Why Nothing Matters Any More

We've all heard the phrase, "this is going to end badly," before, and, like a failed love affair, so too the centrally-planned economies masquerading as free markets will also surely end in tears, tatters, remorse and recrimination.

Following in the footsteps (or, as the case may be, the mouthpiece) of ECB president Mario Draghi, today, German Chancellor Angela Merkel and French President Francois Hollande issued a joint statement after a teleconference, saying they their government would "do everything to protect" the Euro.

And, with that, the markets were once again off to the races, continuing a rally that is based upon nothing more than promises to pile more debt upon the mountainous pile of unpayable sovereign obligations already in existence, create more deteriorating fiat money, continue bailing out failed financial institutions and keeping interest rates at artificially low yields.

Nothing good has come from any of these efforts thus far, except to perpetuate the status quo of financial fraud run amok without penalties for wrongdoers and the funding of political campaigns by the very same transgressors and beneficiaries of central bank largesse.

Today, the US government announced first quarter GDP grew at a rate of 1.5%, which, in normal times, would be fairly disturbing news, but, couched in the belief that the slowing economy will encourage the Federal Reserve to engender another round of quantitative easing (QE) at its meeting next week of the FOMC, the market soared like an eagle catching a thermal updraft.

The effects of all this money printing and free flow of capital into and out of banks and into government coffers to spend freely beyond their means has been effectively maintained by ultra-low interest rates offered to the world's biggest banks, the ones that were bailed out in 2008, and continue to go to the discount window for Federal Funds at 10 to 16 basis points, invest in longer-term notes and pocket the difference, known as the carry trade. It's easy street for the TBTF banks, which continue to borrow and no loan money, except, of course, to the worst creditors of them all, governments, which haven't balanced their books in decades.

Were the banks and foreign central banks to suspend lending to the US and European entities - an occurrence which has a 100% likelihood to happen at some point - the economic calamity would be unthinkable, thus, the game continues. At certain points, casualties occur, but they are patched over by bailouts or simply shoved aside, as in cases such as Madoff, MG Global and previously, Lehman Bros., Countrywide Financial, Bear Stearns or Merrill Lynch.

The losses are socialized, or, passed onto the taxpayer as it were, though if taxes were at rates commensurate to meet all government obligations and pay off the burgeoning debt load, the average paycheck would be 80-90% taxes and 10-20% take home. It would be likely that most people would stop working for companies, go into a side business of their own and not pay taxes, while larger businesses would suffer from a lack of qualified, willing labor and the whole super-structure of the global economy would grind quickly to a complete halt.

In some sense, that is already happening, and it will continue to worsen, everywhere there are unpayable debt burdens placed upon the citizenry. In Europe, the German people are already braying at the notion of higher and higher tax rates to pay for bailing out the southern states of Greece, Portugal and soon, Spain and Italy.

While the Germans have profited and prospered from fiscal and monetary discipline, the regime of Angela Merkel is rapidly fostering a growing debt burden that will force taxes higher and eventually cripple their own economy. While most of southern Europe is already in a recession and Greece, at least, a depression, Germany, being the lender of last resort, so to speak, is nearing a political breaking point, where the populace is about ready to take a stand against the free-spending policies of their government.

Merkel is tip-toeing on a high wire (a horrifying mental image), balancing her own political future against the success or failure of the Euro. Germany benefits from the declining euro because of its huge export base, so abandoning it and returning to the Deutschemark is out of the question, as the new currency would be among the strongest in the world, making German products prohibitively expense in other countries.

France, which behind Germany is the second largest economy in Europe, seems content to tax and spend to promote their socialist agenda of government handouts to everyone, shorter working hours and large, public pensions. The French people are notorious protesters, who will take to the street at even the slightest hint that any kind of public benefit will be cut, and, as they showed former president Sarkozy the door this past Spring, they will vote against any mention of austerity, a dirty word in the Gallic nation.

In America, it's the culling of the middle class that proceeds apace. Wages have been stagnant, new job creation sparse and sporadic, but price increases in food and energy, along with threats of higher taxes have all but eliminated discretionary spending and saving for growing numbers. The middle class has become a huge class of debt slaves, content to keep paying and playing along until the pensions and social security and health care monies are exhausted.

