Carl Icahn Says Market "Way Overpriced", Warns "God Knows Where This Is Going"

To be sure, no one ever accused Carl Icahn of being shy and earlier this year he had a very candid sitdown with Larry Fink at whom Icahn leveled quite a bit of sharp (if good natured) criticism related to BlackRock’s role in creating the conditions that could end up conspiring to cause a meltdown in illiquid corporate credit markets. Still, talking one’s book speaking one’s mind is one thing, while making a video that might as well be called “The Sky Is Falling” is another and amusingly that is precisely what Carl Icahn has done. 

Over the course of 15 minutes, Icahn lays out his concerns about many of the issues we’ve been warning about for years and while none of what he says will come as a surprise (especially to those who frequent these pages), the video, called “Danger Ahead”, is probably worth your time as it does a fairly good job of summarizing how the various risk factors work to reinforce one another on the way to setting the stage for a meltdown. Here’s a list of Icahn’s concerns:

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Is Glencore The Next Lehman? The World’s Largest Commodities Trading Company Is Toast

Are we about to witness the most important global financial event since the collapse of Lehman Brothers in 2008?  Glencore has been known as the largest commodities trading company on the entire planet, and at one time it was ranked as the 10th biggest company in the world.  It is linked to trillions of dollars of derivatives trades globally, and if the firm were to implode it would be a financial disaster unlike anything that we have seen in Europe since the end of World War II.  Unfortunately, all signs are pointing to an inescapable death spiral for Glencore at this point.  The stock price was down nearly 30 percent on Monday, and overall Glencore stock has plunged nearly 80 percent since May.  There are certainly other candidates for “the next Lehman” (Petrobras and Deutsche Bank being two perfect examples), but Glencore has definitely surged to the front of the pack.  Right now many analysts are openly wondering if the firm will even be able to survive to the end of next month.

If you are not familiar with Glencore, the following is a pretty good summary of the commodity trading giant from Wikipedia…

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Did The PBOC Covertly Buy 1,747 Tonnes Of Gold In London?

The London Float And PBOC Gold Purchases

This BullionStar blogpost is part of a chronological storyline. Please make sure you’ve read The Mechanics Of The Chinese Domestic Gold Market, PBOC Gold Purchases: Separating Facts from Speculation and The London Bullion Market And International Gold Trade, or it will be difficult to understand the finesses. 

This week I listened to an interview with a Swiss refiner which promptly reminded me of an interview I conducted with Alex Stanczyk (currently Managing Director of Physical Gold Fund SP) on 9 September 2013 about what he was hearing from industry insiders on Chinese gold demand. Back then we knew very little about the Chinese gold market and how physical gold across the globe was flowing towards China. This started to change on 18 September 2013 when I published my first analysis on the structure of the Chinese gold market with the Shanghai Gold Exchange (SGE) at its core; a topic that since then has been discussed by researchers at investment banks, in the blogosphere and in the mainstream media. The Western gold space has learned a great deal about the Chinese gold market and global gold flows, though we’re always left with loose ends. For example, the issue regarding PBOC gold purchases; how much gold do they truly have and where was it bought? Does the PBOC buy 400-ounce Good Delivery (GD) bars in London and covertly transports these gold bars to its gold vaults in China mainland, or are the Good Delivery gold bars shipped to Switzerland, refined into 1 Kg 9999 gold bars, sent forward to the Chinese mainland where they’re required to be sold through the SGE gold exchange and from where they can be bought (in clear sight) by the PBOC. The latter would imply that the full gold flow would be visible for anyone with an Internet connection.

Yesterday I re-read my interview with Alex from September 2013 in which he shared information from industry insiders. From Alex (September 2013):

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The Stock Markets Of The 10 Largest Global Economies Are All Crashing

You would think that the simultaneous crashing of all of the largest stock markets around the world would be very big news.  But so far the mainstream media in the United States is treating it like it isn’t really a big deal.  Over the last sixty days, we have witnessed the most significant global stock market decline since the fall of 2008, and yet most people still seem to think that this is just a temporary “bump in the road” and that the bull market will soon resume.  Hopefully they are right.  When the Dow Jones Industrial Average plummeted 777 points on September 29th, 2008 everyone freaked out and rightly so.  But a stock market crash doesn’t have to be limited to a single day.  Since the peak of the market earlier this year, the Dow is down almost three times as much as that 777 point crash back in 2008.  Over the last sixty days, we have seen the 8th largest single day stock market crash in U.S. history on a point basis and the 10th largest single day stock market crash in U.S. history on a point basis.  You would think that this would be enough to wake people up, but most Americans still don’t seem very alarmed.  And of course what has happened to U.S. stocks so far is quite mild compared to what has been going on in the rest of the world.

