Guest post by Azizonomics.
The waistline bubble began to expand at just about the same time as the debt bubble:
First, it’s important emphasise that correlation is not causation — more than 99% of murderers have consumed water in the twenty four hour period preceding a murder. But it is clear that the effects of globalisation are at play in both cases (simply because globalisation has transformed the American economy) – far fewer Americans have to do physically demanding manufacturing work, and thanks to the mechanisation of agriculture and food production there are far more calories-per-American available to consume.
The interesting difference between debt and obesity is that while it is possible from historical evidence to construct a fairly coherent model linking excess outgrowth in debt with recession and depression — for example, I conjecture that a depression becomes inevitable when debt service cost growth consistently outpaces income growth — there is no such historical evidence available for obesity, because there has never in known world history been an obesity epidemic of such proportion. To what extent do the healthcare overheads of an obesity epidemic act as a drag on economic growth?According to an estimate by the CDC, $147 billion.
Claiming Mahatma Gandhi, Karl Marx, and Che Guevara as inspirations, but also “anonymous people who think differently,” Sánchez Gordillo defends his protest actions as “symbolic, designed to show who is to blame and who is the victim” in the country’s deepening crisis. He rails against the supermarket practice of throwing out food when people are going hungry and accuses the stores of setting artificially low prices for farmers’ produce to reap huge profits. He claims that Spain’s current financial woes, in general, stem not from “excessive debt, but from excessive theft” with, in particular, “the banks buying money [from the European Central Bank] at 0.75 percent and lending it to the state at 7 percent.” This, he says, constitutes “a swindle within a swindle” and is abetted by both the main political parties. (He’s slightly out of date as the lending rate has shrunk to 6 percent.)
Fernando López Noguero, a professor in the sociology department of the University of Pablo Olavide in Seville, says protests such as theirs “with great media resonance” are needed. But he’s concerned that if the crisis worsens, “they could slip into ‘the law of the jungle’ where the domain of law is no longer respected.” He worries that “violent demands may begin to spread, thanks to the breach opened by the crisis.”
Guest post by Peter Tchir.
Europe has played a dangerous game of catching falling knives. Do nothing. Markets weaken. Have some meetings and vague plans. Markets turn more negative. Complain about speculators. Market starts to panic and economies constrict. Politicians and Central Bankers talk more. Markets swing up and down between hopes of some new solution and fears that they don’t do anything. Big summit, big announcement, big rally then back to doing nothing.
It is a cycle we have seen over and over in Europe. It seems as though we are entering another phase where we likely see some weakness. The summit was disappointing, but the market will take some time to challenge the resolve of the EU and ECB. The “whatever it takes” pronouncement culminating in the OMT “modality” was too painful for shorts.
I think the bailout of Spain is largely priced in, which means that even in a perfect world, most of the upside is there, and more and more, it looks like we won’t get some big plan, but another set up modalities and conditionalities that leave the bailout in constant doubt.
Eventually Europe will act too late and the falling knife will really hurt someone. The other problem is the growing number of politicians who seem to think that exits won’t cause contagion – I think they are horribly wrong, but we move closer to the day one of the people in power thinks they can pull it off.
No need to be long Europe here, and I would be short Spanish and Italian bonds here. Greek bonds remain more interesting just because the next phase really has to be write-downs of the official sector debt, which should benefit the PSI bonds.
Market commentary by Hussman Funds.
For anyone who works to infer information from a broad range of evidence, one of the important aspects of the job is to think carefully about the structure of the data – what is sometimes called the “data-generating process.” Data doesn’t just drop from the sky or out of a computer. It is generated by some process, and for any sort of data, it is critical to understand how that process works.
For example, one of the moments of market excitement last week was the reported jump in new housing starts for September. But later in the week, investors learned that there was a slump in existing home sales as well. If we just take those two data points at face value, it’s not clear exactly what we should conclude about housing. But the story is clearer once we consider the process that generates that data.
One part of the process is purely statistical. The housing data that is reported each month actually uses monthly data at an annual rate, so the jump from 758,000 to 852,000 housing starts at an annual rate actually works out to a statement that “During September, in an economy of about 130 million homes, about 100 million which are single detached units, a total of 9,500 more homes were started than in August – a fluctuation that is actually in the range of month-to-month statistical noise, but does bring recent activity to a recovery high.” Now, in prior recessions, the absolute low was about 900,000 starts on an annual basis, rising toward 2 million annual starts over the course of the recovery. The historical peak occurred in 1972 near 2.5 million starts, but the period leading up to 2006 was the longest sustained increase without a major drop. In the recent instance, housing starts bottomed at 478,000 in early 2009, so we’ve clearly seen a recovery in starts. But the present level is still so low that it has previously been observed only briefly at the troughs of prior recessions.
It is not a surprise that people think in herds. Below is a great weekend video by Grant Williams on the history of bubbles, and his view on the next bubble.
