Financial Armageddon

Podcast: Finally Waking Up to Reality

2013-02-17T12:12:06-05:00

In my latest weekly Panzner Insights podcast, "Finally Waking Up to Reality," I discuss a number of unfolding financial, economic, and geopolitical developments that were previously (and exclusively) highlighted at my members-only site. A commercial interruption? Perhaps, but the truth, nonetheless.

As a special treat, this 30-minute program is also available to non-members. To listen now or download, please click here.

U.S. Employment Data: A Curious Divergence

2013-02-10T17:06:50-05:00

From Panzner Insights:

Each month, the Bureau of Labor Statistics and Automatic Data Processing, Inc. detail what is happening in the jobs market. Although the tallies of monthly changes reported by each side are often out of kilter, their respective private nonfarm payroll totals have since the end of 2000 moved largely in tandem.

From December 2000 through December 2011, the median monthly gap between the two was 78,000, or 0.07 percent of the total. The largest reported difference was seen in November 2002, when the BLS total was 394,000, or 0.36 percent, higher than its ADP counterpart.

But as the chart shows, there has been a big change. From January 2012 through last month, the spread between the two series has widened dramatically as the BLS tally rose at a faster pace than the one reported by ADP. Over the span, the median differential was 614,000 jobs, or 0.55 percent. The minimum differential was 396,000, or 0.36 percent, in January 2012, while the maximum was 809,000, or 0.72 percent, in December 2012.

One possible reason for the disparity is that either the BLS or ADP altered the methodology they relied on in the previous 11 years and that statisticians on the other side have not yet cottoned on. While this is possible, I find it hard to believe that those who crunch the numbers for such an important data series would not be quick to incorporate an updated approach in their own calculations.

[Editor's note: some have pointed out that ADP did, in fact, revise their methodology in late-2012 to bring its figures more closely into line with those of the BLS; and yet, the gap between the two series appears to be as wide as ever. Say what?]

Another explanation is that statisticians at the BLS or ADP suddenly decided to “fudge” their numbers up or down, respectively. One obvious question, of course, is why would a company that stands to benefit from an improving jobs market want to report a more subdued sense of conditions on the ground than is actually the case? The logical answer is that they wouldn’t.

However, one could readily argue that many in Washington had a compelling interest in painting as bright a picture as possible of what was happening in an area of the economy that has remained in focus since the onset of the Great Recession. Why? Because they stood to gain from ensuring that policies that had benefited them personally–namely, continued government spending–remained in force.

One way to do that, of course, is to try and make it easier for those who were then in power to remain in charge after the next election, which just happened to be coming up in late-2012.

Hmmm.

Retail Sales and Jobs

2013-01-16T21:05:04-05:00

From Panzner Insights:

Economists rely on a variety of indicators to try and get a read on the economy. But the apparent connection between certain data points and trends and future activity isn't always obvious or straightforward.

That doesn't seem to be the case in regard to the connection between retail sales and employment. Indeed, it makes sense that concerns about the job market would be quickly felt when it comes to household spending. If workers fear they might lose their jobs, they don't wait until they get the bad news before cutting back.

More broadly, if a large enough number of workers believes the job market is deteriorating, then it's a good bet the overall trend of retail sales will signal the change before the payroll data does.

As the following chart shows, this has been the pattern previously. Under the circumstances, the latest readings on the pace of retail sales suggest it's only a matter of time before the headline employment data reveals that the jobs market is heading south.

Pensions: The Need-to-Know Guide

2013-01-15T13:26:00-05:00

Pensions. A concern for the older generations? Another deduction from your pay packet? Or a golden opportunity to secure your future?

The world of pensions can be an overwhelming and confusing affair to the eyes of the unknown. With so much emphasis on saving now, it can sometimes be impossible to think of saving for your future.

Whilst the current economic climate is somewhat unstable to say the least, the new NEST Pension Laws implementing the auto-enrolment of employers and their employee’s onto singular workplace pensions aims to revitalise the way we save.

October’s New NEST Pension Scheme

Whilst many may already have pension schemes in place, a resounding number of UK adults are still not contributing to their pension; fewer than one in three in fact! Which raises the question; why is this so?

