NO STRINGS ATTACHED NEWS THAT MAINSTREAM JUST WON'T COVER.
Scooter Braun directly addressed Taylor Swift on social media on Friday, saying that his family has been receiving “death threats” amid their very public dispute.
https://www.foxnews.com/entertainment/scooter-braun-pleads-taylor-swift-resolution
Quantum Leap For ABN AMRO As It Questions Gold Price Discovery
Submitted by Ronan Manly, BullionStar.com
Earlier this week, an interesting article appeared on the website of the major Dutch bank ABN Amro, written by the bank’s currency and precious metals strategist, Georgette Boele.
The article, titled “A world with two gold prices?”, questions how, if gold is a safe haven asset, its price has not continued to reflect the ongoing crisis and stress in financial markets.
Boele then seeks an explanation of this puzzle in terms of a framework which consists of both safe haven gold demand and speculative gold demand, one of which reflects the purchase of physical gold (safe haven demand), and the other which speculates on the gold price via paper and synthetic gold products (speculative demand) which are not physically backed by gold.
This leads her to the observation that safe haven investors would not sell their physical gold in the midst of a crisis, as they “would think three times before parting ways with their gold”, and that it is speculative investors (those who are not invested in real physical gold) who are pushing the gold price around.
While the ABN AMRO strategist fails to address the reality of how the international gold price is really established, i.e. via gigantic trading volumes of fractional-reserve London unallocated gold and COMEX gold derivatives, she does take a quantum leap, at least for a prominent investment bank, when the penny drops that there are two separate things being traded. Finite tangible physical gold on the one hand, and paper gold synthetics on the other. Shouldn’t these two things have distinct prices? Boele then makes the jump:
“Let’s now go a step further. Suppose there are two gold prices: one for physical gold and one for all other non-physical gold products. How would these two gold prices behave?”
As far as I recall, this is the first time that a major financial institution has broached the subject of parallel and distinct gold prices, something we have been reiterating here at BullionStar for years, for example “What sets the Gold Price – Is it the Paper Market or Physical Market?”, but this new enlightenment from ABN AMRO is welcome. Perhaps ABN AMRO have been looking at the BullionStar website.
With two gold prices, one for real physical gold and the other for paper speculation, rationalizes Boele:
“In times of financial crisis, the price representing physical gold will increase much faster than its non-physical counterpart
All in all, speculative demand for gold has made the gold price more volatile. In addition, gold is behaving less as a safe haven. When there is zero trust in the financial system, the only safe option for investors is still physical gold.”
While this ‘step further’ from ABN AMRO is a good start, it is still only a small step. Boele still fails to acknowledge that the very nature of the ‘gold price’ as we know it is completely determined by speculation via synthetic gold trading that has got nothing to do with trading of physical gold, with the physical gold market just a price taker. From the above BullionStar article in March 2017:
“There are two sets of gold markets – on the one side, the COMEX gold futures and London OTC unallocated gold spot markets which are both ultra-leveraged and which both create gold supply out of thin air, and on the other side, the physical gold markets which inherit the gold prices derived in these paper gold markets. Currently the physical gold markets have no effect on the international gold price.”
Of course the current gold price is not properly reflecting safe haven demand. That’s because the gold price is not reflecting physical gold demand. The ABN article ends with the conclusion that:
“In a world with two gold prices, the price of physical gold will predominantly behave as a safe haven. The other gold price, by contrast, will act more like a financial asset and can serve as an anti-dollar investment.”
Therefore unfortunately, Boele does not address how the current gold price is actually derived, i.e. that the entire mechanism of gold price discovery is via London OTC unallocated trading and COMEX gold derivatives. She also fails to mention the secretive gold lending market, the proven and prosecuted bullion bank gold price manipulation, and the documented central bank intervention into gold markets, topics which cannot go unnoticed when taking about contemporary gold price discovery. Without acknowledging price discovery and behind the scenes shenanigans, ABN AMRO is skirting around the issue and can’t make additional steps of logic in fleshing out how the two gold prices would jettison and detach from each other. But it might go something like this:
If the physical gold price broke free of the paper gold price and there were two gold prices, the international paper gold price (which is established by fractional-reserve OTC London unallocated trading and COMEX gold derivatives trading) would go to zero, as unbacked products and transactions would trade at values reflecting that they are not backed by any gold, as well as the death of demand for those products.
