IPOs as Sentiment Indicator

Booms tend to amplify grandiose projects. Such is the reason for the skyscraper cycle or signature skyscrapers often herald market euphoria or market tops.

IPO trends also give us hints on the whereabouts of the stages of the stock market cycle.

LT Group’s [PSE LTG] successful follow on IPO, which raised $792 million or 32.8 billion pesos about a week ago, has been considered to be the “ largest-ever equity fundraising” targeted at local investors, and second largest only overall after BDO’s Unibank $1 billion fully-underwritten rights[1] offering last year.

LT Group had been sold as a vehicle according to Finance Asia to “broaden the exposure to the Philippine consumer sector”[2].

IPOs functions as a great gauge of market sentiment.

If the market is up, then growth of IPO activity follows and vice versa.

Such trend can be seen from 1994 through 2012. The above chart from PSE includes follow on offerings, deposit receipts offering, listing on 1^st, 2nd and the SME board and listing by introduction. Excluded are convertible preferreds and warrants.

Following the boom of 1993, in 1994 there were as many as 21 IPOs. That number declined since and shrivelled as the Asian Crisis emerged. Today we are about halfway 1994.

About 7-10 IPOs has reportedly been in the pipeline[3]. But if true, this will fall short of the 2012 levels.

I think that the rate of gains of the Phisix will increase the number of IPO applications which should be expected to surge as the Phisix mania escalates.

This will likely be pronounced as if the Phisix hits the 10,000 level or anywhere near that level, this year.

The US has been no different. Many of the 25 largest IPOS in the US took place during the the late stages of the boom which preceded the dot.com bust as shown by the scattergram.

A vast majority had been were communications companies.

Since the dot.com bust, US stocks has been in a decade long consolidation phase. Thus, big IPOs had been a rarity.

Nevertheless Visa, the biggest IPO so far raised $17,684 m was listed on March 18, 2008 prior to the Lehman bankruptcy.

Facebook had been the third largest at $16,007 listed on May 17, 2012. General Motors listed on November 17, 2010 raised $15,774 in May 17, 2010, all these are from Renaissance Capital[4].

If US stocks continue with its record breaking streak, then we should also expect IPO activities to follow.

Nonetheless IPOs can also serve as beacon to important inflection points of stock markets.

---

[1] IFR Asia EQUITIES: BDO Unibank sets price for US$1bn rights offer June 5, 2012

[2] Finance Asia LT Group raises $792 million from Philippines’ largest public deal April 18, 2013

[3] GMA News Online 7-10 firms to hold IPOs this year — PSE's Sicat March 12, 2013

[4] Renaissance Capital All Time Largest US IPOs - Top 25

Charts of the Day: Europe’s Phony “Austerity”

“Austerity” has become a very controversial political term. Politicians, bureaucrats and academics have been brawling over semantics and statistics. 

We are made to believe that "austerity" has all been about controlling and managing debts through fiscal deficits, or of reining government spending coupled by raising taxes and of more regulations.

Let us see from the mainstream perspective the state of “Austerity” in the Eurozone. 

Note: reference point matters. The period below covers 2007 or at the advent of the US crisis until 2012

The Zero Hedge gives us the following wonderful bar charts of the real state of “Austerity” in the Eurozone

Since 2007, government spending has ballooned over the Eurozone except for Iceland and Hungary.  Austerity, where?

Over the same period, public debt has also been expanding. Austerity where?

Even from the mainstream framework, the Eurozone has hardly implemented “Austerity”. No fiscal discipline enforced, debt has ballooned. Yet blaming phony austerity for economic woes represents nothing more than strawman.

The reality is that media, politicians and mainstream has fudged the essence of austerity. 

Austerity is not only about fiscal discipline, but more importantly about economic freedom or allowing the marketplace to direct resources from low value uses to higher value uses. This should go at the expense of government’s access on these limited resources. 

In other words, austerity is about productivity growth from economic freedom.

Paper Wall Street Gold: Has JP Morgan Engineered the Flash Crash?

Recent developments in the gold markets seem to have exposed, which partly validates my view (if the below report is accurate), that the flash crash in Wall Street-Government Paper gold had been contrived.

