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What You Ought To Know About The FED’s Plan To Collapse The Economy

Don’t get me wrong, I was always against the QE. However, now that they have got the patient thoroughly addicted to credit any attempt to withdraw it would have severe negative consequences on our financial markets and the overall US Economy. Right on schedule I might add. 

In a blunt comment, Charles Evans president of the Chicago FED made it as clear as one could that the FED will continue to cut its QE $10 Billion per meeting for the foreseeable future. While I applaud this step, the consequences of their action will have a devastating effect on our financial markets. As I illustrated a number of times before, the FED is a reactionary force that is always behind a ball. It will not be different this time around.

Now that they have distorted most of the markets through infusing over $1 Trillion in credit, taking away the proverbial punch ball would be identical to getting a strung out heroin addict to quit cold turkey.  Rest assured, a massive seizure for the US Economy and financial markets is in order. Our timing work confirms the same. 

z14

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What You Ought To Know About The FED’s Plan To Collapse The Economy Google

COLUMBUS, Georgia (Reuters) – The Federal Reserve will continue to trim its monthly asset purchases at a $10 billion pace, an influential Fed official said on Monday as he also detailed how the U.S. central bank might rewrite its plan for keeping interest rates low.

The blunt comments from Charles Evans, president of the Chicago Fed and among the most dovish U.S. policymakers, were perhaps the strongest indication yet that the Fed will keep cutting stimulus at each upcoming meeting, including one next week.

“We’re at a point now where we’re … moving away from purchasing assets, we’re tapering, and our balance sheet continues to be very large but we’re not going to add to it as much,” Evans told a gathering at Columbus State University.

“The last two meetings we reduced the purchase flow rate by $10 billion and we’re going to continue to do that,” he said flatly.

The Fed, responding to a broad drop in unemployment and a pick-up in economic growth, is now buying $65 billion in bonds each month to reduce longer-term borrowing costs and stimulate investment and hiring. The stimulus program started in 2012 and continued until December 2013, at a $85-billion pace.

With the bond buying winding down, the Fed’s more immediate challenge is re-writing a pledge to keep rates near zero until well after the unemployment rate falls below 6.5 percent. Because joblessness has fallen quickly to 6.7 percent, policymakers are debating how to adjust that pledge without giving the impression they will tighten policy any time soon.

The Fed could make the delicate change at a policy-setting meeting March 18-19, which will be Janet Yellen’s first as chair.

Evans is credited with conceiving the idea of tying interest rates to economic indicators such as unemployment and inflation. On Monday, he said the new guidance should reinforce that rates will stay low for “quite some time” and that much will depend on continued improvement in the labor market.

“It ought to be something that captures well the fact that (rates are) going to continue to be low well past the time that we change the language,” Evans told reporters after giving a speech.

“Tick through the different labor market indicators: payroll employment, unemployment, labor force, vacancies, job openings and things like that,” he continued. “We somehow want to capture that general improvement in labor market indicators, but that is hard.”

Evans added that the Fed will be accommodative “for really quite some time,” and added that he expects the first rate rise to come around early 2016.

Looking deeper into the future, he said the Fed would not have to sell the mortgage-based bonds it is now buying up, but could instead let them mature – an idea endorsed by other Fed policymakers.

After five years of purchases in the wake of the 2007-2009 financial crisis and recession, the central bank’s balance sheet has swollen to more than $4 trillion.

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Massive Inflation About To Hit?

In your dreams…. As CNBC Report below indicates “Perfect Storm For Inflation Could Rock The Market”. It shocks me how incompetent our financial media is. This should not come as a surprise since a pretty face, fake boobs and a good quoting/teleprompter reading skills seem to be the only job requirements.

We are already having massive inflation you mindless monkeys of CNBC. However, instead showing up in wages, goods or commodities it is showing up in the stock market and the real estate market. The FEDs have been pumping a tremendous amount of credit into our financial system since 2008, hoping it would spur inflation in every sector of the economy. To their surprise, that didn’t work. Instead, the money flowed towards the stock market and other speculative endeavors. Blowing up massive speculative bubbles in the process.

When the stock market continues its bear market of 2014-2017 you should see the evidence of the underlying deflation instead of inflation. Yes, we will eventually have massive inflation, but that day is way off in the future. First, a deflationary collapse is a must.     

zimbabwe-money

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Massive Inflation About To Hit?  Google

Perfect storm for inflation could rock the market

As investors cheer the good news for job growth that came with the February employment report, they may be overlooking a troublesome dynamic: A tightening jobs market, in combination with rising commodity costs, could stir inflation, cutting into corporate profits and forcing the Federal Reserve to become more hawkish.

On Friday, the nonfarm payrolls measure showed an increase of 175,000 jobs in February, well above the weather-dampened expectations. And though the unemployment rate ticked up to 6.7 percent from 6.6, the broadest measure of unemployment, the U-6, dropped slightly from 12.7 percent to 12.6 percent—the lowest reading since it was at that level in November 2008.

Since the U-6 counts all unemployed workers, plus marginally attached workers and workers employed part-time for economic reasons, it could be a better measure of the remaining supply in the labor market. The decrease in the U-6 could thus indicate that the “slack” in the labor force—which allows companies to hire more workers without paying more—is decreasing. Once the slack is gone, wage inflation tends to follow.

“Measuring slack is not an easy thing, but an unemployment rate of 6.7 tells you there’s a lot less slack than there used to be,” said Peter Boockvar, chief market analyst at the Lindsey Group. “The idea that all of the people who dropped out of the labor market will magically come back just doesn’t make sense—particularly for the low-end worker who is now enjoying a lot of government benefits. Therefore, the labor market is getting tighter than the Fed thinks.”

As a result, “the inflation trend is going to start moving higher. It’s not a single event that will happen—it’s a process. But it’s definitely worth watching,” he said.