In contrast, the physical gold price would rise dramatically as its price would break free of the influence of synthetic products and derivatives, while prior demand for paper gold would be channeled back again into demand for real gold. This would cause the physical gold price to increase. i.e. a world with two gold prices.
But now that ABN AMRO has taken ‘a step further’, it would be welcome to see an additional step or three from the Dutch bank and its contemporaries in the commodities world.
Note: The ABN AMRO article in Dutch can be read here, and it originally appeared on 2 December in the (subscription only) Dutch weekly investment and markets magazine Beleggers Belangen (Investors’ Interests) here.
This article was originally published on the BullionStar.com website under the same title "Quantum leap for banks as ABN AMRO questions gogld price discovery."
Tyler Durden Sun, 12/15/2019 - 13:05 Tags Business FinanceSchiff: 'I Had No Idea FBI Was Committing Serious Abuses When I Said All That Stuff'
Rep. Adam Schiff (D-CA) can't admit when he's wrong.
After last week's DOJ Inspector General report revealed that the FBI committed serious abuses while obtaining a warrant to spy on Trump campaign aide Carter Page - including fabricating evidence, Schiff was asked on Sunday by Fox News host Christ Wallace:
"Given what you know now … are you willing to admit that you were wrong in your defense of the FBI’s FISA process?"
To which Schiff replied: "I’m certainly willing to admit that the inspector general found serious abuses of FISA that I was unaware of."
That's an odd way of admitting your entire thesis has been dead wrong for three years.
Watch (via the Daily Caller)
[youtube https://www.youtube.com/watch?v=kBbiYp7TQ38]
In short:
Schiff’s correcting the record memo has turned out to be totally wrong (based on the I.G. Report)! A very big lie. @MariaBartiromo And @DevinNunes has turned out to be completely right. Congratulations to Devin. The Fake News Media should apologize to all!
— Donald J. Trump (@realDonaldTrump) December 15, 2019 https://platform.twitter.com/widgets.js Tyler Durden Sun, 12/15/2019 - 12:40For Softbank's Son, "Conflating Luck And Talent Is Dangerous"
Authored by Scott Galloway via ProfGalloway.com,
Third BaseThe Dunning-Kruger effect posits that dumb people are too stupid to know they are dumb. They are not perplexed by difficult situations but overconfident — not knowing what they don’t know. As few people believe they are stupid, or a bad driver, a more relatable component of Dunning-Kruger is incorrectly believing one area of skill translates to another.
I suffer massively from this. I’m smarter than your average bear when it comes to marketing, so I’ve come to believe that makes me an expert on pretty much anything. I don’t know much about physics but constantly reference Galileo despite knowing little besides the fact that he dared challenge the church.
There is evidence of this all over the marketplace. Great P/E guys believe they would make great VCs and vice versa. Hedge fund managers believe two years of above-market returns means they are also great operators. To disabuse anybody of this notion, take them to a Sears. Billionaires running for president, actors starting skincare lines, and tech CEOs founding media firms. Being rich also naturally makes you a great film producer.
Masayoshi Son created $64 billion in shareholder value, mostly through deft acquisitions. Mr. Son can also boast of perhaps the best venture investment in history, $20 million into Alibaba that became $100 billion. That investment is tantamount to Michael Jordan hitting a grand slam on his first at bat wearing a Birmingham Barons hat.
Mr. Son has mistaken luck in venture investing for the ability to responsibly allocate billions based on a gut feeling. The size of SoftBank investments, relative to the diligence, now looks stupid, if not negligent. A writedown on an investment in a dog-walking app may have been avoided had someone in the SoftBank diligence team taken the time to discover they were investing $300 million in … a dog-walking app.
Conflating luck and talent is dangerous. As I get older, I’m struck by how big a part luck played in my life, and how much I mistook it for skill, well into my forties. The Pareto principle shows that even if competence is evenly distributed, 80% of effects stem from 20% of the causes.
Not recognizing your blessings feeds into the dark side of capitalism and meritocracy: the notion that success is a choice, and that those who haven’t achieved success are not unlucky, but unworthy. This leads to regressive policies that further reward the perceived winners and punish the perceived losers based on income level. The most recent example of our belief that poor people are guilty: The US now has the fourth-lowest tax rate in the world, and billionaires have the lowest tax rate of any cohort.
