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Fasten Your Seatbelts: June 2013 Could Be A Major Turning Point To The Global Financial Markets


Rick Santelli Rages: “What Is Bernanke So Afraid Of?”

BOB JANJUAH: Ben Bernanke Is Scared

He will be forced to taper.

Nomura’s bear Bob Janjuah believes the “why” is fear.

From his note last week:

So for me, ‘tapering’ is going to happen. It will be gentle, it will be well telegraphed, and the key will be to avoid a major shock to the real economy. But the Fed is NOT going to taper because the economy is too strong or because we have sustained core (wage) inflation, or because we have full employment – none of these conditions will be seen for some years to come. Rather, I feel that the Fed is going to taper because it is getting very fearful that it is creating a number of significant and dangerous leverage driven speculative bubbles that could threaten the financial stability of the US. In central bank speak, the Fed has likely come to the point where it feels the costs now outweigh the benefits of more policy.

 

Price of Gold Plunged, Panic Deepens on World Financial Markets

While the Fed’s official projections were upbeat, significant sections of the US ruling class are increasingly concerned about signs of a global slump, particularly in Asia and Europe, and the specter of deflation in the US economy. Wall Street, on the other hand, looks with dread on any significant improvement on economic growth and employment prospects, for fear the Fed will turn off the spigot of limitless and ultra-cheap cash, which is subsidizing super profits and rising executive pay packages.

Behind the Federal Reserve’s hints that it may wind down its asset-purchasing program lie worries that the vast amounts of cash that have been pumped into the financial system have created a speculative bubble of vast proportions, threatening a financial collapse that could dwarf that of 2008.

The fall in global markets on Wednesday and Thursday is an expression of the fear and panic that predominate on financial markets amid mounting concerns that the asset bubble is beginning to burst.

The market panic of the past two days demonstrates that none of the underlying issues that led to the 2008 financial meltdown have been addressed, let alone resolved. Far from engineering any real economic recovery, governments and central banks have merely papered over the contradictions in the global economy while further enriching the financial elite, on the one hand, and brutally attacking the working class, on the other.

The response of the ruling class to the latest eruption of the financial crisis will be to intensify the assault on social programs and workers’ jobs, wages and pensions.

 

 

After The Fed Shock, Markets Are Set For More Turmoil

Fasten your seatbelts. And expect lots of turbulence.

If that was the message Ben Bernanke was trying to deliver when he said the Federal Reserve could soon start scaling back its massive stimulus program for the U.S. economy, it’s safe to say investors received it loud and clear.

In fact, the sell-off in stocks, bonds and commodities that rippled around the globe after Bernanke’s remarks looks to some like the dawn of a new period of volatile, disorderly trade – a stark change from the calm that prevailed since the Fed began its most recent bond-buying program last autumn.

“People live in denial all the time,” said Kim Forrest, senior equity research analyst at investment management firm Fort Pitt Capital in Pittsburgh. “The thinking part of people’s brains understood that rates would have to go up sometime. But they weren’t ready to be told that reality starts now.”

That goes for companies who now face higher funding costs and investors who had borrowed money cheaply to trade.

 

 

Housing: From Recovery to Bubble–Already?

Only a year after the housing market bottomed, “bubble” talk has surfaced as soaring, double-digit price gains sweep markets across the country.

An open house in Cheviot Hills—a neighborhood in West Los Angeles—attracted 150 people and brought in 14 bids before the home sold for 7 percent above the listing price at $2.9 million.

A loft in Manhattan’s SoHo district recently sold for $3.25 million after a bidding war pushed the price 10 percent above the asking price.

In Chicago’s Wrigleyville area, a two-flat greystone was bid up to $850,000, 6 percent above asking price, and sold to a single-family home converter who plans to add another floor and put it back on the market for $1.8 million.

“Prices in some areas are just out of control,” said Scott Tamkin, an agent with Keller Williams Realty in Los Angeles. “As soon as a good property comes on the market at a reasonable price—bam! It’s gone in multiple offers, often times in cash.”

 

Yes, The Average American Should Care About ‘The Taper’

It could impact everything.