(Read more: Jobs report signals higher interest rates ahead)

The other factor that could contribute to this trend is the recent rise in commodity prices. The CRB commodity index, a broad measure of prices, has risen some 10 percent this year. It’s at its highest level in over a year, due to tough agriculture conditions and winter weather issues that have sharply increased the prices of many commodities. More recently, the crisis in Ukraine seems to have boosted prices of commodities such as wheat and corn.

“Increasing commodity prices will drive a rise in inflation,” predicted Kathy Lien, managing director of FX strategy at BK Asset Management. “It’s a natural reaction to the recent growth as well as the geopolitical uncertainly that is happening in the global economy.”

A broad measure of inflation for the month of February will come on Friday, when PPI-FD is released. This recently revamped version of the Producer Price Index tracks changes in the “final demand” prices paid to producers for goods and services. And because it looks at inflation being experienced by producers, rather than consumers, it is considered an early gauge of the extent to which inflation will be experienced by consumers.

The consensus estimate is for the PPI to show a 0.2 percent month-over-month percentage change for February, while the PPI with food and energy stripped out is expected to come in at just 0.1 percent, according to FactSet.

“Even with the change in methodology, you’re going to start to see the commodity prices moves in these numbers, potentially,” Boockvar said.

Higher commodity prices and faster-than-expected wage growth are actually the two risk factors that legendary bull Jeremy Siegel pointed out in an interview Tuesday in CNBC’s “Futures Now.” He warned that the labor market “could be tighter than we think,” which will create a serious dent in corporate earnings, given that companies will need to pay more to their workers. And the Wharton professor cautioned that if commodity prices continue to rise, then the Fed will need to rethink its dovish activities.

(Read more: Siegel: I’m a bull, but these two things worry me)

After all, the continuation of the Fed’s shrinking quantitative easing program and maintenance of its ultra-low federal funds target rate are premised on low inflation. One major concern about stimulative policies is always that they could spur inflation if used irresponsibly.

In fact, if inflation rises to 2 percent and the headline unemployment rate drops by just another 0.2 percent (to 6.5), then both parts of the Fed’s quantitative guidance regarding what will make the central bank raise the federal funds rate target will be satisfied. And a higher federal funds rate will likely mean higher bond yields across the board, potentially making equities less attractive by comparison.

“The broad consensus is that there’s no inflation. But if there’s one thing that mucks up Fed policy, it’s a faster-than-expected uptick in inflation,” Boockvar said. “If that happens, the Fed isn’t just behind the curve—they’re behind 10 curves.”

That’s why Brian Stutland of the Stutland Volatility Group will be watching PPI so closely, especially as it relates to gold, which is considered an inflation hedge.

“If you see the PPI number start to creep up, that’s maybe the only reason I start to become more bullish about gold,” Stutland said.

However, he adds that if the measure comes in low, as he expects, “that’s going to give me more confidence that the stock market is the place to invest right now.”

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The Impact Of 7 Million Foreclosures

Believe it or not, but since 2006 top, the US Real Estate market plowed through 7 Million Foreclosures. So much for that real estate recovery…aka…dead cat bounce.  

Based on my calculations, that number represents 10-15% of American households who have a very bad taste in their mouth when it comes to real estate and “owning their own home”. The American real estate psyche is definitely changing.  That is one of the reasons behind why you are seeing the home ownership rate dropping like a rock. Given today’s rebound in prices, unaffordability levels and investor speculation frenzy, there is only one direction this real estate market can go. To see when our Real Estate Market will collapse again, please Click Here to check out our real estate report. 

7 million foreclosure-completions

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The Impact Of 7 Million Foreclosures  Google

There is little bragging that goes on when a poor financial decision is made.  You rarely hear about the person that invested a sizeable portion of their retirement account into AOL at the peak or going all in on Enron.  The same applies to housing.  We are seeing chatter reflect that of 2005, 2006, and 2007.  Justifications are different but some people seem to feel they bought at the “perfect” time.  Just for the sake of curiosity I ran the numbers of total foreclosures since the crisis began with the housing peak in 2006.  In total, 7 million Americans have been served with the bitter taste of foreclosure.  On the flipside, since we know that roughly 30 percent of all purchases have gone to investors and Wall Street, we can say that probably over this same period 2,000,000 homes are now in the hands of some sort of investors (i.e., big money, small money, foreign money, and second homes).  You also have to wonder how many of these people that lost their homes in foreclosure are itching to get back on the horse and buy again.  Credit standards are fairly tough for getting a loan today even though rates are low.  And those with the credit and income are battling it out in flippervilles where “all cash” is dominating the scene.  There are likely some permanent structural changes that are a result of a stunning 7 million foreclosures.

 

The 7 million club

From reading the mainstream press all you hear are glorious signs of housing resurrection!  Come one come all into the house of real estate where the almighty Fed will allow no harm to occur.  Just sign and pray and the next thing you know you’ll be the next Donald Trump.  The flipping, rehabbing, and housing shows are once again filling the space on a cable station near you.  The perception of the Fed being this almighty protector of housing makes a bit of sense but where was the Fed in 2007?  Last time I checked the Fed came into existence in 1913, over 100 years ago.  Frankly, the Fed on their list of priorities has: to keep member banks afloat, keep financials steady, a deep attempt to protect the bond market, and more importantly keep interest rates low on our massive $17+ trillion national debt that will never be paid back.  Housing is low on the list of priorities especially with many of the foreclosures now shifting to “stronger” hands.

You wouldn’t know it but since the peak in 2006 we have witnessed 7 million foreclosures:

foreclosure completions

Even in 2013 we had 1.4 million properties with notice of defaults, scheduled auctions, and full on REOs taken on.  Early in the crisis these stories were common since they were a novelty to the press.  Now however, many of these properties are shifting over to large investors pushing inventory up.  A clear consequence of this is a large pool of potential buyers that are unable to buy.  7 million households now have a marred credit history.  In many hot metro areas given the 2013 jump in prices to get the best rates you will need good credit.  Contrary to nonsense being spouted you actually need a solid income to compete in any high priced metro area.  Plus, we are assuming this foreclosed club is even interested in buying again.  Many are opting to go the renting route.

