More Stress in Global Markets As Interest Rates and Copper Continue to Break Down

I've been out of pocket for several days and am getting over an injury, so this will be the first post in a bit and will be brief.  I do hope that anyone interested in my thoughts is following me on Seeking Alpha.   A number of articles there are very good quality, and the comment section doesn't allow trolls through as Blogger's usual format does, and as was the case with The Daily Capitalist, the comments on my articles are often learning experiences for me.

In any case, as we begin to move away from the crisis events of 2008 and their aftermath, a lot is similar to the ending of The Great Gatsby.  In it, Fitzgerald describes himself (Nick Carraway) always being dragged back into the past.  We, he suggests, are boats trying to go upstream against the current (i.e., into the future), but we are "borne back ceaselessly into the past".  To wit:  one financial crisis is similar to another:

My long-standing analogy, which I discussed during the semi-crisis summer of 2011 and then several times last year, is that the European mess is similar in many ways to the US mess of 2006-9 in that the insolvencies never seemed to end.  Some people forget numerous small mortgage brokers going under in 2006 pursuant to the housing bubble bursting around the end of 2005.  And people forget the rumblings of trouble in finance-land when the auction rate securities mess began in the fall of 2007.  So the US crisis went on a good while, as is the eurozone mess.  After the Cyprus banking fiasco (which continues), stress in financial markets continues to intensify as the depression in so many European countries contines.

Dr. Copper is breaking support, Treasuries and gold are well-bid, but Treasuries are better-bid than gold.  These are signs of a deflationary bust..

US stock and bond markets are, meanwhile, following the script they followed during the Asian contagion, meaning they are being supported by chaos elsewhere in the globe.  There's nothing like being able to buy your own bonds and have all the economic and other advantages that the US has.  Thus I continue with a Fortress America investing outlook, as I introduced in the late summer or early fall in 2011.

This extends to Apple's problems in China and Europe.  It includes all multinationals.  Caterpillar has had problems in China, as well.

Eventually, the Asian contagion came to America.  Why should this time be different?  (Though we can hope.)

A possible template for US stock markets is as follows:

I can reasonably see the Russell 2000 (IWM is the major ETF) acting like the NAZ of 1998-2000 and having a blowoff top (it's toppy enough already on valuation) and peaking anywhere from last Friday (it was down today) to two years from now.  But let's say it's so overvalued already (it is) that it peaks this year.  In that case, I would expect the S&P 500 and the Dow 30 to peak or nearly peak some months later.  This was the pattern in Y2K as the NAZ peaked in March, crashed, half-recovered, and the SPY made a double top half a year after the NAZ topped.

This environment would continue to be, as they say on the Street, "constructive" for Treasuries.  I'm positioned heavily with bonds right now.  It's been an amazing bond rally since Y2K and again since 2007.  Can bonds three-peat?

My best answer for now is that speculators on the 30-year T-bond in the futures pits now show their longest/largest sustained net negative positioning since the first half of 2011:  the best time to own zero-coupon Treasuries since the fall of 2008.

I'm watching Mr. Bond and Dr. Copper closely.

"Austerity" the New Big Lie

In G-20 Moves Toward Deficit-Tackling Targets, With Flexibility, Bloomberg.com perpetuates the lie that the giant continued deficits of numerous countries have anything to do with belt-tightening. From the article:

“It is draconian, a little difficult, a little exaggerated,” said Brazilian Finance Minister Guido Mantega. “Some countries would not be able to do it. It is clear that a cut is needed, but at what velocity? It can’t be too fast.”

The officials said the G-20 statement today will echo an agreement reached by finance chiefs in Busan, South Korea, earlier this month.

The agreement would effectively endorse the austerity plan set out by the U.K., . . .

Here is the Financial Times going along with the Big Lie in Osborne gambles on pain to survive the pain:

Where does all this austerity leave Britain compared with other countries? If the establishment is right and the economy recovers smartly, Britain is now projected to enjoy less than half the level of borrowing in 2014-15 of other advanced economies in the Group of 20.