The rest of the world has other problems, though even growth countries like China, India, Brazil (together with Russia, making up the BRICs nations) are slowing down as the speculative economies strip out all wealth to the top one percent of earners and actual productive growth falters.

There is a tipping point somewhere down the road, and it's a wonder that the whole global mess hasn't completely fallen apart by now, but it does appear that those in charge of "managing" the economy can keep the plates spinning for a while longer, maybe as much as three to five years. By then, these central planners hope that entrepreneurs will have bolstered the fragile, stagnant economy back to life and that a more normalized functioning will have emerged.

It's a pipe dream built on the faulty assumption that expanded liquidity can supplant insolvency. It never has, and it won't. The end game comes from a deflationary spiral in which too little money is chasing too many goods, even in an era of expansionary monetary supply (inflation). The problem is that the money is going into the wrong hands, to those of the bankers, who hoard their cash for liquidity and speculation, as seen repeatedly in the stock market, while the middle and lower classes go begging for credit (at usurious rates), jobs, and eventually, food.

In every instance in which a reserve currency such as the US dollar was not backed by gold, silver or both, or other tangible assets as collateral for debt creation, that currency has failed and been replaced. Every time.

And this time is not different. It's just taking longer than expected.

Dow 13,075.66, +187.73 (1.46%)
NASDAQ 2,958.09, +64.84 (2.24%)
S&P 500 1,385.97, +25.95 (1.91%)
NYSE Composite 7,912.16, +157.65 (2.03%)
NASDAQ Volume 2,085,560,250
NYSE Volume 4,290,734,500
Combined NYSE & NASDAQ Advance - Decline: 4511-1073
Combined NYSE & NASDAQ New highs - New lows: 343-86
WTI crude oil: 90.13, +0.74
Gold: 1,618.00, +2.90
Silver: 27.50, +0.05

Stocks Scream Higher on Euro Hopium from ECB's Mario Draghi

Might as well call him Super Mario the way ECB President Mario Draghi is capable of moving markets by moving his lips.

Speaking at an investment conference in London, Draghi was light on specifics but strong on rhetoric, saying:

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."

"To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate."

Easy enough. Make some bold-sounding statements, signal to everyone that everything is under control and viola! the Euro climbs above 123 to the US Dollar, major European indices jump 1-2%, Spanish and Italian bond yields drop and the Dow is good for a 200-point rise. Ponzi-nomic, centrally-planned financing at its uninspiring best.

Everybody goes long, and tomorrow or Monday, everybody can get short. Wash, rinse, repeat.

That is how Ben Bernanke and Mario Draghi roll. And, you and I get rolled, again.

Nothing changes.

Here in the states, the small sampling of economic data was mixed to negative. Initial unemployment claims fell to 353,000, from an upwardly-revised 388,000 in the prior week. Durable orders gained by 1.6% in June, but, ex-transportation, were down 1.1%. Pending home sales fell 1.4% in June, a distress signal for housing, as June is traditionally one of the strongest months for real estate.

Volume was actually a notch or two higher than usual, another telling sign that more and more people are learning the game and jumping in whenever futures ramp up at the open.

Dow 12,887.93, +211.88 (1.67%)
NASDAQ 2,893.25, +39.01 (1.37%)
S&P 500 1,360.02, +22.13 (1.65%)
NYSE Composite 7,754.41, +146.85 (1.93%)
NASDAQ Volume 1,912,905,750
NYSE Volume 4,401,349,500
Combined NYSE & NASDAQ Advance - Decline: 3897-1671
Combined NYSE & NASDAQ New highs - New lows: 214-146
WTI crude oil: 89.39, +0.42
Gold: 1,615.10, +7.00
Silver: 27.45, -0.02

Sandy Weill, Hypocrite Bankster; Apple Sends S&P, NASDAQ Lower, Housing Bottom, NOT!

Like mountains that are climbed, we watch CNBC because it's there, not because they offer something other than the capitalist-claptrap-company-line of "buy stocks and keep buying stocks." They don't, usually, unless Rick Santelli is ranting or somebody like Sandy Weill says something so hypocritical that it cannot go unchallenged.

Weill, the former CEO of Citigroup, was the man most responsible for the repeal of the Glass-Steagall act during the Clinton administration years, which set in motion the deregulation of banks, ungodly high leverage, the sub-prime circus and eventually the global catastrophe of international finance through which we are all currently suffering, was polluting this morning's air with calls to break up the big banks.