The assumption is that the market is being driven up organically by regular households and that is not the case:

first time home buyer

Source:  Wells Fargo

The number of first time buyers is pathetic because household formation is weak and many young Americans are living at home with mom and dad.  Forget about buying, they are having a tough timepaying higher rents to the new feudal landlords.  You would expect with the rapid rise in prices that existing home sales are off the charts but they are not.  For most people in the perpetual serf demographic, a mortgage is necessary to buy but look at requests for mortgages via applications:

mortgage apps for purchase

We are back to levels last seen nearly 20 years ago!  Only difference is that we have 50,000,000 more people today walking the streets of the U.S. of A. than we did back then.  Since access to middle class living is getting tougher thanks to weak income growth, more people are opting to rent:

rentals vs households

We continue to add a large number of renting households.  For the 7 million foreclosed souls, credit destruction might force their hand but many might have gotten a healthy vaccine from the “real estate only goes up” mantra.  We have new folks taking their chance at housing roulette with placing a massive bet on red and many diving in with ARMs to stretch their budgets to the fullest potential.  Some luck out but only if their timing aligns with bigger macro events.  They then back fill the narrative to justify their behavior.  Confirmation bias!  It might come as a shock that many things that happen to you, good or bad may have nothing personal to do with your decisions.  I’m sure we have some aspiring Trumps in Greece or Liberia but the environment isn’t setup for mad real estate speculation.  You also had many that escaped the last crash by tiniest of margins.  Say someone that made that last fabulous flip in Compton, Pacoima, Palmdale, Las Vegas, or any market that is eons away from the peak.  Where they masterful timers?  Unlikely.  They lucked out.  The massive bubble forgave their sins.  But it doesn’t forgive all.  The beauty of this QE juiced market is the Fed has turned us all into speculators whether we admit it or not.  By default you are playing this game whether you want to or not.  Cautious and have your money in a safe bank or CD?  Inflation is eroding your purchasing power.  Thinking of buying?  This might be a turning point:

us real prices

Gains are stalling out largely because investors are slowly stepping back and households are still trying to gain their footing in this new economy.  Those 7 million foreclosures are massive and those people walk amongst us.  It is unlikely that we will hear their horror stories in mass.  Even in the crash days of 2007 through 2012 (the trough) you were hard pressed to see people discuss this openly.  Yet the confirmation bias going on right now is frothy and does remind us of 2006 and 2007.

Want to see some of this insanity in action?  A commenter pointed this gem out:

la home

2125 VALLEJO St

Los Angeles, CA 90031

4 beds, 3 baths (listed at 3,500 square feet)

The house is currently listed at $598,000.  But let us look at the sales and listing history here:

sales history

They actually tried selling this place for $695,000!  The last sale price was $219,000 in 2013 which tells us some major rehab work went on here.  But $476,000 worth of work?  Come on now.  Even the sellers don’t believe this and that is why they have dropped the price nearly $100,000.  Thankfully Google gives us a bit of a glimmer of the home pre-makeup and Photoshop filters:

google streetview

People are pulling figures out of thin air here especially with that $695,000.  The schools in this area are sub-par so factor in tens of thousands of dollars to send the kid(s) to private school.  This home qualifies for a Real Home of Genius Award.  In the game of musical chairs, there can only be one winner.  It is about timing.  There are many signs showing a tipping point is occurring.  Unlike stocks, real estate turns around like a large cargo ship, slowly and surely.

While we may not hear much on those 7 million foreclosures, rest assured that many Americans are no longer in the camp that believes the Fed can do everything and anything to keep prices up.  For the big players, real estate is merely one tiny piece of their portfolio like owning a Rembrandt or fine jewelry.  Most of their wealth is in stocks and bonds.  Ironically Wall Street owning rental property is going to put them face to face with the proletariat and will soon come to realize that you can only raise rents based on local area incomes.  Try cash-flowing a property in Santa Monica or Pasadena at these rates.  Even flippers are starting to enter pricing purgatory one bad flip at a time.  At least someone will get a new granite countertop sarcophagus home built in the 1800s with hardwoods floors!

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Time To Buy Emerging Markets?

Cheap is a relative measure. Yet, when compared to out of this world US valuations, emerging markets outlined below are indeed cheap.  

Is it time to load up? 

Not so fast. There are a few things we have to consider here. First, as the US market enters its bear market of 2014-2017, it is highly probable that emerging markets will follow the US market and get even cheaper. While the divergence is possible, based on the past, it is unlikely. Second, just because the market is cheap doesn’t mean it can’t go down further for a prolonged period of time. We  have to wait for a technical market reversal pattern before committing capital.

In conclusion, this would be a great time to start following emerging markets, waiting for a trend reversal. Once the US Market sells off and once the bear trend in emerging markets shifts, such markets will present patient investors with an amazing buying opportunity.  

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Time To Buy Emerging Markets? Google

emerging markets

These markets are ‘mind-boggling’ cheap

Given events in Argentina, Venezuela, Turkey, and Ukraine, emerging markets are looking more like an emerging threat rather than an emerging opportunity.

However, Larry McDonald, Senior Director at Newedge, says emerging markets are a great place to find bargain investments. The usually bearish author of “Colossal Failure of Judgment” has two reasons why he thinks emerging markets are an attractive buy.

1. Seventeen weeks of outflows from emerging markets

During the first two months of 2014, $11.3 billion have left emerging market equity and bond exchange traded funds, reflecting the overall sentiment of worldwide investors. McDonald sees this as mirroring similar outflows in developed markets that subsequently rebounded significantly.

“What we’ve seen at the great market bottoms – in the United States, 2009; Europe, 2012 – [is] a surge in outflows,” says McDonald. “What’s happening now in emerging markets is historic and it’s right on proportion with the 2012 bottom in Europe and 2009 bottom in the United States.”