From CNBC:

J.P. Morgan accounts for nearly all of the physical gold sales that Comex in the last three months, blogger Mark McHugh wrote in a blog on Friday, which was reposted on ZeroHedge.

McHugh, who writes the “Across the Street” blog, cited a report on the CME Group web site that details metals issues and stops year to date for his findings.

In the report, “I” stands for issues, the number of contracts it sold, “S” stands for stops, meaning the firm took delivery of the gold, McHugh said. It shows that just one firm accounts for 99.3% of the physical gold sales at the Comex in the last three months, he said.

Doing the math on J.P. Morgan, McHugh says the brokerage “fumbled ownership” of 1,966,000 troy ounces of gold since Feb. 1 through the reporting date of April 25. (One gold futures contract is 100 troy ounces.)

That nearly 2 million ounces of gold is 74% more gold than the U.S. Mint delivered through the U.S. Mint’s American Eagle program in all of 2012, said McHugh.

“One thing’s very clear: When it comes to selling physical gold, J.P. Morgan is acting alone,” he said.

Gosh. 99.3% of gold sales contracts.

 

Two days ago, Zero Hedge questioned the steep fall on JP Morgan’s eligible inventories (bold and italics original)

What many may not know, is that while registered Comex gold has been flat, the amount of eligible gold in Comex warehouses (the distinction between eligible and registered gold can be found here) in the past several weeks has plunged from nearly 9 million ounces, to just 6.1 million ounces as of today- the lowest since mid-2009.

What nobody knows, is why virtually the entire move in warehoused eligible gold is driven exclusively by one firm: JPMorgan, whose eligible gold has collapse from just under 2 million ounces as of the end of 2012 to a nearly record low 402,374 ounces as of today, a drop of 20% in one day, though slightly higher compared to the recent record low hit on April 5 when JPM warehoused commercial gold touched a post-vault reopening low of just over 4 tons, or 142,700 ounces.

This happened just days ahead of the biggest ever one-day gold slam down in history.

Some questions we would like answers to:

1. What happened to the commercial gold vaulted with JPM, and what was the reason for the historic drawdown?
2. Gold, unlike fiat, is not created out of thin air, nor can it be shred or deleted. Where did the gold leaving the JPM warehouse end up (especially since registered JM and total Comex gold has been relatively flat over the same period)?
3. Did any of this gold make its way across the street, and end up at the vault of the building located at 33 Liberty street?
4. What happens if and/or when the JPM vault is empty of commercial gold, and JPM receives a delivery notice?

Inquiring minds want to know...

Adding up the pieces of the jigsaw puzzle.

Falling comex gold warehouse inventories—both from the registered (top) and eligible (bottom) categories—appears to be consistent with the record sales exhibited by retail physical “real” gold markets worldwide. Both charts are from 24gold.com.

A drawdown in the Comex inventories may have been channeled to the physical markets, which also means that Wall Street-Central banks may have lesser leeway to continue with their stealth suppression attempt.

But marked distinction between the withdrawal in “registered” gold which is reportedly the “physical” inventory relative to the eligible “gold” which is “some else’s inventories” seems like another puzzle. Add to this JP Morgan’s collapsing ‘someone else’s’ gold holdings, which partially matches the reported dominance 99.3% of selling contracts over the last 3 months. Has JP Morgan shorted gold deposits of their clients? Could the client/s be the New York Federal Reserve? Or the US Federal Reserve?

Such mysteries will likely be made public soon.

I share the conclusions of Alasdair Macleod from GoldMoney.com:

For the last 40 years gold bullion ownership has been migrating from West to elsewhere, mostly the Middle East and Asia, where it is more valued. The buyers are not investors, but hoarders less complacent about the future for paper currencies than the West’s banking and investment community. There was a shortage of physical metal in the major centres before the recent price fall, which has only become more acute, fully absorbing ETF and other liquidation, which is small in comparison to the demand created by lower prices. If the fall was engineered with the collusion of central banks it has backfired spectacularly.

The time when central banks will be unable to continue to manage bullion markets by intervention has probably been brought closer. They will face having to rescue the bullion banks from the crisis of rising gold and silver prices by other means, if only to maintain confidence in paper currencies.