The thick and thin of it can be traced down to the simple fact that many people are unsure about the purpose, function and benefits of pensions in both the short and long term. So what do you need to know?

What is a Pension?

In Lehman’s terms, a pension is simply a ‘pot’ of money that you, your employer and the Government contribute to in order to secure your finances for the future.

There is no involvement from the taxman and it means that, come your retirement, you can draw money from your pension or gain annuity, a method of selling your savings to an insurance company for a regular income.

Why should I set up a pension?

The real selling point, apart from saving for the future, is the tax relief. Depending on your rate earnings, you will receive an automatic percentage back. You can claim an additional percentage depending on your rate earnings.

This percentage you receive back is worked out with the earnings on your contribution amount before the tax was deducted, in which you will receive the difference between your contribution and your pre-tax earnings.

Auto-Enrolment & NEST Pensions…What’s this about?

As of October 2013, employers will be obliged to offer employees access to an auto-enrolment NEST Pension scheme. This is a recent introduction by the government to ease the strain on State Pensions as well as making people aware of the importance of saving for their retirement.

This auto-enrolment scheme emphasises the need for employees to save and is aimed at providing a sole pension. This pension stays with you throughout your employment career even if you change job, become self-employed or stop working. Simple.

How much should I contribute into my pension?

How much you and your employer will contribute will depend on your annual income. 2% (of which 1% is from your employer) must be paid of your qualifying earnings (salary, overtime, bonuses etc) if you earn £5,564 or more, although these figures are annually reviewed.

Ideally, you should be contributing more than the minimum requirements in order to gain the benefits later on in life. The sooner you contribute, the longer your money has to grow. Whilst you are encouraged to put away more for the future, it is important to ensure your current financial security so make sure you find the right balance.

Still unsure? Call in the professionals!

With changing percentages, fluctuating rates and a variety of saving options, it can be difficult to understand just how to look after and gain the most from your hard-earned money. So, when pensions are concerned, make sure you approach an established and specialist financial advice firm and with their experience and expertise, you can begin to save for the future.

When it comes down to it, saving for your future really should be one of your top priorities. The introduction of these new pension schemes, along with the emphasis on making employers and employees aware of the importance of early pension planning, really is a step in the right direction as we look to repair our economy and ensure our futures.

This post was composed by Phil Warrington on behalf of Guardian Wealth Management; a reputable and established financial advice company who specialise in offering advice on a variety of pensions as well as financial planning and investment.

Podcast: Paradigm Shift

2013-01-06T11:51:42-05:00

In my latest Panzner Insights podcast, "Paradigm Shift," I discuss one of the week's big developments:

Most people knew that Bernanke & Co.’s grand experiment would end one day, but that notion has largely been seen on Wall Street (and elsewhere) as a vaguely distant possibility. However, things have changed following this week’s publication of the minutes from the Federal Reserve’s December policy meeting. In fact, I believe we’ve witnessed a paradigm shift that has important implications for markets, economies, and society overall, as I discuss in today’s broadcast.

As a special treat, this 30-minute program is also available to non-subscribers. To listen now or download, please click here.

From Panzner Insights: Yep, It's All Good

2012-12-22T19:33:54-05:00

From Panzner Insights:

According to Business Insider’s Joe Weisenthal, the recent rebound in this key indicator is unequivocally good news—

even though we’ve seen plenty of similar rebounds before now that meant nothing of the sort—

and the longer-term trend has clearly been down—

Yep, it's all good.

Sooner Rather Than Later

2012-12-18T17:31:00-05:00

In the days leading up to and following this past Sunday's Japanese election, various experts have been advocating selling the yen and buying Japanese stocks. Their view was that a change in leadership means the country will soon embark on an aggressive round of money printing that will weaken the currency and benefit Japan's export-sensitive industries.

I believe they are right (in the longer-term, at least). In fact, I posted two commentaries (including custom charts) at Panzner Insights, my members-only website, on Japan's currency and its equity market, on November 21st and November 23rd, respectively, where I essentially argued the same thing.

