When water turns to ice, or vapor turns to water, we have what is referred to as a Phase Equilibria change. It can be slow or it can be instantaneous. Whichever occurs, a new and completely different state of reality then exists.
The markets are about to transition through such a Phase Equilibria. We have reached the End of the Beginning and a New Beginning is Near! Unfortunately the new beginning is the Beginning of the End of the Secular Bear Market Counter Rally. It isn’t imminent, but it is near!
Once complete, the Bear Market that started in 2000 in real terms, will resume even in nominal terms. The End of the Beginning of the Secular Bear Market has arrived and now the truly ugly part of the bear market emerges.
OLD PHASE: Recovery & Hope
Since the financial crisis of 2008 the US and world have been in the “Recovery and Hope” phase. This phase normally starts with Triage to “stop the bleeding”, then moves to Operations “to fix the problem”, then finally to the Recovery or ” convalescence ” stage. All perfectly normal, if the diagnosis of the problem was correct, the operation successful and there are no complications during the recovery.
Unfortunately, through monetary malpractice the doctors screwed things up!!
Every metric of good health and success is flashing that a dead economic body is being kept artificially alive, except for one measure… the stock and bond markets. These measures, which are now the financially engineered creations of 33 Liberty Street and modern Goldman Sachs algo computers, are no longer a measure of the health of the economy, nor main street America. Unfortunately, the perception is that they are and that the omnipotent doctors at the Federal Reserve have things under control.
The stark reality of the gravity of the situation, the serious of the malpractice, is about to realized.
NEW PHASE: Reality & Fear
Instead of the patient now heading home from a convalescence center, the patient is about to be pronounced dead, to a startled family who have been led to believe everything was ok. Reality is about to set in.
When Reality sets in, Hope Turns to Fear!
More Sovereign Wealth Funds Unwilling To Buy More U.S. Debt
Today the man that has been meeting for the last two years with key foreign governments and sovereign wealth funds told King World News that many of these entities have “…reached the boiling point where they are really going to be unwilling to grow their reserves (of US Treasuries).” He also warned, “I think that is really going to rock the financial world at some point in the near future.”
This is the first of two incredibly powerful written interviews that will be released which reveals what is actually taking place behind the scenes with foreign governments and sovereign wealth funds, and how this will impact the financial world and the gold market.
Eric King: “Kevin, I know you’ve been communicating with many of the sovereign wealth funds overseas. What are you hearing from them?”
Sprott Inc. President Bambrough: “The burning question that I always have, I’m amazed at their ongoing willingness to continue to accumulate, and hold, such large amounts of US denominated bonds. It’s been my view that they are basically playing a Ponzi scheme.
I’ve had that confirmed when I’ve had long discussion with different sovereign wealth funds and different government agencies around the world. They’ve been willing to play this game, but more and more now, as their domestic economies have grown and the US portion of their exports becomes smaller, and with the amount of T-Bill that they have (already) accumulated, I believe they’ve reached the boiling point where they are really going to be unwilling to grow their reserves (of US Treasuries)….
It’s only a matter of time.
Jan. 7 (Bloomberg) — Mike Schumacher, head of UBS global rates strategy, discusses the possibility of a U.S. debt downgrade by Moody’s.
Moody’s Warns On U.S. Debt
A downgrade from Moody’s Investors Service could come as early as March.
A Jan. 1 deal that averted more than $600 billion in federal tax increases and spending cuts didn’t provide “meaningful improvement” in the U.S. debt burden, leaving the nation’s Aaa rank at risk, Moody’s said on Jan. 2. The U.S. budget package passed by Congress won’t reduce deficits enough to avoid a sovereign-rating downgrade, said Moody’s.
The U.S. is moving to cut some $1.2 trillion of spending over the next decade. As part of last week’s deal, Congress delayed by about two months the $109 billion of reductions that were to begin this month.
The ratings company assigns the U.S. its top Aaa ranking with a negative outlook on the grade, as does Fitch Ratings. Standard & Poor’s cut the U.S. rating one step to AA+ on Aug. 5, 2011, with a negative outlook.
