Thursday, January 4, 2018
Thursday, November 30, 2017
While the world of investment professionals lull themselves into a near perfect euphoria, the market has set itself up for the smash of smashes. The economic, cultural, and moral foundations of our society are crumbling before our eyes, and no one in power has any fear—greed rules—insatiable greed controls the haves. While the have nots idiotically cheers the haves on! Never in my lifetime have I seen decadence celebrate as victory—what have we become?
Thursday, November 16, 2017
Wednesday, August 23, 2017
Wall Street Banks Warn Downturn Is ComingBy
August 22, 2017, 12:47 PM EDT August 23, 2017, 4:48 AM EDT
HSBC, Citigroup, Morgan Stanley say end of market boom is nigh
Breakdown in trading patterns is signal to get out soon
HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.
Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop.
“Equities have become less correlated with FX, FX has become less correlated with rates, and everything has become less sensitive to oil,” Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, wrote in a note published Tuesday.
His bank’s model shows assets across the world are the least correlated in almost a decade, even after U.S. stocks joined high-yield credit in a selloff triggered this month by President Donald Trump’s political standoff with North Korea and racial violence in Virginia.
Just like they did in the run-up to the 2007 crisis, investors are pricing assets based on the risks specific to an individual security and industry, and shrugging off broader drivers, such as the latest release of manufacturing data, the model shows. As traders look for excuses to stay bullish, traditional relationships within and between asset classes tend to break down.
“These low macro and micro correlations confirm the idea that we’re in a late-cycle environment, and it’s no accident that the last time we saw readings this low was 2005-07,” Sheets wrote. He recommends boosting allocations to U.S. stocks while reducing holdings of corporate debt, where consumer consumption and energy is more heavily represented.
That dynamic is also helping to keep volatility in stocks, bonds and currencies at bay, feeding risk appetite globally, according to Morgan Stanley. Despite the turbulent past two weeks, the CBOE Volatility Index remains on track to post a third year of declines.
For Savita Subramanian, Bank of America Merrill Lynch’s head of U.S. equity and quantitative strategy, signals that investors aren’t paying much attention to earnings is another sign that the global rally may soon run out of steam. For the first time since the mid-2000s, companies that outperformed analysts’ profit and sales estimates across 11 sectors saw no reward from investors, according to her research.
“This lack of a reaction could be another late-cycle signal, suggesting expectations and positioning already more than reflect good results/guidance,” Subramanian wrote in a note earlier this month.
Zero Alpha Beats - Bank of America Corp
Oxford Economics Ltd. macro strategist Gaurav Saroliya points to another red flag for U.S. equity bulls. The gross value-added of non-financial companies after inflation -- a measure of the value of goods after adjusting for the costs of production -- is now negative on a year-on-year basis.
“The cycle of real corporate profits has turned enough to be a potential source of concern in the next four quarters,” he said in an interview. “That, along with the most expensive equity valuations among major markets, should worry investors in U.S. stocks.”
The thinking goes that a classic late-cycle expansion -- an economy with full employment and slowing momentum -- tends to see a decline in corporate profit margins. The U.S. is in the mature stage of the cycle -- 80 percent of completion since the last trough -- based on margin patterns going back to the 1950s, according to Societe Generale SA.
Societe Generale SA
After concluding credit markets are overheated, HSBC’s global head of fixed-income research, Steven Major, told clients to cut holdings of European corporate bonds earlier this month. Premiums fail to compensate investors for the prospect of capital losses, liquidity risks and an increase in volatility, according to Major.
HSBC Holdings Plc
Citigroup analysts also say markets are on the cusp of entering a late-cycle peak before a recession that pushes stocks and bonds into a bear market.
Spreads may widen in the coming months thanks to declining central-bank stimulus and as investors fret over elevated corporate leverage, they write. But, equities are likely to rally further partly due to buybacks, the strategists conclude.
“Bubbles are common in these aging equity bull markets,” Citigroup analysts led by Robert Buckland said in a note Friday.