Needless to say, those of you who believe this perspective makes sense would probably agree that if would have been better to hear about it a month ago, when the yen-dollar rate was 2 percent higher and Japan's Nikkei-225 index was almost 6 percent lower.

If so, then you might want to consider joining Panzner Insights.

From Panzner Insights: Complacency Everywhere You Look

2012-12-08T11:03:46-05:00

Here is a brief commentary from Panzner Insights, which I posted on Thursday:

When trying to get a handle on investor sentiment, the benchmark of choice for many market-watchers is the CBOE S&P 500 Volatility Index, or VIX. However, this popular “fear gauge” only offers a snapshot of implied volatility, or relative pricing levels, for equity index options, which might not necessarily tell us all we need to know about the mood on The Street.

In theory, stock traders could be overreacting to equity-specific developments that are not relevant to other markets.

That said, there is data that suggests the high levels of complacency in the stock market are also being seen elsewhere. As the chart shows, gauges of implied volatility levels for equity, bond, currency, gold, and oil markets are at or near multi-month lows, suggesting that “the crowd” is unanimous in its belief that nothing untoward is going to happen in the immediate future.

Should we be worried?

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Otherwise, here is a sample of other unique content published this past week that is only available to subscribers:

Dollar Rally Sees a Few Holdouts

Moving in the Same Direction

Vietnam: Every Dog Has Its Day?

Faltering Amid an ‘Accelerating’ Recovery

Mid Cap Growth a Notable Underperformer

Interested in signing up for instant access? Please click here.

From Panzner Insights: The Downside of Easy Money

2012-12-01T14:59:52-05:00

Here is a brief commentary from Panzner Insights, my members-only website, which I posted yesterday:

Leaving aside the question of whether correlation equals causation, there appears to be a strong link between the level of U.S. interest rates and the overall health of the U.S. economy.

As the chart shows, the Federal Reserve-orchestrated slide in interest rates over the past three decades has been accompanied by a falling savings rate, a narrowing of the gap between personal income and expenditures [which is encouraging some to choose options such as Aspire Money], and a substantial increase in total credit market debt.

While there may be more to it than that, including government policies that favor debt over equity and a deregulation trend that encouraged bad behavior by banks and other financial intermediaries, one could readily conclude that the Fed’s current aggressive monetary stance is doing little to return the economy to good health.

In fact, the central bank’s policies may well be making things a lot worse than they already are.

From Panzner Insights: The Out-of-Touch-With-Reality Crowd

2012-11-25T13:25:49-05:00

Here is a brief commentary from Panzner Insights, my members-only website, which I posted earlier today:

In “The Biggest Myth About the Fed,” David Beckworth, an assistant professor of economics at Western Kentucky University, suggests that the pessimists are wrong to be concerned about what Mr. Bernanke and Co. are up to.

There many myths about Fed policy over the past few years, but the biggest one has to be that the Fed has been monetizing the national debt. This simply is not true, but it does not stop some folks from making this claim. For example, at last week’s Cato Monetary Conference we find former Fed officials pounding the Fed-is-monetizing-the-debt drums:

Mr Warsh and Mr Poole (who was filling in for Allan Meltzer) made a sharp distinction between the “legitimate” efforts to fight the crisis and the subsequent easing actions that were, allegedly, unjustified by the economic fundamentals. According to them, the interventions of 2007-2009 were required to ensure that “the markets could clear”, as Mr Warsh put it, while the second round of easing was done to satisfy “political masters” by monetising the debt. In fact, Mr Warsh said that the Fed was being actively unhelpful by “crowding in” Congress’s supposedly poor policy choices.

My first response is how can they can say this with historically-low U.S. treasury yields and muted inflation expectations? Surely, if the Fed were truly monetizing the debt we would be seeing a 1970s-repeat in the bond market, but we are not. And this is happening, in part, because the Fed is not that big of a treasury purchaser. Consider the figure below. It shows the Fed’s stock of treasuries by remaining maturity compared to the total stock of marketable treasuries as of the end of October, 2012. Though the Fed’s share of treasuries increases by remaining maturity, at most it hits 32% of the total for 10-30 years category. That means that after many months of Operation Twist that roughly 68% of long-term treasuries are still held outside the Fed. Overall, the Fed holds about 15% of marketable treasuries as seen in the “All Years” category. It is hard to square these numbers with the allegations that the Fed is monetizing the debt.

