Tuesday, February 04, 2014

Is a new crash coming?

Many voices are hinting, or stating, that we face ominous signs. One prophet of doom is a writer named Mike Whitney...
The Fed’s easy money policies have pushed margin debt on the New York Stock Exchange (NYSE) to record levels laying the groundwork for a severe correction or another violent market crash.

In December, margin debt rose by $21 billion to an all-time high of $445 billion.
Oh dear. I think it was John Kenneth Galbraith who said that, in the stock market, every generation learns the dubious "magic" of buying on margin. And then disaster hits, lessons are learned, and things stay more or less normal for a few decades. Then the siren call of ludicrously high margin debt is heard once again...

Our current situation is unusual in that a very recent disaster taught us nothing. Five+ years after the crash of 2008, we're still acting like idiots.
Investors have shrugged off dismal earnings reports, abnormally-high unemployment, flagging demand, droopy incomes, stagnant wages and swollen P/E ratios and loaded up on stocks confident that the Fed’s infusions of liquidity will keep prices going higher. It’s only a matter of time before they see the mistake they’ve made.
Here’s more on margin debt from Wolf Richter at Testosterone Pit:
“On the New York Stock Exchange, margin credit has been hitting new records for months. All three mega-crashes in my investing lifetime have been accompanied by record-setting peaks in margin debt. In September 1987, a month before the crash, margin credit peaked at 0.88% of GDP. In March 2000, when the crash began, margin credit peaked at 2.7% of GDP. In July 2007, three months before the downdraft started, margin credit peaked at 2.6% of GDP. Now, margin credit has already reached 2.5% of GDP.” (“Plagued By Indigestion, Fed Issues Asset-Bubble Warning”, Testosterone Pit)
Stock market crashes are always connected to massive leverage, loosey-goosey monetary policy and irrational exuberance (“excessive risk taking”), the toxic combo that presently rules the markets. The Federal Reserve is invariably the source of all bubblemaking and financial instability.
What is to be done? I'm starting to think: Nothing.

Nothing is politically possible.

The only smart move is for politically engaged people to have a narrative ready when that famous fan says hi to the fecal matter. Maybe Naomi Klein is right: Truly important change becomes do-able only after a shock. The Milton Friedmanites will certainly exploit the coming opportunity.

They stand to benefit because they have a narrative. The other side, the Good Guy side, doesn't. Just look at the (non-)answers I received when, in the preceding post, I asked "What is to be done?"

A lot of people fought hard to make sure Janet Yellen got appointed to the Fed. Maybe Larry Summers should have gotten the gig. It would have been more pleasant to have Summers to blame after everything goes to hell.

Speaking of narratives: The Wall Street Journal has published a piece claiming that the "war on the one percent" is actually code for old-school anti-Semitism.

Expect to hear that meme a lot more. It's nonsense, of course.

Read the article: You will rarely encounter a more daunting collection of emotionally-resonant scare-words that never coalesce into a comprehensible argument. It's a classic piece of propaganda.

When you get down to it, the propagandists for the plutocracy don't really have many cards to play. They can commie-bait us or they can Auschwitz-bait us. And after that, what can they do?

You can expect to see many more well-paid media shriekers offer up this sort of word salad:

"So, you want those 85 people at the top to have less? Well, you know who else wanted a more equitable distribution of wealth? Hitler! Yes, Hitler tossed a bunch of Jews into the gas chambers, and now YOU want THIS! Occupy Wall Street. The gulags. Neville Chamberlain. Karl Marx. Hitler. Marx. Hitler. Marx. Hitler. Marx. Hitler. Hitarx. Mitler. Adolf Marxlegruber. Karl ad Hitlerum. And Michael Moore wants to eat your puppy. Alive. That's right. That's what will happen if you say you want want income nequality to be more like the way it was under Eisenhower: Michael Moore will come to your house, barge through your front door and make you watch as he EATS YOUR FUCKING PUPPY. And then all the Jews are going to be rounded up. Really, the only way to stop another Auschwitz from happening is to give even more to the one percenters. Perhaps we should pass around a collection plate for Lloyd Blankfein and the Koch Brothers. You don't want me to call you an anti-Semite again, do you? GIVE UNTO LLOYD! NOW!!!"

Hey, that was fun. Maybe I should get a gig writing propagandistic nonsense for the Wall Street Journal.
Comments:
I think it is fair to say I am as sensitive to anti-semitism as any commentator here. For example, Counter-Punch, the magazine you linked to at the beginning of the post, is anti-semitic. http://www.dailykos.com/story/2013/05/04/1206902/-An-Apology-for-the-Counterpunch-Diary However, Perkins original article, which compared raising taxes on the rich to the holocaust is offensive precisely because it trivializes the holocaust. Ms. Wisse's article is harder to follow than Karl Marx. Her historical errors, (Italian fascism was decidedly anti-semitic and de jure anti-semitic, Marx may or may not have been anti-semitic, there being a bit of controversy about that, and her discussion of the origins of anti-semitism is shallow at best), are stunning for a scholar. That there are anti-semites in the on both sides of the political aisle is undeniable, but the problem of wealth inequality has nothing to do with anti any religion.
 
