Money Flow Trading Method along with Risk Management

“ Whatever I said in the past no longer applies for obvious reasons “. Well said.

I have NO Fear or Greed, not even in my life. Anyway thanks for your offer. Whenever
I find/arrange funds, I would do LIVE trading and make money., then definitely I would
Contact you and pay your wages. Thanks & take care again. Bye for now.

http://www.marketoracle.co.uk/Article9152.html

An undergraduate student with average intelligence would clearly see that such outrageous levels of leverage would guarantee a bad ending. So what was it that compelled supposedly best of breed financial officers to act like total nincompoops? Well, if you had tomorrow's sports pages you might be willing to bet a little more heavily on the horse races today if you believed you already knew the outcome.

When you view the landscape and try to make sense of how these financial institutions could possibly have allowed themselves to get to such extreme levels of leverage, common sense leads one to believe that the only thing that could compel such reckless behaviour was that the parties involved believed they already knew the outcome of such bets. This goes beyond arrogance; it involves cheating, rigged markets, and total disregard of unintended consequences. So, if it follows that no one in their right mind would get this leveraged without knowing the outcome beforehand, then you should be able to deduce that these bankers and brokers have been purposely stealing from the rest of us who enter trades under the assumption of free markets. Their use of off market derivatives have reached as high as over $1 quadrillion in financial bets that have made a mockery of price discovery in the traditional markets. Here is a question I haven't seen asked: Where are all the tax revenues from all of this unfathomable black market trading? Just 1% of $1 quadrillion is $10 trillion. Shouldn't at least that much have resulted in someone's tax liability? More corruption.

Bernie Madoff has admittedly participated in a $50 billion Ponzi scheme while he still sits in the comfort of his home, where is the outrage? What possible explanation can there be for Madoff to not yet be in jail other than that he can implicate some very powerful people that have arranged for him to remain in his home? It is obvious that since our citizens do not seem to care, our Government can do whatever it pleases.


The secretive TARP plan and the rest of the bailouts are more of the same. Can anyone say what good any of the trillions being thrown around have done? The Administrators refuse to tell us where the money has gone. The best case scenario is that they don't want us to know where the money went because they feel it would create a panic. I don't believe that line of thought, I believe rather the top dogs are siphoning the money off the best they can into their own coiffeurs and will continue to do so as long as the public and our representatives leave it to the same criminals and "leaders" that got us into this mess to get us out. Why does anyone believe that the same people doing more of the same that got us into this highly levered and bankrupt state will now magically get us out? Treasury Secretary Timmy Geithner had such a worthless response on his big day to explain his plan to our politicians that even the politicians responded with. "So basically, you have no plan." It is certainly time for increased scrutiny of these incompetents (or criminals) and everyone that reads this should do their part to make sure that happens.


"All tyranny needs to gain a foothold is for people of good conscience to remain silent." ~ Thomas Jefferson


Write your representative here https://writerep.house.gov/writerep/welcome.shtml .

President Obama may have good intentions but when you look at his team with many of the same characters from the Bush and Clinton years, all you should expect is more of the same because the Rubin's and the Geithner's are just the guys that turned up the greed meter accelerating our economy toward bankruptcy. Wouldn't it be wiser to give power to some of the individuals that were screaming from the rooftops that our borrow and spend fake economy was headed toward this path long ago? Who are these people? Here is a list for starters: Peter Schiff, Jim Willie, Bob Chapman, Rob Kirby, Bill Fleckenstein, Doug Noland, Jim Puplava, Jason Hommel, and Puru Saxena.


Former Fed Chairman Paul Volcker who is credited with bringing inflation to its knees in the early 1980's still claims his biggest error was not capping the gold price. So here again is more of the same; instead of letting gold, one of the natural alarms of inflation or an unsound financial system, do its job; the plan should have been to send false signals to the marketplace that everything was okay. This is what the Government is doing today except on an even grander scale. They lie to their citizens and misrepresent facts to achieve their own end purposes. Nowhere is this more clear than regarding the current state of Government economic statistics. It is absolutely imperative that Americans educate themselves on what has caused our current economic problems. There are many, many writers such as the ones above that have predicted in detail the current dislocations in our economy. Our third United States President Thomas Jefferson had many famous quotes that should be considered because time is short and the damage being inflicted to our economy is accelerating NOT being reversed. Jefferson said.

"If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and what never will be.


Hank Paulson and Ben Bernanke went around the country last July to talk to big institutional investors and asked them to sell their commodity related investments to create the illusion that inflation would no longer be a problem. This action severely damaged the ability of an industry to produce what is badly needed and wanted worldwide, gold and silver. Everything our Government does is about creating an illusion rather than dealing with reality. These are real problems and real debts; this isn't a matter of restoring confidence through lies. Our major problems are we have too much debt, not enough savings, and we perpetually consume more than we produce which is why we are at the mercy of foreigners to borrow over $2 billion a day that they are no longer willing to lend us.

Now that foreign lenders are no longer willing to play this game, the response is to simply print the money which will just put us in a deeper hole. The time to end this madness has come and it is time to bring our house in order and stop making things even worse. Our debts are unpayable and will not benefit from any further stimulating. It will be painful for sure, but not more painful, because the sooner we put ourselves on the track to recovery the less overall damage will occur. Our Government statistics have been so doctored they are virtually meaningless to the point that our unemployment rate today is less than half of what the same actual unemployment would have read 30 years ago. Does that make it less bad because we simply don't count the same actual unemployed to make the reading better? Of course not! A better question is why they have to change such statistics unless they are simply trying to lie to the public at large. Since that is clearly what is going on here, what is it going to take to bring these issues up and throw out these criminals that are wrecking our nation?