First BaseI constantly humblebrag that I was raised by a single immigrant mother who lived and died a secretary. But truth is I was born on third base. My parents got me to first base before I was born, immigrating to the US. This took courage, desire, and a dose of selfishness. Both left families that needed them. My mom left London when her two youngest siblings were still in an orphanage.
In Europe I’d make much less money being an entrepreneur and challenging institutions. In China I’d likely be in jail. Having one of my companies fail would have bankrupted me in Europe, as the tolerance for risk or failure is scant. I have no idea what would have happened in China. In the US, a tolerance for failure meant a lifestyle my parents couldn’t have imagined crossing the Atlantic on a steamship in 1961.
Second BaseI have some talent and have worked really hard, but mostly my success is due to being born in the right place at the right time, and being a white heterosexual male. Coming of professional age as a white male in the nineties was the greatest economic arbitrage in history. Today’s 54-to-70-year-olds saw the Dow Jones increase an average of 445% from 25-40, their prime working years. For other ages, it doubles at most.
Economic liberalization (globalization, technology, market deregulation) coupled with social norms that clung to the past meant 31% of America (white males) were given license over a lion’s share of the spoils. In nineties San Francisco, I raised over $100 million for my start-ups. I didn’t know a single woman under 40 who raised more than a million. And it seemed normal. Even today, white men hold 65% of elected offices despite being 31% of the population.
Rich, fabulous people are the ideal billboards for luxury brands. Our nation’s best universities have adopted the same strategy. Universities are no longer nonprofits, but the highest-gross-margin luxury brands in the world. Another trait of a luxury brand is the illusion of scarcity. Over the last 30 years, the number of applicants to Stanford has tripled, while the size of the freshman class has remained static. Harvard and Stanford have become finishing school for the global wealthy.
In the class of 2013 in the Ivy League, five of the eight colleges (Dartmouth, Princeton, Yale, Penn, and Brown) had more students from the top 1% of the income scale than the bottom 60%.
Fast and Slow ThinkingAccording to @thetweetofgod, intelligence looks in the mirror and sees ignorance; ignorance looks in the mirror it sees intelligence. The sectors that have enjoyed the greatest prosperity spread across increasingly few people — technology and finance — have created an unprecedented level of arrogance among people born on third base.
When we feel threatened, we are more prone to see each other as an enemy, rather than someone who has a different opinion. We want to dismiss and fight the whole person, rather than just what they said. From prim times, our brains have been set up to identify “enemy” or “one of us,” that simple binary distinction. Do I trust them as a person or are they not “one of us.” When we are in our more evolved, slow thinking mode (Daniel Kahneman), we uate arguments. When we are in our knee-jerk, threatened fast thinking, we decide the person is our enemy and argue from our amygdala, not our forebrain.
When we are threatened, we are also less empathic. Altruistic behavior decreases in times of greater income inequality. The rich are more generous in times of lesser inequality and less generous when inequality grows more extreme. When the poor need our help more, we are less likely to offer it, because we don’t see the poor as one of us. They become “them.”
Michael Lewis writes, “The problem is caused by the inequality itself: it triggers a chemical reaction in the privileged few. It tilts their brains. It causes them to be less likely to care about anyone but themselves or to experience the moral sentiments needed to be a decent citizen.”
Tyler Durden Sun, 12/15/2019 - 12:15All Hell Breaks Loose In India As Violent Protests Spread After Citizenship Law
As central banks ramp up money printing to prevent the global economy from crashing, we've been documenting an alarming surge of social upheavals erupting across the world in 2019.
The latest unrest is spreading across India like wildfire after the Modi government passed a new law that grants citizenship to non-Muslim migrants from three Muslim-majority countries but doesn't give Muslim migrants from those countries citizenship, reported Al Jazeera.
Called the Citizenship Amendment Bill (CAB), the new measure was passed last week and grants citizenship to non-Muslims from Pakistan, Afghanistan, and Bangladesh, who have been persecuted for their faith.
Christians, Buddhists, Sikhs, Jains, and Parsis from the three eligible countries will automatically be given citizenship if they have illegally entered the country.