A blowback may be in the process.

Quote of the Day: Evil fueled by Nationalism

Café Hayek’s Professor Don Boudreaux in a takedown of a book advocating immigration restrictions based on nationalism describes the “evil fueled by nationalism”:  

...the evil powered by anthropomorphizing collectives – to the evil born of the mental practice of aggregating thousands or millions of individuals into one lump, calling the imaginary lump a “nation,” and then cavalierly assuming that that lump has moral standing on par with – nay, superior to – that of flesh-and-blood men and women and children…

No concept has been responsible for more bloodshed and tyranny than has that of nationalism.  In its frightful name individuals have been restricted, restrained, regulated, subsidized, brainwashed, taxed, and sacrificed.  And let there be no mistake: nationalism that comes clothed as something more merciful or modern than Nazism is no less the evil because the garb it wears is superficially different from the garb worn in Germany 80 years ago by those who professed concern with protecting the “national identity.”

Nationalism, which indeed signifies as a feel good groupthink, has been promoted by governments and their institutional apologists to justify political control and taxation, for the purpose of preserving and expanding the privileges of the political elites, in the name of public weal.

Peter Schiff on US GDP Accounting Hocus Focus

Slow economic growth? No problem. All what is needed is for the government to change the methodology of computation. 

Explains Peter Schiff  at the lewrockwell.com (bold mine) [italics-my comment]

In the simplest terms, GDP is calculated by combining a nation's private spending, government spending, and investments (while adding trade surplus or subtracting trade deficits). Business spending on R&D, a portion of which comes in the form of salaries, has traditionally been considered an expense that does not explicitly add to GDP. But now, the United States will lead the rest of the world in redefining GDP. Washington has now declared that the $400 billion spent annually by U.S. businesses on R&D will count towards GDP. This equates to about 2.7% of our nearly $16 Trillion GDP. The argument goes that, for example, the GDP generated by iPhones has far exceeded the cost spent by Apple to develop the product. Therefore, Apple's R&D is not an expense but an investment.

The BEA also argues that the cost of producing television shows, movies, and music should count as investments that add to GDP. Supporters of the change often hold up the blockbuster television comedy Seinfeld as an example. Given that the show's billions in earnings far exceeded its initial costs, they argue that the production expenses should be considered "investments" (like R&D) and be added into GDP.

Economists who have staked their reputations on the efficacy of Keynesian growth strategies have argued that such changes will more accurately reflect the realities of our 21st century information economy. But their analysis ignores the failures so often associated with R&D and artistic productions. For every breakthrough iPhone there are dozens of ill-conceived gizmos that never get off the drawing board. For every Seinfeld, there are countless failures and bombs that leave nothing but losses. (Such is called survivorship bias-Benson)

In essence, the new methodology is an exercise in double accounting. For instance, suppose a company employs an accountant who works in the sales department, who is then transferred to the R&D department at the same salary. He still counts beans but now his salary will be billed to the R&D budget rather than sales. In the old methodology, the accountant's impact on GDP would come only from the personal consumption that his salary allows. Going forward, he will add to GDP in two ways: from his personal consumption and his salary's addition to his company's R&D budget. The same formula would apply to a trucker who switches from a freight company to a movie production company (for the same salary). If he moves refrigerators, he only adds to GDP through his personal spending, but if he hauls movie lights, his contribution to GDP is doubled. It makes no difference if the movie bombs.

These double shots are different from traditional investments, which inject savings (or idle cash) back into the marketplace. Until money from personal or corporate savings is invested, it is not adding to GDP. (This is why statistical GDP is an unreliable gauge for real growth-Benson)

Another change that will artificially boost GDP concerns how government salaries will be counted. Unlike most private sector compensation, wages, salaries, and pension contributions paid to government workers are added directly to GDP. This distinction makes sense and eliminates potentially double accounting. Profits generated by private companies add to GDP when they are ultimately spent or invested by the company. Wages reduce profits, and therefore reduce GDP. But that reduction is cancelled out by the consumption of the employee receiving the wages. Governments do not generate profits, so salaries are the only way that public spending adds back to GDP.