Section 19 of the Coinage Act of 1792 specifically states that any officer debasing the money shall suffer death. Alan Greenspan wrote the following back in 1967,
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold......The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirade against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as the protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Obviously, with this eloquent explanation on how gold protects the property of the common man it is certain that Greenspan clearly understood BEFORE he took his job at the Fed that there was no longer anything that kept the privately owned Fed from confiscating the wealth of the American people. So he knowingly took a job that he understood beforehand was confiscating the wealth of the American people and for 20 years this man moved rates for the privately owned Fed to the advantage of the many banks worldwide that own a stake in the Fed that subcontracts monetary policy for our country. It would not be hard to convict this man as he has provided his own evidence. The only thing lacking is enough intelligent individuals to cause a big enough ruckus to bring this man to justice, and of course, the bigger task of overcoming his grateful friends in high places. It is imperative if you are against many of the things this article mentions to let your representatives know. There is a constant shift of attitude more and more toward the Government feeling that it is in charge of us rather than them serving us. Most people either don't know or don't care so if you see what has been going on speak up loud and clear. As Thomas Jefferson said,

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Boy did he call that one! Here is another which is most appropriate to consider in view of our "bailout plans."

"I predict future happiness for Americans if they can prevent the government from wasting the labours of the people under the pretense of taking care of them."


It is truly amazing how readily the American people are willing to embrace the socialist solutions being offered about. Apparently no one believes in the free market allocating scarce capital any more despite the total failures that are due to moving away from capitalism and free markets. Those that thought Government through the likes of inept economists such as Alan Greenspan and Ben Bernanke could determine precisely what the best interest rate and debt expansion should be can now see that the entire exercise was a complete failure and fraud. If not for $60 trillion in interest rate swaps on the books of JP Morgan, interest rates would have soared long ago imploding the system. JP Morgan also has $100 billion in gold derivatives it has used to keep gold under wraps from alerting the masses of the wrecked financial system. Massive shorting in the Comex gold futures over the past few weeks even while the gold price breaks out to new highs is one of the operations of the money powers. They attack the gold futures in conjunction with the gold stocks but lose much of the effect due to the strong results that the companies deliver. During the latest raid two stocks, in particular, Northgate (NXG) and Golden Star (GSS) were driven down 17% on Tuesday alone while they recently delivered impressive results far exceeding expectations.

The quickest way to get back on a recovery path is to end sending billions, and eventually trillions if this is not stopped, to failed organizations. Guess what, the world will not come to an end if Citigroup, Bank of America, and JP Morgan are allowed to fail. It will only end the gravy train for the top officers that feel they are in a privileged class. Hank Paulson diverted billions to his Goldman cronies before he stepped down and John Thain made sure $4 billion! in bonuses were paid early to Merrill henchman in a year when they not only blew themselves up but brought down the entire US economy in the process. Great job guys, what would we have done without you? There is nothing but endless talk in the media over fear of our financial system coming down. The people should embrace it coming down, the sooner the better, and get rid of these huge banks that are rotten to the core especially at the top.


Bailout money should go to making sure depositors get all their savings back and the highly leveraged speculating banks should eat their own losses and disappear. The people should educate themselves, demand investigations and throw all of these people in jail that abused the confidence we put in them and impoverished our entire country. There are plenty of good banks to pick up the slack once these failures are swept aside. Why not fund banks that were diligent and allow them to pick up the slack rather than reward those that brought down the financial system? There is nothing smart about any of these bailout plans and if this continues it will drag out this hangover for decades rather than years. What happened to the cleansing process of Capitalism? The current bailout plans are attempting to fund activities and companies that the private sector has already refused to extend capital to. Are we going to allow the heavy hands of Government to move America toward the Communism that brought down Russia? Don't be surprised if the same banks are left in charge when you wake up one morning and find out they are trying to stuff a new fiat currency down your throat and try to give you one of the new ones for three of your old ones that you have on deposit. The rest of the world already will not stand for this. Let's just hope Americans won't either.


I will leave you with some more quotes from Jefferson that should not be ignored.

Ignoring them removes any chance that the United States will remain a civilized place to live.

"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world."


Another that the US Government should learn quickly: "Never spend your money before you have earned it."


And: "To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical."


Also: "The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government."


And: "The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."

Perhaps if someone close to President Obama can get him to look at the virtue in some of these quotes he will model his behaviour after Thomas Jefferson rather than Franklin Roosevelt. After all it was Roosevelt that sped us in the direction of the welfare state. After he stole from us our most important tool; honest money, he handed us over to the bankers that have stolen from us and left our nation in a bankrupt shambles. Better yet someone please put this in the hands of Rick Santelli.

At least he was able to get his message across to President Obama. Send this article to as many people you care about as you can, you may well save them a big portion of the money they have in these corrupt banks. Let's just hope that President Obama can educate himself and not sell us down the same road. In the end it is the people that must demand it, for if President Obama were to attempt such a massive feat on his own he would end up like John F. Kennedy.

By Richard J. Greene
http://www.thundercapital.com


2009 Richard J. Greene
Richard is Managing Partner, Portfolio Manager of Thunder Capital Management. Richard graduated from St. Leo College, received his MBA in Finance, Management and International Business from the University of South Florida and is a Chartered Financial Analyst (CFA).

Thunder Capital Management LLC was founded in July of 1999 with the mission of creating wealth while preserving capital. Founder and Portfolio Manager Richard Greene, who utilizes his unique combination of expertise and experience in a wide range of markets, industries and investment vehicles, oversees all investment activities of the firm.

http://www.marketoracle.co.uk/Article62731.html

Before reaching this chapter or even picking up this book, I imagine many of you were already loosely divided into the two major camps of the public debt debate. The first camp is already concerned and doesn’t need my research to form an opinion. These people stress the math involved in borrowing—the idea that you get do extra stuff today, but you have to somehow pay for it in the future. Meanwhile, those in the other camp ask, “So what?” They might argue that America will make good on its debt because “it always does.” Or they’ll point confidently to America’s unique advantages as a military superpower, paragon of political stability, and steward of the world’s predominant reserve currency. Confronted with the lessons of history, they’ll say, “This time is different.”