2. Lowest valuations for emerging markets since 9/11

Though emerging markets are considered relatively risky, particularly in this environment, McDonald believes they are being over-discounted. He believes investors worried about buying emerging market stocks should heed the words of Seth Karman, founder of hedge fund Blaupost Group, who once said, “Buying right never feels good.”

“If you look at the emerging markets now, they are trading at a great valuation with a lot of with a lot of risks in the world,” says McDonald. “On a price-to-book [basis], they’re at 1.3 times book [value]. Developed markets like Europe and the United States are well above 2.2 to 2.3 times book. But, within the emerging markets, countries like Russia are trading at half [the value] of book and that’s too cheap to pass up.”

Emerging Markets Price-to-Book
Indonesia 3.2x
India 2.6x
South Africa 2.6x
China 1.5x
Turkey 1.5x
Brazil 1.2x
Greece 1.0x
Russia 0.5

While McDonald acknowledges that fear of instability in places like Russia given the current political climate may be a reason for the deep discount to its stocks, he believes that’s overdone. As example, he points to the Market Vector Russia ETF (the RSX).

“The RSX fund has 32 million shares outstanding,” says McDonald. “On Monday, 25 million traded. That’s the type of thing you see when a biotech company misses earnings or has a failed trial. This isn’t a biotech – this is a country’s stocks – which is mind-boggling. So, I don’t think there’s anybody left to sell these names.”

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Crimea War Conundrum

russia and usa

The war of words, sanctions and “My Di#$ Is Bigger Than Your Di*&” continues to escalate.

USA TO RUSSIA:

  • GET OUT OF THE UKRAINE OR WE WILL SANCTION YOUR ASS. – Almost Everyone. 

RUSSIA TO USA: 

  • U.S. SANCTIONS AGAINST MOSCOW WOULD “HIT THE UNITED STATES LIKE A BOOMERANG” – Russia’s Foreign Minister Lavrov. Keep in mind, Russian lawmakers are already trying to push a bill that would confiscate Western assets. 

In related news, Western Media is going into overdrive with the following premise…

 “Nobody’s scared of America anymore”.  

Call me a bunny hugger, but why should anyone be “Scared of America”? I would much rather be respected than feared. With extremist on both sides of the issue driving our foreign policy, this is not going to end well. 

Oh well, at least the stock market is up. Oh wait..

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 Crimea War Conundrum  Google

With heavily armed Russian-speaking troops patrolling the streets, the Crimean Parliament voted Thursday to join Russia and put its decision to a referendum. The all-but-inevitable annexation of Crimea is moving forward, despite protests, warnings and threats from the U.S. and its allies.

We have entered a new Cold War.

The clash between Vladimir Putin’s Russia and the forces arrayed in support of Ukraine’s independence-minded leaders has crashed the vaunted “reset,” ending hopes that Moscow and the West would smooth relations and work hand-in-hand toward common objectives.

Frida Ghitis

Frida Ghitis

Nobody can predict with certainty how this conflict will end. But the world can already glean important lessons. Unfortunately, most of those lessons are cause for deep concern. Here are five clear messages from the crisis in Ukraine.

1. Nobody’s scared of America, but American and European values hold strong appeal.

Lest we forget, this all started over a move by the now-deposed Ukrainian president, Viktor Yanukovych, who broke his promise to sign a partnership agreement with the European Union in favor of closer ties with Moscow. Ukrainians were enraged, not just because they want more trade with Europe but because they have seen what Western standards can bring to a society.

They were fed up with corruption, authoritarianism and stagnation. They wanted their country to be free of Moscow’s interference, and many gave up their lives to fight for an ideal of stronger democratic institutions, rule of law and fair play.

As strong as the pull of these values is, their principal advocate, the U.S., has lost much of its ability to stare down its foes in support of those who want to institute democratic principles in their countries. We saw it when President Barack Obama declared — years ago — that Syrian dictator Bashar al-Assad must step down. We saw it when then-Secretary of State Hillary Clinton was pelted with tomatoes in Egypt. And we saw it in Ukraine, when Obama warnedPutin to respect Ukraine’s territorial integrity, only to see the Russians capture Ukraine’s Crimean Peninsula. America does not intimidate.

Its loss of influence means strongmen and dictators have a freer hand.

2. You don’t mess with Putin without paying a price.

Even if Moscow were to relinquish all control of Ukrainian territory today, Putin has already achieved a main goal. He has sent a clear message to countries that were once part of the Soviet Union — and perhaps to the USSR’s former Eastern European satellites — that they cannot defy his wishes without paying a painful price. In that sense, Putin has won.

A top Putin aide warned last summer that Ukraine was risking “suicide” if it dared to defy Moscow. Now we know this was no bluff. Putin is serious about protecting Moscow’s sphere of influence. It’s not clear how closely he wants to control what are supposed to be independent countries.

3. If you are a vulnerable state, you may regret surrendering nuclear weapons.

This may be the most dangerous of all the lessons from this crisis. Ukraine had a sizable nuclear arsenal at the end of the Cold War, but it agreed to give it up in exchange for security guarantees. In the 1994 Budapest Memorandum, Ukraine committed itself to dismantling the world’s third-largest nuclear arsenal. Russia, in exchange, vowed to respect Ukraine’s borders and its independence. Now, Russia has clearly violated those commitments. If Ukraine still had its atomic weapons, Moscow would have thought twice before seizing parts of Ukraine.

4. Don’t expect support from all international peace activists (unless the U.S. invades).

To liberal activists in Ukraine and Russia, the reaction from international peace movement must be a hard pill to swallow. Parts of Ukraine have been captured at the point of a gun by a regime that actively suppresses dissent. When liberal Russians protested, police arrested hundreds of anti-war demonstrators.

While Russia’s invasion of Ukrainian territory and its harsh crackdown on local protests have been criticized by some human rights activists, the reaction among some prominent “peace” activists has been astonishing. Several have mimicked Putin’s line, blaming the U.S. for the crisis. Instead of taking a clear stance in support of a country with invading military forces on its soil, some so-called anti-war groups have taken the opportunity to dust off their anti-American vitriol.

