Never Go Full California

By David Archibald – Re-Blogged From http://www.WattsUpWithThat.com

It used to be said that Australia was usually 5 years behind the US in adopting new trends; in turn the US was led by what happened in California. The beauty of that was that California’s taxpayers would pay for experiments in public policy and the rest of us could pick and choose from what worked. Unfortunately Australia is now in the lead in self-inflicted wounds resulting from faith-based public policy. One Australian state, South Australia, now has the dubious distinction of the world’s highest power prices. Four months from now, South Australia hits its peak summertime power consumption for which the grid operator projects there is simply insufficient supply … at any price. And this is in a country with plenty of coal reserves – 200 billion tonnes of lignite in the adjoining state of Victoria as well as all the black coal deposits scattered around the country.

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Did The Fed Just Ring A Bell At The Top?

By Graham Summers – Re-Blogged From http://www.Gold-Eagle.com

Very few investors caught on to it, but a few weeks ago the Fed made its single largest announcement in eight years.

First let me provide some context.

For eight years now, the Fed has propped up the stock market. In terms of formal monetary policy the Fed has:

  • Kept interest rates at ZERO for seven years making money virtually free and forcing investors into stocks and junk bonds in search of yield.
  • Engaged in over $3.5 TRILLION in Quantitative Easing or QE, providing an amount of liquidity to the US financial system that is greater than the GDP of Germany.

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Weekly Climate and Energy News Roundup #276

By Ken Haapala, President, Science and Environmental Policy Project

The Week That Was: July 8, 2017 – Brought to You by www.SEPP.org,

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Quote of the Week. “Whoever is careless with the truth in small matters cannot be trusted with important matters: “– Albert Einstein

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Number of the Week: 39%

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New Atmospheric Data? Roy Spencer responds to the recent paper by Mears and Wentz, who are principals in Remote Sensing Systems (RSS), competitors with the Earth System Science Center at the University of Alabama in Huntsville (UAH). As speculated in last week’s TWTW, this may be part of an effort to discredit John Christy’s effective testimony on Capitol Hill that global climate models greatly overestimate the warming trend of the atmosphere. Spencer states:

“Before I go into the details, let’s keep all of this in perspective. Our globally-averaged trend is now about +0.12 C/decade, while the new RSS trend has increased to about +0.17 C/decade.

“Note these trends are still well below the average climate model trend for LT [Lower Troposphere], which is +0.27 C/decade.” [Boldface was italic in the original.]

What we see is that extending warming trends for a century, the models calculate a century-long trend of 1 degree C above the RSS calculations and 1.5 degrees C above the UAH calculations. The so-called “corrections” of 0.5 degrees C to the RSS data are not that significant when compared with the overestimates of the average of the global climate models.

Among other points, Spencer discusses the different techniques used by the two groups to adjust for the error in the diurnal cycle (daily pattern) in the climate models. UAH uses empirically derived adjustments, RSS uses model derived adjustments. As Spencer states:

“In general, it is difficult for us to follow the chain of diurnal corrections in the new RSS paper. Using a climate model to make the diurnal drift adjustments, but then adjusting those adjustments with empirical satellite data feels somewhat convoluted to us.”

See links under Challenging the Orthodoxy.

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Surface Data: For some years, independent meteorologists such as Joseph D’Aleo have noticed a disturbing trend in historic data reported by certain government entities, such as NOAA, Ashville (previously called the National Climatic Data Center, now called the National Centers for Environmental Information). These historic data are used by NOAA, NASA and the Hadley CRU. Hadley CRU is a dataset developed at the Climatic Research Unit at the University of East Anglia in England and the Hadley Centre (the UK Met Office). In general, multiple adjustments were made to the historic data that reduced past warm periods. The net effect was to give a greater present day warming trend, than in the past.

For example, in the US, many long-term records were set in the 1930s, but the current, adjusted data does not show that decade as particularly hot, when compared to today. And, the US was the world-wide gold standard for temperature measurements.

A new study by Wallace, D’Aleo, and Idso systematically analyzes the Global Average Surface Temperatures reported by NOAA, NASA, and Hadley CRU. The results are striking. For example, Figure IV-1 shows five different plots of 5-year temperature trends by NASA-GISS (Goddard Institute for Space Studies on Broadway) produced from 1980 to 2015. The period around 1940 became progressively cooler in these plots. Similar adjustments have been made to the other datasets as well as to datasets for specific locations.