Weill was on this morning's "Squawk Box," the normally tiresome pre-market news show, opining that the big banks need to be broken up. This is quite the turnabout from the man who, back in the 1990s, engineered the business model of the banking/financial supermarket, where customers could purchase not only CDs and checking accounts, but stocks, bonds, and all manner of derivative products, and where the bank would securitize obligations, repackaging and reselling to willing investors.

One should note that Weill profited greatly from the deregulation of the banking industry and that he is still very rich, though now, more than 15 years hence, his PR team has probably advised him that calling for the breakup of the too-big-to-fail (TBTF) banks would be a marvelous boost for his personal profile. No doubt, Weill has a profit motive behind his pronouncement, or is keying in a on lucrative, influential government position, which is all America needs right now, is another hypocritical bankster who puts self-interest far above public service running the Treasury Department, or maybe the Office of Thrift Supervision.

There really is no end or outer limit to the hubris of the banker class, but Weill's sudden change of heart, no doubt politically expedient, is the worst form of hypocritical doublespeak imaginable. Even Orwell would be amazed, abused, or, amused.

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After Tuesday's post-market-close earnings miss by Apple (AAPL), the markets did as obedient markets will, as the S&P and NASDAQ, of which Apple is a huge component of both, sold off viciously right out of the gate.

The NASDAQ was down a quick 22 points, the S&P shedding seven points in the early going, but, with Ben Bernanke and the Fed providing cover, ostensibly standing ready with their bazooka loaded with QE stimulus, stocks gained ground and eventually turned positive (the Dow was in the green all day), before fading into the close. The Dow gave up more than half its gains, even though Apple is not a Dow component.

The current idea - floated around yesterday afternoon by the Fed's chief propagandist, Wall Street Journal writer John Hilsenrath - was that the Fed may act as soon as their very next FOMC meeting, which occurs next week, July 31 - August 1. About all the Fed can do, besides buying up more worthless MBS or some vague extension of Operation Twist, or more simple jawboning, all ideas which have been tried and proven failures.

But, the market being as rigged as it is, (according to Paul Criag Roberts, all markets are now rigged), the Federal Reserve must come off not looking like the powerless goon it really is, but rather as an engaged participant ready to swing into action to save the American people.

Tripe. The Fed has been without bullets or a gun for the better part of the past two years, and now, like the boy who cried "wolf," nobody is bothering to listen. QE1 and QE2 didn't fix anything and likely made matters worse, so QE3 isn't going to matter one iota.

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For those who think the housing market has hit bottom, again! today's data must have been a chilling reminder of not only where we've been, but where the millions of underwater homes are headed: deeper into the blue, after new home sales for June plunged to an annualized rate of 350,000, well below the expected 373,000. The drop was made worse by the upward revision of the May data, from 369,000 to 382,000, but it was still a mighty miss by any standards.

The real estate market being diverse, there are some areas of strength, but, overall, the heartland of America is still suffering from the worst housing bust since the Great Depression, and it's not over with yet.

So, some big numbers and events are coming soon. Friday will witness the initial estimate of second quarter GDP, expected to be anywhere from 1.5% to 2.2% to the good, then there's the FOMC meeting Tuesday and Wednesday of next week, followed by next Friday's July non-farm payroll data.

Among all the usual market noise, new lows exceeded new highs for a third straight session, but, as we know, it won't last, because the Fed is coming to the rescue.

This is really beginning to get interesting.

Dow 12,676.05, +58.73 (0.47%)
NASDAQ 2,854.24, -8.75 (0.31%)
S&P 500 1,337.89, -0.42 (0.03%)
NYSE Composite 7,604.56, +13.94 (0.18%)
NASDAQ Volume 1,725,712,125
NYSE Volume 3,391,726,000
Combined NYSE & NASDAQ Advance - Decline: 3085-2522
Combined NYSE & NASDAQ New highs - New lows: 119-165
WTI crude oil: 88.97, +0.47
Gold: 1,608.10, +31.90
Silver: 27.47, +0.66

More Losses For European, US Markets; Apple Misses Big on Earnings, Revenue

As per the usual, US stocks pared much of their losses in the final fourty minutes of trading, the Dow shaving its decline in half, with the other major indices following suit.

