Several banks who are friendly and not the wild trading types, reported to us before that the Federal Reserve officials were visiting them warning that they needed to change their models. Now the Fed is warning banks that they MUST do more to curb excessive risk-taking. They have also been warned about the bogus claims of “rogue” traders who amazingly lose billions and somehow management never knew. That claim is BOGUS, for anyone claiming that means that the bank should be shut down for it is incapable of risk management and should be barred from trading. So the Fed has again informed the banks that they have to now improve employee behavior at their firms or face stiff repercussions, including being broken into smaller pieces.
The bankers have come in second to politicians as the most untrusted profession. Our model turned in 2013 and from then on the banks are losing control of government. This time around we WILL see banks broken apart. The Fed will cover only deposits. There is no political stomach for another $1 trillion check to bail them out next time. Besides, next time would be 3 times as great as the last bailout. This seems to be the growth path that they are on with a MINIMUM 300% increase from one bailout to the next. However, our models are pointing to a Phase Transition in this statistic. That means we may see more than a 500% increase in losses next time around.
The rumors we were reporting on the street about the Hedge Funds appear to be true. They have been unable to see time as so often the case and have been hit with the worst losses in Industry’s history since 2011. This may indeed contribute to what we see with the postponement of the Phase Transition being set in motion with the rush into bonds.
This is turning out to be the “Rich Man’s Panic of 2014″ that has produced a bloodbath among many hedge funds who often trade-off of just opinion interspersed with fundamentals. This is shaping up to be perhaps the industry’s worst loss since late 2011 when then as well they could not see the change in trend.
The $2.8 trillion hedge-fund world has not proven to be great market timers. After all, it was Long-Term Capital Management that needed to be bailed out for its massive losses on Russian bet. They are often praised for going with the trend, yet wiped out when that trend shifts unable to see TIME. Far too many are simply fundamental traders rather than technical. They scour the surface looking for sure bets like takeovers and broad economic trends. This time, they were hit also unable to see the coming rise in volatility our models were warning about would begin in 2014 with September.
The losses came with the sharp sudden rise in volatility in stocks, bonds, currencies and commodities. The Wall Street Journal reported firms that were hit such as Jana Partners LLC, Discovery Capital Management LLC and Paulson & Co., all of which have posted losses ranging from 5% to 11% for the month. With retail participation at record lows, the market became a crowded affair with everyone on the same side. That has historically been a danger for any market.
The Wall Street Journal quoted one executive saying “An idyllic investment environment amid an improving economy…and then cue the music…dun-dun…dun-dun…dun-dun,” wrote Paul Westhead, chief executive of $4 billion fund Rimrock Capital Management LLC, in a letter to investors.
So where will fund managers go now? It appears they run into the arms of bonds. They appear to have a best one year before getting really wiped out on that one. Fr too many are just fundamental traders with inconsistent winning streaks that last for 3 to 4 years at a time.
Some funds were counter-trend plays and they made money into last week, However, such funds are typically the minority. It often takes real experience to know when to play counter-trend moves.
US 30 years Bonds back to 1798 – Dow Jones Industrials back to 1790
The crisis we face in all financial markets cannot be ascertained with models back-tested only a few decades. We need extensive databases to correlate human interaction when events unfold and how long do trends even last. We must explore the fourth dimension – TIME. This is where history counts. If we do not understand history, as Lady Thatcher said – we might be condemned to repeat its mistakes.
I have warned that economics changes everything. When there is a boom, people are fat and happy and war declines. When the economy crashes, you are faced with a serious problem. Either we will move to the extreme left and see a return of authoritarian states as we are moving toward, or we can swing back to freedom and democracy if we truly identify the cause.
Governments will seek to blame the rich for then they will get to confiscate all wealth and they will promise security to the mindless masses. History repeats in this manner. Even Sparta v Athens was an ancient virtual communist state v democracy. You cannot even purchase ancient coins from Sparta because they refused to even issue money.
The Germany Hyperinflation only took place because of the Communist Revolution in 1918, which defaulted on all the debts of the previous government. Hyperinflation unfolds when a government CANNOT issue debt so they print.
The rise of Hitler only came after the turmoil of reparation payments that oppressed the Germany people. After the disastrous hyperinflation, the German people turned to Hitler in 1933 pushed by the Great Depression. Americans elected FDR 1933 and in China Mao comes to power – all 1933.
Now in Thuringia, Germany, the SPD has for the first time put in leftist Prime Minister. The board of the SPD in Thuringia has decided to choose Bodo Ramelow the first left prime minister in Germany since 1918. Now with 25 years after the reunification, a candidate of the Left Party is once again coming to power, which had previously competed as PDS, which was the successor to the SED. Thuringia could be considered as a model for the federal government, where Sigmar Gabriel wants to keep all options open. This is showing that there is a rising trend of discontent. However, if you blame wealth rather than politicians, you lose all freedom.