Right now, stock market wealth is being wiped out all over the planet, and none of the largest global economies have been exempt from this.  The following is a summary of what we have seen in recent days…

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The Worst Part Is Central Bankers Know Exactly What They Are Doing

The best position for a tyrant or tyrants to be in, at least while consolidating power, is tyranny by proxy. That is to say, the most dangerous tyrants are those the people do not recognize: the tyrants who hide behind scarecrows and puppets and faceless organizations. The worst position for the common citizen to be in is a false sense of security and understanding, operating on the assumption that tyrants do not exist or that potential tyrants are really just greedy fools acting independently from one another.

Sadly, there are a great many people today who hold naïve notions that our sociopolitical dynamic is driven by random chaos, greed and fear. I’m sorry to say that this is simply not so, and anyone who believes such nonsense is doomed to be victimized by the tides of history over and over again.

There is nothing random or coincidental about our political systems or economic structures. There are no isolated tyrants and high-level criminals functioning solely on greed and ignorance. And while there is certainly chaos, this chaos is invariably engineered, not accidental. These crisis events are created by people who often refer to themselves as “globalists” or “internationalists,” and their goals are rather obvious and sometimes openly admitted: at the top of their list is the complete centralization of government and economic power that is then ACCEPTED by the people as preferable. They hope to attain this goal primarily through the exploitation of puppet politicians around the world as well as the use of pervasive banking institutions as weapons of mass fiscal destruction.

Their strategic history is awash in wars and financial disasters, and not because they are incompetent. They are evil, not stupid.

By extension, perhaps the most dangerous lie circulating today is that central banks are chaotic operations run by intellectual idiots who have no clue what they are doing. This is nonsense. While the ideological cultism of elitism and globalism is ignorant and monstrous at its core, these people function rather successfully through highly organized collusion. Their principles are subhuman, but their strategies are invasive and intelligent.

That’s right; there is a conspiracy afoot, and this conspiracy requires created destruction as cover and concealment. Central banks and the private bankers who run them work together regardless of national affiliations to achieve certain objectives, and they all serve a greater agenda. If you would like to learn more about the details behind what motivates globalists, at least in the financial sense, read my article 'The Economic Endgame Explained.'

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Top UK Hedge Fund Manager Admits: "Central Banks Made The Rich Richer"

With each passing day, the lies and fictions we have been exposing since 2009 - from HFT, to the truth about QE, to the ultimate downfall of central banks through their own actions - are being debunked ever faster, called out and/or confirmed by increasingly more "serious" people, those who have benefited and been protected by the lie itself.

Case in point, an Op-Ed by Paul Marshall, CIO of Marshall Wace, one of the London's and Europe's largest hedge funds, with an AUM of $22 billion (so he probably knows what he is talking about) which is a tour de force of slamming the countless lies shoved down the population's throat every single day just so the rich can get richer.

Labour’s new shadow chancellor has got at least one thing right. Amid the brickbats thrown at John McDonnell, there is a nagging failure to acknowledge the validity of one part of his critique of the money-creation programmes of the four leading central banks. Quantitative easing, as this policy is known, has bailed out bonus-happy banks and made the rich richer. 

It is a surprise that the UK opposition party and other leftwingers have not made more of this. Maybe they thought it was too complicated. It isn’t really, and it might appeal to voters’ sense of justice far more effectively than threats to raise the top rate of income tax or to introduce a financial transactions tax (which Mr McDonnell also supports).

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The Mystery Of The "Missing Inflation" Solved, And Why The US Housing Crisis Is About To Get Much Worse

Over the past few months (not to mention last 7 years), the topic of America's "missing inflation" has gained major prominence, because while supposedly every other aspect of the economy is humming along (which really just means that record numbers of waiters, bartenders and temp workers are hired and collect minimum wage salaries), CPI remains so low it (together with China to a lesser extent) was used as justification by the Fed to not hike rates for 55th consecutive FOMC meeting, even though 75% of polled economists said, after 9 years of ZIRP, Fed lift off would take place last week.

