 716 push out.
Hill’s analysis? I don’t think he’d mind my sharing this with you:
Hoenig is Vice Chairman of the Fed. He was put in that position by the Republican party, so this is no “liberal” take on things. He made a statement about this move in the budget bill. Note that only 5% of the bank derivatives book is being moved out under the pathetic “reform” called Dodd-Frank, but even that was too much for the banksters. A good example of what gets to stay in the insured banks is the London Whale trade and others like it, on which JPM lost $7 billion, but they thought it was “only” $2 billion for at least a week after discovering it in a group that reported directly to the chairman of the bank.
Hopefully you read the Office of the Comptroller of the Currency quarterly derivatives report and have read Hill’s book so you can follow the notes of the public opera.
So now (with oil dropping) we get to sit back, wait to see who’s in trouble, then watch the pile on which should include the usual predictions of global economic collapse and along with it, the end of all life on earth.
What’s really going on is the same old crap in Washington: The Rich are about to get (care to guess what?) and the Poor are about to be made (go ahead, take a guess).
Banks make nearly 50% of their money trading derivatives.
The reason for this ought to be simple enough to follow, but in case you missed it, technology has destroyed the banking industry. The hard reality is that they would go back to being staid quiet businesses, except that they’ve opened up a casino where everyone is trying to out-game everyone else.
But this is a special casino – because with public backing of the bets, no one in the game gets to lose, just the taxpayers who are on the hook for the bad bets. Sure, NCCE (net current credit exposure) dropped a bit in Q2 but that was on lower interest rates, as much as anything, it seems.
This thing is a lit fuse…we just can’t name the bomb that will go off. That’s above our pay grade, but rest assured, the crisis will pass, and then will come January and the fallout. If not before.
Meanwhile, the price of gold almost broke out this week, but oh, look, here come the stories about how Russia is going to unload gold and let’s see how real that becomes. Governments globally have to be scared spitless that a wide cross section of the public might figure out that gold and silver are harder to make up than zeros to put on paper or in digital accounts. And with good reason.
The latest Federal Reserve H.6 Money Stocks report screams the Fed has capitulated as soon as the elections were over in November and is now printing M1 at a 6.7% annualized 3-month rate and M2 is up to 4.3% from down around 3.4% in the previous report.
When the Fed capitulates and prints at these rates, you know the economy has big trouble ahead…and the bankster class can hardly wait. It’s just waiting for the victim to be named.
What else does the H.6 report tell us? That Deflation is here.
Oh, wait, isn’t that what $58 oil is screaming this morning, too?
PPI – You Better Believe It
When we talk about deflationary collapse, we’re not just blowing smoke. Check out the latest Producer Price Index numbers out from the Labor Department this morning:
The Producer Price Index for final demand fell 0.2 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This decrease followed a 0.2-percent rise in October and a 0.1-percent decline in September. On an unadjusted basis, the index for final demand advanced 1.4 percent for the 12 months ended in November, the smallest 12-month increase since a 1.2-percent rise in February 2014. (See table A.) In November, the 0.2-percent decline in final demand prices can be traced to the index for final demand goods, which decreased 0.7 percent. In contrast, prices for final demand services advanced 0.1 percent. Within intermediate demand, prices for processed goods declined 1.0 percent, the index for unprocessed goods fell 1.3 percent, and prices for services moved up 0.3 percent.
With no price power (thanks for all the jobjacks Bush and Clinton!) we have no wage inflation anywhere on the horizon, so, oh, my…January begins to become worrisome in a 1929 sort of way. Or maybe we hold off till May for the headline collapse, but the early moves can be seen in oil and PPI now if you follow the game.
We have to admire the mainstream media which is nattering on about how a “government shutdown has been avoided.” and other such pap.
Distractions for the Sheeple
No, DOJ statistics seem to show that college rape is overblown as an issue by the MSM.
Gosh, who would have thought?
Next Distraction? Climate
Angry With Social Security?
I have been trying both online and on the phone since December 2 to get some earnings errors in my Social Security file corrected.
After spending another hour on hold Friday, I had to finally give up when I discovered the local office closes at 3 PM and doesn’t after the phones after that.
A couple of reality checks.
- I should not have to go through serial operators who give conflicting data.
- I should not have to wait on the phone for over an hour for help
- The Social Security Offices ought to all have 12-hours at least one day a week for working people who have issues and.,…
Last but not least, when their voice on hold system apologizes for the long wait “Because Social Security serves 50-million people” please note that Amazon has 244-million customers, so five times the size and has 24-7 support and everything can be done online.
Amazon has 10’s of thousands of products. Social Security has a handful.
So if Amazon can do it and make money, WTF is with SS?
Color Ure pissed at time-scamming bureaucrats.