There is little doubt the global economy is slowing rapidly and the US economy is much weaker than the mainstream media and government portends it to be. Former Federal Reserve Chairman Alan Greenspan recently warned world leaders:
"Global effective demand is extraordinarily weak - tantamount to the late stages of the great depression."
We must be looking at the same economic numbers as Greenspan because we don't believe he is exaggerating! Greenspan also states that:
"Capital investment is key to productivity growth"
Capital expenditure is in free fall in the US and has reached the point where 90% of the last quarterly earnings of the S&P 500 saw profits used for buybacks and dividends. This leaves a maximum of 10% available for CAPEX, with most of that being deployed offshore. This is now of crisis proportions for the short and intermediate viability ofthe US Economy. Unfortunately, few leaders like Greenspan are willing to speak out publically.
This months report exhaustively shows the seriousness of the US Economic situation and why there is a real possibility of recession. The Federal Reserve must be well aware privately of this possibility, which will force them to keep rate increases on hold for longer than currently anticiapted. Irrelevant of short term rate policy decisions the Federal Reserve must not allow interest rates to rise or the US government will be unable to pay the interest rate on its debt.
This is one of the reasons that QE has effectively been targeted as a debt liquidation program to buy back US Treasuries. The result is the interest paid on these US Treasuries by the Treasury department is returned to them by the Fed as the Fed's profit. This shell game removes interest payments in a stealth fashion. This slight of hand works as long as the debt is continuously rolled over, which the Treasury and Fed could do ad infinitum.
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CRACKS IN THE FACADE - Chaotic Turmoil A Sign of What is to Come
If we are 6 years into the Recovery why does the ECB need to now initiate a 1.1T Euro Quantitative Easing program? We already had various versions of the ECB programs of LTRO & TLTRO as well as numerous bank stress tests that proclaimed the banks had a ‘clean bill of health’! What has changed?
Maybe the truth is nothing changed and that is the problem. Nothing was ever solved, just papered over!
I have lost track after seven consecutive quarters of recession which countries were out and back in recession. It doesn’t really matter. The EU is in recession and things are only getting worse.
We are told QE is needed because inflation is too low and they need to fight deflation. When was it that inflation was suddenly good for people? It isn’t! It is good for those with too much debt, such as the government and banks. Deflation is good for the people such as plummeting prices at the gas pump.
So clearly the banks are still in trouble!
We have previously talked extensively about the slowing global economy, the deterioration in top line revenue growth, reduced capital investment expenditures and slowing liquidity flows. They are all coming home to roost, which in the near term will mean market volatility.
However, the Fed has $300B waiting in Reverse Repos to dampen any potential weakness which may affect collateral asset values too significantly. The central bankers simply cannot afford to have financial markets fall anymore than to a level which simply reduces some of the present speculation “juices”. The central bankers must ensure that nothing causes any 'contagious' disturbances within the highly over-leveraged collateral base which is supporting this artifical asset 'edifice'.
In the very short term stocks are topping, the dollar is topping, the Euro is bottoming, Oil is bottoming, Gold, Silver and Mining stocks are bottoming, and Bonds are rising with further to rise. Bonds will soon be higher than they have been in decades.
Once these obvious "red flags” are sold as “unimportant” to underlining assets values, we will head higher. This is what you can expect in a manipulated market before the central planners lose control and the market re-exerts itself.
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