One problem with the Fed's measures of inflation, as we have documented in the past, is that they are wrong, if not with malicious intent, then purely due to definitional purposes. Recall our July comparison between CPI and PCE and our warning that "With The Spread Between CPI And PCE Blowing Out The Most Since 2009, Is The Fed Making A Big Mistake" in which we warned that "with a rate hike, as small as [25 bps] the Fed can and will almost certainly start a chain of events that results in the "ghost of 1937" waking up. We don't know if, like during the first Great Depression, it leads to a 50% plunge in stocks, but for those long risk here, it hardly makes sense to stick around and find out."

The Fed did not hike.

But a bigger problem for the the Fed's measures of how the overall economy is doing (and/or overheating) is that the Fed telling the vast majority of Americans that inflation is negligible, leads to riotous laughter.

The reason for this is a simple, if dramatic, one: the U.S. transformation from a homeownership society, to one of renters.

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Bankers Threaten Fed with Layoffs if it Doesn’t Raise Rates

Say the Fed wanted to raise short-term interest rates to 1 percent, meaning that it did not want banks to lend at lower rates. Because the glut of reserves is so great, the Fed could not easily raise rates by reducing the availability of money. Instead, the Fed plans to pre-empt the market, paying banks 1 percent interest on reserves in their Fed accounts, so banks have little reason to lend at lower rates. “Why would you lend to anyone else when you can lend to the Fed?” Kevin Logan, chief United States economist at HSBC, asked rhetorically.

This is not a cheap trick. Since the crisis, the Fed has paid banks a token annual rate of 0.25 percent on reserves. Last year alone, that cost $6.7 billion that the Fed would have otherwise handed over to the Treasury. Paying 1 percent interest would cost four times as much. The Fed has sent roughly $500 billion to the Treasury since 2008. As the Fed raises rates, some projections show that it may not transfer a single dollar in some years. Instead, the Fed will pay banks tens of billions of dollars not to use the trillions it paid them previously.

It’s also worth pointing out that financial firms historically have been losers in tightening cycles because they hold inventories of securities which fall in value as interest rates rise. In the past, they were inevitably net long. There simply was not enough hedging capacity for big dealers to go net short or simply flatten their positions. But Dodd Frank has forced dealers to cut their positions considerably, so the banks may feel they can make enough profit on having customers rearrange their lives (as in taking advantage of volatility) to offset losses on their OTC trading positions. i’d be curious to get informed reader views.

Now the Fed could use its reverse repo facility too, as reader craazyboy pointed out. But the Fed is already accounting for a significant portion of that market and may not want to become the repo market. Hence interest payments on reserves could be the Fed’s first line of intervention.

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Contemporary Capitalism: Neoliberal Capitalism, Financialized Capitalism, or Globalized Capitalism?

While it is widely agreed that capitalist economies underwent significant change after around 1980, there are different interpretations of the new form of capitalism that emerged. There is no agreement about the best organizing concept for post-1980 capitalism. Some view it as financialized capitalism, some as globalized capitalism, and some as neoliberal capitalism. These different conceptions of contemporary capitalism have implications for our understanding of the problems it has produced, including the financial and economic crisis that emerged from it in 2008. Focusing on the U.S. economy, I presented a case in part 1 that “neoliberal capitalism” is the best overall concept for understanding the form of capitalism that arose around 1980. Here, I deal more specifically with the shortcomings of alternative interpretations – focused on the concepts of “financialization” and “globalization,” respectively.

Why Not “Financialization”?

Some economists view “financialization” as the best overall concept for understanding contemporary capitalism. Financialization can best be understood, however, as an outgrowth of neoliberal capitalism. The rise in financial profit, which gave the financial sector a place of growing importance in the economy, came quite late in the neoliberal era. As figure 2 shows, only after 1989 did financial profit begin a long and steep climb, interrupted by a fall in the mid 1990s, and then a sharp rise to a remarkable 40% of total profit in the early 2000s. It was only in the 2000s that financialization fully blossomed. At that time, commentators noted, Wall Street was beginning to draw a large percentage of elite college graduates.