Government bonds (which are set to burst) and gold (which is getting ready to enter the mania phase).
Guest post by Jessie.
Economics and the corporate media did exemplary service in promoting ‘the Big Lies’ of the financialisation crisis, most notably efficient markets theory and the trickle down theory of stuffing the rich with even greater power and wealth in the thought that some of the excess would fall on the path for the little people.
“Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows.”
John Kenneth Galbraith, New York Review of Books, 1982
They have tied these old canards so carefully to emotional arguments that even after the crisis and collapse, many people will still respond reflexively to anything that shakes their faith in a failed, fallen system.
One only has to verbally put a certain color shirt on a group of people’s backs, and paint a different color shirt on some others, and given some prompting and rationalization, they will descend on the others with all the reckless passion and unfeeling of the school yard, even doing unspeakable things to others that they know is wrong, in the name of the expediency of winning. Such people are easily led as they surrender their will to expediency, and a more powerful force of will.
Some years ago I remarked on a sad gathering of a knot of old school Communists in Red Square that I saw, lamenting the passing of the Soviet Union and Stalinism. There were those who had benefited from it, leading those who could not accept that the system had failed and change was coming. They huddled in the winter winds that blew across the square, their old banners fluttering, looking for someone to tell them what to do.
I see the same thing growing in the US and the UK today. But the lament is not for Communism but for the saving of crony capitalism, the heartless abuses of the oligarchy and the robber barons that have been cross branded with freedom and liberty. Their campaign is well funded and staffed with willing minds who will say or do almost anything for money. They have not yet destroyed themselves, but they are well on their way.
Guest post via Gold Silver Worlds.
This is the second article in a five part series that is based on a Q&A with Nick Barisheff, CEO of Bullion Management Group Inc. and author of the book “$10,000 Gold: Why Gold’s Inevitable Rise is the Investor’s Safe Haven.” His book will be released later this year but is available now for pre-order on Amazon.com. The main idea behind this article: financial assets and hard assets tend to evolve in opposite directions on a very long term timeframe. Those are simply the dynamics of economic cycles.
Many of today’s investors have only lived through the long term bull market of financial assets, between 1980 and 2000. Those two decades have been characterized by strong growth in bond and equity markets. At the same time, gold & silver prices experienced a slow and steady decline. Nick Barisheff remembers it was remarkable how the Central Banks, Wall Street and the media were exploiting every opportunity to make negative comments about precious metals.
The cycle before that started in 1968. It included US President Nixon putting an end to the Gold standard in 1971 and peaked with the gold and silver mania in 1980. And here we are again; gold and silver have outperformed every other asset class for 12 years in a row. Still, precious metals are almost off the radar in the mainstream media. There is less than 0.5% of the total portfolio invested in bullion and mining stocks globally in institutions, while less than 1% is invested by the general public.
Here is the key point: if you’ve only lived through one cycle, it’s very difficult to change your mind. Clearly most people today aren’t able to see beyond the financial asset bull market; they still tend to ignore today’s spectacular gold bull market. Essentially it requires a major paradigm shift in your way of thinking. It’s at this point where the psychological factors come into play. In his book, Nick Barisheff mentions 3 psychological factors that are preventing people from looking at this with an open mind:
Another must read piece by Golem XVI.
In part One I argued that if we want to understand why our rulers have insisted we MUST bail out the banks we simply have to look at who owns the banks and the vast bulk of the wealth they house. And surprise, surprise the owners of most of the financial ‘wealth’ are…our rulers and their friends.
I ended by suggesting that true though I felt this was, there were also theoretical reasons why some people felt the banks must be protected at all costs -as long as the burden of paying that cost was placed firmly upon the backs of the little people, you understand.
Guest post by Peter Tchir.
Will Spain go through with the bank bailout? We Spain get OMT for the secondary market? Will ESM support Spanish new issuance?
In all likelihood each of these programs will be initiated, but I see them as likely being ineffective. They will be ineffective because they won’t be implemented with vigor. They will be lackadaisical attempts to calm the markets with minimal amounts of money.
Draghi gave a speech today, where from the sound bites I caught, he appeared to be backtracking a little. He spent more time emphasizing what Spain needed to do, and what the ECB couldn’t do, than offering a “whatever it takes” enthusiasm.
While I think plans will be implemented, the conditions will be tough and Spain will be constantly on the verge of not meeting the conditionality, giving the ECB and the rest of the EU the opportunity to back out. It will be Greece all over again. There will never be enough money to fix things and Spain will be constantly back at the table begging for more.
That is assuming Spain doesn’t decide to “go it alone”. The OMT was set up with Spain (and Italy) in mind, yet Spain seems reluctant to take the money. Spain is attempting to spin its own budget as all the conditionality that is needed. Even if you Ignore the fact that the Spanish budget is unlikely to work out and that the anti-austerity movement remains strong, it is hard to believe that Germany and the others won’t attempt to impose their own will on the conditionality.