FIRE Economy | timiacono.com - Part 4

Me Again

Yesterday afternoon, Cory Fleck and I chatted along with Big Al Korelin himself over at the popular Korelin Economics Report and that interview is now available.

Among other things, we talked about how warmer weather in the U.S. is making the economy, perhaps, look a little better than it really is and the prospects for a really good stock market bubble developing in the months ahead.

The .mp3 file is again available here at the blog – just click on the image to the right – or you can go directly to this page over at KER.

We talked about precious metals too and, it sounded like Al was a little disappointed about the idea that gold and silver could continue to struggle in the period ahead.

Not mentioned explicitly during the discussion was the unusually strong inverse correlation between stocks and gold that, here in 2014, had been working in favor of the latter up until a few weeks ago.

Demand in Asia has picked up again now that the gold price is almost $100 an ounce lower and, as noted during our talk, that could make for some rather exciting developments later in the year as there is no ready supply of physical gold exiting Western ETFs this year as was the case last year when physical gold demand in China shattered records.

[To access commentary that Tim only shares with subscribers, join Iacono Research.]

Another Scary Stock Bubble Chart?

Amid repeated warnings from the mainstream financial media in general about bubbly stocks losing their fizz (or much worse), there appears to be a developing cottage industry over at Marketwatch in creating chart comparisons between today’s five-year bull run for U.S. stocks and prior episodes that didn’t end well.

The latest offering comes from this report that is much better than the last one if for no other reason that the two curves use the same scale (I guess that’s progress).

The story is titled, “Now there’s a 1987 chart to get worried about” but the URL contains what was likely the working title of “Less that 37 shopping days before stock prices drop?”.

Based on this Google search of “wells capital 2009 1982 stocks” it would appear that the 1982-1987 comparison has been around for more than a year now, apparently being recycled to generate provocative headlines that are known in the industry as “click bait”.

Hey, it worked on me.

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The “Nice Phase of Minsky’s Cycle”

It’s kind of ironic to think of all the time and money that went into all those high frequency trading computers (i.e., the hardware design and the software development that must have both been cutting edge) that have been the subject of much debate at 60 Minutes and CNBC over the last few days, that is, when you think of them in relation to the U.S. economy.

Yes, that computer hardware and software added to the nation’s economic output as did all the talk on TV, but it’s all part of the recent epidemic of unhealthy growth that constitutes the current “recovery” as NYSE margin debt seems to make new all-time highs with every passing week and analysts hail the return of higher levels of borrowing by consumers.

In this Business Spectator report, Steve Keen reminds us why we “can’t escape Minsky” and why reality is different than perception.

It might be felt that Minsky is irrelevant, now that the economy has begun its recovery from this crisis. But in fact this period — in the immediate aftermath to a crisis, when the economy is growing once more, and debt levels are only just starting to rise — is precisely the point from which Minsky developed his explanation of economic cycles.

Minsky’s message is for the whole financial cycle, not just the moment when it turns nasty. At the moment, we’re in the nice phase of Minsky’s cycle, when it pays to lever. Leverage is clearly on the rise, as Figure 1 indicates.

The acronym “DCED” stands for debt contribution to effective demand and measures the annual change in private debt divided by GDP.

There are a couple more charts that are both pretty interesting and some commentary about why the last “Minsky cycle” started in the early 1990s rather than a decade ago.

You can see this in the chart above where overall debt-to-GDP really didn’t dip much in the early-2000s because the American consumer quickly picked up where corporate American left off reckless-borrowing-and-spending-wise.

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It seems the disappearance of Malaysia Flight 370 is to CNN as HFT trading is to CNBC…

That’s what one could reasonably conclude from the amount of attention garnered by the financial news network stemming from the Sunday night 60 Minutes piece with “Flash Boys” author Michael Lewis that all seemed to come to a head in this CNBC segment from yesterday that reportedly stopped trading (by humans) on Wall Street.

As shown below, viewers weighed in and saw it as a one-sided affair with IEX’s Brad Katsuyama (the good guy from Canada) besting BATS Global Markets president William O’Brien (the bad guy from Wall Street).

In the highlight clip linked to above (the full segment clocks in at over 20 minutes, and that was just too much to bear – thanks to CNBC for providing the highlights only), O’Brien loses in the first 10 seconds on body language and demeanor alone.

He probably single-handedly reinforced most of the negative stereotypes that Wall Street types have earned over the years and that’s probably a good thing.

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