We must be concerned for when the ECM turns down, the economy will move toward a hard landing. The austerity policy of Germany will deepen the crisis and we will see the politics shift everywhere.
Our computer is monitoring everything everywhere and it correlates the world. Everything is tested against everything from adzuki beans in Tokyo and palm oil to wheat, gold, DAX, FTSE and the Dow. We also include nature, weather, earthquakes, politics, and social trends. You would be amazed but as an economy expands, the family size and birth rates decline, divorce rises with affluence, and this is in itself a sign of a pending collapse.
Just look at marriage and what a disaster we have made of that since 1900 the same as Rome. Yes, the first Roman Emperor Augustus (27BC-14AD) introduced family laws outlawing bachelors, restricting divorce, banish Ovid for his writings and banished his own daughter for promiscuity. There were laws introduced forbidding the payment of a prostitute with a coin that had the image of the emperor which they all did. Hence, the birth of sex tokens. The client bought the token, paid the prostitute, and she then redeemed the token all making it nice and legal.
During the 19th century, the age difference dropped to 25% whereas typically the male was 2x the age of his wife for he had to FIRST establish himself to afford a family when there was no government programs during the 18th century. The age difference declined with the rise in economic power and government Hollywood and socialism caused that differential to drop dramatically to virtually the same age. But men mature slower than women and the divorce rate rose in direct proportion to the age differential decline. London has become the divorce capital of the world.
Today, 70% of those dating believe in love at first sight with expectations of happily ever after and run to the lawyers with the first argument. This is part of the bubble that is unfolding. We are reversing social trends with the collapse in debt markets. What use to be secure becomes insecure. A lot is changing gradually before our eyes. Socialism has wiped out the traditional family structure along with pensions and fiscal irresponsibility. Those with daughters, you better start realizing that her future should be secure. That is what the Dowry was all about – a pension for the woman, She married a stable older man who provided the security. This is what is starting to return and studies are starting to emerge showing a man’s life expectancy increases with a younger wife for she keeps him more active. Looks like the old trends are returning. Strangely, women with younger men die faster. Perhaps the stress of having to wear the pants or they cannot keep up with the younger man. Thomas Jefferson was 18 when he married his wife who was 23. They were married for 11 years during which she gave birth to 6 children, all but two died and only one lived past 25. She died and Jefferson had relations then with his slave fathering several children.
The Dow closed higher with an inside day. The turning points this week seem to be Wednesday (minor) and Friday (main). A reaction high this week still points to a lower low perhaps for the week of November 3rd. It appears that the Phase Transition in stocks will be postponed into the downside of the ECM. This is a reflection of the bubble that is unfolding in debt. This looks like the BIG BANG we targeted for 2016 is unfolding as we first scheduled back in 1985.
Many email have been coming in about the 1985 forecasts. This is what I mean there cannot be personal opinion. NOBODY can point and forecast something like this 30 years in advance with any such specific events. Long-term trends are set in motion and are un-changeable. Fundamentals are simply noise. Market commentators can and do take the same event and can construct it as bullish or bearish to fit the immediate price action. Like when news is bullish but stocks still decline – they then say “it was not bullish enough.”
This is the whole point of converting Socrates to run with access to the Web and to move the company public. This is not about “me” personally. This is about creating access to the knowledge of centuries. We all live and die and with death our knowledge evaporates into thin air. What if we can capture that knowledge and really pass it on to our children?
This is my goal. We can live within the cycles instead of trying to pretend we can control the universe. We are human, subject to the battle with nature. We have been living a dream thinking government can do anything.
This coming Sunday will see the results of the ECB’s stress tests. Eagerly awaited by some, feared by others.
Well it appears the only reason there was support for the European peripheral bond markets over the weekend was the fact that they were closed! From the opening this morning the trading theme was, “risk-off”. The talk was that initial weakness came from Spain’s, Bono’s (after last weeks poor auction tap), Portugal’s PGB’s and Italian, BTP’s. 10yr spreads were +17, +15 and +13bp respectively. At this stage the rumours were HF selling, PIMCO (rumoured again) the suspension in trading of shares in Italian bank Monte De Paschi obviously did not help.
Regardless, it is becoming more apparent we are in a risk off mode and that is unnerving the markets; especially when bonds are supposed to be a safe-haven!
The greatest problem with prosecutors in the USA, they are totally ignorant of the implications that result from their attempt to win at all costs. Attacking foreign banks and threatening them to be disbarred from conducting transactions in US dollars is driving the world into a no choice situation where we will see a one world currency sooner rather than later. Prosecutors think they can have power, but all they are doing is destroying the world economy. Transactions will need to be done in any currency other than dollars.
The demands on Standard Charter may force up to 8,000 small business operations in UAE alone to be shut down. This is turning into throwing out all small to medium-sized companies as large banks only deal with big companies. Job growth comes from the small to medium-sized companies and they are the ones being wiped out.