Posted on 04/17/2013 7:37:49 AM PDT by blam
WAKE UP!
Karl Denninger
April 17, 2013
I've been warning people that all is not well in the world.
This morning I'm standing on the red button.
We are, right here and now, sitting on key support for copper. If it fails, and given the pattern I believe it will, we're going under $3 and could see an all-on crash in copper prices.
Why is this important? Because it's a measure of industrial demand -- that is, industrial production on a global basis.
Europe is a damned basket case. That their markets haven't collapsed are testament to the litany of lies promulgated by central bankers and politicians. But lies only are effective for a while and always eventually lose their luster.
Portugal is out of money. Spain's pension system is effectively all in Spanish government debt; zero diversity. Ireland's banking system, along with most of the rest of the continent, is about to roll over again and the idiots over in Europe, just as here, refused to force their banks to take the bogus leverage and swap crap out and shoot it after 2008. Politics trumped arithmetic -- for a while.
But politics never wins over arithmetic in the end; it is a poor substitute for fact.
There will be more intervention -- that much is a certainty. But note that even big companies like P&G are now extending payment for suppliers; the firm now wants 75 days to pay. What happened to 2% 10, Net 30? I'll tell you what happened to it -- it disappeared in a puff of bogus accounting games and "machined" earnings. When huge corporations start playing this game the end of the line has arrived.
Buried in that article is a nasty little ditty -- major companies are now taking 60-100 days to pay. That's outrageous.
What's worse is the so-called "earnings surprises and beats." Never-mentioned is the fact that companies have been buying back stock like crazy over the last few years, often with borrowed money rather than operating earnings. That is, they're increasing leverage and then so-called "analysts" are screaming about how "cheap" their stock is. In a word:
Now we have a problem. The economy has rolled over in Europe and they are locked in a deep recession fed by Germany and to a lesser extent France -- nations desperate to prevent their banks from being exposed as grossly insolvent. The ECB is going along with this because it has more worthless bonds in the kitty than its capital, which means that it is insolvent too.
The premise that Bernanke and the ECB have run is that low rates and "QE" style games will prompt a "recovery." Five years+ into this mess that is now known factually to be a blown thesis!
But admitting the truth means accepting that we have in fact been in a grossly ugly recessionary -- or even depression -- environment for the last five years that has been intentionally and fraudulently covered up by artificially low rates, market distortions and deficit spending enabled by the chief drug pushers themselves. The political implications of doing that are unacceptable, so it doesn't happen. Not here, not there.
It's not helped by the fact that "new math" doesn't bother to explain how exponents work in the real world despite the fact that every single 8th grader in the world should instantly recognize that the games being played both can't and aren't working.
China stoked their idiocy with ridiculous building for which there is no demand. All of that was fueled with cheap credit too, which is even easier to make happen in a communist nation. But the economic "expansion" that enabled this to happen without the BS ball going up and exploding is now slowing down as the weight of this lending presses its thumb on the scale. Within the next year or two that bubble should burst with catastrophic consequences. Never mind the internal and demographic problems.
Japan, for its part, thought it could "QE" its way to prosperity. The irony is that they have thought this for 20 years and it has failed. Their "big experiment" will also fail; their problems are structural and attempting to evade the decisions of 20 years previous in turning their banks into zombies -- exactly as we're doing here and Europe is doing there -- cannot be backed out of the equation. There is a small element of panic showing up over in Japan already and that's likely to grow.
Add to all of this the quiet repeal of the STOCK act here in America a few days ago. That's right -- while America was watching people get their legs blown off in Boston our Congress made legal once again insider trading by.... Congress. The "debate" over this change took a literal 10 seconds in the Senate and a whole 14 in the House. Neither chamber bothered with debate at all; it was passed by unanimous consent in both chambers.
All of those who claim to stand for transparency and proper government, including the man who I publicly supported for Congress in Michigan -- Kerry Bentivolio: Go **** yourselves. This is exactly the reason that nobody should respect any member of Congress, ever, period. Unanimous consent means just that -- each and every member of Congress stands guilty of not only accepting but explicitly supporting insider trading by Congress.
One final fact: Artificially-low interest rates actually hurt lending. Why would you lend someone your capital for less than a reasonable return? There's only way you'd do that -- if someone else was backstopping your supposed "lending." That's what printing credit is all about if you're "too big to fail", but the fact of the matter is that the cost comes out of everyone's pocket and as a result real firms with real prospects for real performance are shortchanged and those who would either be lenders at a market rate of return refuse to engage in the market.
Worse, those with good ideas refuse to hire and build businesses because those people, who actually can perform basic arithmetic and understand exponents, know they will get hammered to pay the bills for those who got uneconomic loans and will not be able to pay.
In this environment actual economic growth is factually impossible.
"Here it comes."
We have the best congress that money can buy.
True, but let’s face facts: there’s no way to stop insider trading....and no way to construct laws against human nature. The only answer is to shrink government, so that whatever they do can be ignored by the average person. We’ve had a government that small for most of our history...but not now....
“Buried in that article is a nasty little ditty — major companies are now taking 60-100 days to pay. That’s outrageous.”
Companies aren’t delaying payment because they have to. They are delaying payments so they can be paid for products before they pay suppliers for the materials. In other words they want to make the money before they spend it.
It’s just another strategy to raise the shareholder return. Companies have been in the process of doing this for a few years, at least.
Copper has been due a correction for quite some time.
That chart looks like the beginning of a global deflationary depression to me.
Just my take.
Ditto.
This is almost as frustrating as Gold nuts saying the world is coming to an end because all the gold they bought at wildly inflated prices is worth less than they paid for it.
Blue Horseshoe hates Anaconda Copper.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.
