Guest Post by Doug Noland
Fed hawks are beginning to make some noise.
Earlier in the week BlackRock’s Larry Fink commented on CNBC: “A Bubble is predicated on leverage.” Fink was implying that he didn’t see the type of leverage that fueled the previous Bubble.
As part of my Bubble analysis framework, I have posited that the more conspicuous a Bubble the less likely it is to be systemic. The “tech” Bubble was conspicuous, though gross excesses impacted only a relatively narrow segment of asset prices and a subsection of the real economy.
Guest Post by Doug Noland
The short squeeze was back.
“To the astonishment of almost everyone in the room, Angela Merkel began to cry. ‘Das ist nicht fair.’ That is not fair, the German chancellor said angrily, tears welling in her eyes. ‘Ich bringe mich nicht selbst um.’ I am not going to commit suicide. For those who witnessed the breakdown in a small conference room in the French seaside resort of Cannes, it was shocking enough to watch Europe’s most powerful and emotionally controlled leader brought to tears. But the scene was even more remarkable, those present said, for the two objects of her ire: the man sitting next to her, French President Nicolas Sarkozy, and the other across the table, US President Barack Obama. It would be the low point in a brutal, recrimination-filled night, one many participants would recall as the nadir of the three-year eurozone crisis. Mr Sarkozy had hoped his leadership of the Group of 20 summit would cement his standing on the global stage en route to re-election. Instead, everything was falling apart. Greece was imploding politically; Italy, a country too big to bail out, appeared just days away from being cut off from global financial markets; and Ms Merkel, try as Mr Sarkozy and Mr Obama might, could not be convinced to increase German contributions to the eurozone’s ‘firewall’ – the ‘big bazooka’ or ‘all of money’ they believed had to grow dramatically to fend off attacks by panicking bond traders.”
Guest Post by Doug Noland
Equities are right back to near record highs – yet something just doesn’t feel right.
February 17 – Bloomberg: “Record new credit in China in January will help the economy maintain momentum while highlighting challenges for officials trying to limit the risk of financial turbulence from defaults and bad loans. Aggregate financing, the broadest measure of credit, was 2.58 trillion yuan ($425bn), the People’s Bank of China said… New local-currency lending was 1.32 trillion yuan, the highest level since 2010. Trust loans, under scrutiny because of default risks, were about half the level of a year earlier. The data add to better-than-forecast trade numbers, suggesting that China can limit the scale of any slowdown from last year’s 7.7% expansion in gross domestic product. At the same time, the figures contrast with a central bank call in mid-January for lenders to control surging loans and highlight diminishing economic returns from credit growth.”
By Doug Noland
Another week another record high.
“To understand the Great Depression is the Holy Grail of macroeconomics. Not only did the Depression give birth to macroeconomics as a distinct field of study, but also—to an extent that is not always fully appreciated—the experience of the 1930s continues to influence macroeconomists’ beliefs, policy recommendations, and research agendas. And, practicalities aside, finding an explanation for the worldwide economic collapse of the 1930s remains a fascinating intellectual challenge.” Ben. S Bernanke, Essays on the Great Depression, 2000
As I have noted many times, Bob was the one who activated me in 2002. Picture a guy driving around Eastern Massachusetts looking for one of the safest banks, per Bob’s Conquer the Crash, before finally settling on a US Treasury ‘only’ Money Market fund that I still use to this day.
Doug on the other hand was a weekly read for me with his Credit Bubble Bulletin, which methodically chronicled the gathering imbalances (to put it very mildly) in an increasingly dysfunctional credit and monetary system that would eventually resolve into Armageddon ’08.
I have recently subscribed to Bob’s Elliott Wave Theorist for the first time in many years. I am often in disagreement with Bob’s conclusions, which is exactly why want to know what Bob thinks, especially now. I have several services that are outside of my area of expertise and/or viewpoint, because if I am going to provide a service myself, it simply has got to be the most no-bullshit, grounded service I can make it.
Part of that is a willingness to pay for the premium analysis of Prechter, B.I.G., McClellan Financial, Sentimentrader and the premium chart package at Stockcharts.com. I mean, what does it say if a professional newsletter writer is not even willing to spring for all the charting tools and instead uses the cheap looking free stuff?
Anyway, back on message. Bob Prechter’s new Theorist is just out and the first 2 pages are available for free, with no further obligation. In these 2 pages he unsurprisingly beats up on gold and silver. Beyond that is a lot of technical stuff on the stock market’s fate. Again, I reiterate that Prechter serves as a gut check for me. I do not get in line and do what he – nor anyone else – instructs me to do. But success in the markets is about taking in valid opinions (and tuning out a hell of a lot more) and then synthesizing them into one’s own narrative, not trying to be a know it all guru. And yes, in my opinion Prechter is sort of a know it all; and a really scary one at that.
As for Doug, here is the latest in his ongoing chronicling of an unmanageable credit bubble that has shape shifted (to sovereign debt), but certainly not terminated.
Sometimes I list names of the people responsible for ‘creating’ me, activating me and pulling me out of the conventional world and into this rabbit hole. Well, Doug Noland and his Credit Bubble Bulletin is right up there. Biiwii.com recently received permission to publish Mr. Noland’s work each weekend. This week’s CBB is a particularly excellent read.
The Myth of Deleveraging
Many of us go on about inflation, debt, the credit bubble, the falseness of official economic data reporting, the moneyness of money, etc. But Doug Noland breaks it all down and shows why the system is on auto-inflate and why it remains broken despite what the mainstream media may try to soothe-say to the public.
“The history of money is a sad state of affairs. Failing to learn from a litany of previous monetary fiascos, “money” is these days being abusively over-issued. And when the marketplace inevitably decides that over-issuance (in conjunction with only deeper structural maladjustment) has sufficiently impaired the “moneyness” of federal and related debt, there will be no one to step in to backstop Washington’s Creditworthiness. There will be no entity left with the wherewithal for backstopping system “moneyness,” as the Treasury and Federal Reserve have done for Trillions of intermediated mortgage debt since the bursting of the previous Bubble. Moreover, in the meantime, outrageous fiscal and monetary policies will continue to foment uncertainties that will impinge the type of sound investment and wealth creation necessary to get our economy on sounder footing.”
Separately, we also received permission from Tom McClellan at McClellan Financial to publish his weekly ‘Chart in Focus’. Here is the most recent one.
40-Year Cycle in DJIA
These two writers will be the highlight of Biiwii.com’s weekend reading here: http://www.biiwii.com/analysis.htm every Saturday morning.