“….If there is one metric that has worked so well over time it is household assessments of the labour market — the consumer sector tends to get it right. Specifically, the University of Michigan survey component that measures consumer expectations on expected changes in unemployment rate. As the chart clearly illustrates, recessions start when this metric slips below 65 without fail…..”

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” “Be sure your seatbelt is fastened, because nothing has really come to rest. We have entered the New Abnormal, a period in which every market assumption must be questioned and the wise investor is prepared to be surprised.”

And that’s how famed economist Nouriel Roubini and Ian Bremmer, the president of Eurasia Group, launch into an eight-screenInstitutional Investor assault on all that’s going wrong with the global economy right now and on how new crises are most certainly headed our way.

Calling it the G-Zero world — referring to a leadership void where it’s every nation for itself — the two pepper the essay with warnings about China growth, another Europe meltdown or turmoil in the Middle East, a region they definitely see as not OK. Oh, and forget about the BRICS bailing out global growth.

Fast-fowarding past all that, central banks, mostly the Fed, get the last salvo from the doomsday duo, who devote several paragraphs largely to how that easy money policy is going to land us all in trouble. What markets and economist are hoping for as that two-day Fed meeting kicks off Tuesday is a slow and steady easy out of QE. That’ll fix everything, right? Wrong; …”

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“There’s a Warren Buffett quote that’s something akin to: When the tide goes out, you can see who’s been swimming naked.

That’s the theme of a note this morning from SocGen analyst Kit Juckes, who says that as rates are rising, and tapering talk picks up, it’s beginning to be clear where the unsustainable bubbles have been built up.

No surprise: He says the bubbles were found in emergingg markets, which have been crumbling lately.

Each of the three significant financial bubbles of the last 30 years has been fuelled by the Fed keeping policy rates below the nominal growth rate of the economy for far too long. The chart below highlights two conflicting issues. It highlights two conflicting issues, one supporting my core view, the other challenging it. The first is that current policy is creating market and economic distortions just as past periods did. The reaction to taper talk in EM, commodities and volatility shows where bubbles have been inflated. This is the most powerful argument in favour of the Fed taking the first baby-steps on the path away from super-easy policy. The second issue is that nominal GDP growth is slowing – 3.4% y/y in Q1 2013 after a post-crisis peak at 4.5% a year ago. SG economic forecasts look for a re-acceleration from here. The Fed may not need evidence of a return to ‘old normal’ growth or signs of a re-acceleration in CPI or wage inflation to justify tapering. But nominal growth does need to turn a bit higher….”

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“Ben Bernanke is likely to signal that the U.S. Federal Reserve is close to tapering down its $85 billion-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy.

The Fed chairman has a double communications problem. Markets seem reluctant to acknowledge the improvement that is leading the Fed towards a taper of QE3. But they also appear to be assuming, incorrectly, that any taper means the Fed has become less willing to support the economy’s recovery.

Mr Bernanke is likely to push against both misperceptions, combining an upbeat message on how the strength of the economy will soon justify a taper, with a signal that further tapering depends on further improvement in the economy and in no way brings forward an interest rate rise….”

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“WASHINGTON (Reuters) – President Barack Obama hinted in an interview aired on Monday that he may be looking for a new chief of the U.S. Federal Reserve Bank, saying Ben Bernanke has stayed a lot longer than the current chairman had originally planned.

Obama, speaking to Charlie Rose, host of a PBS interview program, compared Bernanke to longtime FBI Director Robert Mueller, who agreed to stay two years longer than he had planned and is to leave in the coming months.

“Well, I think Ben Bernanke’s done an outstanding job. Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI – where he’s already stayed a lot longer than he wanted or he was supposed to,” Obama said.

Asked whether he would reappoint Bernanke if he wanted to keep the job, Obama did not answer directly.

“He has been an outstanding partner, along with the White House, in helping us recover much stronger than, for example, our European partners, from what could have been an economic crisis of epic proportions,” Obama said.

Bernanke, who has tried to nurse along the ailing U.S. economy through the 2008 financial crisis, is widely expected to step down when his second term as chairman expires at the end of January.