But what exactly is it that may or may not be different? It’s important to draw a distinction between two concepts of debt limits:

1. The Fonzie–Ponzi transition. At what point does it become virtually certain that a debt problem won’t be resolved without a credit event?
2. The Keynesian endgame. At what point does the ability to bear more debt break down completely and actually trigger the credit event or hyper inflationary money printing?

I’ll explain Fonzie–Ponzi first. Charles Ponzi was the perpetrator of a pyramid scheme, soon to be called Ponzi scheme, that the Boston Post exposed in 1920. It’s fair to say that Ponzi, who lived extravagantly while his scheme was underway, knew how to manipulate people. He shared that particular skill with Fonzie, although he was a scoundrel, whereas Fonzie was a well-liked sitcom character. If you watched enough Happy Days back in the day, you know that “The Fonz” had a keen understanding of human nature. You also know that impressing friends and foes with his unbounded confidence was a huge part of his alpha-male badassness. I still remember watching the “Richie Fights Back” episode and puzzling over the revelation that Fonzie’s tough-guy image was a confidence trick. Fonzie asks Richie, “In the entire time you’ve known me, have you ever seen me in a fight?” Richie’s answer: “Well no, but that’s just because the other guy always backs down first.” In other words, it was no George Foreman–like string of knockouts that made Fonzie fearsome. It was attitude, reputation, and a commanding voice, along with a self-described “majestic bearing.”


Fonzie soon became my word association for other confidence tricks. For example, paper currencies are Fonzies because their value rests entirely on confidence in the governments that back them. And where do Ponzi schemes fit in? Well, Ponzi schemes have characteristics that don’t quite fit The Fonz. Namely, they need an endless supply of participants to sustain confidence and stay alive. Once the participant pool depletes as it eventually must, Ponzi schemes are revealed as scams. Whereas Fonzies can persist indefinitely (at least in theory), Ponzis must eventually collapse.


Ideally, public debt would always cruise along in Fonzie mode. Governments would rely on the confidence of their creditors, but without taking too many liberties with those creditors. But in reality, finances sometimes deteriorate and push public debt into Ponzi territory. The precise point where this transition occurs depends on the amount of austerity that’s needed to put public debt ratios on a clear downward path, as well as the likely effects of that austerity. Instead of using numerical measures (for now), I’ll say that restoring discipline at the Ponzi point would cause the economy to break down for an unusually long period, failing to create jobs or growth. The downturn may or may not meet the textbook definition of a depression, but it would lead to depression-like joblessness. Think of current circumstances in Greece, for example.


The Ponzi characteristics of the no growth, no jobs scenario are based on politics. Politicians are sure to second-guess austerity in a depression or depression-like economy. If they didn’t, they’d be pilloried and voted out of office, replaced by populists and demagogues. Demagoguery thrives in difficult times—by whipping up a hurricane of discontent. And warnings of fiscal ruin at an indeterminate time in the future? They carry all the force of a gentle breeze. Political realities ensure that short-term thinking carries the day, whereas the Cassandras who insist on fiscal responsibility fade away.


With austerity becoming a bad word in such challenging circumstances, debt resumes its climb toward a higher threshold, one that brings a more destructive outcome.

That ultimate threshold—mainstreamers call it debt tolerance, whereas I’m joining the heterodox thinkers who call it the Keynesian endgame—is when investors refuse to lend more money, forcing default or hyper inflationary money printing. It then becomes obvious that the government’s borrowing was a Ponzi scheme. It needed an endless supply of participants to stay alive, but the appetite for debt isn’t endless.


The difference between the Ponzi point and the Keynesian endgame is crucial. At the Ponzi point, the game isn’t over just yet, but it’s a foregone (if not widely recognized) conclusion that you’re on a path in that direction. The path is firmly established because measures to curb deficits would wreak havoc on the economy and change the political calculus about austerity. Also, investors remain in the game at the Ponzi point, happy to hold government debt, in the same way that successful Ponzi schemers are able to find willing participants right up to the end. Large, developed nations, such as the United States and Japan, can sail right past their Ponzi points with nary a flutter in the financial markets. As I’ll argue in a moment, Japan has already passed its Ponzi point.


Think of it this way:
You’re swimming in the ocean on a perfect, sunny day, unaware of a riptide that’s pulling you far beyond a swimmable distance from shore. Once you realize what’s happened, you’ll struggle against the current and may pay for your mistake with your life if there’s no help at hand. But the mistake was made earlier when you ignored the water conditions and drifted past your ability to swim back safely. Let’s say it was halfway between the shoreline and where the rescue helicopter pulled you out that you unknowingly let yourself drift too far. That halfway spot was your Ponzi point.


In the swimming scenario, you should have turned around well before reaching the Ponzi point, even as there were no obvious signs of danger. By the same logic, governments should take action well before public debt rises to Ponzi levels, even though they, too, won’t get a clear warning of the eventual catastrophe.

Now for my thoughts on the Ponzi point for today’s large, developed countries. Smaller and emerging countries are different, because they often lose their creditors’ confidence before the Ponzi point comes into play. Here’s my theory for the big countries:
http://www.marketoracle.co.uk/images...ie-ponzi-2.png


Thresholds are notoriously inexact in economics, which is why I use big, round numbers. It’s also why I’ve chosen a wide range for the transition from Fonzie to Ponzi. At some point between 100% and 150% debt-to-GDP, I think the sovereign debt of today’s large, developed countries fundamentally changes. Bondholders who were merely perpetuating a confidence trick become participants in a Ponzi scheme.