The new system magnifies the GDP impact of government pensions, which are a principal component of public sector compensation. Going forward, the pensions will be calculated not from actual contributions, but from what governments have promised. Under the old system, if a state had a $10,000 pension obligation but only contributed $1,000, only the $1,000 would be added to GDP. Under the new system the entire $10,000 would be counted. So now governments can magically grow the economy simply by making promises they can't keep.

The bottom line is that now certain private sector salaries (in R&D and entertainment) will be counted twice and public pension contributions will be counted even if they aren't made. The economy will not actually be any larger or grow any faster, but the statistics will claim otherwise. With the stroke of a pen, our debt to GDP ratio will come down. Will this soothe the fears of our creditors? Will critics of big government take comfort that spending as a share of GDP may be lower? My guess is that the government is confident that its trick will work, and that distracting attention with a statistical illusion is the sole motivation for the change.

Pls read more of the accounting chicanery here.

So by changing the accounting method, the US government hopes that the risks will be simply wished away from her profligate spending ways which also justifies more of the same. 

Yet another proof that governments have been engaged in wholesale manipulation markets directly and indirectly.

India: The Rise of a Nuclear Power

A brewing cold war has been developing which has not been in the radar screens of the mainstream.

Writes historian Eric Margolis at lewrockwell.com:

While the United States beats the war drums over North Korea and Iran’s long-ranged nuclear armed missiles –which they don’t even possess – Washington remains curiously silent about the arrival of the world’s newest member of the big nuke club – India.

In January, Delhi revealed a new, 800km-ranged submarine launched missile (SLBM) designated K-15. Twelve of these strategic, nuclear-armed missiles will be carried by India’s first of a class of domestically built nuclear-powered submarine, "Arihant." India is also working on another SLBM, K-5, with a range of some 2,800km.

These new nuclear subs and their SLBM’s will give India the capability to strike many high-value targets around the globe. Equally important, they complete India’s nuclear triad of nuclear weapons delivered by aircraft, missiles, and now sea that will be invulnerable to a decapitating first strike from either Pakistan or China.

Last February, it was revealed that India is fast developing a new, long-ranged, three-stage ballistic missile, Agni-VI. This powerful missile is said to be able to carry up to ten independently targetable nuclear warheads, known as MIRV’s.

Agni-VI’s range is believed to be at least 10,000km, putting all of China, Japan, Australia, and Russia in its range. A new 15,000km missile capable of hitting North America is also in the works under cover of India’s civilian space program. India is also developing accurate cruise missiles and miniaturized nuclear warheads to fit into their small diameter.

These important strategic developments will put India ahead of other nuclear powers France, Britain, North Korea, and Pakistan, about equal in striking power to Israel and China, and not too far behind the United States and Russia.

Delhi says it needs a nuclear triad because of the growing threat of China, whose conventional and nuclear forces are being rapidly modernized.

This writer has been reporting on the nuclear arms race between India and China since the late 1990’s. China has replaced Pakistan as India’s primary nuclear threat. Even so, Indian and Pakistani nuclear forces remain on a frightening hair-trigger alert within only a 3-5 minute warning time of enemy attack, making the Kashmir cease-fire line (or Line of Control) the world’s most dangerous border.

Pls. read the rest here.

World spending on nuclear weapons as of 2011 from icanw.org

US Informal Economy estimated to have DOUBLED to $2 Trillion since 2009

All the financial repression via bailouts, rescues, inflationism, new taxes and regulations from the US mortgage-banking crisis of 2008 have driven many of the average Americans to the informal economy.

From the CNBC:

The growing underground economy may be helping to prevent the real economy from sinking further, according to analysts.

The shadow economy is a system composed of those who can't find a full-time or regular job. Workers turn to anything that pays them under the table, with no income reported and no taxes paid — especially with an uneven job picture.

"I think the underground economy is quite big in the U.S.," said Alexandre Padilla, associate professor of economics at Metropolitan State University of Denver. "Whether it's using undocumented workers or those here legally, it's pretty large."

"You normally see underground economies in places like Brazil or in southern Europe," said Laura Gonzalez, professor of personal finance at Fordham University. "But with the job situation and the uncertainty in the economy, it's not all that surprising to have it growing here in the United States."