Expanding on Obama’s remarks, a White House official said Obama’s remarks were reflecting his admiration for the length and depth of Bernanke’s commitment to serve as Fed chair in a difficult period and at a significant personal sacrifice….”

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“Markets are hoping for answers from the Fed on its easing program this week —  mainly, when and how it’s going to start paring back. They want soothing words, and, from the looks of stock futures on Monday, they fully expect to get them.

There have been some worrying signs surrounding stocks lately: a sharp selloff inemerging markets, soaring bond yields and volatile markets overall.

But no signs of panic at either J.P. Morgan Cazenove or Credit Suisse, where strategists are staying overweight on equities.

Mislav Matejka and other strategists at J.P. Morgan Cazenove in a note on Monday list their reasons for optimism:

1. The rise in U.S. bond yields is being driven by a positive growth-inflation trade-off. Worried that the backup in real yields is too fast and could be a problem for recovery and a fall in inflation that could trigger deflation? “We think these fears will morph into: real rates are just catching up with where private economy, ex. fiscal drag, already is,”  says  J.P. Morgan’s Matejka.
2. Investor sentiment has turned more bearish, and that’s healthy. Case in point, Japan equitiesJP:NIK +2.68%, which have moved out of pricier territory on price/book metric, says Matejka.
3. Emerging markets are selling off, but they’re not headed for a full-blown crisis because current-account balances and debt positions are better now than they were then, says Matejka.

Putting its money where its mouth is, J.P. Morgan is lifting cyclicals to neutral from underweight — saying the sector is still underperforming even after May’s rebound, but it doesn’t advise an outright long. The analysts don’t see yields backing up much further in the near term. Mining names are being added — closing out a longstanding bearish stance on miners and steel in particular — and energy is being lifted to neutral from overweight, given “extreme cheapness” price/earnings, price/book. On the downside, telecom stocks are being cut to underweight from neutral…”

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“Author Jordan Mamorsky cites a worldwide “holistic lapse of ethics,” with consumers, ratings agencies and Wall Street’s casino culture coming under fire.

“We are now at the end of ethics because you have seen so many financial swindlers,” Mamorsky told Newsmax TV in an exclusive interview.

“You’ve seen countless financial scandals, and you really need to find out where the root problems of these issues are. It is lapses of business ethics, lapses of corporate culture, which have really worsened the way capitalism has operated.

“It has morphed into this crony capitalism model where you have these large banking institutions that control the way markets work and they manipulate it,” said the co-author of “The End of Ethics and a Way Back: How to Fix a Fundamentally Broken Global Financial System.”

“It’s more exploitation of markets rather than the free market and letting private systems work properly. These too-big-to-fail banking institutions really run the world.”

Mamorsky was asked why more hasn’t been done to reign in credit ratings agencies.

“These rating agencies really were the cause of the financial crisis because they gave these glistening AAA ratings to these junk mortgage bonds that resulted in tremendous financial calamity,” he said. “The investors really lose a lot because the AAA rating isn’t exactly an accurate barometer of the financial product.

“These rating agencies are making more profits than ever before and it’s a major problem that no one’s really addressing. The SEC’s not involved, the administration is not involved, and it’s really a tremendous problem that no one’s really looking at.”

The American consumer didn’t escape blame.

“American consumers feel that they’re not responsible for anything,” he said. “We have this mass consumerist culture where people think that they can rack up all this credit card money when they really can’t. They don’t have enough income coming in.”….”

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“Banks are starting to come clean about their rate risks.

B of A recently said it could lose as much as $11 billion if interest rates continue to rise.

FORTUNE — Banks have mostly been tight-lipped about what rising interest rates would mean for their bottom lines. They will soon have to open up a little more to regulators and investors.

For the first time this year, the Federal Reserve is requiring the nation’s 18 largest banks to submit mid-year stress tests, showing how they would perform if they were hit with a negative economic shock, like a spike in unemployment or interest rates. The results are due to the Fed by July 5th. Unlike the bank stress tests conducted at the beginning of the year, though, the Fed will not run its own test, or publicly critique the results. However, the banks will be required to make the results public at the end of September.

