Bow Tie: “Be Careful… You’re In A Fool’s Paradise”

“Jim Rogers has a two-word message for U.S. investors: “Be careful.”

“The U.S. is the largest debtor nation in the history of the world,” Rogers told CNBC.com Wednesday night by phone from Singapore. “We may well have a big, big rally in the U.S. stock market, but it’s not based on reality. I would encourage investors to know you’re in a fool’s paradise, be careful, and when people start singing praises, say, ‘I’ve been to this party before, and I know know it’s time to leave.'”

For Rogers, the author of “Street Smarts: Adventures on the Road and in the Markets,” it is only a matter of time until the U.S. stock market runs into devastating problems due to the Fed’s quantitative easing program and the prevalence of similar stimulative programs around the world.

“First of all, throughout American history, we’ve always had slowdowns every four to six years. That means that sometime in the next couple of years—three years, maximum—we are going to have problems again, caused by whatever reason,” Rogers said. “For instance, there was 2001 and 2002, and then 2007 and 2009 was much worse. Well, the next time it’s going to be worse still, because the level of debt is so, so, so much higher. Every country is increasing its debt at the same time.”

Stimulative measures by central banks, such as the purchasing of assets with created money, boost asset prices in the short term. But Rogers said that central banks can only do so much….”

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“Twitter has just filed for its long-anticipated IPO. The company is looking to raise $1 billion in this initial offering, which is set to mint many millionaires among shareholders and founders like Ev Williams, Jack Dorsey and Biz Stone. Currently, the filing does not list a valuation, and sources are saying that’s because they have yet to determine one.

Twitter’s revenues have been revealed for the first time, as well. Revenues for 2012 were $316.9 million, for a loss of $79.4 million and in the first half of 2013 they’ve already earned $253.6 million for a loss of $69.3 million. That’s just above estimates from last year but well below tracking of over $600 million for the year. Overall, Twitter has lost $418.6 million since it began.

Twitter will be offering up 472,613,753 shares of stock in this initial release. Twitter says that it currently has 218.3 million monthly active users, and those users have created over 300 billion tweets. That MAU number is significantly lower than many had expected at this point as they announced that they had 200 million MAUs in December. Twitter says that it delivers over 200 billion tweets per day.

Twitter says that 75 percent of its MAUs access the service from mobile devices (that’s 161.25 million) and that 65 percent of all of its ad revenues come from mobile. This marks a big contrast to Facebook, which had no revenues in mobile at all when it filed for IPO.

Twitter says that in the second quarter of 2013 there were approximately 30 billion ‘online impressions’ of tweets…”

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“Remember when the CME and the administration punished speculative gold longs in 2011, and crude longs in 2012 by hiking or warning to hike margins beyond the breaking point for levered holders of futures contracts? It works for stocks as well. Last night, the CME may have taken Obama’s warning to the market a little too seriously, and announced a hike in the core E-Mini futures contracts of about 9% ….”

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“We can anticipate another rally once the political charade plays out, but what happens after that?

We can safely predict the inevitable budget-debt ceiling deal will spark yet another “the Status Quo is saved” rally in the stock market. But what happens after that?

Here is a three-year chart of the S&P 500 (SPX). The potential for another spike higher is reflected in the rising stochastics.

But overall, the chart is showing weakness and the potential for a serious decline. The negatives include:

1. A number of indicators (MACD and relative strength) are negatively divergent, i.e. they are declining as price moves higher

2. The 20-week moving average (MA) is stretched above the 50-week MA (i.e. the market has reached a point where the 20-week tends to converge with the 50-week MA)

3. The upper Bollinger band is flattening, showing loss of momentum.

Some similarities with 2011 are discernible. In 2011, a multi-month topping process traced out a classic head-and-shoulders pattern…..”

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“In his latest note to clients, Morgan Stanley head of global economics Joachim Fels relays an idea he says has him increasingly worried these days, even though, in his words, it is “no more than a tentative thesis that still needs to be fleshed out and checked for robustness.”

“In short, I wonder whether just as 1913 marked the end of first Golden Age of globalisation that had begun in 1870, 2013 may mark the end of our age of globalisation, which accelerated since the 1980s and 1990s after many emerging markets opened up to international trade and capital flows,” says Fels. “To be sure, I’m not predicting the world wars, mass sufferings and economic depressions of the three dark decades following 1913, but I do worry about a creeping trend towards a de-globalisation of economic activity and capital flows.”

Fels points to the Federal Reserve’s easy-money policies following the financial crisis, which caused investors to scramble into investments in emerging markets, a trend that is now reversing.

The economist envisions problems down the road as a result, as he explains in his note….”

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Part two talks about the seven stages of an empire along with the process of the debasement of currency. If your interested you may watch here: Part 2

Otherwise the value can be found in part 3:

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“Morgan Stanley’s chief U.S. economist Vincent Reinhart published a brief note minutes after the U.S. government shutdown went into effect.

“Dysfunction is not new, in that this marks the seventeenth shutdown in the past forty years,” wrote Reinhart. “About 800,000 government workers will stay home, as federal employees who cannot be paid should not work.”

Here’s the key takeaway from the note:

In addition to finger pointing to assign blame, expect:

• A 15 basis point drag on fourth-quarter real GDP growth, at an annual rate, for every week of shutdown as those furloughed workers do not put in their usual hours;
• Most data releases to be delayed…”

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“Barring some last-minute miracle, it looks like the government is going to shut down at midnight tonight.

The crux of the matter is that the House GOP is not inclined to pass a budget that doesn’t include some kind of delay or defunding to Obamacare. And obviously Democrats won’t agree to that. So, impasse.