Leaving aside the questions of whether:

the Fed’s share of the Treasury market will remain as low as it is now if other investors start heading for the hills;
the central bank’s current intentions with respect to their securities holdings will remain the same if the economic, financial, political, or social landscape changes for the worse; or,
we can really know for sure that the debt has been monetized until after the fact;

the notion that current benign market conditions are a reason for optimism sums up just how out of touch with reality most academic economists (and other alleged experts, including journalists-cum-forecasters who parrot this nonsense) are.

By this sort of logic:

Mid-2005 was the right time to be optimistic on housing
January-2007 was the right time to be optimistic on the banking sector
The spring of 2007 was the right time to be optimistic on credit markets
The fall of 2007 was the right time to be optimistic on global equity markets
Mid-2008 was the right time to be optimistic on commodities
This past September was the right time to be optimistic on technology stocks

Of course, we know how those all worked out (hint: not well).

(Note: for those who are interested, this is a taste of what I touch upon in today’s podcast, “Simple Minds.”)

For Those Who Are Interested...

2012-11-18T13:02:31-05:00

Today's Panzner Insights podcast, "An Increasingly Unstable World" is accessible to non-subscribers. Feel free to check it out.

Otherwise, here is a sample of other unique content published this past week that is only available to subscribers:

Household Products Poised to Follow the Leaders

Israel: Markets Fall as Tensions Increase

Falling Off the (Fiscal) Cliff

Technicals Signaling Trouble Ahead for U.S. Credit Markets

Bearing the Brunt of the Dollar’s Strength

Separatism Gaining Ground

Another Big Breakdown

Housing Stocks: Watch Out Below

Interested in signing up for instant access? Please click here.

Interview with Max Keiser

2012-11-10T20:44:17-05:00

Although I've often watched the shows hosted by the man Britain's Independent refers to as "the most widely watched news commentator on the planet," I've never been a guest...until now:

'The American Dream to Me...Has Been Erased'

2012-10-30T16:59:15-04:00

After you're done reading all the articles featuring "experts" talking about how this week's superstorm could benefit the U.S. economy, you might want to watch the following video, which features individuals who've already been through one so-called recovery--and who probably couldn't survive another one like it.

Trade Data Suggest Another Global Downturn Is On the Cards

2012-10-25T20:42:37-04:00

Given the historical relationship between cross-border trade and global economic activity, today's report from the Netherlands Bureau for Economic Policy Analysis that world trade volumes fell for a third straight month and are within a hair's breadth of turning negative on a year-over-year basis suggests that another global downturn is on the cards.

FYI, that was just one of many topics I discussed this week at my members-only website, Panzner Insights.

If you are interested in reading and hearing more unique updates on markets, economics, and geopolitics, you might want to consider joining those who've already signed up.

Risk of Downturn Is High

2012-10-15T15:38:08-04:00

At last week's The Big Picture conference, respected strategist and newsletter writer Michael Belkin posted a comprehensive table with details about the recessions the U.S. has experienced over the past 110 years and what has happened to share prices during those times.

Given that the current business cycle is 40 months old (vs. the average expansion of 45-months -- or 37 months if you exclude the bubble-blowing era that began with the Greenspan Fed), the risk is high that another downturn will be starting soon (if it hasn't already done so).

Under the circumstances, it's worth keeping in mind, as Belkin noted, that the average recession-period decline for the Dow Jones Industrials average is 30.6 percent.

Uh-oh.

FYI, that was just one of the topics I discussed in yesterday's weekly podcast, "Looking Out Over the Investment Landscape," at my new members-only website, Panzner Insights.

If you are interested in reading and hearing more unique updates on markets, economics, and geopolitics, you might want to consider joining those who've already signed up.

What You MIght Have Missed...