Estimates are that underground activity last year totaled as much as $2 trillion, according to a study by Edgar Feige, an economist at the University of Wisconsin-Madison.

That's double the amount in 2009, according to a study by Friedrich Schneider, a professor at Johannes Kepler University in Linz, Austria. The study said the shadow economy amounts to nearly 8 percent of U.S. gross domestic product.

Whether in politics (Boston’s martial law) or in economics (informal economy) the US appears to be sliding down the path towards a banana republic.

Why?

The informal, underground or shadow economy have always been a product or outcome of the politicization of the marketplace.

Proof?

Regulations have been skyrocketing in the US. A big segment of growth comes from the post-crisis years. The number of pages of regulations from the Federal Register has ballooned almost sevenfold since 1940s. Chart from Political Calculations Blog.

Additional regulations means more taxes too.

Number of pages of Federal Tax Rules has swelled by about eight times since the 1940s, where the bulk of the recent expansion of tax rules also occurred during the years of post-US mortgage banking crisis . (Chart from Cato’s Chris Edwards)

Regulations signify as hidden taxes too. 

Estimated compliance costs is at $236 billion in 2012. This would account for 1.5% of the US GDP. By the way, $2 trillion informal economy is about 12.7% of the $15.7 trillion US GDP in 2012. 

Yet there are indirect regulatory costs too.

Overall, the total estimated regulatory costs have been at $1.752 trillion in 2011 according to Competitive Enterprise Institute.  That’s more than 10% of the US economy. Such costs must be a lot more today.

Statistics would not really capture the lost business opportunities from the burdens of additional taxes, regulations and other politics based programs because they are largely invisible or unseen by the public. For instance, I recently pointed out how state authorities shut down a child’s lemonade stand for the lack of license. So one has to be leery of any supposed analytical insights entirely focused on the shouting of statistics or on the dependence on empirical methodology.

We will have to add the burdens of tax and regulatory costs  from Obamacare and Dodd Frank.

That’s not all. There is also the enormous onus from entitlement spending. (chart from Heritage Foundation)…

…and the diminishing purchasing power of the US dollar from the printing presses of the US Federal Reserve since 1913 (chart from visual.ly), whose boom bust cycles have led to the justification of more interventions or “never let a crisis go to waste” dogma. 

So such vicious cycles of government expansion leads to a debt trap.

To cap it, increasing politicization of the marketplace means higher costs of doing business which entails more limitations or restrictions on economic opportunities and diminishing productivity and capital accumulation, which extrapolates to stagnation or a decline in living standards.

Thus when people’s survival is at stake, and where costs of doing formal business is high and increasingly a hindrance, they resort to the informal, underground or the shadow economy.

The digital age via the web has also substantially contributed to the expansion of the informal economy, where the former provides the platform to conduct businesses outside the prying eyes of the government. The emergence of the Bitcoin is a wonderful example.

The growth in the informal economy will also likely be manifested in the evolution of politics. This should translate to a growing divide or the deepening polarization between the productive class and political parasites (political class, cronies, welfare-warfare beneficiaries and the bureaucracy).

Although while informal economies represent as good sign of people’s attempt to generate productivity outside the political realm, they represent as an implied or passive revolt against politics. Alternatively, this also could mean social unrest ahead.

Updated to add: Informal economies will be smeared by the mainstream as illegal and immoral operations (such as drugs, money laundering and etc...). While there could be some, most of them aren't. This would represent as propaganda to cover up the failure of governments or to shift the burden of blame on the public rather than they owning up to their failures.

Video: Judge Andrew Napolitano on Fake FBI Terror Plots

Former judge of the Superior Court of New Jersey, Andrew P. Napolitano narrates of the US government's history of creating 'false flags' or fake terror plots at the Fox News Channel.(hat tip Lew Rockwell.com)

Quote of the Day: Watch Asset Classes that are the Most Vulnerable to Wealth Taxes

When a government goes bust in a democracy (and most Western governments cannot possibly meet their unfunded liabilities) the majority of people who have no assets or just a few assets will always find it appealing to collect money from the evil “fat cats” (in the case of the US, the 1% who own 42.7% of financial wealth). It should be obvious that if 80% of the population owns just 7% of financial wealth, they will be tempted to transfer at some point in future, part of the wealth of the 5% or 10% richest Americans to the masses that have no savings.