The “financialization” of the U.S. economy in recent decades, important though it is, was itself driven by neoliberal restructuring. The neoliberal institutional structure, including financial deregulation, enabled financial institutions to appropriate a growing share of profits. Furthermore, financialization cannot account for many of the most important economic developments in contemporary capitalism. It cannot explain the dramatic shift in capital-labor relations from acceptance of compromise by the capitalists to a striving by capitalists to fully dominate labor.. It cannot explain the sharp rise in inequality. And it cannot explain the deepening globalization of capitalism.

Why Not “Globalization”?

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The Real Reasons Why The Fed Will Hike Interest Rates

For the past several months, the chorus of voices crying out over the prospect of a Federal Reserve interest rate hike have all been saying essentially the same thing – either they can’t do it, or they simply won’t do it. This is the same attitude the chorus projected during the initial prospects of a QE taper. Given the trends and evidence at hand I personally will have to take the same position on the rate hike as I did with the taper – they can do it, and they probably will do it before the year is over.

I suppose we may know more after the conclusion of the Fed meeting set for the 16^th and 17^th of this month. August retail sales data and industrial production numbers have come in, and they are not impressive even with the artificial goosing such stats generally receive. However, I do not expect that they will have any bearing whatsoever on the interest rate theater. The Fed’s decision has already been made, probably months in advance.

The overall market consensus seems to be one of outright bewilderment, so much so that markets have reentered the madness of "bad news is good news" as stocks explode on any negative data that might suggest the Fed will delay. The so-called experts cannot grasp why the Fed would even entertain the notion of a rate hike at this stage in the game. Hilariously, it is Paul Krugman who is saying what I have been saying for the past year when he states:

"I really find it quite mysterious that the Fed is eager to raise rates given that, they’re going to be wrong one way or the other, we just don’t know which way. But the costs of being wrong in one direction are so much higher than the costs of being the other."

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Head Of China's 'Goldman Sachs' Probed For Insider Trading As "Market Purification" Continues

Imagine for a moment the sentiment shock for mainstream Americans if Goldman Sachs' Lloyd Blankfein was probed for insider-trading and publicly scapegoated for causing a nation's equity market (and economy) to collapse. While it may be true, it would never happen in America... But in China, as part of what authorities call "purifying the markets," the president of China’s biggest brokerage has been swept up in a widening campaign to root out financial wrongdoing and assign blame for the nation’s $5 trillion stock rout. As Bloomberg notes, shares are falling further in today's markets as the probe of Citic Securities President Cheng Boming comes after the state-run Xinhua News Agency reported last month that four executives at Citic had admitted to so-called insider trading.

Since the market crash, China’s targets have ranged from so-called “malicious” short sellers to a journalist from business magazine Caijing whose report was alleged to have caused market panic. Authorities say they want to “purify” the market.

“There does seem to be a bit of a witch hunt for a scapegoat at the moment, but I think this is mostly signaling by the authorities that they will not tolerate what they perceive as ‘unhelpful’ selling in the market,” Tony Hann, a London-based money manager at Blackfriars Asset Management, which oversees about $350 million, said in an e-mail.

Citic confirmed the police investigation of Cheng in a statement to Shanghai’s stock exchange. A brokerage spokeswoman declined to comment further.

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To Understand The Oil Story, You Need To Understand Exports

Despite the attention-grabbing economic volatility that is dominating headlines, it's important to keep our eye on the energy story firmly in focus. This is especially true as the headlines we regularly read about Peak Oil being dead " are "manifestly false" according to this week's podcast guest, petroleum geologist Jeffrey Brown. 

As concerning as the fact that global oil production has plateaued over the past decade, despite trillions invested in trying to goose it higher, are Brown's forecasting model for oil exports. His Export Land Model shows how rising internal consumption can swing (and has swung) countries from major exporters to permanent importers within a dizzyingly short period of time:

The crucial issue to understand about what has happened after 2005 is that we’ve had a very large increase in global gas production and natural gas liquids, but a much slower increase in crude plus condensate.