The reason average Americans should care about the “taper” is that higher interest rates on bonds also means higher interest rates on things like mortgages. One of my constant points on this blog for the last several years has been that households’ refinancing of their mortgage debt at lower and lower rates has put more money in their pockets for spending and for paying down debt.

 

Alert for the second half of 2013 – Global systemic crisis II: second devastating explosion/social outburst on a worldwide scale

The 2008 shock was certainly violent, but the reactions of the system, countries and central banks with their bailouts on an unprecedented scale, managed to hide the worst consequences: downgrading of the West in general and the United States in particular, a forced cleanup of the economy, a heavy fall from an artificial standard of living, mass unemployment, the beginning of social unrest… have been able to be partly neglected in favour of recovery hopes kept alive by irresponsible policies diverting liquidity to the banking systems and stock exchanges. Sadly, whilst the world drugged itself, global issues weren’t addressed… five lost years: the building is even less strong than before the crisis; the US “solution” orchestrated by the Fed, that everyone else left it to manage to take the time to dress their own wounds, has been to put out with gasoline the fire which they themselves lit. It’s not surprising then that it is still the US, pillar of the world before, refusing to fall in line, with their faithful Japanese and British floats, which is once again igniting the world situation. And this time, we shouldn’t rely on bankrupt countries to save the situation: they are on their knees following the first shock in 2008. Therefore, it’s actually a second world crisis which is looming, once again caused by the United States. Ultimately this five-year period will have been nothing other than taking a step back to enter into an even bigger crisis, which we have called “the crisis squared”.

Layout of the full article:
1. A situation which is now out of control
2. A second US crisis
3. The impacts of the second shock
4. Different players’ strategies
5. Failure of international institutions
6. Urgent recommendations

This public announcement contains sections 1 and 2

A situation which is now out of control

The illusions which have still blinded the last remaining optimists are in the process of dissipating. In previous GEAB issues we have already laid out the world economy’s grim picture. Since then the situation has got worse. The Chinese economy confirms its slowdown (1) as well as Australia (2), emerging countries’ currencies are disconnecting (3), bond interest rates are rising, UK salaries are continuing to fall (4), riots are affecting Turkey and even peaceful Sweden (5), the Eurozone is still in recession (6), the news filtering out of the United States is no longer cheerful (7)…

 

This Is An Extraordinary Time

It’s as if we have two economies: the simulacrum one of stocks rising dramatically in a few months, and the real one of household earnings (down) and hours worked (down).

It is difficult to justify the feeling that we are living in an extraordinary moment in time, for the fundamental reason that it’s impossible to accurately assess the present in a historical context.
Extraordinary moments are most easily marked by dramatic events such as declarations of war or election results; lacking such a visible demarcation, what sets this month of 2013 apart from any other month since the Lehman Brothers’ collapse in 2008?
It seems to me that the ordinariness of June 2013 is masking its true nature as a turning point. Humans soon habituate to whatever conditions they inhabit, and this adaptive trait robs us of the ability to discern just how extraordinary the situation has become.
In my 59-year lifetime, the dramatic, this-is-history-happening moments are obvious: the Kennedy assassination, 9/11, and so on. Other tidal changes developed over a period of months or years: Watergate, which ballooned from a minor break-in to a constitutional crisis, is a good example. So is the financial meltdown of 2008, which actually began back in 2001 when the Federal Reserve chose a policy of super-low interest rates and super-abundant liquidity to lessen the post-dot-com recession.
I have an unavoidable sense that May-June 2013 is the high water mark of the political/financial response to the global financial meltdown of 2008. Nothing systemic has changed in the five years; the status quo financial and political systems have made cosmetic reforms, but the power structures have not changed at all.
The status quo has simply ramped up its traditional policies: since lowering interest rates didn’t spark a strong recovery, then lower rates to zero, and so on: more money creation, more credit creation, more bond purchases, more subsidies for housing, more transfers of private debt to the public ledger–more of what has failed spectacularly.
That’s what marks June 2013 as extraordinary: the Powers That Be have gone all-in. If their policies fail to ignite a self-sustaining recovery in the real economy, there are no policy options left.

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