The problems we face today are there because the people who work hard for a living are now vastly outnumbered by those who vote for a living.

Normally, we analyze various asset markets and individual investment opportunities according to their merits. But now, we also need to think which asset classes are the least and which ones are the most vulnerable to wealth taxes.

(bold mine)

This perspicacious insight is from Dr. March Faber from his latest market commentary. The point is one should think "out of the box". This isn’t your daddy’s markets. Other experts such as PIMCO’s Bill Gross has also echoed on this. 

In the recognition that financial markets are being explicitly and implicitly manipulated, looking at the effects of interventions would be the best approach rather than to just mimic or parrot what the mainstream says or thinks. 

The above also is a great description of today's mob rule politics.

Abenomics Fails at Stoking Price Inflation, CPI down for 5 straight months

So far Abenomics has flagrantly failed to attain the “inflation” policy goals.

From Reuters:

Japan's core consumer prices fell 0.5 percent in March from a year earlier, down for a fifth straight month, government data showed on Friday, suggesting the Bank of Japan faces a tough task to achieve its 2 percent inflation target.

The fall in the core consumer price index, which includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood, compared with a median market forecast for a 0.4 percent annual fall. It followed a 0.3 percent decline in the year to February.

This is why I think that the Japan’s stock markets as seen by her major equity benchmark, the Nikkei 225, continues to surge.  This in spite of growing signs of the supply side dislocations in the real economy brought about by price instability from Abenomics.

The Nikkei has been up by 4.5% based on yesterday’s close relative to last Friday. The rallying Nikkei comes amidst what appears as a short term consolidation phase in the Japanese yen. (chart from stockcharts.com)

Also rallying stock markets in Japan has had modest impact on the yields of 2 and 5 year JGBs which remains above the one year levels. (chart from Bloomberg)

In other words, bond markets have remained skeptical of the persistence of consumer price disinflation while her stock markets continues to trek higher, out of higher inflation expectations from BoJ's steroids.

Meanwhile gold priced in the yen has shown modest signs of rebound even when Japan's retail or physical gold market has been very robust. (chart from gold.org). So we have a mixed picture.

Of course, given the brazen initial failure of Abenomics to stoke price inflation, this means that BoJ’s Haruhiko Kuroda and PM Shinzo Abe may consider applying more of the same. They could even think of tripling the monetary base.

Yet further expanding the already reckless Abenomics is like playing with fire,  which will push Japan into a debt or currency crisis sooner than later, and where everyone will get singed.

Central Banks Buy Stock Markets in Record Amounts!

I always try to point out of the parallel universe or the detachment between financial markets and the real economy.

I also kept pounding on the table that stock markets are being propped up by central banks via QE and zero bound rates and not by any conventional methodology.

Now many central banks admit to buying record amounts of equities.

From Bloomberg:

Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.

In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves…

Managers of banks’ assets are looking for alternatives to holding government bonds after efforts to stimulate growth from the Federal Reserve, the Bank of Japan and the Bank of England helped send yields near to record lows. Central banks’ foreign- exchange holdings have increased by about $8.5 trillion globally in the past decade, exceeding levels needed for day-to-day currency administration.

First, central banks put up a zero interest rate environment. Then they flood the system with cash via asset purchases principally directed to bonds.

Next, they use low interest rates (as a strawman) to justify supposed asset “reallocation” into equities.

Media projects yield chasing phenomenon to have seeped into the central bankers mentality. From the same article.

Central banks’ purchases of shares show how the “hunger for yield” is changing the behavior of even the most conservative investors, according to Matthew Beesley, head of equities at Henderson Global Investors Holding Ltd. in London, which oversees about $100 billion.

While part of equity purchases may indeed signify as yield chasing, a bigger segment has been politics.

Central bank investing in equity markets functions as subsidy or via redistribution of public money to stock market participants. That subsidy comes in support of the one of the biggest owners of stock markets whom are financial institutions e.g. investment trust, pension funds and insurance. Below chart from Bank of Japan’s flow of funds.