A favorite line of discussion is whether Washington has any right to criticize Russia’s invasion of Ukrainian territory after the U.S. invaded Iraq, a country that was ruled by one of the world’s most brutal, genocidal dictators. However misguided America’s Iraq invasion, even drawing the comparison is an insult to Ukrainians.

Opinion: Putin’s Ukrainian endgame

5. The use of brute force to resolve conflicts is not a thing of the past.

One day, if history moves in the direction we all wish, countries will solve their disputes through diplomacy and negotiation. Sadly, that day has not arrived. John Kerry has expressed dismay at Putin’s “19th-century” behavior, but power politics, forcible border expansion and brazen aggression have not been relegated to the history books; witness events in places like Syria, the Central African Republic and now in Ukraine.

Those are the first five lessons. But allow me to offer a bonus, a work in progress that could join as No. 6: When the stakes grow high enough, the U.S. and Europe may rise to the challenge.

Western nations seemed caught off-guard by Putin’s “incredible act of aggression,” as Kerry termed it. Some of Putin’s gains (see No. 2) may be irreversible. But the U.S. and Europe have been shaken up by events, and they may yet send a message of their own, helping Kiev’s government succeed and prosper as it sets out to chart a future of its own and limiting Putin’s ability to replicate his acts of intimidation.

Kerry’s visit to Kiev was a powerful moment. His unvarnished message to Putin, if backed by action, was a respectable start. The U.S. would prefer to see this crisis resolved through negotiations, he declared, but if Russia chooses not to do so, Washington’s and its partners “will isolate Russia politically, diplomatically and economically.” Already the EU is offering Ukraine an aid package comparable to the one Putin used to lure it away. Secretary of Defense Chuck Hagel is boosting ties with Poland and the Baltic States, and economic sanctions are under discussion.

If Putin wants another Cold War, he has one.

 

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China To Russia: We Stand With You…..Suck It America

russia-china-investwithalex

The world is being divided in half as we speak. As my in depth report (coming out next week) will show it will be NATO Vs. Russia/China coalition. Today Chinese Foreign Ministry released the following statement. 

“China has consistently opposed the easy use of sanctions in international relations, or using sanctions as a threat.”

Later, Russia fought back with a statement of their own. Indicating that if sanctions are imposed they will turn to China as their primary ally and business partner. Further adding, “Western countries would largely be hurting themselves if they impose tougher sanctions.”

Who cares and why is any of this important?

As my next weeks ( Wednesday’s Report) report will show, this development will lead to an eventual war. Not in the Ukraine, but worldwide. This war will impact everyone. We are still many years away, but this is an initial development. My timing and mathematical work confirm the same.  I encourage you to visit us next Wednesday to read the report and to see how it will play out.  

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China To Russia: We Stand With You…..Suck It America  Google

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Chinese Companies Skidding Towards Default. What’s Next?

On March 4th, 2014 China experienced it’s first ever onshore default when Shanghai Chaori Solar Energy Science & Technology Co. failed to pay full interest on its bonds. Signaling two things. 1. Chinese government is no longer interested in bailing out (most) Chinese companies and 2. A lot more defaults to come. Here is where China is today. 

  • $21 Trillion Debt Mountain. Roughly the same size as the entire US Banking Sector. It took the US 220 years to get to that number, it took China just 5 years of explosive credit growth. 
  • $6 Trillion In Shadow Banking. Actually, no one knows how large this number is. I have read good data/reports putting this number at $10-15 Trillion range.  
  • Empty cities, shopping centers, massive speculative bubble in real estate, built out infrastructure, rising cost of labor and export driven economy. 

With massive debt burden, increasing borrowing costs and an upcoming bear market/recession in the US/Worldwide (2014-2017), shit is about to get real.  

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Chinese Companies Skidding Towards Default. What’s Next?  Google

skidding

China Heralding $1.5 Trillion Emerging Debt Wall: Credit Markets

A surge in interest rates and the worst currency rout since 2008 in developing nations from Russia to Brazil are inflating corporate borrowing costs as $1.5 trillion of obligations come due by the end of 2015.

Companies in the MSCI Emerging-Market Index (EEM) are facing the highest debt loads since 2009 as profit marginsnarrow to the least in four years, according to data compiled by Bloomberg. More than 36 percent of bonds and loans by Turkish companies will mature by 2015, while Chinese firms need to pay off $630 billion, or 29 percent, of their borrowings just as the country experiences its first-ever onshore corporate-bond default.

Even as higher rates help shrink trade deficits and stabilize currencies, they are damping emerging-market economic growth, eroding corporate profits and curbing bank lending. That’s increasing the cost to refinance debt for companies from Yasar Holding AS, the Turkish maker of Pinar dairy products and DYO paints, to Brazilian sugar and ethanol producer Grupo Virgolino de Oliveira SA.

“Tightening interest rates in a bad economic cycle exacerbates the stress,” Michael Shaoul, New York-based chairman and chief executive officer of Marketfield Asset Management LLC, which oversees $21 billion, said in a March 5 telephone interview. “If economic and credit conditions start to fall apart, then how can you refinance your existing bonds?”

Junk Bonds

That stress is already being reflected by a jump in bond yields. Investors demanded 166 basis points, or 1.66 percentage points, more to hold non-investment grade debt of developing-country companies than their global peers, Bloomberg data show. The premium jumped from 34 basis points a year earlier and reached a 16-month high of 172 basis points on Jan. 31.

In China, Shanghai Chaori Solar Energy Science & Technology Co. failed to pay full interest on its bonds, leading to the first default in the nation’s onshore bond market and signaling the government will back off its practice of bailing out companies with bad debt.

The maker of energy cells to convert sunlight into power is trying to sell some of its overseas solar plants to raise money to repay the debt, Vice President Liu Tielong said in an interview today at the company’s Shanghai headquarters.

Policy makers have reined in credit expansion, helping boost the yields on three-year AAA-rated corporate bonds to 6.26 percent in January, the highest since at least 2010, according data compiled by ChinaBond, the nation’s biggest debt clearing house.