2012-10-11T09:08:57-04:00

Among the many interesting tidbits presented at yesterday's The Big Picture conference (I was there) was a chart by Jim Bianco of Bianco Research, L.L.C., which I posted at Panzner Insights, my new members-only website focused on markets, economics, and geopolitics.

As you can see, central bank balance sheets remain extraordinarily large and are much nearer in scale to what they were in the immediate aftermath of the Lehman Brothers bankruptcy than they were during the early stages of the global financial crisis (or before).

As I noted,

the big question, or course, is when the time comes for the Fed and others of their ilk to sell, who is going to be on the other side?

Regardless, that is just one of the many topics -- most of which can't be seen anywhere else -- that I discussed at Panzner Insights in recent weeks. Here is a brief sampling of others:

Feel free to have a look around.

A Post on the Housing Market...and the End of an Era at Financial Armageddon...

2012-10-06T11:37:52-04:00

After almost six years, 2,200 posts, and eight million page views, I am moving on from posting regular updates at Financial Armageddon so I can devote my energies to an exciting new members-only website called Panzner Insights, where I'll be focusing on markets, economics, and geopolitics.

While I will be keeping Financial Armageddon up and running for the time being and may occasionally post new material at the site, it won't be a priority for me. Needless to say, that doesn't mean I believe the nightmare is over—far from it. I just think it's time to look at things a little differently, to try and handicap the bigger picture going forward, and to offer some suggestions drawn from my experience on Wall Street that might enable members to capitalize on current developments.

Hopefully, those of you who have found my posts, books, columns, and other work interesting or helpful will visit Panzner Insights and check out what is on offer.

And now for today's post...

Housing: Plenty of Reasons to Be Pessimistic

There’s plenty of debate about—and money riding on—the question of whether we are in the midst of a sustainable recovery in the housing market. Nobody knows for sure, of course, but there are plenty of reasons to be pessimistic.

For one thing, the supply of homes, in terms of what is currently on the market and what is potentially for sale whether or not prices rebound further—the so-called shadow inventory—remains significant relative to demand, even though data from the National Association of Realtors (NAR) shows that inventories of existing homes are back to where they were eight years ago.

Aside from the question of whether developments that have occurred since then—including the fact that their are more ways to sell property than by going through a broker—have distorted the inventory calculation, the composition of sales has changed from what it was. Nowadays, a much greater share of transactions are in the “distressed” category than before the bubble burst. Given that more than 20 percent of sales are foreclosures and short sales makes the current ratio look healthier than it is in comparable terms.

Needless to say, shadow inventory is far greater than it was during the go-go years, when people were happy to remain long despite a booming market. With prices having fallen sharply since then, we now have a situation akin to those seen in other post-collapse markets: Holders can turn seller on a heartbeat as prices move closer to what they paid or owe on their mortgages. Given that more than 20 percent of mortgagees are underwater, that represents a sizable overhang.

The tide of past, present, and future foreclosures—actual and de facto—has also left lenders with substantial holdings of “real estate owned” (REO) properties that will undoubtedly be offered for sale at some point. These are not voluntary investments being held for the long-term; they are unwanted assets that are costing money by the day to finance and maintain. According to HousingWire, nearly half of mortgage giant Fannie Mae’s REO holdings are unable to reach the market at present.

It’s not just about supply, however. Demand is significantly less than it used to be for a variety of reasons, most notably because it is much harder to get financing now than it was when the property market was booming. Despite some recent loosening of credit conditions and ultra-low mortgage rates, anecdotal and other reports make it clear that lenders are generally unwilling to grant loans except on stringent terms to the highest quality borrowers.

But even if you discount the fact that traditional home buyers are having a difficult time borrowing the money they need to buy a home, it’s apparent that other factors, including societal shifts, are undermining demand—and will likely continue doing so for the foreseeable future.

Number one among them are economic conditions in the post-crisis era, which are having an adverse affect on prospective homeowners’ willingness and ability to take the plunge. A structurally weak employment market, where temporary and low-paid services jobs comprise the lion’s share of the jobs being created and where the odds of finding another, better paying, and more secure opportunity are low, is not the catalyst for people to step up and make what could be the biggest investment of their lives.