Markets are already falling, it would seem, on the news.

But there are reasons to think this would be good.

Goldman explained why this could be helpful in a note to clients last Friday:

It would be a mistake to interpret a shutdown as implying a greater risk of a debt limit crisis, in our view. It would not be surprising to see a more negative market reaction to a shutdown than would be warranted by the modest macroeconomic effect it would have. We suspect that many market participants would interpret a shutdown as implying a greater risk of problems in raising the debt limit. This is not unreasonable, but we would see it differently. If a shutdown is avoided, it is likely to be because congressional Republicans have opted to wait and push for policy concessions on the debt limit instead. By contrast, if a shutdown occurs, we would be surprised if congressional Republicans would want to risk another difficult situation only a couple of weeks later. The upshot is that while a shutdown would be unnecessarily disruptive, it might actually ease passage of a debt limit increase.

This seems kind of vague, but there are three distinct reasons it could be a positive.

1. The market is reacting now….”

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“For Q3, analysts expect both the financials and consumer discretionary sectors to show strong earnings growth. Earnings for the materials and energy sectors are expected to decline overall in Q3.

Throughout 2013, analyst estimates called for slow growth in the first half of the year, balanced out by strong growth in the second half. As the third-quarter earnings reporting season approaches, growth estimates have declined to a more modest 4.8%, down from the 8.5% projection from the beginning of the quarter, as seen below in Exhibit 1. Looking ahead to the fourth quarter, the current estimate is for 11.1% earnings growth, which appears optimistic, given projections for only 1.3% revenue growth.

Exhibit 1. S&P 500: Q3 2013 Earnings Growth Estimates, Current and Beginning of Quarter

Similar to the second quarter, analysts expect the financials sector to lead the way in third-quarter earnings growth, with a 10.4% increase expected. Within the sector, the big banks look to be driving earnings, as they benefit from gains in financial markets. Furthermore, many of these companies’ results will be flattered by weak results from a year ago. This is especially true in the investment banking & brokerage sub-industry, which is expected to report 477% earnings growth, primarily as a result of losses in the year-ago quarter from Morgan Stanley (MS.N) and E*TRADE Financial Corporation (ETFC.O).

Strength in the housing market has benefitted the financials sector in recent quarters; however, rising interest rates and more difficult comparisons are expected to provide challenges for third-quarter earnings results for companies with significant exposure to mortgages. Analysts estimate that the thrifts & mortgages sub-industry will undergo a 7% earnings decline, while the regional banks sub-industry will see profits fall by 17%, making it the weakest sub-industry within financials.

The other sector expected to be a major driver of earnings growth in the third quarter is consumer discretionary….”

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“President Barack Obama said recent overtures from Iran may offer a basis for a “meaningful agreement” to resolve the confrontation over the Persian Gulf nation’s nuclear program, one of the primary sources of instability in the Middle East.

The U.S. is “encouraged” that Iranian President Hassan Rohani was given a mandate in his election to pursue a more moderate course, Obama said.

“Conciliatory words will have to be matched by actions that are transparent and verifiable,” Obama told world leaders today at the United Nations in New York. “The roadblocks may prove to be too great, but I firmly believe the diplomatic path must be tested.”

In an address focused on turmoil in the Middle East, including the civil war in Syria and the Israel-Palestinian peace process, Obama vowed the U.S. will use all means necessary, including military force, to protect its “core interests” in the region and ensure the free flow of energy to the world.

He called on the UN to apply meaningful pressure on the regime in Syria to follow through on its promise to surrender its chemical weapons. He said Iran and Russia, Syria’s main allies, must recognize that Syrian President Bashar al-Assad cannot remain in power if the civil war is to be resolved by political means.

The president’s speech comes as Obama has an opening for progress on long-stalled foreign policy issues….”

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Note : The article was Google translated and may have grammatical inconsistencies.

“The Bank for International Settlements (BIS) is the current situation on the financial markets as worse than before the Lehman bankruptcy. The warning of the BIS could be the reason why the U.S. Federal Reserve decided to continue indefinitely to print money: Central banks have lost control of the debt-tide and give up. The decision by the U.S. Federal Reserve to continue indefinitely to print money ( here ) might have fallen on “orders from above”. Apparently, the central banks dawns that it is tight. Very narrow.

 

The most powerful bank in the world, the Bank for International Settlements (BIS) has published a few days ago in its quarterly report for the possible end of the flood of money directly addressed – and at the same time described the situation on the debt markets as extremely critical. The “extraordinary measures by central banks” – aka the unrestrained printing – had awakened in the markets the illusion that the massive liquidity pumped into the market could solve the fundamental problems (more on the huge rise in debt – here ).

This clear words may have meant that Ben Bernanke and the Federal Open Market Committee, the Fed got cold feet. Instead, as expected, which is now formally announcing the end of the flood of money, the Fed has decided to just carry on as before.

If one is to the BIS experts believe that no single problem is solved.

All problems are only increasing.

Because the BIS but apparently does not know how they get the genie back in the bottle, it pays to listen to those who were part of the system – but now have no official functions and therefore more able to find clear words.

The former chief economist of the Bank for International Settlements (BIS), William White, was also reported to be parallel to the BIS word.

His statements are nothing more and nothing less than an announcement of the big crash.

White warned in unusually clear form of a huge, global credit bubble.

The share of “leveraged loans” or the extreme form of credit risk by mid-2013 at an all time high of 45 percent. This is ten percentage points higher than at the height of the financial crisis in 2007. A year later, in September 2008, Lehman Brothers went bankrupt.

Thus, the current situation is much more dangerous than before the Lehman bankruptcy….”

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