The study recognizes that adjustments to surface data may need to be changed, but the overall trend reflected in the changes appears to create a bias in the data. Further, strong cyclical patterns that once appeared are muted. A comprehensive review of the adjustments is in order.

Side note: Some of those who established the standards for US weather stations, which became the world-wide gold standard, were members of the oldest science society of Washington. As a past president of that society, this author finds the tarnishing of that standard particularly disturbing. See links under Challenging the Orthodoxy.

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Red Team / Blue Team: In several instances in congressional testimony, John Christy has called for a Red Team/Blue Team approach for addressing the US issues regarding climate science. The UN Intergovernmental Panel on Climate Change (IPCC) and its followers such as the US Global Change Research Program (USGCRP) are well funded by government. They attribute climate change to primarily human activities, particularly carbon dioxide emissions.

As Christy points out, what is lacking is a well-funded Red Team:

“…[to] look at issues such as natural variability, the failure of climate models and the huge benefits to society from affordable energy, carbon-based and otherwise. I would expect such a team would offer to congress some very different conclusions regarding the human impacts on climate.”

One can liken this approach to the adversarial arguments in a criminal court of law. (CO2 is a criminal?) The reports of the Nongovernmental International Panel on Climate Change were intended to have a Red Team approach. However, the publisher, The Heartland Institute and other groups, do not have the deep, multi-billion-dollar pockets enjoyed by the IPCC, USGCRP, etc.

This idea appears to be gaining attention. In Climate Etc. Judith Curry discusses the idea more fully. We have had decades of spurious claims about the dangers of carbon dioxide, which is essential for life as we generally understand it. Such an approach may help dispel decades of myths such as a 97% consensus, CO2 can be seen from smoke-stacks, etc. It would be important to establish solid rules of evidence, such as unvalidated models are not hard evidence, and to avoid dogmatic participants. See links under Challenging the Orthodoxy and Seeking a Common Ground.

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Executive Actions: The Constitution is a practical guide for government, limiting the powers of its branches. From this comes the popular term “checks and balances.” Increasingly, some of the executive actions of the prior administration are being discarded. Since these actions are not law, there is no reason for the current administration to keep them, should it so choose to change them. Increasingly, the Trump administration is reversing executive actions under the Obama administration.

The same can be said for the Paris Accord (Agreement) which the Obama administration sold to the public as an executive action and did not send to the Senate for two-thirds approval, as required by the Constitution for a treaty. The cries of those who expected great sums of money through the Paris agreement, such as Christiana Figueres, formerly Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC), are not significant. They knowingly played a game, and lost. As discussed in last week’s TWTW, Ms. Figueres formed an organization expecting up to One Trillion Dollars a year. See Article # 1 and links under After Paris!

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Economic Return on Energy Investment: Writing for the Global Warming Policy Forum, Economics Professor Michael Kelly brings up an important concept that many writers on energy issues fail to consider: Economic Return on Energy Investment.

In the US, following the Civil War, fossil fuels such as coal quickly replaced biomass (wood) and muscle power (animal and human). The economy boomed. People found the care and feeding of a steam engine is much easier than the care and feeding of horses. City streets became much cleaner, and boots were no longer needed. What was important was not the number of people employed in a particular energy sector, but the employment the energy sector created in other economic sectors.

Kelly’s Economic Return on Energy Investment is a measure of the productivity of various energy types. He finds that 9% of the global GDP is tied up in energy, yielding a return of about 11:1. For coal and gas power plants, the return is about 50:1. For nuclear power plants it is about 70:1. The low values of traditional biomass, and other external issues bring the global value down to 11:1.

Applying this analysis to solar photovoltaics, he finds a return of less than 4:1; for wind power, a return of less than 8:1. In brief, there is not much opportunity for solar and wind to lift the third world to modern European standards. See links under Questioning European Green.

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Offshore Wind: Often, wind promoters claim offshore wind is reliable, even though it is becoming obvious that onshore wind is not. Writing in Energy Matters, Roger Andrews examines the validity of this claim for the world’s wind nation, Denmark, and finds it wanting – without considering added costs of salt water corrosion.

“Previous Energy Matters posts that highlight the difficulties of integrating intermittent wind power with the grid have been based dominantly on onshore wind data, but claims that offshore wind is significantly less erratic and will therefore be much easier to integrate with the grid have not been checked. This post reviews the question of whether it will. It finds that offshore wind is indeed less erratic than onshore wind but still nowhere near consistent enough to do away with the need for storage or conventional backup generation.”