Demographic factors are also playing a role. The upheavals of the past decade or so have reaffirmed the truism that growing older means trading down and taking less risk. And while ultra-low interest rates have pushed some of those who survive on their savings to invest in something other than a bank CD, real estate is definitely not the investment of choice. At the same time, broader societal changes, including more people living alone and more single-parent households, is undercutting demand for what has traditionally been a nuclear family-oriented investment.

Perspectives about what really matters are evolving as well, especially among the younger generation. Whereas in the past the milestones of getting married, buying a car, and acquiring a home represented the natural progression of things when children reached adulthood, priorities have changed. A recent Bloomberg report noted that 4G wireless telephones trumped V-8 cars for the 80 million U.S. consumers born from 1981 to 2001. Meanwhile, the still-ailing post-crisis economy has convinced a growing number of young people to embrace “the age of frugality.”

In addition to shifting preferences, many of those who are at the lower end of the demographic scale already have a big financial burden hanging around their necks, which precludes them from taking on other big commitments like a mortgage—that is, student loans. Aside from the fact that, for many graduates, these obligations are far higher than they were, proportionally speaking, even a decade ago, the prospect of being in the hole for as far as the eye can leave a lasting impression on impressionable individuals.

Policy-making in Washington and by the Federal Reserve further underscore doubts about taking big risks that might backfire. While the latter keeps reassuring everyone that it has matters under control and that interest rates will remain low for years to come, given how many promises they and other authorities have broken over the past several decades, it’s not surprising that people are hesitant to count on that on those assertions going forward.

Lastly and perhaps most importantly, demand is being undermined by broader-scale mood swings. People are beginning to accept that it isn’t necessary to own your own home, nor is it necessarily a long-term goal. That might seem like heresy in a country where property ownership has been viewed as a God-given right, but when you consider that in economic powerhouse Germany the share of residential property accounted for by rentals is more than 60 percent in most states and 90 percent in the capital, Berlin, it’s not all that strange.

In sum, while it is easy to focus on the traditional indicators of supply and demand and start believing that the long-awaited recovery in the property market has arrived at last, the fact is that much has changed in the wake of the events of the past decade, a development that is likely to weigh on prices for many years to come.

ADP Report: Some (Still) Not Doing Their Part

2012-10-03T16:27:00-04:00

Although economists cheered today’s “better- than-expected” ADP National Employment Report—don’t they always?—continued flat-line job growth in large companies and goods-producing industries continues to call into question the notion that the U.S. economy is building a foundation for future recovery.

In fact, it also raises the issue of whether the looming “fiscal cliff” won’t have an even more dramatic impact on the U.S. economy than some have been predicting. While the rich will have to cough up more in absolute terms than those at the lower end of the economic ladder, the relative hit to discretionary income will probably hurt small businesses and low-paid service industry employees the most.

Global Manufacturing Index Signals Rising Recession Risk

2012-10-02T18:40:14-04:00

Despite a modest uptick in October, the JPM Global Manufacturing PMI just recorded its fourth straight reading below 50. With its 12-month moving average teetering on that dividing line between expansion and contraction, it seems clear that the risk is to the downside as far as the global economy is concerned.

In fairness, the index has only been around for 12 years, which is not enough of a history to establish a definitive causal relationship. But given the value that PMI indicators for individual countries have had with respect to predicting economic upturns and downturns, and it doesn't seem a stretch to interpret the recent negative readings in a similar light.

Podcast: Nearing the Tipping Point of the Euro's Demise

2012-09-30T11:10:13-04:00

In this week's podcast -- a feature that will in future only be available to members of Panzner Insights -- I discuss why I believe the collapse of the euro as it exists now is imminent, as well as its broader implications.

The truth is, while there has been plenty of commentary about how individuals and institutions in, say, Greece might be affected if that country exits the eurozone and brings back the drachma, less has been said about how such a scenario will affect those based outside the region. I've tried to address that shortfall with today's broadcast.

[Note: click to play or right mouse-click and save to download].

Panzner Insights 093012

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Coming very soon: Panzner Insights,
an exclusive members-only website focused on markets, economics, and geopolitics

If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

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