As I have long pointed out, central banks have imbued the Bernanke doctrine of propping up the economy via a supposed rekindling the “animal spirits” through stock market friendly policies.

As an academe Ben Bernanke wrote:

History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.

Mr. Bernanke’s preference of supporting asset markets has been converted into policies. This has been expressed in his 2010 speech, the portfolio balance channel, which explicitly states that the Fed’s buying of long term securities had been designed to “affect financial conditions by changing the quantity and mix of financial assets held by the public”. He reiterated the same in his Q&A segment in February report to congress stating the need to boost “household wealth--for example, through higher home prices” in order to promote spending. 

We really don’t need conspiracy theories. Market manipulation via indirect and direct interventions have been made official. 

Central banks outside the US has only made interventions more direct.

Nonetheless all these propping up of asset markets via inciting of the speculative frenzy, has reduced the incentive for the public to invest in productive enterprises (see UK as example) and has been ballooning a global pandemic of bubbles which commensurately has been increasing fragility of the overall financial economic system.

Rising stocks has engendered a manic phase as manifested by the portrayal of central bankers as superheroes.

Yet when stock market bubbles go bust, taxpayer money will get vacuumed into the sinkhole. Otherwise if the currency will be destroyed, skyrocketing stocks like in Zimbabwe in 2008 may only buy 3 eggs.

Will Abenomics Lead to a Food Crisis in Japan?

I have been saying that inflationism/currency devaluation leads to economic calculation problems that yields the opposite effects from the intended.

We are getting reports on this.

From Reuters:

However, in Japan, something odd is happening as a result of Abenomics — a big shortage of squid.

Japan Squid Fisheries Association (JAFRA) decided to halt all fishing operations this Friday and Saturday because a weaker yen is pushing petrol prices higher, to the extent that going out to the sea will bring a guaranteed loss. The yen has lost more than 13 percent against the dollar since the start of the year.

Squid fishing is highly energy-intensive because fishers use light to lure squid at night. Fuel makes up around a third of the cost of fishing.

There is a government subsidy for fishermen when energy prices surge. But according to JAFRA, even with the subsidy, the average loss per boat can go up to as much as 200,000 yen ($2,009) per year at the current dollar/yen exchange level of around 100.

The temporary halt is only affecting squid fishing, but people are worried other fishermen may be forced to follow suit if the yen weakens further. The Federation of Japan Fisheries Cooperatives is planning an emergency meeting to ask the government for more financial help.

Supply side adjustments won’t be able to cope with demand side dynamics mainly due to asymmetric responses to the distortions brought by unstable price levels. 

The end result, shortages and higher prices from shrinking markets (due to supply side constraints and reduced demand from consumer), lesser investments, and social disorder.

Will a food crisis follow?

Cash Hoarding No Security Against Confiscation, UK’s Panic Buying of Physical Gold

A gold bear analyst recently commented that the confiscation of bank deposits particularly in Cyprus represents a bearish factor for gold. The reasoning goes that deposit confiscation will motivate people to pull money out of the banking system and hold onto cash by storing them in pillow mattresses rather than own gold, because gold is subject to seizures.

Well lucky for the bloke that gold prices fell in his direction.

But such logic doesn’t stand on firm grounds. While gold is also subject to confiscations, hoarding cash does not secure one’s savings or purchasing power from government's predation.

Governments around the world has embarked on the trend to ban cash or to limit cash transactions. Such has been the case of Russia, Mexico, Italy, Spain, Louisiana in the US,  Greece and elsewhere. Scotland proposes to restrict use of cash on scrap metal sales, while Sweden’s anti-cash programs promoted by banksters have been stonewalled by the public.  

A few years back, I had a personal nightmare with Philippine airport authorities, who initially threatened confiscation of my excess cash holdings due to arbitrary Anti Money regulations that I have not been aware of.

And this is partly why people have sought alternative currencies such as the use of Tide detergent (in the US) or of Bitcoins.

As a side note, bitcoins after the recent crash, which ironically had been coincidental with gold’s flash crash, has began to show signs of recovery also along with gold prices.