Finding solid data is always a major problem for such studies, but he succeeds in finding a database for Denmark that separates onshore and offshore production. The analysis covers three years, 2014 to 2016. A small country, Denmark is ringed with offshore wind farms on three sides.

Rogers finds that offshore wind has a capacity factor of 43% as compared with onshore wind of 25%; but, also, that when wind dies onshore it does so offshore as well. Back-up is needed for both. Given that offshore wind costs about twice that of onshore, it is not much of a bargain. See links under Alternative, Green (“Clean”) Solar and Wind.

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Number of the Week: 39%: The island of El Hierro in the Canary Islands was to be a show-case of 100% wind power for electricity. Excess electricity would be used for pumped hydro storage, to be used when the wind failed to meet demand. After two full years of operation, the system provided 39.1% of the electricity needed. The balance came from diesel generators. The reservoirs are inadequate for the hydro component. But the circus continues with plans for wind supplying a higher percentage of total energy needs. Have those in the Pentagon who bragged about weather-dependent wind power helping the nation’s energy security heard of this island? See link under Alternative, Green (“Clean”) Solar and Wind.

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ARTICLES:

1. Pruitt’s Clean Water Break

Obama’s legacy of rule by decree is rapidly being undone.

Editorial, WSJ, July 2, 2017

https://www.wsj.com/articles/pruitts-clean-water-break-1499030184

The editorial states:

“President Trump is having a hard time getting legislation through Congress, but his Administration is moving fast to roll back Barack Obama’s pen- and-a-phone lawmaking. The latest example, which barely registered in the press, is the Environmental Protection Agency’s decision last week to rescind the unilateral rewrite of the Clean Water Act.

“The Obama EPA in 2015 redefined “waters of the United States” under the Clean Water Act to include any land with a “significant nexus” to a navigable waterway. Several arbitrary thresholds were used to determine significance, such as land within a 100-year floodplain and 1,500 feet of the high-water mark of waters under government jurisdiction. The rule extended the government’s writ to prairie potholes, vernal pools and backyard creeks.

“Thirty-one states sued the feds for violating the Administrative Procedure Act, and the Sixth Circuit Court of Appeals enjoined the rule nationwide. Now Administrator Scott Pruitt is putting the rule on ice while the EPA works up a replacement. Supreme Court Justice Anthony Kennedy muddied the waters with his controlling opinion in the 2006 Rapanos v. U.S. case that conceived the new “significant nexus” standard, which the Obama EPA used as a pretext to pursue its water land grab.

Side comment: Piles of wet leaves have been arbitrarily been considered proof of “waters of the United States”, leaving the landowner with no recourse but seeking relief by expensive litigation.

“Mr. Pruitt said the EPA will propose a new rule ‘in accordance with Supreme Court decisions, agency guidance, and longstanding practice’ that would ‘return power to the states and provide regulatory certainty.’ Consider it another lesson in the limits of pen-and-phone rule by decree.”

CONTINUE READING –>

Back to Economic Basics

   By Bob Shapiro

My blog is about 2½ years old now, and I’ve had well over 30,000 views. Articles automatically also get posted onto my Facebook page, where a larger number of my friends see them; most of the comments show up on my Facebook page.

While I still write posts myself, the lion’s share are re-posts from friends around the world who write well on the issues which are important to me (hey, it’s my blog). Many times, I fall into the trap of forgetting that many (most?) readers have zero training (and less understanding) of the subjects I blog about.

Because so many people (Americans and not) have no real clue about the good that is Capitalism and the benefits that each person enjoys because of Capitalism, I’d like to go over a few basics. So, this is for the good people out there who say things like, “He can afford it,” and “He’s just greedy and only worrying about making a profit.”

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“Bigger Systemic Risk” Now Than 2008 – Bank of England

By Mark O’Byrne – Re-Blogged From http://www.Gold-Eagle.com

– Bank of England warn that “bigger systemic risk” now than in 2008
– BOE, Prudential Regulation Authority (PRA) concerns re financial system
– Banks accused of “balance sheet trickery” -undermining spirit of post-08 rules
– EU & UK corporate bond markets may be bigger source of instability than ’08
– Credit card debt and car loan surge could cause another financial crisis

– PRA warn banks returning to similar practices to those that sparked 08 crisis
– ‘Conscious that corporate memories can be shed surprisingly fast’ warns PRA Chair

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Missing Paperwork May Erase $5 Billion in Student Loan Debt

By F McGuire – Re-Blogged From Newsmax

Missing paperwork reportedly may ultimately erase $5 billion dollars of debt for loans that tens of thousands of former students took out over a decade ago.

