CENTRAL BANKS MANIPULATE
FINANCIAL MARKETS WITH PONZI'S SCHEME
This was said in May 8, 2016 & some people still
believe
that “ the holly spirit of the Market” should be revered.
It is exactly that Hillary & Mr Trump wants to continue.
Don't vote them. Vote Dr Jill Stein. Say NO to status quo
Don't vote them. Vote Dr Jill Stein. Say NO to status quo
Albert Edwards: "LET ME TELL
YOU HOW THIS ALL ENDS"
Submitted by Tyler
Durden , May 8, 2016
EXTRACTS from this investors view’ article
The dollar's recent rapid slide has been accompanied by a
constant backdrop of dovish cooing from the Fed. Until this week, SocGen's Albert Edwards notes that both equity and commodity
markets had embraced the weak dollar as the elixir to solve all their ills. That
relief, however, has now proved fleeting as fear of weak economic
activity has reasserted its influence on investors. The
weak dollar, Edwards warns, should be seen as
merely a shuffling of deckchairs on the Titanic before the global economy sinks
below the icy waves.
Risk assets are once again
refocusing on the increasingly dismal prospects for global growth rather than
the short-term relief of dollar weakness, according to Albert
Edwards. The US remains the main concern, although
the rapid unravelling of Abenomics in Japan and a likely imminent tightening of
monetary policy in China to snuff out yet another housing bubble in the major
cities also feature high on investors' worry list.
But it is in the US that growth concerns remain most
intense, with renewed weakness in the manufacturing ISM .. Yet there was some
optimism around after the GDP release
that non-farm businesses inventories have risen at a slower pace ie
only $61bn in Q1 2016 against $87bn in Q4 2015 and a much faster $110bn pace in
H1 2015. The slower pace of increase
means that non-farm inventories have been a drag on GDP for three successive
quarters. If you think that means that the inventory problem
is solved though, think again. It's not the level of inventories that are the problem,
but the level relative to sales which are at heights normally seen preceding or
at the depths of recession (see chart below).
It is disturbing for the growth
bulls that the recent slower pace of inventory accumulation has made absolutely
no dent on this overhang. We remind readers of our view that it is the business
investment cycle (fixed and inventory) which, despite comprising only 15% of
GDP, 'causes' recessions in an accounting sense. The chart below
shows that when yoy GDP is negative, the
contribution of business investment to that decline is virtually 100%,
ie recessions would seldom occur in the
absence of the business investment cycle. With
the US whole economy now plunging, the continuing inventory overhang is an
increasingly precarious sword of Damocles hanging over investors' heads as
profits swoon and liquidation beckons.
In addition to
Edwards reality check, Andrew Lapthorne, SG's quant guru, has been flagging
the following chart to clients... Firstly, we all know by now that US companies
consistently put the most optimistic spin on earnings to gratify both analysts
that follow their companies and investors who want to hear good news. These manipulated earnings are what is
reported each quarter and referred to as pro forma earnings. Andrew points out though that even moderately 'scrubbed' MSCI
trailing operating earnings have been falling away precipitately in the US
(this is a moderate scrub as opposed to a heavy scrubbing as defined by the EPS
reported on a GAAP basis). This ties up exactly with what the whole
economy profits data is also telling us. Most
notably the current divergence between trailing operating profits and pro forma
measures only normally occurs as a recession begins to unfold. This matters because the stock market eventually stops
reacting to the manipulated pro forma earnings and slumps in line with what is
really happening under the bonnet (or hood for my US readers).
SEE this reality
in the chart below Image location: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/05/06/20160508_edwards3_0.jpg
Let us return to the central
banks and the games they are playing with the markets. The chart below shows just how detached US
stocks have become from earnings (in this case we have used the MSCI
operating metric discussed above). This
is an exercise of stretching the PE elastic via loose monetary policy as far as
you can in an attempt to boost real economic activity. Ultimately, though, if the earnings
don't arrive, the elastic will snap back and hit you square in the face.
If you think the US situation looks bad, take a look
at the eurozone chart on the right below where earnings remain dead in the
water and PE expansion makes up well over 100% of the rise in equity indices. We
have previously lauded Mario Draghi's bubble blowing credentials as on par with
Alan Greenspan.
Big view at: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/05/06/20160508_edwards4_0.jpg
Edwards concludes by setting
the scene for what is to come...
Let me tell you how all this ends.
It ends with investors accepting that they can
pretend no longer and profits are sliding into recession.
It ends as the equity market spirals into a
deep bear market as company management reach the end of the road in the face of
the recessionary conditions and 'kitchen sink' years of EPS
manipulation.
It ends as corporate bond spreads explode as
years of excess debt accumulation lead to widespread corporate bankruptcies,
making the recession much deeper.
It ends with social unrest and double digit
budget deficits (again).
It ends with investors losing faith with the
Fed as the resumption of QE proves ineffective in reviving the economy.
It ends in deeply negative interest rates,
currency and trade wars, helicopter money and
ultimately inflation.
In a
nutshell, it ends badly.
One final thought: On the front page of
the Fitchburg Sentinel from July 31 1920, an exuberant business press
headlined: "Ponzi will not reveal business secret."
See photo
copy of "Ponzi will not reveal business secret." at http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/05/06/20160508_edwards5_0.jpg
This was published less than a month
before Charles Ponzi's scheme blew up.
As Edwards concludes,
actually, isn't this exactly what central banks have
done over the last few years to the financial markets?
….
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