My estimates are based on the research summarized earlier in this chapter, which I’ll tie into the Fonzie–Ponzi theory in just a moment. I’ll first add a few more qualifiers and then some data. Here are the qualifiers:

1. Assumptions behind my transition range. I don’t recommend a range of 100% to 150% for all times and places. It seems sensible, though, for countries with spending commitments extending far into the future without proper funding behind them or even honest accounting. That happens to be many of today’s developed countries. My transition range is also more likely to apply to countries with heavy private sector borrowing. The amount of private borrowing is important because it determines the capacity for new bank credit and, therefore, the likely effects of fiscal policy changes. If private debt capacity is high, banks can cushion fiscal restraint by expanding credit to the private sector. Conversely, low private debt capacity means fiscal restraint can more easily swing bank money creation into reverse (see this article), leading to the stagnant or negative growth that invariably coincides with a broad-based deleveraging.
2. Austerity versus anti-austerity. I’m not making blanket recommendations for austerity policies—which may or may not be helpful, depending on the circumstances—nor is this a policy-oriented book in the first place. That said, I’ll offer three brief policy conclusions. First, economic risks are lowest when governments stay well clear of their Ponzi points. Second, even though sovereign defaults are highly disruptive, debt restructuring is often the best option once the Ponzi point is breached. (If you’re headed for default anyway, there may be a case to act quickly and restore public debt capacity to healthy levels.) Third, after a restructuring occurs, it’s imperative to put public finances back on a sustainable path, one that remains below the Ponzi point. Of course, politicians often reach very different conclusions.
3. Fonzie–Ponzi versus Minsky. The Fonzie–Ponzi theory is more lenient than Hyman Minsky’s financial instability hypothesis. Minsky proposed a “Ponzi finance” threshold for private debt, but we can just as easily apply it to the public sector. He said that borrowing qualifies as Ponzi finance whenever fresh issuance is needed to fund interest on existing debt. According to the common assumption that America would miss interest payments without regular increases in the statutory debt limit, we long ago triggered Minsky’s threshold.

Now here’s the data:
http://www.marketoracle.co.uk/images...ie-ponzi-3.png


The chart shows the IMF’s projected 2018 public debt ratios for the ten largest advanced economies, ordered from highest to lowest GDP. It shows three economies in the transition range and one full Ponzi, and these include the two largest economies and three of the largest six. Meanwhile, private debt has grown nearly as fast as public debt on a global basis. The Bank for International Settlements compiled data showing global borrowing by households and corporations jumping from 126% of global GDP in 1999 to 151% in 2008 and 159% at the end of 2017. That growth in the private debt burden—33% of GDP so far this millennium—has to eventually stall or reverse. Soaring private debt makes it even more important to heed the Ponzi point for public debt.

F.F. Wiley
http://ffwiley.com

F.F. Wiley is a professional name for an experienced asset manager whose work has been included in the CFA program and featured in academic journals and other industry publications. He has advised and managed money for large institutions, sovereigns, wealthy individuals and financial advisors.

2018 Copyright F.F. Wiley - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

2005-2019 http://www.marketoracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

https://www.cnbc.com/2019/09/15/ron-...-negative.html

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One of the things we learn early as parents is the importance of a grocery store strategy. Without it, you can easily end up with a checkout aisle meltdown, as your little angels throw a tantrum over a forbidden candy bar. Sari’s strategy was to allow our sons one “free throw” per visit. You could throw one thing from the regular aisles into the cart but that was it and she held firm at the checkout. The key was to give the kids something but set their expectations as to the limits of our largess. The Fed could do with a “free throw” strategy today.


On Wednesday, the Federal Reserve will conclude its September policy meeting. Futures’ markets have priced in a high probability that they will cut the federal funds rate by 25 basis points and this is likely what they will do. However, there are at least six good reasons why they shouldn’t:
Economic growth is at its long-term potential pace, with few signs of imminent recession. There are, of course, some negatives in the short-term outlook.

Exports are down year-over-year, real business fixed investment looks set to lodge a second consecutive quarterly decline and inventories still look a little high. In addition, housing activity is flat, as should be evident in this week’s Housing Starts and Existing Home Sales releases and light vehicle sales have also plateaued. On the other hand, consumer spending in general appears very healthy and last week’s retail sales report suggested real consumption growth of roughly 3% annualized in the third quarter following an over 4.5% gain in the second.

Job growth is slowing down, but, as is evidenced by a very low unemployment rate and low unemployment claims, the economy is short of workers rather than jobs.

So while overall real GDP growth appears to have decelerated to roughly 2% from close to 3% last year, this is in line with the Fed’s 1.9% estimate of the long-term potential growth rate of the U.S. economy.

Inflation, while relatively subdued, appears to be edging up rather than down. Last week’s August CPI report saw core consumer prices rise by 0.3% for a third consecutive month. Core CPI is now up 2.4% year-over-year, which is actually the strongest year-over-year gain since 2008. Of course, the Fed focuses on consumption deflator inflation which runs cooler than the CPI. However, nothing in the CPI report suggests a threat of deflation.

Similarly, wage gains appear to be firming. In August, the wages of all private sector workers were up 0.4% month-over-month and 3.2% year-over-year while the earnings of production and non-supervisory workers rose 0.5% and were up 3.5% relative to a year earlier, tying their fastest year-over-year pace in over a decade.
In short, while other issues, like tariffs, the exchange rate and oil prices can have a large short-term impact on inflation, the underlying trend in inflation is rising rather than falling.


Financial conditions are already very easy. Early this year, the Federal Reserve reversed course, ending a slow but steady increase in short-term interest rates and announced a halt to its reduction in its balance sheet. While lower inflation, an escalating trade war and slower global growth all contributed to this pivot, another important factor was a stock market slump which nearly pushed the S&P500 into bear territory by Christmas Eve. Since then, despite slowing growth and rising trade tensions, the stock market has fully recovered and, as of Friday, the S&P500 stood within 20 points of its all-time high. In addition, despite a backup last week, 10-year Treasury yields remain well below core CPI inflation. Given these numbers, there is little sign that financial conditions are overly tight or any reason that the Fed ought to act to further boost the stock or bond markets.