Rate Increases

Russia’s central bank unexpectedly raised its benchmark interest rate 150 basis points to 7 percent on March 3, joining central banks in Brazil, Turkey, India and South Africa in raising borrowing costs to stem their currency declines this year. Brazil’s real has retreated 24 percent over the past two years, increasing their foreign debt payments in local currencies. Turkey’s lira, India’s rupee and Russia’s ruble each tumbled 18 percent.

Interest-rate increases may slow emerging-market economic growth to the weakest expansion since 2008, increasing the financial risks for banks and corporates, economists led by Dominic Wilson at Goldman Sachs Group Inc. wrote in a note on Feb. 19. Emerging-market economies grew 4.5 percent in 2013, the slowest since the 4.45 percent expansion during the 2008-2009 credit crisis, according to the International Monetary Fund.

‘Less Room’

Gross debt in companies in the MSCI emerging-market index amounted to 2.93 times earnings before interest, taxes, depreciation and amortization in February, up from 1.46 times in June 2009, Bloomberg data show. Profit margins declined to 7.81 percent from 8.34 percent in December and 10.35 in March 2011.

“We’ve moved into this environment where weaker growth in emerging markets, slower credit growth and compressed corporate margins give them less room to absorb higher costs,” Vanessa Barrett, a credit strategist at Morgan Stanley in London said in a phone interview on Feb. 6. “That certainly will challenge the debt servicing capabilities of emerging-market corporates.”

Morgan Stanley recommends its clients sell emerging-market bonds and currencies, predicting non-performing loans for Brazilian banks may increase to 5 percent from 3 percent.

Fitch Ratings Ltd. warned in January that almost 1 trillion rupees ($16.2 billion) of Indian bank loans are at risk of souring as companies’ ability to generate cash and service debt deteriorates.

Yasar Maturity

Turkish companies including Yasar, which owns everything from meat and dairy producers to fisheries businesses, and Dogan Yayin Holding AS, a media conglomerate, may have their credit outlook cut to “negative” after the lira weakened, Fitch said Feb. 14.

Yasar has $250 million of speculative-grade notes maturing in October 2015. More than 70 percent of Yasar’s debt is denominated in foreign currencies, while most of its revenue is generated in the lira, according to Fitch. Should the local currency decline further, Yasar’s net debt will rise beyond 4.5 times Ebitda, the upper limit for the B rating assigned by Fitch, the ratings firm said in a report on March 3. The company’s leverage was 4.4 times earnings in 2012.

The company’s 9.625 percent, dollar-denominated notes due next year were yielding 11.9 percent last month in trading on Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Virgolino de Oliveira

A telephone call to Yasar’s finance department wasn’t returned and Murat Dogu, vice president at Dogan responsible for finance and capital markets, didn’t respond to calls and e-mails seeking comment.

Bonds sold by Brazil’s Virgolino de Oliveira tumbled this year as Standard & Poor’s said lower sugar prices and higher interest rates may it more difficult to refinance its “sizable” short-term debt. The $300 million of debt due in 2018 fell to 56 cents on the dollar from 80 cents in November.

Virgolino is seeking financing in the international market and is getting “a very good response,” Chief Financial Officer Carlos Otto Laure said in a telephone interview on Feb. 28.

Companies in emerging markets went on a borrowing binge following the crisis five years ago as central banks cut rates to spur economic growth.

Private credit growth in each of China, Brazil and Hong Kong was more than 60 percent of their GDP since 2008. That’s second only to Ireland, at about 90 percent, among major countries tracked by Deutsche Bank AG.

Maturity Wall

Companies in the 20 largest developing countries have $808 billion debt maturing this year and another $645 billion coming due in 2015, Bloomberg data show.

Turkey has about $36 billion in debt and loans coming due. About 86 percent of the borrowings are denominated in foreign-currencies, making them more expensive as the lira’s value declines.

Russia’s companies need to pay off $142 billion in debt within two years, accounting for 25 percent of the total, Bloomberg data show.

Borrowing costs are still low compared with three years ago. Yields on dollar-denominated corporate bonds traded at 5.21 percent, down from a peak of 7.35 percent in October 2011, according to Bloomberg Emerging Market Corporate Bond Index.

Boom-to-Bust

“Higher refinancing cost alone is usually not sufficient to cause a ‘meltdown’,” Zsolt Papp, a money manager who helps oversee $2.6 billion of emerging-market debt at Union Bancaire Privee in Zurich, said in an e-mail on Feb. 21. “It would have to be coupled with a collapse in the economy and no access to credit, basically a 2008-2009 scenario. And that looks not likely.”

Capital is becoming less available, making it more difficult for companies to roll over their maturing debt. Global investors pulled $11 billion out of emerging-market bond funds this year through Feb. 26, already approaching the full year outflow of $14 billion in 2013, according Barclays Plc.

A “multi-year elongated EM cycle of underperformance” is likely as the credit and economic growth slows, according to Alan Ruskin, the global head of Group of 10 foreign exchange at Deutsche Bank in New York.

“A rapid increase of credit tends to associate with boom turning into bust,” Ruskin said in a phone interview on Feb. 21. “In an environment where there’s excess of credit, a slowing economy feeds on itself as assets go down and the banking system starts to decline. When financial markets seize on a theme, then things can accelerate.”

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Philippine Stock Market Is Surging. Should You Invest?

philippines-stock-market

With the Philippine stock index surging higher over the last few months and with large funds increasing capital allocation, the question is……should you invest in this fast growing emerging market?

The answer might surprise you. 

NO. The Philippine stock market is more or less reliant/follows the US Market. As soon as the US bear market takes control (2014-2017) and breaks down, I would expect the Philippine stock index to do the same. With one major difference. Since this is an emerging market with a highly speculative banking sector I would expect it’s decline to be much, much worse. How bad? If the PSEI Index breaks below 5,500 there is nothing stopping it (technically) until it gets to about 1,000. As such, if the PSEI breaks as anticipated, it turns into a wonderful shorting opportunity.