In addition, governments confiscation of people’s savings are being done directly (deposits) and indirectly (inflation), so cash holdings provide no better safehaven alternative to gold. Both are subject to legal forfeitures but at least gold can preserve the purchasing power from growing aggressiveness by central banks to resort to the paper money solution. Central bankers have now been revered by media as superheroes. Move aside Iron Man and the Avengers, here comes Bernanke, Draghi, Kuroda, Carney, Tetangco and their ilk to save the world.

Yet events in UK has also been proving the opposite of such theory as the UK's physical gold market reveals of the same panic buying spree as elsewhere.

From Bloomberg: (bold mine)

Britain’s Royal Mint, established in the 13th century, sold more than three times more gold coins this month than a year earlier as prices declined.

Sales are more than 150 percent higher than last month, according to Shane Bissett, director of bullion and commemorative coin at the Royal Mint. Gold is down 11 percent this month, heading for the biggest drop since September 2011.

Gold markets operates in a distinct market relative to other commodity markets. Demand is hardly driven by consumption but by demand due to gold’s quasi money properties (store of value) or as seen by mainstream as “investment” and or from speculative functions or particularly reservation price model or from reservation demand.

Hence when media reports that physical gold inventories have been strained, then this means that much of the current cumulative physical gold holders, which consist of all gold that had ever been mined since history (171,300 tonnes), simply have resisted selling, since they don’t see current price levels as adequate.

Alternatively this means that when the physical markets have seen tight inventory pressures, which means that the current mining output can’t service (close to 2,500 tonnes annual), aside from where most current gold owners have resisted the temptations to sell, then much of the selling may have come from elsewhere.  They may come from stealth central bank selling via bullion banks or from Wall Street’s paper gold. Central banks own 19% of all above ground gold

In short actions in the physical "non-political individual" markets have been exposing on the attempts to manipulate the gold markets via bear raids using "Wall Street-government" paper gold.

The physical markets also reveals that gold hasn’t lost its luster as insurance and as safehaven alternative in the quest for the preservation of the purchasing power by the non-political public.

Parallel Universe: Record US Stock Markets and Falling Estimates of Corporate Earnings

With many benchmarks of US stock markets at record highs, conventional wisdom tells us that this must have been about beating earnings, perhaps also at record levels.

The Dow Jones Industrials (top pane) has clearly passed the 2007 threshold, while the S&P 500 (lower pane) has marginally breached through same levels. (chart from Bigcharts.com)

But conventional wisdom seems out-of-place or has been rendered irrelevant in today’s era of central banking wizardry.

The percentage of companies beating earnings (top pane) and revenues (bottom pane) expectations continues to be in a downtrend (chart from Bespoke Invest).

And such dynamics hasn’t been a short term anomaly, rather these has been THE trend since 2006 (green lines). The decline in the % of companies beating earnings and revenue estimates has been worsening since 2010 (red lines).

This deterioration in earnings and revenues can even be seen from a different perspective, or relative to the historical averages.

They show the same results.

The % of companies that missed estimates have jumped (left window top). Average earnings surprises has materially declined (top right window) as average revenue surprises turned negative (bottom window). All charts above from Zero Hedge

So it seems that a speculative frenzy has been in motion in US equity markets. The above also reveals of the parallel universe or of the flagrant disconnect between fundamentals and market prices.

This suggests that the orthodox wisdom where “corporate fundamentals” drive market prices seems to have been falsified by the actions of central bankers.

I mentioned above that the % of companies beating earnings and revenue estimates has been worsening since 2010, this seems to coincide with the re-acceleration of the Fed’s QE program from QE 2.0 in 2010 (chart from the Cleveland Federal Reserve).

And again this exhibits the substantial influence of central bankers or the US Federal Reserve in determining the direction of stock markets.

This also reminds me of the stock markets of two Latin American nations, Argentina (Merval-left) and Venezuela (IBVC-right), where both economies have been experiencing hyperinflation but in different degrees.

Skyrocketing stock markets for these countries are signs of monetary disorder or a blossoming of a currency crises rather than an economic boom or a credit bubble. (charts from Bloomberg). 

I am not suggesting that US markets have been suffering from the same bout of hyperinflation, rather I am saying that the record rise in US stock markets are most likely symptoms of monetary distress.

It pays to recognize the difference.