The Fed needs to save ammunition to fight any future financial panic. One of the key roles of any central bank is to maintain or restore financial stability. In the financial crisis of 2008-2009 it did so through a series of extraordinary financial measures. However, in previous episodes of financial turmoil, such as the 1987 stock market crash or the Asian financial crisis of 1998, it achieved a measure of stability simply through reducing interest rates. At some stage in the future, the Fed will undoubtedly feel the need to do so again. However, with a federal funds rate at just over 2% today, a rate cut on Wednesday, followed potentially by further rate cuts, would limit the ability of the Fed to provide that kind of support when financial markets really needed it.


Artificially low interest rates encourage bad decisions. It is important to recognize that interest rates aren’t just low – they are artificially low, reflecting the aggressive actions of central banks, over and above the impact of slow growth and low inflation. However, an artificially low level of interest rates creates serious distortions because of their impact on decisions made by both the government and private sector.


On the government side, low interest rates have muted criticism of the surging budget deficit, which should come in at just under $1 trillion, or 4.6% of GDP, this fiscal year and over $1 trillion for as far as the eye can see thereafter. These deficits will eventually have to be reduced in a way that will involve pain for both taxpayers and retirees. In addition, interest rate cuts seem to have encouraged the Administration to ramp up a trade war that is doing serious damage to the U.S. and global economies.

On the private-sector side, low interest rates are allowing some corporations to increase leverage more than they should or to overstock inventory. Eventually, business decisions need to make sense in a normal interest rate environment and the longer the Fed maintains an abnormal environment, the greater will be the disruption when interest rates once again reflect economic fundamentals.

Cutting rates from very low levels in today’s U.S. economy doesn’t stimulate aggregate demand, as we outline in an article in our upcoming “Long-Term Capital Market Assumptions”. The reality is that cutting interest rates has always been a mixed bag from an economic perspective. However, over time, a decline in the importance of the manufacturing and housing sectors, the concentration of wealth among a smaller share of households and the competitive actions of other central banks have diminished the positive price, wealth and currency effects of monetary easing. Meanwhile lower rates means less income for savers, as well as tending to undermine confidence and convince many not to borrow until further rate cuts have occurred. In short, if the Fed does cut rates on Wednesday, we will not be marking up our forecasts for economic growth.


None of this will probably be enough to sway the Fed this week. While many of these points will be reflected in a new set of Fed forecasts, the Fed statement and in Jerome Powell’s press conference, the reality is that the markets now expect a rate cut and would react badly to not getting one. In addition, the President would, no doubt, rail against the lack of Federal Reserve cooperation. Jay Powell and other Federal Reserve officials are likely very worried about their ability to maintain the Fed’s independence, and given the unprecedented and very public pressure being exerted on them, they may want to pick their battles.


However, even if the Fed does indeed cut rates this week, they will need to start to reset expectations on further easing. If “data dependent” is to mean anything, the Fed needs to state clearly that the case for further monetary easing has diminished and that investors should not bank on further rate cuts going forward. Such messaging might well elicit a negative reaction from markets and the Administration. But while the Fed may want to pick its battles, just as with kids in the grocery store, surrendering too many battles is akin to losing the war.


Finally, for investors, any messaging that the Fed might pause in rate cuts after Wednesday would obviously be more hawkish than market expectations that are still betting on a cut this week followed by two more by next spring. Such messaging could cause a backup in rates, a rise in the dollar and a fall in the stock market.

However, of these effects, only the first should be lasting, as fundamentals, beyond an overly-easy Fed, support a lower dollar and strong stock market for the long run.
https://media.licdn.com/dms/image/C4...jU3ZmZ60IOfhCU


Disclosure
Any performance quoted is past performance and is not a guarantee of future results.
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

I hope this email finds you well. I encourage you to read my current Investment Letter as I strongly feel we’re heading towards a critical juncture in this investment and economic cycle. I’ve been in the financial services industry for 36 years and have never seen a convergence of warning signs as potentially ominous as the ones currently in place. Firstly, I urge you to please contact me to discuss the implications of what I write about for you personally. Secondly, if you know of anyone else that would appreciate and benefit from my Investment Letters, I’d ask you to forward me the names and email addresses of those individuals so I can add them to my distribution list.. Thanks for your interest and ongoing support.

The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.

Morgan Stanley Smith Barney LLC. Member SIPC.

DAVE JANNY SEPTEMBER ONE 2019 INVESTMENT LETTER

2019 Volume 16

“BAD IS WHERE IT’S AT”

https://dl-mail.ymail.com/ws/downloa...ROOYeWZBW-NzAxhttps://dl-mail.ymail.com/ws/downloa...ROOYeWZBW-NzAx

“Where it's at
I got two turntables and a microphone
Where it's at
I got two turntables and a microphone”

As a former DJ, back in the old days (actually really old days when we use turntables), I’m down with the above lyrics from Beck’s 1996 hit “WHERE IT’S AT”. However, these days my bi-monthly Investment Letter is my preferred mode of artistic impression. My Letters are intended to provide a “global macro” perspective on the investment and economic landscape, focusing on idiosyncrasies that are worth keeping a keen eye on. Speaking of idiosyncrasies, Beck is a tough artist to categorize as this Wikipedia description attests to:
“With a pop art collage of musical styles, oblique and ironic lyrics, and postmodern arrangements incorporating samples, drum machines, live instrumentation and sound effects, Beck has been hailed by critics and the public throughout his musical career as being among the most idiosyncratically creative musicians of 1990s and 2000s alternative rock.”

“Idiosyncratic” is an interesting word as Google dictionary testifies via this robust list of synonyms:
“distinctive, individual, characteristic, distinct, distinguishing, peculiar, individualistic, different, typical, special, specific, representative, unique, personal, private, essential; eccentric, unconventional, uncommon, abnormal, irregular, aberrant, anomalous, odd, off-center, quirky, queer, strange, weird, bizarre, outlandish, freakish, extraordinary; rare singular”

That’s quite a broad and varied list of words; I’ll hone in on a couple of them that strike me as appropriate descriptions of the current predicament the global economy and its’ central bankers finds themselves in:
“unconventional, uncommon, abnormal, irregular, aberrant, anomalous, odd”.