The trend has been lower for three straight sessions, with the Dow losing somewhere in the vicinity of 100 points a day. Catalysts for the declines are various and diverse, from poor US data - the Richmond Fed manufacturing index came in at -17 on expectations of -1, the lowest level since April 2009 - concerns over the Spanish government needing a bailout, or Moody's lowering the outlooks for Germany, the Netherlands and Luxembourg to negative late Monday.

Even China got some play as their flash PMI number rose to the best level in five months, though at 49.5, still showed contraction. The blip from the Far East was seen as a positive, though more than likely, a minor one, as one month's data surely does not make a trend and data from China is widely regarded as highly unreliable.

In Europe, most of the stock indices took losses, though not as heavily as on Monday. The mood on the continent is extremely guarded, as yields on benchmark 10-year notes in Spain and Italy have hovered around or exceeded the 7% mark.

Here in the states, the 10-year yield continues to fall, as predicted by Paul Craig Roberts and other astute economists (see yesterday's post), to a record low yield of 1.39, while the 30-year bond closed at 2.46, also a record low.

Market conditions and sentiment appear to be quickly worsening, with the advance-decline line negative for three straight days and the new highs - new lows metric having reversed to negative on Monday and continuing to worsen with Tuesday's session.

Commodities were mostly lower, with the notable exception of oil, which continues to be boosted by ongoing uncertainty over Iran, though the corn and soybean futures markets were notably nixed, as slack demand seems to be trumping even the effect of the worst drought since the 1950s.

All of the data and market moves seem to be pointing toward Friday's initial reading of second quarter GDP, slated for release at 8:30 am EDT on Friday. Forecasts range from 0.3% to 1.7% growth, though estimates have been coming down from a variety of sources in recent days and third quarter and second half GDP outlooks have been routinely revised lower.

As it turns out, however, the biggest news of the day came may have come after the markets had already closed, when Apple (APPL) reported a fiscal third quarter earnings miss that sent the stock markedly lower.

From the LA Times:

The technology giant said profit rose 21% to $8.8 billion, or $9.32 per share, on revenue of $35 billion, up 22% from a year earlier. The results were less than what analysts had expected. Shares plummeted in after-hours trading, falling $34, or nearly 6%, to $566.78.

Analysts surveyed by Thomson Reuters had estimated that Apple would post earnings per share of $10.36 on revenue of $37.2 billion. A year earlier, the Cupertino, Calif., technology behemoth reported record quarterly revenue of $28.6 billion and record profit of $7.3 billion, or $7.79 a share. That was a 121% increase over its third-quarter 2010 earnings per share.

If Apple, the bellwether for all tech stocks and a major component of the S&P 500 and NASDAQ 100, cannot beat lowered expectations, then perhaps the idea that a global deflationary slowdown is well underway might finally dawn on not ony the wizards of Wall Street but the average Joe and Jane Sixpacks, who likely already have gotten the memo, having not enough income to afford an iPad or iPhone, essentially spending whatever income they have on survival items like food and fuel.

Good grief! Can it get any worse?

We already know the answer to that.

Dow 12,617.32, -104.14 (0.82%)
NASDAQ 2,862.99, -27.16 (0.94%)
S&P 500 1,338.31, -12.21 (0.90%)
NYSE Composite 7,590.61, -79.92 (1.04%)
NASDAQ Volume 1,735,519,125.00
NYSE Volume 3,853,596,750
Combined NYSE & NASDAQ Advance - Decline: 1484-4064
Combined NYSE & NASDAQ New highs - New lows: 118-210
WTI crude oil: 88.50, +0.36
Gold: 1,576.20, -1.20
Silver: 26.81, -0.23

Why There Probably Won't Be a Stock Market Crash

With US stocks suffering back-to-back losses of more than 100 points Friday and Monday on the Dow, conventional thinking might be assuming that the market has hit a short term top and they may well be correct.

Others continue to ponder the overall fate of the entire fiat-money global financial system and wondering when it's going to implode, if ever. Many have been waiting since 2008 for a full reset, but policy changes, bailouts, stimulus and interest rate manipulation have managed to keep the carnage contained, at least in the US.