Please do your own research and make your own investment decisions.  

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Philippine Stock Market Is Surging. Should You Invest?  Google

Top Philippine Fund Doubles Consumer Stocks With Record Bet

The top-performing Philippine stock fund in the past five years has doubled holdings of consumer companies as record remittances boost the spending power of shoppers in Southeast Asia’s fastest-growing economy.

The UBP Large Cap Philippine Equity Portfolio (IFDLCPE)increased positions in the consumer industry to a record 60 percent of assets from about 30 percent in mid-2013, said Robert Ramos, who oversees about $897 million as the chief investment officer at Union Bank of the Philippines. Holdings include Emperador Inc. (EMP), the nation’s largest liquor company, and Puregold Price Club Inc., the biggest grocery-store operator. Both stocks have jumped at least 12 percent this year.

Overseas remittances to the Philippines increased a bigger-than-estimated 9.1 percent in December, while slower inflation last month eased pressure on the central bank to raise interest rates that have stayed at a record low since October 2012. Consumer spending accounts for almost three quarters of the $250 billion economy, which grew at a 6.5 percent pace last quarter.

“Everywhere you go, people say the economy is better and that global Filipinos are richer and have higher disposable income,” Ramos, 38, whose UBP Large Cap fund returned an annualized 46 percent in the past five years, the most among 28 Philippine stock funds tracked by Bloomberg, said in an interview in Manila on March 4. “I expect more gains from the sector.”

Earnings Jump

Overseas Filipinos sent home a record $2.16 billion in December, bringing the 2013 tally to an all-time high of $22.8 billion, data from Bangko Sentral ng Pilipinas show. The central bank forecast remittance growth of 5 percent this year.

The cash inflows, which make up about 10 percent of the economy, have helped companies such as Emperador and Puregold (PGOLD) post record earnings. Profit at Emperador, the UBP Large Cap fund’s biggest holding, rose to an all-time high of 5.8 billion pesos ($130 million) in 2013.

Ramos shifted the $67 million UBP Large Cap fund’s strategy in the middle of 2013 to shield it from volatility after the U.S. Federal Reserve signaled stimulus cuts. He sold financial, energy and property shares, deterred by regulatory headwinds and rising valuations.

“We wanted stocks that will outperform but at the same time won’t be very erratic,” Ramos said.

Valuation Risk

Consumer companies also stand to benefit as the Philippine currency’s slide against the dollar boosts the value of remittances, Ramos said. The peso has weakened more than 8 percent since May 22, when the Fed signaled it would trim its monthly bond purchases as the economy improves.

“Families of overseas Filipinos feel richer because the peso has devalued,” Ramos said. “They are probably spending a little more than before.”

The Philippine Stock Exchange Index (PCOMP) fell 0.1 percent to 6,508.58 as of 12:32 p.m. in Manila.

Consumer stocks are growing more expensive and the companies are unlikely to match the growth they enjoyed last year, when campaign spending in congressional and local elections boosted demand, according to COL Financial Group Inc.

Puregold is valued at about 25 times estimated 12-month earnings, while Emperador trades at 24 times, according to data compiled by Bloomberg. That compares with a multiple of 17.5 for the Philippine Stock Exchange Index, which has climbed 11 percent this year.

Growth Outlook

“I am less certain that growth will be as fast,” said Jed Pilarca, an analyst at COL Financial. “Consumer stocks aren’t cheap. It might be time for a correction.”

Emperador’s net income will probably increase 24 percent this year, while Puregold’s profit may climb 28 percent, according to analysts’ estimates compiled by Bloomberg. The nation’s economicgrowth is set to exceed 6.5 percent in the first quarter, boosted by rebuilding after Typhoon Haiyan, stronger exports and tourism, Economic Planning Secretary Arsenio Balisacan said on Feb. 4.

The government estimates growth of between 6.5 percent and 7.5 percent this year. The economy expanded 7.2 percent in 2013 and 6.8 percent in 2012, the fastest two-year pace since the 1950s, data compiled by Bloomberg show.

“A big chunk of the economy is driven by consumption,” Ramos said. “When GDP is growing, you know that a lot of people will be consuming more.”

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Job Creation Surges Higher. Now What?

Despite the bad weather, the US Economy added 175,000 jobs in February Vs. estimated 149,000.  Damn, I am impressed. Let me run out and buy some shares of Facebook, Netflix, Tesla, Google, etc… Even though I can puncture the “validity of data” hole (as I have done before) wide enough for a semi to drive through, that is not the angle I am going to take today.  

Listen, jobs is a lagging indicator. It’s a trend measure and is not indicative of future market developments. Let me give you an example. The US Companies were hiring hand over fist at 2000 and 2007 tops. In fact, they continued to do so 6 months after said tops. With the stock market surging higher over the last 6 months, I would hope that the February jobs report come in above expectations. Yet, it is all in vein.  As the 2014-2017 bear market accelerates speed over the next few months, any job gain will quickly turn into mass layoffs. 

What Bear Market? Read the  bear market report here.  

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Job Creation Surges Higher. Now What?  Google

jobs-feb-14-2

The U.S. economy added 175,000 jobs in February, more than anticipated despite brutal weather conditions across much of the U.S., with the unemployment rate ticking slightly higher.

Economists had predicted 149,000 new jobs. The headline unemployment rate was 6.7% last month, up from 6.6% in January, actually a positive sign because it means more people entered the workforce.

The December and January figures, both well-below expectations, were revised higher by a combined 25,000.

Weather had been widely predicted to put a dent in the numbers ahead of the release of Friday’s data by the U.S. Labor Department. That was the case but it didn’t impact overall hiring as much as analysts had anticipated.

“The weather was unseasonably cold in February, especially during the period leading up to and including the (Labor Department’s) survey week. In addition, snowfall has been unseasonably high over the same period,” analysts with Nomura’s Global Markets Research unit wrote in a note prior to the release.