Those words are apropos for the last 11 years of epic central bank intervention that is still very much in “epic” mode. I’d say the words are right on the mark in describing the phenomenon of the $17 trillion in negative yielding global bonds that exist around the world (CNBC 9/7/19 “We Can’t Really Buy Into Yield Bounce”), amidst the plethora of other central bank induced market distortions.

Recent trends in global bonds and gold combined with deteriorating global economic data would suggest mounting concerns regarding the “potential” for a global recession. The concerns are especially acute when you consider how much intervention global central banks have expended in the last 11 years to create economic growth; economic growth that has been difficult to achieve and now is fleeting.

Channeling some DJ messaging, my shout out to you is this:
“YO yo yo, I want you to understand that plunging global interest rates and bond yields are not a good sign, but rather a bad one’.”

Okay, I never was really much for the “yo yo yo”, but I want to emphasize and have you thoroughly understand that in my view plunging global interest rates are a “BAD” sign.

All readers are most likely well aware of Irish rockers U2; one of the band’s breakout moments came on July 13, 1985 when they performed their song “BAD” at Wembley Stadium in London for the Live Aid concert. Millions of worldwide TV viewers got a first-hand glimpse of the energy, passion and power that U2 generated in their “live” concert performances. The performances that day by U2 and Queen were regarded by many critics and fans as the highlight of the Live Aid concert. U2 subsequently went on to massive fame after music fans “noticed the potential” of the band. When it comes to investing, “noticing the potential” of market and economic events that lie ahead is an important requisite for success.

It seems that the global bond market as well as the gold market may be ahead of the curve in “noticing” the “BAD” potential for the global economy. On the other hand, equity investors have remained relatively complacent this year, mollified by the hope of more global central bank easing. Keep in mind that is the same global central bank easing that has created disappointing economic growth, deflationary pressures, widening wealth and income inequality, dangerous asset price distortion and most significantly a lot more debt.

I’m worried! How long can this already long trend last when built on the fragile foundation of “easy money”? What happens when complacent investors shockingly realize that the inevitable global recession arrives? I’m not being over-dramatic when I tell you that this is likely one of the most “CRITICAL” investing junctures that you will have to face in your financial life. Perhaps the inflection point of this cycle is further away than I believe, but it’s hard to imagine that we are not at least very late in this cycle. Again, preparedness is “CRITICAL” for you.


WHERE IT’S AT
A common occurrence during long lasting cycles is investors’ diminishment of what is really important. With that in mind, I figured it would make sense to point to the “big picture’ global macro trend and theme that I feel investors need to be most cognizant of and focused on tracking and investing around; let say I feel that this is “WHERE IT’S AT”.

First and foremost needs to be recognition by all investors of the fact that in my view we are operating in the midst of a massive 40 year debt cycle that I would classify as a debt bubble. The simple thing to understand is that debt growth has significantly outpaced economic growth for the last 40 years. The discrepancy has gotten so wide that one of the potential ways to sustain the cycle has been to dramatically reduce interest rates. I’ve sarcastically commented many times in my Investment Letters on how we “fixed” the financial crisis, which was a debt crisis, by creating more debt; the recent further plunge in global interest rates makes it important to add “and by radically lowering interest rates” to my previous statement. Ladies and gentlemen it’s all about the debt as I pointed out in previous Letters:
FEBRUARY ONE 2019 INVESTMENT LETTER - "ROLLING IN THE DEEP DEBT: HIGH HOPES AND FALSE CONFIDENCE"
MARCH ONE 2018 INVESTMENT LETTER - "ZOMBIES: IT'S ALL ABOUT THE (BASS) DEBT"

Of the same mind as me is investing legend Ray Dalio of Bridgewater who put out a LinkedIn article on 8/28/19 titled “The Three Big Issues and the 1930s Analog”, where his number one “issue” was:
“The most important forces that now exist are:
1) The End of the Long-Term Debt Cycle (When Central Banks Are No Longer Effective)”
I skipped reasons #2 and #3 because I really want you to pay attention to the importance of what Dalio is talking about in his #1 force. The “end” of a “long term debt cycle” sounds more than ominous and “no longer effective central banks” is a particularly frightening assessment since the last 11 years of epic central bank policy has been the foundation of investor confidence. Pay attention, as we are approaching what I’ve called “THE A-HA MOMENT”: where investors suddenly figure out that more epic central bank intervention can’t stop a pending global recession.

A complete contrast to those thoughts is the prevailing view by most central bankers, investors, economists and politicians that “debt doesn’t matter”. I’ve mentioned many times how shockingly little you hear about “debt” in investment and economic presentations. Perhaps the most egregious example of the “debt” commentary exclusion was Jay Powell’s highly anticipated 8/23/19 speech at the Jackson Hole Symposium for central bankers and economists titled “Monetary Policy Challenges”; “challenge” may be an understatement. In the 12 page speech, Powell reviews the Fed’s monetary policies from 1950 to the present and incredibly uses the word “debt” just once, in passing referring to the 1998 Russian “debt” default; no other mentions of “debt”, strikingly so amidst the aforementioned Dalio “long term debt cycle”.


Let’s go back to the Dalio article for more detail on why it is crucial to understand the mounting and approaching debt problem we face:
a) we are approaching the ends of both the short-term and long-term debt cycles in the world’s three major reserve currencies, while
b) the debt and non-debt obligations (e.g. healthcare and pensions) that are coming at us are larger than the incomes that are required to fund them,
As for monetary policy and fiscal policy responses, it seems to me that we are classically in the late stages of the long-term debt cycle when central banks’ power to ease in order to reverse an economic downturn is coming to an end because:
• Monetary Policy 1 (i.e. the ability to lower interest rates) doesn’t work effectively because interest rates get so low that lowering them enough to stimulate growth doesn’t work well,
• Monetary Policy 2 (i.e. printing money and buying financial assets) doesn’t work well because that doesn’t produce adequate credit in the real economy (as distinct from credit growth to leverage up investment assets), so there is “pushing on a string.” That creates the need for…
• Monetary Policy 3 (large budget deficits and monetizing of them) which is problematic especially in this highly politicized and undisciplined environment.
More specifically, central bank policies will push short-term and long-term real and nominal interest rates very low and print money to buy financial assets because they will need to set short-term interest rates as low as possible due to the large debt and other obligations (e.g. pensions and healthcare obligations) that are coming due and because of weakness in the economy and low inflation.