Lets look at the retired for a moment.
Many bought a home a long time ago and basically rode the increase in home values throughout their adult life.

Did you know that 99% of all seniors can't take any equity out of their home because their social security income is too low!

The only way is via a reverse mortgage, which for the frugal, is the equivalent of giving half of the home's value to the mortgage insurance industry via mortgage insurance premiums.

The home equity, if properly and logically apportioned in small amounts every month for the benefit and comfort of the elderly homeowner, would also replenish their local community with job creating wealth.

Instead, their home, aka a small community bank, has been locked by Government loan regulations that are unfair to the elderly.

The banks remain ready to foreclose on the elderly and their six figure home values at the first opportunity.

" Debt Suspension Rights article on Sequestration of the Elderly's Wealth
 
Joseph, Italians are against anybody who hasn't tried their food.
 
Alessandro, in my experience, Jews know Italian food almost as well as they know Chinese food. Deli food is in, what, maybe third place.
 
Some are even saying that the belief that a small number of rich bastards manipulate events from behind the scenes is anti-Semitic even when the holder of the belief doesn't have Jewish money in mind. I'm not joking. I came across that line being pushed in a Polish context.

The sad reality is that if somebody hasn't been called anti-Semitic, they're doing something wrong.

As for margin, the stock market is itself a kind of derivatives market. The markets where instruments are traded in which the underlying is itself a stock, or stock index, are really derivatives derivatives markets. Such business dwarfs stock trading by a large factor, and it's all based on margin and always has been. Most of the latter business doesn't even go through a market; the instruments are exotic and bespoke and the trading is done bank-to-bank, sometimes with a hedge fund as intermediary.

Of course a new crash is coming - and much worse. The 'climate change' meme is already being used as a carrier for 'food security'.

As Marx said, the problem isn't the size of the bowl or the number of workers' spoons.
 
"What is to be done? I'm starting to think: Nothing.

Nothing is politically possible.

The only smart move is for politically engaged people to have a narrative ready when that famous fan says hi to the fecal matter.
"

Agreed.

But our need to find food may be more pressing. And the internet isn't going to last forever.

I was wondering for a few years how the plutocracy would continue to get its messages into people's heads when the power lines are down. Then came 'smartphones'.

"When you get down to it, the propagandists for the plutocracy don't really have many cards to play. They can commie-bait us or they can Auschwitz-bait us. And after that, what can they do?"

But it's not a cardgame or a debate, and there's no 'after that' in that sense.

A lot of propaganda uses tried and tested methods that are very old and continue to work as well as they've always done.

 
(Edit: shit, I forgot to sign this before submitting it. Apologies. b)

"What is to be done? I'm starting to think: Nothing.

Nothing is politically possible.

The only smart move is for politically engaged people to have a narrative ready when that famous fan says hi to the fecal matter.
"

Agreed.

But our need to find food may be more pressing. And the internet isn't going to last forever.

I was wondering for a few years how the plutocracy would continue to get its messages into people's heads when the power lines are down. Then came 'smartphones'.

"When you get down to it, the propagandists for the plutocracy don't really have many cards to play. They can commie-bait us or they can Auschwitz-bait us. And after that, what can they do?"

But it's not a cardgame or a debate, and there's no 'after that' in that sense.

A lot of propaganda uses tried and tested methods that are very old and continue to work as well as they've always done.
 
https://www.google.com/search?q=kosher+italian+restaurant&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
 
Alessandro, of course! I had not thought of the big picture. The banks won't let responsible reliable seniors take any equity out of the home they've owned for 40/50 years not really because of the small SS income but because they want to sell them these reverse mortgages, if not force them out of their homes! Thanks for the link.
 
prowlerzee, the mechanism being used to freeze the elderly's home equity so they can't access it, aka Elderly home equity sequestration, is income level.

Set the qualifying income level for HELOC's above what 99% of seniors get for S.S., and the trap is set.

Meanwhile, seniors with credit card debt see their monthly debt total rise because of the high interest rates. Taking out a HELOC to pay off the credit card debt might put them back in the black again.

Meaning the elderly can make their monthly HELOC payment and use their remaining SS monthly liquidity instead of credit card debt for all of their other bills, maybe even have a few bucks left over.

Who would be against that? The financial elite, banks, wall street, and apparently our own government.
 
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