Instead of chilling overall hiring, the Labor Department said the weather resulted in 7 million people working part-time last month rather than full-time, 10 times the number in January and the largest figure since January 1996, when a blizzard paralyzed the Northeast.

Todd Schoenberger, managing partner at LandColt Capital in New York, said the February numbers bode well for the spring.

“Despite headwinds, such as the continuation of a brutally cold winter, the labor market persevered, which leads to added optimism for a spring thaw in discretionary spending as we close out the first quarter of 2014,” he said. “Wall Street will cheer this report because strict attention is now given to economic and fundamental analysis as the (Federal Reserve) continues its tapering strategy.”

Despite a weak January jobs report, Fed policy makers voted unanimously earlier this  year to continue scaling back the central bank’s monthly bond purchases by $10 billion. The amount has been whittled down to $65 billion a month.

In public comments, Fed members have said the economic data would have to shift dramatically for the Fed to alter its stated objective of reducing bond purchases at $10 billion intervals until the program, known as quantitative easing, expires later this year.

After gaining an average of 194,000 jobs each month in 2013, the numbers have fallen off significantly in early 2014. The economy added a meager 113,000 jobs in January, which followed the  addition of just 75,000 new positions in December.

But members of the policy-setting Federal Open Market Committee, including newly installed  Fed Chair Janet Yellen, have taken pains to explain that labor data, especially the headline unemployment rate, is one of several economic indicators the Fed is using to determine future policy.

The unemployment rate has fallen to its lowest level since the onset of the 2008 financial crisis  but often for the wrong reasons, namely because thousands of people have been leaving the workforce each month which reduces the number of people the government counts as unemployed.

In addition to labor numbers, gross domestic product, which slowed to 2.4% in the fourth  quarter compared to the 4.1% growth in previous quarter, and consistently low inflation have been cited by policy makers as key barometers for the health of the U.S. economy.

In any event, central bankers have vowed to take a cautious approach to tapering, seeking to  find a balance between dialing back bond purchases too quickly, which could backfire if the economy shows signs of stalling again, and not scaling back fast enough, which could lead to runaway inflation.

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The FED Continues To Impress With Stupidity

In another point of reference that, once again, proves without a shadow of a doubt that the FED doesn’t know what is happening within our economy and our financial markets, the FED is talking about accelerating tightening.  Of course, exactly at the wrong time.

You see, most of the damage from their loose monetary policy since 2008-09 has already been done. They have already distorted most of the markets to the 10th degree and with speculation running rampant, the worst thing they can do now is to stop or tighten. Doing so will collapse all markets.

Believe it or not, even though markets are surging higher and the economy seems to be doing better, we are on a verge of a vicious bear market and a deep recession within our economy. That is based on my mathematical and timing work. In fact, it would be wise to be liquidating all of your long positions as we speak.  You can read an in depth report on this matter HERE. If you would like to know the exact structure of the upcoming bear market, please CLICK HERE. 

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The FED Continues To Impress With Stupidity Google

stupid fed

(Reuters) – The Federal Reserve may find its monetary policies quickly becoming overly easy if it sticks to the current pace of reductions to its bond-buying program in the face of a growing U.S. economy, a top Fed official said on Thursday.

“If the economy continues to improve, we could find ourselves still trying to increase accommodation in an environment in which history suggests that policy should perhaps be moving in the opposite direction,” Philadelphia Federal Reserve Bank President Charles Plosser said in remarks prepared for delivery to the Official Monetary and Financial Institutions Forum in London.

“Reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us well behind the curve if the economy continues to play out according to the (Fed’s) forecasts.”

Since the onset of the Great Recession and throughout the more than four years since its end, Fed has kept interest rates near zero and has bought trillions of dollars of long-term assets in order to suppress borrowing costs and boost investment and hiring.

Late last year, in a nod to the improving economic and labor market outlook, the U.S. central bank took its first step toward easing up on the monetary gas pedal by trimming its current round of bond buying and signaling it could end purchases altogether later this year.

But the hawkish head of the Philadelphia Fed worries the wind-down will take too long, if, as he expects, the economy grows about 3 percent in 2014, pushing down the jobless rate to at least 6.2 percent by the end of this year and “plausibly” even below 6 percent.

Plosser’s forecast for growth falls squarely inside the 2.8 percent to 3.2 percent forecast range from the majority of Fed officials.

“As the expansion gains traction, the challenge will be to reduce accommodation and to normalize policy in a way that ensures that inflation remains close to our target, that the economy continues to grow, and that we avoid sowing the seeds of another financial crisis,” Plosser said.

“While there continues to be some downside risk to growth, for the first time in years, I see the potential for more upside risk to the economic outlook. We need to consider this possibility as we calibrate monetary policy.”

The economy grew at a 2.4 percent pace last quarter, and recent soft economic data suggests growth may have since slowed. But Plosser cautioned against reading too much into recent weakness, chalking most of it up to severe winter weather.

That’s a view shared by many at the Fed.

Most investors expect the central bank to look past the soft data and continue to reduce its bond-buying program by $10 billion per month at each meeting, setting it on course to end the program before the year is out. The Fed next meets to discuss policy in less than two weeks.

But Plosser, who votes this year on the Fed’s policy-setting meeting and is among the most hawkish of the nation’s central bankers, wants to ratchet back super-easy policies more rapidly than most of his colleagues.

Unlike many of his colleagues, who predict it could take years for inflation to return to normal levels, Plosser said Thursday he sees upside risks to inflation, now languishing at just above half of the Fed’s 2-percent target.

Plosser also called for the Fed to remake its guidance to markets for how long it will keep rates low, because the current promise, to keep them low until well beyond the time the unemployment rate falls to 6.5 percent, has lost any usefulness.

The U.S. unemployment rate stands at 6.6 percent.

He reiterated his view that the Fed should strive to follow monetary policy rules, reduce its reliance on discretionary decisions, and pull back from the aggressive intervention that has marked its actions since the financial crisis.