Their hope will be that doing so will drive the expected returns of cash below the expected returns of bonds, but that won’t work well because:
a) these rates are too close to their floors,
b) there is a weakening in growth and inflation expectations which is also lowering the expected returns of equities,
c) real rates need to go very low because of the large debt and other obligations coming due, and
d) the purchases of financial assets by central banks stays in the hands of investors rather than trickles down to most of the economy (which worsens the wealth gap and the populist political responses).

That’s a good description of the cycle that has been in place and has produced a lot more debt without a lot of other lasting positive benefits; essentially the underlying debt situation is getting worse. It doesn’t sound like zero and negative rates in Dalio’s view are the panacea that many seem to think they are. Again, this is a “CRITICAL” time for investors that Dalio reinforces with his “rates are too close to their floors” comment.

You may also remember another recent LinkedIn article of Dalio’s (7/17/19) that I circulated, posted and commented on called “Paradigm Shift”. The article warned of a pending “paradigm shift” in the cycle that has been in place for the last ten years which can be described as investor confidence and dependence on central bank intervention, but it also emphasized that this “paradigm” or cycle” was occurring within the dangerous final frontier of the above described larger 40 year debt cycle. Recognition of this is “WHERE IT’S AT”.


Investors are barraged with tweets, headlines and comments on a massive daily scale that can easily cause confusion and distractions as to what’s really at work in markets; call it “noise”. The U.S./China trade talks are a great example of headlines causing big moves in both directions; in the meantime the situation is unresolved and in my view any “deal” or “no deal” may be a less critical event than the realization of what appears to be a global deflationary debt trap that the world is currently and increasingly hopelessly “TRAPPED” in.


The other big investor focus recently has been of course more global central bank easing including and of course more “potential” rate cuts from our very own Fed. By the time you’re reading this we should have seen more action from the ECB and a pending decision by the Fed. Despite some opposition, Draghi seems set to go out with a bang in his term as ECB President, although the expectation bar is set high and some level of policy disappointment is possible. His replacement, Christine Lagarde, is very much is in Draghi’s “dovish” camp, but refer back again to Dalio’s above commentary pointing out the “potential” that more stimulus won’t work; one need not look further than Japan and Europe to see how little positive impact low/zero/negative interest rates have had on those economies. The level of ECB intervention could also have bearing on the Fed’s 9/18/19 meeting announcement. Reading in between the lines of my last sentence, it is becoming increasingly apparent that not only are we in a trade war, but all global central bankers are engaged in a broad currency war as well. The “potential” ramifications are “BAD”; can you say global recession?


BAD
What would of course be “BAD” would be a global recession: the chain of events from credit issues to stock market corrections to loss of jobs to inability to service debts for consumer and corporate “zombies” to reversal of passive index flows to retirement concerns to loss of earnings power would not be pretty.
Here’s the biggest problem with a recession: by the time most people figure it out it is way too late! To properly deal with a recession, one needs to be prepared in advance by watching the mounting warning signs and appropriately reading the tea leaves as the “potential” for said recession increases. Guess what, that’s exactly where we’re at or better said “WHERE IT’S AT”. I reminded of that old expression “better safe than sorry”; it is especially appropriate because the “potential” negative consequences of a U.S. recession, much less a global recession, could be brutal (there’s that “A-HA MOMENT AGAIN”).
This would be a good time to reference John Hussman of Hussman Funds extremely critical take on “full” investment cycles:
“It’s useful to remember that long-term returns represent not only trough-to-peak advances, but peak-to-trough resolutions as well. Buy-and-hold investors don’t get the trough-to-peak return. They get the full cycle return. Not surprisingly, the higher the valuation at the bull market peak, the longer the subsequent period of disappointing returns, in several instances extending more than a decade, though not without intermittent failure-prone bull market rallies to add excitement. This is what I often call ‘going nowhere in an interesting way.”


By the way that is a quote from Hussman’s December 2004 market commentary titled “Risk Management is Generous”. Don’t let anyone tell you advice like that is “old school”; when we hit the inflection point of this cycle (could we have hit it already?); that advice will most definitely be “WHERE IT’S AT”. For all long term investors out there it is “CRITICAL” to note that since March 2009, what we‘ve seen is just the “trough to peak” portion of market returns and what we’ve not yet realized is the alarming “potential’ for the “peak to trough” portion of this long investment cycle. What unprepared investor is really willing to entertain the “potential” for a 50% or so bear market correction like we saw at the cycle completions of 2000-2002 and 2007-2009? Many investors typically tend to be “in denial” of potential “BAD” events like recessions and bear market corrections; it appears to be that the longer the trend the more the denial. I’ll exit this topic by letting Hussman tell you how bad the stock market damage incurred during the financial crisis actually was:
“At extreme valuations, it’s important to remember that the completion of a hypervalued market cycle can wipe out every bit of the stock market’s total return over-and-above T-bills, going back not just a few years, but for over a decade. Despite all the gains that the stock market enjoyed during the “tech bubble,” and during the subsequent “mortgage bubble,” the decline to the March 2009 market low erased the entire total return of the S&P 500 over-and-above T-bill returns, all the way back to May 1995.”


OUCH! “BAD”! Is it really worth being a hero in the 11th year of this market/economic/credit cycle that looks to be on “potential” life support, kept alive by “beyond-sane” central bank policies?