So here's where things get complicated. Rights groups and a Muslim political party have gone bonkers over the fact that Prime Minister Narendra Modi isn't allowing Muslim migrants from the three country's who have illegally entered India - a path towards citizenship. They say the bill violates India's constitution that prohibits religious discrimination.
As a result of the bill, demonstrations have broken out across the country, including in New Delhi and various large cities in several states.
Protest against #CitizenAmendmentBill in India is getting intense and aggressive with each day. #CABPolitics #assamprotests pic.twitter.com/5MtauNaryz
— Global Politics🌏 (@Globalpoliticss) December 15, 2019 https://platform.twitter.com/widgets.jsAnti-Citizen Amendment Act protest turns violent in #Delhi.#ITVideo More videos: https://t.co/wMGGKJy9GN pic.twitter.com/WV5vCfR4LI
— India Today (@IndiaToday) December 15, 2019 https://platform.twitter.com/widgets.jsIndia: Delhi metro station JMI closed due to protests against the new Citizenship Act | Dec 14 2019 pic.twitter.com/ZVRruoZzXq
— redball (@redball2) December 14, 2019 https://platform.twitter.com/widgets.js#narendramodi #bjp is this a new India where no one can protest against Govt.???#rahulghandi pic.twitter.com/c7pfzKWTQ8
— takhia dolo (@takhiadolo1) December 12, 2019 https://platform.twitter.com/widgets.jsRT News is reporting that demonstrations have turned violent with protesters setting busses, trains, and buildings on fire.
7 trains have been torched in Bengal causing a loss of about 50 crores. Traitors & infiltrators causing loss of life & property must be shot at Sight. IAS deserter @naukarshah who is one of the instigators of the so called protests must be brought to justice by @NIA_India pic.twitter.com/iCVw0tUKKJ
— LiberatePOK (@LiberatePOK) December 15, 2019 https://platform.twitter.com/widgets.jsThis is not Indian Occupied Kashmir!! This is at NH-117 at Howrah near Kolkata, India.A protest against CitizenshipAct is increasing.#FreeIoK #KashmirGenocide #KashmirBleeds #KillerModhi #HitlerModhi #CitizenshipAct#DeltaFoxtrot#TeamPakistanStrategicForum pic.twitter.com/8zIaEhi9kz
— Pakistan Strategic Forum (@ForumStrategic) December 15, 2019 https://platform.twitter.com/widgets.jsProtests against controversial citizenship law in India If minorities and states cannot get citizenship, let freedom be one nation cannot bear another nation's right to live is the right of all.#IndianStatesWantFreedom @majorgauravarya @narendramodi #CitizenshipAmendmentAct pic.twitter.com/7l1JBMS6sT
— Mohammad Ahsan Kaleem (@Mohamma75519811) December 14, 2019 https://platform.twitter.com/widgets.jsProtests are clashing with police.
Modi disintegrating India into pieces as voilent protests have been reported from accross the country.#IndianStatesWantFreedom #ModiStateTerrorismInKashmir pic.twitter.com/gM1PIzFQtT
— Ihsan Ktk (@IhsanKt00008448) December 14, 2019 https://platform.twitter.com/widgets.jsAl Jazeera states the epicenter of the unrest is based in the northeastern state of Assam.
Thread of Protests all over India against #CitizenAmendmentBill2019 #CitizenshipBill#CABProtest 1st -Assam (1/4) P.S : These vms are via SOCIAL MEDIA and so I cannot claim to be 100% accurate about the place and date. pic.twitter.com/Jx4ZgoSxA0
— DConquered (@DConquered) December 11, 2019 https://platform.twitter.com/widgets.jsThe death toll is now at six, including four protests shot by police. About 85 people have been arrested and 2,000 taken into custody by Assam Police in the last several days.
Protesters set buses on fire at New Friends Colony in New Delhi.#CitizenshipAmendmentAct More on NDTV 24x7 and https://t.co/Fbzw6mR9Q5 pic.twitter.com/rqa3s5faBX
— NDTV (@ndtv) December 15, 2019 https://platform.twitter.com/widgets.jsViolent protests have spread to the neighboring state of West Bengal, protesters there have set fire to piles of tires, blocked highways, and torched vehicles.
