Saturday, August 31, 2013

Periphery Red Flags...L&C

"Anything that won't go on forever...won't"

- Herb Stein

The global community and the stock market are raising red flags. There is no central, focal point to base this view, only the general whole picture. It is appearing at the edges. Things don't just spin out of control. The ancient Greeks understood this with their transition point in philosophy. You cannot go from A to C without passing B. You can only realize there is a forest when you stand outside of it, preferably from a high vantage point. These sayings and concepts are reflected in many small ways around the globe and within the market.
Greece needs more money. They are trying to hold off on the announcement until after the German election. The previous bailout money was suppose to last until 2015. They are not the only one.  Italy just lost $6.5B because they repealed their property tax law. They do not at this time have an alternative plan to cover this deficit. I'm guessing the plan is to sell more bonds to the EU, which is really a bailout.
Arab Spring
has escalated into riot form under the four stages of civil disobedience. There are other problems like evacuees that are flooding neighbor nations like Jordan and Lebanon because Syria has moved onto the revolution stage. These small nations with limited finances are suffering with this extra burden. They will ask for aid from the UN, IMF, US, Europe, anywhere they can get it.
US notes are experiencing out-flows greater than the crisis of 2008. July's report won't come until 15 September. It won't be good. In addition, the velocity of money, which is the movement by lending is down straight from 1997. This deleveraging is one reason for low inflation. I will not say there is no inflation because it appears in energy and food. In everything else it is contained. This deflationary outlook is not good for gold and the overall economy. One other aspect, there are more stocks making new lows than are making new highs. This is a tell in card lingo. There are other currency problems with the rupee, yen and baht. They are feeling inflation due to QE by western central banks.
History Repeats
This scenario has happened twice. The first time was a short recession in 1919 and the second in 1929, which needs nothing more said.
There is someone that I follow who studies cycles. He uses these trends and he correlates them with national demographics to form concepts about economies. Harry Dent has written many books with his ideas which are very accurate. I believe that they are close to truths in relationship to economies. Dent sees a crisis due to the aging of the western nations.
One financial aspect of these trends is reflected in less revenues for government. The US will reach its spending level in October. President Obama will ask Congress to raise the debt ceiling. It has been raised 78 times since WWII. As much as the Republicans claim that the Democrats are the tax and spend party, they have raised the debt level 49x to 29x for the Dems. Last year at this time our debt level was $15.97t and it grew at 4.75% to $16.73t today. It would be nice to say our wages grew by that percentage, but they didn't and won't in the future where rising rates will make this debt figure unbearable.
Back to the top
leads us back to Herb Stein. Periphery-to-core is how things change and in this case, we are talking about an approaching recession. We, and many global nations have a problem that is centered on debt. You cannot "solve" this problem by adding more debt. Prosperity cannot be achieved by printing out of thin air which only rigs the market which only destroys trust. If you prefer a bigger name with the same idea, how about Albert Einstein, "insanity is doing the same thing, over and over and expecting a different solution."
Liars and Crooks: I cannot trust Obama anymore. The past week has the same feel as when Bush ran the show with his rush to war with his lies on Iraq, which gave us two wars for the decade which is bankrupting the nation. We are not the police for the world!