Bankers are meeting with Fed officials behind closed doors next week in Boston to discuss the stress tests. There has been some contention over the process in the past. Bank executives have expressed frustration that the Fed won’t say how it gets its results. At a similar conference last year, Wells Fargo’s treasurer, Paul Ackerman, reportedly drew applause from bankers when he said he still didn’t get how the Fed’s loss estimates could be so different than his bank’s.

MORE: Banks will take a hit on refi bust….”

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“Vale SA (VALE5), Brazil’s largest exporter, said further local currency depreciation could counter cost rises and a slowdown in Chinese iron-ore demand as it seeks to regain market share from Rio Tinto Group and BHP Billiton Ltd. (BHP)

The real, the worst-performing emerging-market currency in the past three months, probably will weaken to about 2.40 from 2.15 per U.S. dollar, bolstering Brazil’s competitiveness, said Jose Carlos Martins, Vale’s executive director for ferrous and strategy. China’s iron-ore and steel demand growth is set to slow to about 5 percent from 10 percent in the first five months of the year, he said….”

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“In the years following the financial crisis, a grand, sweeping narrative took root in global investment circles. It held that investment flows were undertaking a reallocation that was centuries in the making, as money began to leave the debt-laden, aging societies of the developed world and enter high-growth emerging markets.

After years of struggling with their own poor finances, these up-and-coming markets were now thought to be in better shape than their wealthier peers in Europe and North America. A big run-up in emerging market stocks, bonds and currencies seemed to prove that point. Read “The Man of Steel and Ben Bernanke.”

But now a worldwide selloff in emerging markets suggests this story needs some editing. Clearly, these global investment flows weren’t solely explained by this historic turning of the tables; they were also aided by an abundance of cheap liquidity from the developed world’s biggest central banks. The recent reversal of that effect reminds us that however much emerging markets have matured, they remain vulnerable to shifts in the richer economies….”

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“Bond yields are headed near 4% and not even Fed Chairman Ben Bernanke can stop the “inevitable shock” that’s coming.

That’s a fresh view from Goldman Sachs’s former chief economist Jim O’Neill, writing an op/ed column for Bloomberg on Wednesday, entitled, “Can Bernanke avoid a meltdown in the bond market?”

His answer? Not really….”

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“It’s one of the hardest habits to break.

We begin pledging our allegiance to the state before we even know what that means. We learn to sing bombastic, patriotic songs of praise at an age when we don’t understand the vocabulary of the lyrics.

And after years of repetition and social reinforcement, the idealistic devotion to country becomes profoundly ingrained in our personalities.

It’s a lifelong indoctrination underpinned by a deep instinct to belong to something greater than ourselves.

Human beings are not meant to exist in isolation. We strive for inclusion and acceptance of our peers. And the forming of social groups, whether families, tribes, dynasties, and kingdoms is as old as human civilization itself.

Over the centuries, though, the social constructs have changed dramatically. It used to be closely knit, smaller groups with shared values and dedication to the other members. Now our loyalty is manipulated towards a political union… and the government which represents it.

In other words, we’re inculcated to have an unquestioning allegiance to the system.

The combination is so powerful that even in the face of overwhelming evidence, the sentiment is difficult to shake.

It’s clear now that the system has turned on the very people who invest their faith and confidence in it.

We can see the obvious effects of decades of morbidly destructive policy.

We can see how the way of life we grew up with has become a distant memory, replaced by a cheap masquerade.

We can see the debt, the money printing, the police state, the utter collapse of justice and rule of law… and the shiny facade of mindless entertainment and wanton consumerism as an attempt to cover it all up.

And yet… it’s still so hard to turn one’s back. Deep within ourselves there’s still a quiet voice that says “This can be fixed. It’s going to get better.”

This is the voice of hope. And despite all the rational arguments which point to a very conspicuous trend, this voice is very difficult to silence.

Hope, along with loyalty, is one of the most admirable traits of humanity. And it’s certainly honorable to want to rebuild what has been lost. But please consider these few points:

1) The trend is clear. And in the West, it’s negative. We routinely discuss in this column that history has an almost unblemished track record of once-great nations and empires collapsing into tyranny as their economic fundamentals deteriorate.