#CitizenshipAmendmentAct #CitizenshipAmendmentBill #india #hindu #CitizenshipBill Before u protest watch this video. CAB protestors are different from these terrorists... https://t.co/7YzfUxiQob Another video - pic.twitter.com/SqJfILw7aS
— Sujith Kumar Palani ™️ (@MangoGuySujit) December 15, 2019 https://platform.twitter.com/widgets.jsThis is our India. This is the way to protest 😑😑😑#IslieNRC #Nfc #burningDelhi pic.twitter.com/GP17yvrDBm
— VISHAL THAKUR (@vishal16309) December 15, 2019 https://platform.twitter.com/widgets.jsRiot police were deployed to several eastern states on Sunday.
The Modi government had to of known of the social ramifications of passing the new law. Perhaps, it's a perfect distraction from the economic slowdown in the country. Or maybe, if the unrest persists, it could be used by the government to scapegoat the country waning economy.
Tyler Durden Sun, 12/15/2019 - 11:50 Tags Social Issues War ConflictRarely Has Failure Been Celebrated So Much
Authored by Sven Henrich via NorthmanTrader.com,
Rarely has failure been celebrated so much. But it is of little wonder, after all as all asset classes rose in 2019 in spite of slowing growth and flat to declining earnings. In religious debates the question is often asked: Why is there something instead of nothing? In financial markets the corollary question may be easier to answer: Why are markets higher on nothing? The answer of course being primarily: Central bank liquidity.
We’ve discussed the unholy alliance and central bankers being trapped at length, but there is a much more sinister truth lurking beneath, one of system failure suggesting things are not anywhere near as rosy as they may appear.
Indeed, the evidence increasingly suggests the Fed, desperate to fix a leak in the hull, is lightening the whole ship on fire in the process by blowing a historic asset bubble setting markets up to fail and on course for a massive reversion.
Why system failure?
Because 2019 has revealed a fundamental truth: Central banks can’t extract themselves from the monstrosity they have created and made markets dependent upon.
2018 was the only year since the financial crisis that central banks reduced liquidity on a net basis and it blew up in everybody’s face:
All previous moves to neutral resulted in more intervention with the most aggressive move occurring on the heels of the 2015/2016 earnings recession.
In 2018 the Fed moved to finally reduce the size of its balance sheet. It failed miserably. In fact the sequence of communications and actions by the Fed in the past year reveals another fundamental truth: Nothing the Fed says can be trusted, none of their communications have any predictive meaning whatsoever.:
I’ll give you a basic timeline:
July 11, 2018, the St Louis Fed gives everyone a primer on Fed balance sheet reduction:“The Fed has always viewed the remaining increase as temporary, with an eye toward shrinking, or “unwinding,” the balance sheet once economic recovery was complete. The Fed’s long-term plan was to gradually end both policies: aka, normalizing monetary policy.”
Oh yea, normalization, unwinding. Fighting words. But that’s what they promised all along.
The fighting words lasted until mid December 2018.
December 19, 2018: “The Fed currently is allowing $50 billion a month to run off the balance sheet, which is largely a portfolio of bonds the central bank purchased to stimulate the economy during and after the financial crisis. Powell said the process is going well. “I think that the runoff of the balance sheet has been smooth and has served its purpose,” he said during a news conference. “I don’t see us changing that.”
Ha ha. Markets were collapsing and only a few days later Powell switched course:
January 4, 2019: “We don’t believe that our issuance is an important part of the story of the market turbulence that began in the fourth quarter of last year. But, I’ll say again, if we reached a different conclusion, we wouldn’t hesitate to make a change,” he said. “If we came to the view that the balance sheet normalization plan — or any other aspect of normalization — was part of the problem, we wouldn’t hesitate to make a change.”
Suddenly he’s flexible. This is what markets wanted to hear, an admittance that the Fed’s normalization was causing “market turbulence” and stocks soared over 3.5% in just one day on that statement and it marked the beginning of Jay Powell being the market bottom trigger throughout all of 2019.
In March a further rally was prompted when the Fed announced it would end the balance sheet run-off.