Today in Europe, it was something of a different story, as many national equity exchanges were victims of among the worst losses of the year. Most indices were down more than two percent, with the Greek Athex Composite Share Price Index falling more than seven percent on pronouncement by the IMF in Der Spiegel magazine that the world's fail-safe lender of last resort may not help Greece in any further restructuring or servicing of debt.

Naturally, after the Dow was down 239 points in early trading, IMF officials reversed their opinion, saying that they would indeed be there for the Greeks, just as they have all along. This is now the accepted method of moving markets - by word of mouth, rumor and denial - and part of the reason why the economic collapse has more resembled a train wreck in slow motion.

Along those lines, a couple of columns by the estimablePaul Craig Roberts and Nomi Prins have received a great deal of attention as they examine the libor-rigging scandal and how that effectively kept banks and governments in collusion from complete collapse.

In the first article, from July 14,
The Real Libor Scandal, Roberts and Prins assert that the banks which "fixed" the libor rate were the main beneficiaries in something of a quid pro quo for the assistance they received from various governments and central banks:

Indicative of greater deceit and a larger scandal than simply borrowing from one another at lower rates, banks gained far more from the rise in the prices, or higher evaluations of floating rate financial instruments (such as CDOs), that resulted from lower Libor rates. As prices of debt instruments all tend to move in the same direction, and in the opposite direction from interest rates (low interest rates mean high bond prices, and vice versa), the effect of lower Libor rates is to prop up the prices of bonds, asset-backed financial instruments, and other “securities.” The end result is that the banks’ balance sheets look healthier than they really are.

Governments were also beneficiaries of a lower libor, as they could sell their bonds at rates below inflation while still maintaining enormous budget deficits:

In other words, we would argue that the bailed-out banks in the US and UK are returning the favor that they received from the bailouts and from the Fed and Bank of England’s low rate policy by rigging government bond prices, thus propping up a government bond market that would otherwise, one would think, be driven down by the abundance of new debt and monetization of this debt, or some part of it.

In a follow up to the first article, The Libor Scandal In Full Perspective Roberts expands upon the concept of ever-lower interest rates on government bonds into a full-blown indictment of government in collusion with the libor-fixing insolvent banks on charges of fraud:

As the Federal Reserve and the Bank of England are themselves fixing interest rates at historic lows in order to mask the insolvency of their respective banking systems, they naturally do not object that the banks themselves contribute to the success of this policy by fixing the LIbor rate and by selling massive amounts of interest rate swaps, a way of shorting interest rates and driving them down or preventing them from rising.

Roberts goes even further, demonizing Robert Rubin, whose actions to dismantle regulations in the US such as the Glass-Steagle Act put into motion over-leverage by the banks which resulted in the 2008 crisis and continue to this day:

As villainous as they might be, Barclays bank chief executive Bob Diamond, Jamie Dimon of JP Morgan, and Lloyd Blankfein of Goldman Sachs are not the main villains. The main villains are former Treasury Secretary and Goldman Sachs chairman Robert Rubin, who pushed Congress for the repeal of the Glass-Steagall Act, and the sponsors of the Gramm-Leach-Bliley bill, which repealed the Glass-Steagall Act. Glass-Steagall was put in place in 1933 in order to prevent the kind of financial excesses that produced the current ongoing financial crisis.

The articles are both "must read" material which outline the persistent fraud necessary to keep the fiat money crisis from imploding completely, with scenarios for its eventual collapse, not from within, but from outside.

As the stock markets are kept afloat at higher-than-usual levels by manipulators within the around the system, so too, the bond markets are manipulated, often by the very same people.

With powerful institutions plotting and defrauding the public on both sides of all trades, there's little wonder that every time there's an event which causes even a hint of panic, the authorities rush in to save the day, and with it, the global economic system from the carnage which eventually will engulf it all.

Dow 12,721.46, -101.11 (0.79%)
NASDAQ 2,890.15, -35.15 (1.20%)
S&P 500 1,350.52, -12.14 (0.89%)
NYSE Composite 7,670.54, -89.05 (1.15%)
NASDAQ Volume 1,586,828,750
NYSE Volume 3,576,762,250
Combined NYSE & NASDAQ Advance - Decline: 1242-4363
Combined NYSE & NASDAQ New highs - New lows: 113-202 (reversal)
WTI crude oil: 88.14, -3.69
Gold: 1,577.40, -5.40
Silver: 27.04, -0.26