— With assistance by Cecile Vannucci
Wednesday, August 16, 2017
Wednesday, August 16, 2017
Anyone who thinks our toxic financial system is stable is delusional.
Why are we doomed? Those consuming over-amped "news" feeds may be tempted to answer the culture wars, nuclear war with North Korea or the Trump Presidency.
The one guaranteed source of doom is our broken financial system, which is visible in this chart of income inequality from the New York Times: Our Broken Economy, in One Simple Chart.
While the essay's title is our broken economy, the source of this toxic concentration of income, wealth and power in the top 1/10th of 1% is more specifically our broken financial system.
What few observers understand is rapidly accelerating inequality is the only possible output of a fully financialized economy. Various do-gooders on the left and right propose schemes to cap this extraordinary rise in the concentration of income, wealth and power, for example, increasing taxes on the super-rich and lowering taxes on the working poor and middle class, but these are band-aids applied to a metastasizing tumor: financialization, which commoditizes labor, goods, services and financial instruments and funnels the income and wealth to the very apex of the wealth-power pyramid.
Take a moment to ponder what this chart is telling us about our financial system and economy. 35+ years ago, lower income households enjoyed the highest rates of income growth; the higher the income, the lower the rate of income growth.
This trend hasn't just reversed; virtually all the income gains are now concentrated in the top 1/100th of 1%, which has pulled away from the top 1%, the top 5% and the top 10%, as well as from the bottom 90%.
The fundamental driver of this profoundly destabilizing dynamic is the disconnect of finance from the real-world economy.
The roots of this disconnect are debt: when we borrow from future earnings and energy production to fund consumption today, we are using finance to ramp up our consumption of real-world goods and services.
In small doses, this use of finance to increase consumption of real-world goods and services is beneficial: economies with access to credit can rapidly boost expansion in ways that economies with little credit cannot.
But the process of financialization is not benign. Financialization turns everything into a commodity that can be traded and leveraged as a financial entity that is no longer firmly connected to the real world.
The process of financialization requires expertise in the financial game, and it places a premium on immense flows of capital and opaque processes: for example, the bundling of debt such as mortgages or student loans into instruments that can be sold and traded.
These instruments can then become the foundation of an entirely new layer of instruments that can be sold and traded. This pyramiding of debt-based "assets" spreads risk throughout the economy while aggregating the gains into the hands of the very few with access to the capital and expertise needed to pass the risk and assets off onto others while keeping the gains.
Profit flows to what's scarce, and in a financialized economy, goods and services have become commodities, i.e. they are rarely scarce, because somewhere in the global economy new supplies can be brought online.
What's scarce in a financialized economy is specialized knowledge of financial games such as tax avoidance, arbitrage, packaging collateralized debt obligations and so on.
Though the billionaires who have actually launched real-world businesses get the media attention--Bill Gates, Jeff Bezos, Steve Jobs, et al.--relatively few of the top 1/10th of 1% actually created a real-world business; most are owners of capital with annual incomes of $10 million to $100 million that are finance-generated.
This is only possible in a financialized economy in which finance has become increasingly detached from the real-world economy.
Those with the capital and skills to reap billions in profits from servicing and packaging student loan debt have no interest in whether the education being purchased with the loans has any utility to the indebted students, as their profits flow not from the real world but from the debt itself.
This is how we've ended up with an economy characterized by profound dysfunction in the real world of higher education, healthcare, etc., and immense fortunes being earned by a few at the top of the pyramid from the financialized games that have little to no connection to the real-world economy.
Anyone who thinks our toxic financial system is stable is delusional. If history is any guide (and recall that Human Nature hasn't changed in the 5,000 years of recorded history), this sort of accelerating income/wealth/ power inequality is profoundly destabilizing--economically, politically and socially.
All the domestic headline crises--culture wars, opioid epidemic, etc.--are not causes of discord: they are symptoms of the inevitable consequences of a toxic financial system that has broken our economy, our system of governance and our society.
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