 

Click the image to view.

 

 

 

The West has long passed the historical point of no return where degenerate governments have to borrow more money simply to pay interest on the money they’ve already borrowed.

If the trend holds, history shows that we can expect capital controls, banking controls, direct wealth confiscation, oppressive taxes, military conflict, rising crime rates, social unrest, etc.

None of these is a particularly rosy outcome….”

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“The tectonic plates of the world economy are shifting, moving the yield on the 10-year Treasury to the highest level in more than a year and shaking financial markets from Tokyo to Mumbai and Johannesburg to São Paulo.

For the past few years, the global economy, struggling to recover from a financial crisis, has relied on a few constants: The U.S. would print plenty of money and keep interest rates very low. China would provide a lot of demand and vacuum up commodities from around the world. And Japan was largely irrelevant.

Suddenly, all three of those are being questioned in markets, triggering paroxysms in stocks, bonds, commodities and—particularly, in the past couple days—the currencies of emerging markets.

The big questions hanging over markets and the global economy now: Is this is the inevitably bumpy beginning of a welcome return to normal—a world in which the U.S. economy doesn’t need big and repeated doses of monetary stimulus, Japan grows again and China’s economy gently slows to a sustainable speed?

Or is it a harbinger of more volatility in financial markets—perhaps the result of a misreading of the Federal Reserve’s policy intentions by the markets or a premature move by the Fed to cut back on easy money—that yields an unwelcome increase in market interest rates before the U.S. economy achieves what Fed Chairman Ben Bernanke once called “escape velocity”?…”

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“……”There are simply too many (ugly) charts we could stick inside [of this note] and so we stopped short of doing so,” says Wilkinson. “It is hard not to feel as though we are watching out for the lead domino to topple – the one that could set off a chain reaction.”

Here’s Wilkinson’s take:

The pain continues across the Emerging Globe. Having fallen to a two-year low earlier in the week, Brazil’s benchmark Ibov index is lower again today. Mexico’s stocks slid by 2.00% in the face of rising volatility in US stocks. The CBOE Vix index is fast-approaching last week’s peak and the highest since mid-April.

And then there is the little matter of the yen, whose vacillations continue to trip-up US equity prices. As we noted late on Tuesday the Japanese unit was closing stronger than when it snapped the dollar’s grip last week. And more problematic was a broadening of the yen’s advance against the euro currency, British pound and the Aussie dollar. The dollar index just snapped to a two-month low midweek indicating a decidedly risk-off mood and one that hardly supports the earlier return for risk-appetite signaled by a move higher for equity prices.

Finally, the S&P 500 has slowly returned to beneath Friday’s low – the low supported by an above consensus payroll reading. Failure to hold that level could arguably cause stocks to have a stab at the fear-inspired lows of last week at 1598….”

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From Mad Money last night

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“Here are some bullish insights from an unlikely source – David Rosenberg:

“First, sentiment has come down from recent lofty levels.  That is encouraging.

Second, earnings estimates have stopped going down.  That is good news.

Third…”

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“LONDON (Reuters) – If currency turbulence in emerging markets escalates into full-scale investor flight, the Federal Reserve may have a fresh headache in deciding when to slow its dollar printing policy.

Given all the obvious influences on Fed policy – domestic inflation, jobless youths, long-term unemployment, stuttering credit creation or banking stability – gyrations on markets from Turkey to South Africa or South Korea may seem tangential.

But an enmeshing of the United States and the economies of the developing world since the turn of the century means the link between U.S. monetary policy and currency runs on the other side of the world could be tighter than many assume.

Another financial shock now in emerging economies that use vast holdings of U.S. Treasury bonds as capital insurance buffers could complicate a Fed exit from quantitative easing.

“As with so many previous emerging crises, although the Fed often triggers the withdrawal, it’s then forced to turn more accommodative by default as a result of the fallout,” said Simon Derrick, strategist at Bank of New York Mellon.

“MA(f)D”

To avert the sort of protracted and devastating investment freeze they suffered in the late 1990s, economies across Asia and around the globe have built up huge hard-cash buffers as protection against future ‘sudden stops’ in foreign financing….”

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