Mike “Mish” Shedlock
In five January business days, corporations sold $52.75 billion in debt according to Informa Global Markets. MarketWatch highlights that point in companies sell debt like hot cakes
Companies have flooded the market with new debt to start the year, even after the recent jump in Treasury yields, as they deem market conditions good enough and eager buyers plentiful enough to make deals go smoothly.
Companies have already sold $52.75 billion in debt this month — in five business days, according to the firm.
“Many issuers are taking advantage of the stable markets before their earning blackouts begin,” said Edward Marrinan, a credit strategist at RBS. “We expect more of the same today and see no reason for the extremely strong market tone to change anytime soon.”
Analysts expect companies to sell about $111 billion this month, according to a poll by Informa.
On the sovereign side, MarketWatch reports Mexico issued $1.5 billion in 30-year bonds at a record low yield of 4.19%. Turkey sold $1.5 billion in 10-year debt at a record low 3.47%
New Fiscal Crisis, Dems Seeking More Taxes! Oh They’re Not Done With You Yet…
And YOU thought it was over…
In case you thought there was no risk of your taxes going up again, think again. Washington isn’t done with you yet.
Democrats, led by President Barack Obama, want lawmakers to consider a fresh set of tax increases in the next several weeks when they discuss whether to cut spending.
Republicans oppose raising tax rates, especially after they just raised some of them for the first time in two decades in the New Year’s deal that extended most – but not all – of the expiring Bush tax cuts.
But much of what Obama is talking about is raising tax revenue without actually raising tax rates. In Washington-speak, lawmakers will try to collect more tax money by closing tax loopholes, perhaps limiting popular tax deductions and to some degree changing the way citizens pay into the popular Medicare and Social Security programs.
The New Year’s deal raised income tax rates for individuals’ taxable income above $400,000 and family income above $450,000. That’s less than 1 percent of all U.S. taxpayers. The deal is projected to raise about $600 billion over 10 years, not enough to significantly chip away at deficits that still will total more than $6.8 trillion over the same period. Lawmakers on Capitol Hill will be looking to trim $2 trillion over 10 years from projected future deficits as part of any deal to raise the nation’s debt ceiling by the end of February and prevent $109 billion in deep spending cuts from occurring in March.
Democrats say Obama will continue to push for an equal split between revenues and cuts – $1 trillion in new tax revenues and $1 trillion in spending cuts…
Small Business Optimism Stagnates (Even Before Higher Taxes)
Via Lance Roberts of Street Talk Live,
The release of the National Federation Of Independent Business (NFIB) Small Business Survey for December was much like the report we discussed in November. In short – there were very few positives to be found.
According to the NFIB survey optimism among small businesses crept higher by 0.5% over November’s historically low report with a reading of 88.0 which is the second lowest reading since March of 2010. This poor report showed continued deterioration in the labor market, or employment, components and in the surprising number of owners who expect businesses conditions to worsen in the next six months…. READ MORE
Earnings Season Starts This Week – Analyst Blog
…All indicators are pointing towards another underwhelming earnings season, not much different from what we saw in the third-quarter reporting cycle. But while expectations for fourth quarter earnings have been steadily coming down in recent weeks, investors appear unwilling to bring down estimates for 2013 as they hold on to hopes of a ramp in corporate profitability in the coming quarters. Guidance from management teams on earnings calls is always very important, but it is particularly important this reporting season given the lofty-looking earnings expectations for 2013….
Deep Cuts Raise Questions About Morgan Stanley
Morgan Stanley is planning another deep round of cuts: 1,600 jobs, accounting for 6 percent of its support work force, and, more telling, 6 percent of institutional securities, which includes its once vaunted trading business.
The planned cuts come just a week ahead of the release of fourth-quarter earnings, which are expected to show the gains the firm has made since the financial crisis in areas like stock trading, banking and wealth management but still will be weighed down by the diminished earnings power of its fixed income business.
Whether the company can avoid shrinking further — and a number of analysts say that additional cuts will be needed — and revive the fixed-income trading business will have significant ripple effects in the financial world….
Meanwhile…Unemployment Rises to New High in Euro Zone
European economies continue to slow as unemployment continues to rise. There is no end in sight, at least not yet.