Remarks: Examples of how really, really bad people have enacted rules and regulations as well as "amendments' to Our Founding Fathers original US Constitution creating a host of historical "Unintended Consequences."
ECONOMY & MARKETS | 05.30.2015
By Chris Cimorelli, Managing Editor, Economy & Markets
1)China’s stock market — up over 120% in the past year — fell over 11% this week, submerging into that dangerous “correction” territory that often leads to panic. It’s the largest drop since mid-2009, let alone the past year, and by Friday morning investors were still running for the exits.
2)Meanwhile, European and U.S. stocks fell on Tuesday ahead of concerns that Greece has absolutely no way to make their IMF payment on June 5. As Lance explained on Thursday, it also led to a drop in bond yields as investors fled to the safety of Treasury bonds. The same happened in Europe.
- U.S. stocks bounced right back after Tuesday… but let’s not forget they’re at their own all-time highs, and any investor who feels completely confident in that scenario either is really bold, or really stupid.
3) Let’s not forget as well, starting Monday, May is over. For those not aware of the trend, Adam sent a note to his Cycle 9 Alert readers explaining that June is historically the worst performer of any month of the year. He just recommended an options play to hedge against a spike in volatility and an underperforming stock market.
4) This past week, we also closed out our editorial series, “The Truth Behind Wall Street ‘Winners,’” with final words from Adam, Harry, and John. Harry looked at the root of market manipulation and what the effects are on investors, and Adam examined how investors can take one extra step to ensure they’re in a “no conflicts” relationship with their investments.
5) Understanding one's investing style is important in any market, but it’s especially crucial in the face of an economic downturn or bear market. Harry’s latest edition of Boom & Bust explains that we’re already moving back into a recession — in fact, that’s the piece’s title.
Just remember — the media will keep doling out various figures to lull us into thinking our economy is healthier than it actually is.
6) boomers are retiring, and it’s one of the primary drivers pressuring America into a deflationary future. We have yet to see whether the effects of quantitative easing can overcome the force of an entire generation exiting its peak spending — but you know where our bet stands on that!
It’s why boomers will be a hot topic of discussion at this year’s Irrational Economic Summit, with keynote speaker P.J. O’Rourke. He (and others) will discuss which market and economic dangers lie in wait as this generation of 109 million Americans exits US's work force. It’s the same sort of demographic trend that allowed us to predict the market ultimately leading into 2007 — and its bust as well.
7)Until Tuesday (May 26, 2015) , the bond market was looking for rising inflation as a reflection of “better” economic conditions. Our economy is still anemic after more than six years of central bank meddling, but traders don’t trade on truth — they trade on perception.
8)Reports still seem solid. Inflation is ticking higher as consumer prices rose last month to 1.8% on an annualized basis. The Fed’s target is 2%. Unemployment is down to 5.4%, participation in the labor force rose to 62.8%, and even wages have risen a bit.
In fact, job openings have surpassed the level they were before the financial crisis in 2008. As Harry and Rodney (contributers to Money & Economics)have noted many times over the years, consumers drive 70% of economic activity here in the U.S. So, when the labor market finally tightens to the point that wages move higher, economic growth follows. When our economy grows, inflation follows.
But while bond traders were keeping their eyes on wage growth, inflation, and economic growth, they weren’t waiting on those things. They were already pricing that future growth in. Yet, bond yields dipped lower Tuesday.
So what changed? Greece. Or, the realization that Greece is very likely to default.
Market participants may have bet that some sort of agreement in Europe would happen. Greece has some major loans due in the next few days and no way to pay. Over the weekend the negotiations came to a standstill.
World-renowned economist Harry Dent now says, “We’ll see an historic drop to 6,000… and when the dust settles – it’ll plummet to 3,300. Along the way, we’ll see another real estate collapse, gold will sink to $750 an ounce and unemployment will skyrocket… It’s going to get ugly.”
Example:
On Tuesday (May 26, 2015)stocks fell sharply and money moved to the safety of U.S. Treasury bonds, causing yields to fall as well. A rate hike might still be in the cards sometime this year, but Tuesday served as a reminder that what happens in Europe and elsewhere in the world(Asia) can impact our markets.
Even at home, there are concerns on what will happen whether or not the Fed hikes rates in June. If the Fed doesn’t raise short-term rates sooner rather than later and long-term yields move higher, that could spark a crisis. If they do act in June, it could cause bubbles to burst in stocks, bonds, and real estate.
A historial note on "really, really bad people"
Central Banks: The Root of All Economic Evil
Harry Dent+ , May 26, 2015
France was in a bind.
1)In the early 1700s, France had run up astronomical debts from endless wars with the British. They needed money… desperately.
So, John Law — the first central banker in France — turned the Mississippi territory France had just acquired into a stock company.
Stocks were a new trend. People weren’t prepared for the crash that comes when stocks teeter too high. So, they went all in… and what resulted was one of the fastest, most exponential bubbles to build and just as quickly burst that the world has ever seen.
It took just two years for this venture to became a popular get-rich-quick scheme. Shares or parcels of land were sold to the public and financed by the government at lower-than-market rates.
Little did buyers know, the land was basically a swamp, far away so no one could see what they were getting.
Thus, the Mississippi Land Bubble peaked in 1720… then crashed over 90% in just over a year.
It’s one of the classic examples of political manipulation, and the first major financial bubble in modern history. And yes, it was engineered by a central bank (and its individual regulators).
2)England had a similar bubble when it turned its monopoly on trade with the South Seas Trading Company into a public stock — to pay off its debts from the same war France had with them.
These governments didn’t concern themselves with paying their debts in a more sound, responsible way. They manipulated the market to create an artificial bubble for their own advantage.
3)The U.S. government had its own land scheme in the early 1800s. In an effort to get people to populate the newly acquired Midwest following the Louisiana Purchase, they offered raw land at bargain rates and — you guessed it — low cost government financing.
It was the greatest real estate bubble in U.S. history. And it burst just as quickly.
4)By the early 1840s, Chicago real estate fell over 90%, along with most of the Midwest.
It got so bad that it turned into the worst depression the country had seen, between 1836 and 1843.
5)Then came the U.S. Federal Reserve… created to offset the extreme volatility in the economy and interest rates created by that very depression and more to follow into 1896.
A near-century later, after years of stimulus and lower interest rate policies, an even greater depression happened — the Great one, itself (1929 - 1939).
This was no accident…
When these political entities constantly stimulate the economy in every correction, it never has a chance to rebalance. All we get are greater bubbles, greater bursts, and greater financial crises as we scramble to rebalance the debt and the financial bubbles that resulted.
6)But until recently, these bubbles were never orchestrated on a global scale.
Now, the greatest market manipulation in all of history has been globally coordinated by the world’s central banks, who have gone wild with endless money printing to keep the bubble that started in the mid-1990s from bursting.
What’s more, that bubble was already out of control due to decades of manipulation prior.
How do you think we got the Great Recession of 2008 and 2009? It resulted from endless debt growth, and central banks fostering financial bubbles through unprecedented liberal lending policies.
To make it worse, our own Fed decided to ignore the consequences and stop the bubble from fully bursting. Why delay the recovery when we can get it right now?
Conclusion - It is a "People Problem"
I don’t know about you, but I lose sleep at night knowing that’s the logic of people charged with controlling our economy… because it shows they obviously don’t have a clue what the US's economy is all about, let alone "World Economic Theory.".
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