Monday, June 2, 2014


For all the rah, rah, rah we hear from the government and our bought and paid for MSM, real data not massaged within an inch of its life show real trouble and serious reason to worry. Money velocity is fading fast, real estate is starting another 2007-like downward slide, and the stock market is no longer based on reality, as even the most stubborn economist has been forced to admit.

Japan, under the leadership of Abe Shinzo, showed remarkable growth over the last year, the best in decades as a matter of fact. GDP went way up as did consumer spending. The problem was, just like here, wages have stagnated while the cost of living went up. This month a new consumption tax of 3% was being added to every product sold in this already too expensive country. So what happened was, everyone bought everything they could afford, consumers and businesses alike, and front loaded as much as they could to avoid the hefty fees that would be added on later. The result was great growth at first, but data from the last two months say the economy is actually teetering on collapse as sales have dropped across the board by over 60%. No one is buying anything right now, other than necessities like food and fuel. Cars sales have collapsed, as has real estate, watches and electronics at least 50% across the board no matter how cheap or expensive. This has resulted in the same kind of liquidity problem that is also being seen here. As always, the Japanese just beat us to the same thing, only this time this is a race they really didn't want to win.

Japan is in real trouble with Fukushima still pumping out radiation. A quick side note on this as I have seen fear-mongering douchebags over hype the radiation levels out there saying the entire country is basically in a microwave. Do not believe that any more than the idiots claiming the radiation from Fukushima is benign. The West Coast, Hawaii and Alaska have the most to worry. The chances of significant radiation being able to affect the East Coast is laughable at best. I am so sick of numnuts out there who think because they have a computer that they can be an expert on anything. It takes decades sometimes to master a field, not a weekend reading some idiotic website, mine included. But I digress.

The point of this is that Fukushima is going to cost them big. And because, just like here, they have no real understanding over how economies work, they are one false move from oblivion. The US is no better.

The cat is out of the bag that the stock market is rigged. Michael Lewis wrote a whole book about it, that should be the kind of thing that gets congressional hearings instead of yet another lame attempt to remind America that Obama is black. But instead we get Benghazi redux 7, while real problems go unanswered.

The fact is, we can now see with own eyes how devoid of reality the stock market is. Bond activity is rising, even though interest rates are really low, while money is pouring out of the stock market by major players. When rats start deserting a sinking ship, so should you. But right now, "dumb" money and HFT are the only things keeping it afloat at all. "Dumb" money is people too stupid to know when to get out, like the real estate market which burned many a flipper in 2007.

The US Treasury market data shows many are fleeing from stocks, suggesting a slowing economy, lower business profits, and a shrinking stock market, which begs the question than, why is the stock market still going up? It's either based on insanity or it's rigged. Your call. This is from Wall Street on Parade:

Stocks have been setting new highs of late while the yields on the benchmark 10-year and 30-year Treasurys decline. The 10-year Treasury began the year at a yield of approximately 3 percent and closed on Friday at a yield of 2.49. The 30-year Treasury started the year at a yield of approximately 4 percent and closed last week with a yield of 3.33 percent.

Strong economies produce a higher demand for money and, thus, rising interest rates. For stocks, which are wedded to earnings, to be rising while Treasury yields are falling shows a serious decoupling of market logic.

The question is, does high frequency trading and stock market rigging have anything to do with this decoupling?

For starters, if some firm or a cartel of firms (and we certainly have plenty of those today) wanted to rig the stock market, their job is a lot easier today than it was pre-crisis. That’s because stock volume is weak in the biggest names.

Joseph Ciolli and Lu Wang of Bloomberg News report today that only “1.8 billion shares traded each day in S&P 500 companies last month, the fewest since 2008.” Equally worrying, say the reporters, is that when the S&P 500 index “hit an all-time high on May 23, only about 20 of its 500 companies reached 52-week highs…”

A market index setting new highs while only 20 of its 500 components set new highs, i.e. less than 5 percent, is sounding the same alarm bell as the bond market. The rising tide is not lifting all boats or to put it in Wall Street parlance, this is decidedly weak breadth.

What could high frequency traders possibly have to do with this?

On September 24 of last year, New York State Attorney General made the following remarks at a Bloomberg Markets summit:
“When I was a kid, everyone wanted to be in the market. I mean, the sign of success was you own your home and you have a portfolio of stocks. Normal average Americans thought that they and their brokers, if they were prudent, had an opportunity to buy low and sell high as the big time Wall Street players did. And the new market manipulators – the new folks that do something that would be unimaginable a decade ago – they refer to those average Americans as the dumb money. And ladies and gentlemen, a lot of us here may very well be a part of that dumb money because if you don’t have access to a supercomputer capable of flipping tens of thousands of shares in milliseconds, and access to market moving information a little bit ahead of everyone else, you may be in the dumb money, even if you think you’re an insider who thinks they have an edge.”
So here you have the highest law enforcement official in New York State, who spent much of his private law career working on behalf of Wall Street clients, telling you that you, and even he, is perceived as the “dumb money” by high frequency traders.

On April 2, Michael Lewis appeared on Bloomberg Television and elaborated further on today’s “dumb money” in the stock market, equating legendary hedge fund investor, David Einhorn, to be the equivalent of a “dumb tourist.” Lewis gave this further analogy:

“So I have a casino and I want to start a poker game in the casino. So I get three card sharks and I tell them: ‘go sit there and start the game; make it look like a good game’s going on. There are no 4s, 9s, there are no queens in the deck. Only you will know that. And we will pay some tour group operators to bring like a bunch of dumb tourists in to play with you’… So, of course, the tourists get fleeced all the time in the poker games, because they don’t know the deck is rigged. The poker players pay the casino a cut of what they make. The casinos’ operators pay the tour group — the tour group company money to bring in the tourists. So in this case, casino’s the exchange, the poker players are the high-frequency traders, and the tour group operators are the banks and the brokers that handle the stock market orders. And I think the analogy is pretty close. So is that rigged? Is that a rigged game? I think it is a rigged game.”
So here’s the point: high frequency traders can only keep this rigged game going if the dumb money continues to pour in to the stock market on the perception that we’re in a bull market. The bond market – way too big to rig – is telling you the bull is sucking his last few breaths. (Or breadths.)

The other bad sign is that the velocity of the dollar is collapsing as all this money printing is finally starting to catch up with us. Money is no longer moving but sitting in one place collecting dust. Banks don't loan, interests rates are at record lows, and savings are seen at near zero. The American consumer is tapped out again and that spells disaster for any economy. The chart below is the average velocity of all savings in this country (bank accounts and physical money) or M1. You can see that after the last recession (which never really ended), savings continued to decline to a twenty year low. Where is a recovery where no one has any money?
Velocity Of Money M1

Or take this chart which measures M2 or "near money," which are assets than can quickly be converted into cash. That too has plummeted during these last few years to the lowest level EVER RECORDED. That's right. The worst ever meaning worse than the Great Depression. Wow!

Velocity Of Money M2

If that doesn't describe how bad things are, I don't know what will. We also have the highest jobless rate ever which begs the question how can unemployment be 6.3% if one out of eight people in this country has NO job and 20% of families have no working members. The real unemployment number is somewhere between 23 and 37% which are Depression Era numbers or worse. Still think the economy is growing like the government keeps telling us?

No comments:

Post a Comment