So, what I think has happened is the actual crude oil production has basically flatlined while the liquids associated with natural gas production, condensate and natural gas liquids, have continued to increase. So, we ask for the price of oil, we get the price of Brent or WTI; but when you ask for the volume of oil, you get some combination of crude, condensate, natural gas liquids, biofuels. So, the fact is that substitution has worked and is working in that they’re bringing on alternative substitutes, but they're only partial substitutes. The actual, physical volume of crude oil production has probably been flat to down since 2005. Over the past ten years, it has taken us trillions of dollars, basically, to keep us on an undulating plateau in actual crude oil production. What happens going forward?

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What Happens When Central Banks Hike Rates In The "New Normal"

Ten days ago, using Bank of America data, we summarized what it means to live in the New Normal: "In the 110 months [since the last Fed hike] global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime."

Indeed, what has happened in the past 7 years is nothing short of the greatest attempt ro reflate asset prices (if not so much the economy - that will come when the helicopters start paradropping bags of cash) the world has ever seen, driven entirely by the central banks and China. In fact, it is now so obvious even JPM finally figured it out.

However, while the desperate attempt to monetize a quarter of global GDP in tradable assets just to boost the confidence (and wealth) of the "1%" is no longer lost on anyone, the reality is that some banks did try to tighten monetary conditions and hike rates.

This is how they fared. According to the WSJ: "In the seven years since the world’s central banks responded to the financial crisis by slashing interest rates, more than a dozen banks in the advanced world have tried to raise them again. All have been forced to retreat."

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Why Are Fannie and Freddie Raising Their Foreclosure Timeline?

One of the major fallacies skillfully employed by the lending industry since the foreclosure crisis is that the meddling defense attorneys and pro se litigants were clogging the courts with their dilatory motions and challenges, unnecessarily prolonging the foreclosure process, creating neighborhood blight and costing homeowners billions in property values by preventing “market clearing.” This was presented to state lawmakers as a rationale to tighten the rules on foreclosure challenges and eliminate consumer protections, ensuring that lenders could bulldoze their way through the courts.

It never appeared to be true, however, given that plaintiff’s attorneys routinely allowed cases to rot, filed motions to delay, withdrew cases at the last minute and so on. Some of this was due to problems with documents and procedure, some of it was inscrutable, some of it maybe even based on squeezing more money from investors. But the main investor in mortgages, the GSEs, continue to play along, whether wittingly or not.

Last week, Fannie Mae and Freddie Mac, in successive days, extended their foreclosure timelines in a majority of the states where they own mortgages. The timeline is a guidance for how long a foreclosure is supposed to take, from the initial delinquency to the foreclosure sale. This includes the timeline for an uncontested foreclosure proceeding.

In theory, if servicers go beyond the timeframe they get fined a “compensatory fee,” which they pass on to the foreclosure mill law firms to get them to hurry up. But servicers can provide “reasonable explanations” to waive the fee, like bankruptcy, probate or an active trial modification. There’s also a compensatory fee moratorium for Washington D.C., Massachusetts, New York and New Jersey, which presumably is related to their more stringent foreclosure laws.

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This Is EXACTLY What The Early Phases Of A Market Meltdown Look Like

There is so much confusion out there.  On the days when the Dow goes down by several hundred points, lots of people pat me on the back and tell me that I “nailed” my call for the second half of this year.  But on the days when the Dow goes up by several hundred points, I get lots of people contacting me and telling me that they are confused because they thought the stock market was supposed to go down.  Well, the truth is that if there is going to be a full-blown market meltdown, we would expect for there to be wildly dramatic swings in the market both up and down.  A perfect example of this is what we experienced during the financial crisis of 2008.  9 of the 20 largest single day declines in stock market history happened that year, but 9 of the 20 largest single day increases in stock market history also happened that year.  If we are moving into another great financial crisis, there should be massive ups and massive downs, and that is precisely what we are witnessing right now.

On Tuesday, the Dow surged several hundred points.  There was much celebrating in the mainstream media over this, but what they failed to realize was that this was another big red flag.  And we saw this volatility carry over into Wednesday.  The Dow was up 171 points early in the day before ending down 239 points.

By themselves, those two days don’t mean a whole lot.  The key is to look at them in context.  And in context, we have already witnessed the most dramatic stock market crash since the last financial crisis.

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