March 8, 2019: “The Committee is now well along in our discussions of a plan to conclude balance sheet runoff later this year. Once balance sheet runoff ends, we may, if appropriate, hold the size of the balance sheet constant for a time to allow reserves to very gradually decline to the desired level as other liabilities, such as currency, increase.”
We’ll end QT and then keep the balance sheet constant for a time. Sure. But that’s what markets wanted to hear, and this is what markets got.
Then it was the rate cut carrots that kept markets propelling higher, and this carrot was brought forth every single time markets got in trouble, in May and in August, but then something odd happened. The actual rate cuts announcements were sold. Both the July and September rate cuts were sold prompting the need for ever more aggressive actions and successively more so.
The trigger? The September 16 overnight funding crisis which prompted overnight rates to spike dramatically forcing the Fed to intervene. The leak in the hull.
And now watch the communications and actions, first it was “temporary”, then morphing into ever more aggressive course of actions:
September 20, 2019: ‘The Federal Reserve will keep pumping cash into a vital but obscure corner of U.S. financial markets in coming weeks.
The New York Federal Reserve Bank, which handles the central bank’s interactions with financial markets, said Friday that it will offer daily repurchase, or “repo,” operations of at least $75 billion through Oct. 10. The aim is to maintain the Fed’s key policy rate within its target range. Officials say this week’s spike in rates is not a precursor of the type of underlying troubles that preceded the 2008 market meltdown. The Fed began conducting these operations to calm money markets. Rates on short-term repo agreements had briefly spiked to nearly 10% earlier this week as financial firms scrambled to find short-term funding.”
To calm markets. It didn’t last long. More action was required and in October the Fed went wild:
October 8, 2019: “Powell says the Fed will start expanding its balance sheet ‘soon’ in response to funding issues. “This is not QE. In no sense is this QE”.
Sure.
October 11, 2019: “The Federal Reserve is poised to begin at least a six-month operation to buy about $60bn of Treasury bills per month, as the US central bank seeks to ease cash shortages that caused a recent spike in the overnight cost of borrowing.The announcement on Friday sent three-month bill yields sharply lower, dropping from a high of 1.7 per cent to a low of 1.62 per cent. The size of the operation shocked Wall Street analysts who had expected the central bank to be more conservative.”
October 23, 2019: The Fed is sharply increasing the amount of help it is providing to the financial system. The New York Fed announced it is increasing its temporary overnight repo operations to $120 billion a day from the current $75 billion.
Temporary. Right. It’s so temporary we’ll increase repo by 60%. But why stop there? Even this is not enough apparently. The unholy alliance strikes again. The same week the Trump administration announces a phase one trade deal the Fed announces even more liquidity to come.
December 13, 2019: Fed boosts plan to inject billions into the US economy. The central bank lifted its limit for operations scheduled between December 31 and January 2 to $150 billion from $120 billion, according to a release.
Let’s be crystal here: These actions announced in October changed market dynamics entirely. Volatility was crushed and markets went on a one way street to new highs. The banking sector, having failed to break out of its trading range all year suddenly managed to explode to the upside and disconnecting from the previous yield relationship in the process:
This rally in 2019 and in Q4 in particular is entirely the product of liquidity injections in the forms of rate cuts and balance sheet expansions.
It’s not the economy stupid. It’s the central bank balance sheets...
It’s not based on economic reality, it’s not based on earnings growth, it’s not even based on a trade deal that is opaque and ill-defined without details.
And because of it markets keep disconnecting ever farther from an economic basis. In fact on an economic basis markets have reached record levels not seen since the year 2000. Party like it’s 1999:
The aggregate US market closed at $32 trillion market cap for the first time ever or approximately 149% market cap/GDP. Most notable this valuation milestone was reached amid flat to declining earnings growth and slowing economic growth. pic.twitter.com/PEb4BY0plP
— Sven Henrich (@NorthmanTrader) December 14, 2019 https://platform.twitter.com/widgets.jsMarket cap to GDP is now overtly flirting with the 150% level last seen in 1999:
Some will say that’s fine because there are now more international sales reflected in S&P companies. Fine if you want to make that argument, but you have to account for several factors: One is that growth in international is a flat as a pancake and keeps slowing. This week the Bundesbank reduced German GDP growth outlook to 0.6% for 2020 and 1.6% for 2021. The OECD has Japan’s GDP growth outlook pegged at 0.6% for 2020 and 0.7% for 2020.