Its accumulated gross debt would also be lower. The International Monetary Fund recently estimated that advanced G20 countries would hit 2015 with gross public debt rising to almost 120 per cent of national income. The equivalent figures in the Budget show Britain’s gross debt burden peaking at 86 per cent in 2012-13 and then falling well below the G20 average.

This austerity plan projected large national deficits year after year, only falling to 2% of GDP 5-6 years from now.

None of this has anything to do with austerity. The IMF has frequently imposed real austerity on countries. This involves running governmental surpluses. All that is being talked about here is that unprecedented peacetime deficits will be run next year, the only larger peacetime deficit being run currently.

There is no secret as to the incessant media use and acceptance of the politicians promotion that these policies are austere. It is of a piece of the even more damaging Big Lie coming out of the financial crisis that the governments were forced to run these big deficits to save the system or save the economy. Of course, the bailouts were in essence transfers of wealth from society at large to stakeholders of (mostly giant) financial institutions: employees, stockholders and bondholders.

The non-governmental beneficiaries, namely Big Finance and its acolytes, continue to benefit from deficits. Larger deficits mean more business selling and repackaging government debt, with the important side benefit that much of said debt goes to supporting existing debt that can then be traded. More complexity means more experts to analyze said complexity, and so on.

And then when Greece or Spain gets in trouble, that means yet more business for Team Finance.

Sometimes debt is necessary. Examples would be a war for national survival or major capital spending to create durable future benefits, such as a major dam or bridge. Examples where debt is the wrong approach involve spending for predictable long-term social situations such as an aging population. It's fine if society agrees to expend more effort on the health of retirees. Because there is a negative multiplier effect from such effort, this effort simply should be paid for out of current income (or liquidation of accumulated assets if that is really desired), but for highly indebted countries such as the U. S. and the U. K. to continue to borrow for social benefits has nothing to do with austerity.

We are in a Wonderland world where words mean what the Big Finance/governmental alliance mean whatever they want them to mean.

Copyright (C) Long Lake LLC 2010

White Predicted the Economic Darkness

Courtesy of Naked Capitalism, here's a "must read" story about a Cassandra of the now 2-year old financial mess, a Canadian named William White in Global Banking Economist Warned of Coming Crisis. NOTE: to make the article reader-friendly, it may come up on linking in Print format. Click away the print function and it should read normally. Otherwise, "Google" the title; the article runs in der Spiegel (Germany) and of course this is the English-language translation.

Here's the teaser intro to the article:

William White predicted the approaching financial crisis years before 2007's subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy.

Copyright (C) Long Lake LLC 2009

More Stress in Eastern Europe

Ed Harrison of Credit Writedowns reports on what may be a worsening financial situation in Eastern Europe. There was much angst about this regions several months ago, but those fears were forgotten when accounting rules on U. S. banks were changed and a snap-back stock and commodities rally occurred/was engineered. Perhaps the gloom was warranted. The non-italicized intro and ending remarks of those of Dr. Harrison; the rest is his translation of the Austrian report.

Ten eastern European countries now looking to IMF for bailouts

This comes via der Standard, an Austrian daily. My translation below:

The international financial crisis has hit eastern Europe harder than previously expected, according to a press report. At least ten states are negotiating with the International Monetary Fund (IMF) for billion-dollar aid programs, Handelsblatt learned from within the IMF community. The applications’ status will be decided soon as possible. Given the continuing economic crisis a majority of the IMF’s management is in favor approval of further aid requests.
According to the report, among the countries which have requested assistance at the IMF for the fist time are Bulgaria, Croatia and Macedonia. Ukraine, Serbia, Romania, Belarus and Latvia speculate on receiving a faster payout or increased speculated IMF assistance. Hungary had not yet decided whether it needs more money from the fund. The IMF has recently approved the application of Bosnia, as the Bosnian Minister of Finance announced on Thursday. Bosnia-Herzegovina will receive a credit line of 1.57 billion U.S. dollars (1.13 billion euros) from the IMF.

In regards to emerging markets, this story makes clear how much worse the situation in Eastern Europe is than in Emerging Asia or Latin America.

Copyright (C) Long Lake LLC 2009