Before I show you some potentially “BAD” pictures (not what you may be thinking), I would be amiss not to mention the amazing $17 trillion pile of negative yielding debt I mentioned earlier. Global investors have basically front run central banks, anticipating more easing and QE-like bond buying. Investors’ willingness to even buy negative yielding debt scarily sums up the anticipated extent and scope of said anticipated intervention. The DJ emphatically shouted into his microphone:
“That’s not good news, that’s BAD news.”


Besides foreshadowing the global recession I’ve been talking about, the other danger is the dangerous structure in bond markets that negative yield creates.
The real reason investors buy those negative yielding bonds is because they believe yields will get even more negative and thus the bonds would appreciate in price; global bond investors have a recent bonanza. I can certainly understand issuers of debt wanting to issue debt at low, zero and even negative rates for long term maturities especially when done as refinancing. I'm still worried though about over-indebted issuers issuing even more debt. What's becoming more troubling is that someone has to buy that paper; yes rates could go even lower particularly in light of the real threat of a global recession, but there will come a point where two concepts as old as the bond market itself come back into play:
“CREDIT QUALITY” and “LIQUIDITY”.
The more negative a yield a bond has the more the carry cost for the purchaser and the farther away the price gets from par, so if the yield just went back to zero or even worse the bond just went back to par, there is more money to be lost by the purchaser of that “even more negative” yield bond. God forbid the “credit quality” of the issuer is questioned and all of a sudden liquidity disappears. The fact that there are even European corporate junk bonds with negative yields is a clear indication that no one is really worried about “credit quality” right now; that’s especially scary since it appears that at least the “potential” for a global recession seems to be increasing. This would be an appropriate time to remind you of Oaktree Capital’s Howards Marks’ definition of liquidity:
“The bottom line is unambiguous. Liquidity can be transient and paradoxical. It’s plentiful when you don’t care about it and scarce when you need it most. Given the way it waxes and wanes, it’s dangerous to assume the liquidity that’s available in good times will be there when the tide goes out.”


BAD PICTURES
I recently came across two charts, courtesy of Mike Agne of Magnelibra Capital Advisors, that do a nice job pointing out the dilemma we find ourselves in. The first chart highlights the “BAD” problem of the declining velocity of money which is making the efficacy of further monetary easing by central bankers less and less effective.
https://dl-mail.ymail.com/ws/downloa...ROOYeWZBW-NzAx


Let me give you some definitions from Wikipedia:
“Central to monetarism is the equation MV = PQ. M is the money supply; V is velocity -- the number of times per year the average dollar is spent; P is prices of goods and services; and Q is quantity of goods and services.”
I now turn it over to commentary from John Mauldin’s 5/25/19 Thoughts From The Frontline titled “Why Debt Won’t Spark Inflation” where Mauldin focuses on thoughts from my favorite interest rate analyst Lacy Hunt of Hoisington Investment Management who I’ve turned to many times before to illuminate the problem central banks face in generating economic growth:
Monetary decelerations eventually lead to lower, not higher, interest rates as originally theorized by economist Milton Friedman. As debt productivity falls, the velocity of money declines, making monetary policy increasingly asymmetric (one sided) and ineffectual as a policy instrument.

Irving Fisher’s equation of exchange (M2*V=GDP) says GDP is equal to the money supply times its turnover, or velocity. The Federal Reserve heavily influences the former but not the latter. That, it turns out, is a serious problem.

The Fed’s Phillips Curve fixation gives it the illusion that every macroeconomic problem is a nail and monetary policy is the ideal tool/hammer to fix it. Of course, that’s not true. Looser financial conditions don’t help when the economy has no productive uses for the new liquidity. With most industries already having ample capacity, the money had nowhere to go but back into the banks. Hence, velocity fell 33% in the two decades that ended in 2018.


Now, if velocity is falling then any kind of Fed stimulus faces a tough headwind. It can inject liquidity but can’t make people spend it, nor can it force banks to lend. And in a fractional reserve system, money creation doesn’t go far unless the banks cooperate.”

I’d add and again emphasize that is particularly relevant in the current global economic debt environment that Hunt describes as “global over-indebtedness”. In essence this why central banks are “TRAPPED” in a seemingly no-win situation whether they cut rates or not as we are in the late stages of the debt cycle/bubble I described earlier.

Also on the “BAD NEWS” front, I’d point you to another Mike Agne chart that exposes the reality that corporate earnings here in the U.S. have been in “BAD” shape:
https://dl-mail.ymail.com/ws/downloa...ROOYeWZBW-NzAx


So despite low corporate tax rates, U.S. corporations already have incredibly been barely able to actually grow bottom line earnings; you wouldn’t have known that if you only looked at the S&P chart itself. This is further evidence of how weak the economic recovery has been as well as how much this has been masked by “financialization” gimmickry like: corporate stock buybacks reducing share counts and thus increasing “earnings per share” and of course creative non-GAAP earnings emphasis by analysts and investors than perhaps the more realistic GAAP numbers. For those that don’t know, GAAP ironically stands for “Generally Accepted Accounting Principles”; why would anyone want to emphasize those standards the “rose-colored glasses” DJ sarcastically asked?
These charts fondly take me back to my 2018 theme “THE GRAND ILLUSION”.


CONCLUSION
I hope I’ve been able to show to you that we are at a very “CRITICAL” investing and economic juncture.
I hope you’ve acknowledged the many “BAD” signs are accumulating amidst incredible investor complacency.
I hope you can fully appreciate how incredibly long this debt cycle/bubble has run (40 years) and how dangerous the “potential” for it ending is; an ending that can create a global recession or something even worse. That’s an important “WHERE IT”S AT” warning if there ever was one.
I hope you noticed I know you used the word “hope” 4 previous times in 4 tiny paragraphs to embellish the point that “hope” is not an investment strategy.
ARE YOU PREPARED?

David Janny
Senior Vice President
Senior Portfolio Manager
Financial Advisor
NMLS# 1279369
Morgan Stanley Wealth Management
500 Post Road East
3rd Floor
Westport, CT 06880
203 221-6093

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