And the ECB has Europe on a forever 1.x% for years to come:
Lagarde introduces the GDP and inflation outlook for the euro area pic.twitter.com/69TZRfj4IZ
— European Central Bank (@ecb) December 12, 2019 https://platform.twitter.com/widgets.jsSo if you want to justify markets trading at a 150% market cap to GDP based on international sales go right ahead, but don’t justify it based on solid expanding growth. It’s not there and hence that justification would be a fantasy.
In keeping with the year 2000 theme note we are seeing some of the same internal distortions we saw during the tech bubble as 5 tech components now represent 16.5% of the S&P 500 relative to the rest of the market, same as in 1999:
We’re ending 2019 with key market cap components such as $MSFT and $AAPL massively overbought, technically disconnected, extended and over-owned. These types of extremes have lead to coming pain and reconnects. Take $AAPL as an example seemingly repeating a previous pattern extending far above its quarterly Bollinger band far above its quarterly 15MA
To the extent these moves are driven by global liquidity the Fed may well then have set up the entire market for a massive failure.
In Q4 the Fed has been forced to set on a path of ever increasing liquidity injections with its balance sheet now destined to reach record highs as early as perhaps as the first quarter of 2020.
Be clear: The Fed went from autopilot normalization, to pausing, to increasing temporarily, to increase more and increase ever more. In process they unleashed a massive melt-up in markets stretching everything to extremes. Again.
No, 2019 was a giant system failure. Central banks can’t reduce liquidity or markets fall apart and the process of never letting markets correct is producing valuations across the entire economic spectrum worse than even 2000 as household wealth (concentrated among the top 10%) relative to GDP has reached never before seen levels:
And yet all new market highs are following a familiar historic script:
All new highs are coming on negative divergences. $SPX has reached its trend line apex. The yield curve went from inversion to steepening a process that has preceded recessions every time in the past 50 years. And when these conditions take place we can see that the geometric value line index ($XVG) shows significantly lower readings compared with previous highs as we do now as $XVG, despite new market highs, remains far below the readings of 2018.
All of these conditions suggest markets remain at sizable reversion risk. At the end of December 2018 I talked about bullish technical reconnects to take place in 2019 as a result of deeply oversold conditions. Now a year later we’re seeing some of the same conditions, but to the upside suggesting that we will witness corrective reconnect activity into 2020.
As markets are now dependent on ever expanding liquidity any pausing or reduction in liquidity will have the practical effect of tightening. Without a substantive growth basis to support these historic economic disconnects market reversion risk is increasing by the week.
But be clear: The liquidity avalanche will continue into year end, and, until something breaks, the upside train can continue despite overbought conditions. What’s it mean for investors? I suppose if long stay long until wrong, from our perch it’s sell the rips and buy the dips until the dynamic changes, although the Sell case has not been disproven as of yet as price has not breached the sell zone indicated.
The Fed has now indicated it will not cut rates further in 2020. Based on their track record in the past year such a proclamation has no meaning. Indeed both Powell and new ECB president Lagarde cemented the system failure of 2019 this month: Powell indicated no rate hikes ever unless inflation exceeds either the Fed’s inflation target (which they’ve failed to reach in over 10 years). According to how both the Fed and the ECB measure inflation this seems to imply no rate hikes ever as Lagarde implied no end of QE until just before the ECB will raise rates. So QE forever?
To summarize: We went from “normalization” in the summer for 2018, to the Fed becoming the most interventionist central bank in the world in net liquidity additions with its balance sheet looking to reach record highs in 2020. Temporary repo has become permanent and so have balance sheet expansions and low to negative rates across the globe.
On the heels of the financial crisis we entered the decade with trillion dollar deficits, dropping rates and expanding central bank balance sheets and now we exit the decade the same way with absolutely no conceivable path or plan to ever raise rates again or reduce artificial central bank liquidity. There is no path or plan.
And that is the system failure in a nutshell and it has produced historic distortions in markets. For now investors can party like it’s 1999, but have a plan for when the music stops for, as historic suggests, it can stop suddenly. In 2000 it stopped in March.
* * *
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Tyler Durden Sun, 12/15/2019 - 11:25 Tags Business Finance
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