National Collegiate Student Loan Trusts — a 15-trust company that purchases private student loan debt — reportedly lost the paperwork documenting these loans’ chains of ownership, according to cases brought forward in Pennsylvania and Delaware, the New York Times reported.

The shoddy record-keeping means that if the trust tries to come after students who default on them, they may see the entire debt written off. Judges have dismissed dozens of lawsuits against borrowers who defaulted on student loans from private creditors, the Times reported.

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US Economy Keeps Moving Into Summer Storm

By David Haggith – Re-Blogged From http://www.Silver-Phoenix500.com

One of the kookiest moments last month came when Fed Chairwoman Yellen spoke about seeing no financial collapse in sight during our lifetimes

“Would I say there will never ever be another financial crisis? No. Probably that would be going a little too far, but I do think that we’re much safer, and I hope that it will not be in our lifetimes, and I don’t believe it will be.”  (CNBC Play video for quote on next crisis.)

That certainly calls to mind the times when Chairman Ben Break-the-banky pontificated about there being no housing bubble and no recession in sight:

Yellen’s predecessor, Ben Bernanke, once famously called problems in the subprime mortgage market “contained,” a statement that would be proven wrong when the collapse of illiquid mortgage-backed securities cascaded through Wall Street and contributed to the worst economic downturn since the Great Depression.

Asked at a recent FOMC meeting about any possible problem with banks still being too big to fail, Yellen only said, “I’m not aware of anything concrete to react to.”

Nice to know she’s sound asleep while sugar plums dance in her head, bringing forth prophecies of good times for the rest of everyone’s foreseeable life … or, at least, the rest of hers.

When a Fed chair says something as audacious as there is no chance of another financial crisis in our lifetimes and when she sees no concrete situations of banks being too big to fail, even when the ones that were too big to fail last time are now twice as big, I think Titanic disaster. I think of all those nuclear experts who said, when three Fukushima reactors were blowing up and melting down, that they saw no chance of meltdown anywhere because these reactors were built too tough to melt down. As they spoke, you could hear the reactors exploding and see tops blowing off the buildings on videos playing behind them and watch people running around in protective suits, which made for quite a spectacular orchestration of expert feel-safe baloney.

“Nothing to see here, folks. Just minor gas venting, typical of reactors in a non-meltdown stage of something. Move along.”

I think minor gas venting is what we are hearing out of Yellen.

The inability of central bankers to see anything coming, even as it is bearing down on top of them, is classic. If recessions were trains, Yellen would be tied to the tracks right now, sipping tea. Her saucer would be rattling on the rails, but you wouldn’t be able to hear the rattle because of the rumbling of a locomotive in the background. Yellen would look up from her tea cup and smile at you like the nice grandmother that she is as the train runs over her.

You can also comfort yourself with this bit of superior Fed protection: All of Yellen’s major underling banks just passed the Fed’s most stringent stress test of their reserves. Because they passed gloriously, Yellen & Co told them they can now reduce their reserves, just as she is talking about strapping the economy with quantitative tightening. This move is for the important reason of freeing up something like $100 billion so they can pay themselves fat bonuses and share the wealth with their stockholders.

Whew! Glad the risk of being too big to fail is over. Maybe she meant she has just removed the risk for banksters and major share holders because they all get their bonuses now before the banking collapse.

If you wonder how blind Grandma Yellen is, look at her following statement, which offers a penetrating glance into the obvious:

Valuation pressures across a range of assets and several indicators of investor risk appetite have increased further since mid-February… (Zero Hedge)

Really? Just since mid-February? That was the first time you noticed that maybe, just maybe, the stock and bond markets were starting to look a little bubbly? These high valuations are just now pressuring the Fed to back off on stimulus because the market started to look a tad inflated in February?

She made this statement in order to justify her other statement ab out the Fed’s following choice to reduce stimulus even though it’s inflation target has not yet been met:

The Committee currently expects to begin implementing the balance sheet normalization program this year provided that the economy evolves broadly as anticipated…

So, the Fed has changed its metric from its mandate of manipulating inflation to setting policy based on curbing overly exuberant market valuations. Once again, we see evidence that the Fed is manipulating markets and setting a course correction on stimulus because of markets.

In other words, the Fed wants you to believe the bubblicious pricing of stocks was not something they rigged by “trying to create a wealth effect” in “front-running the stock market” as former Fed governor Richard Fisher said of the actions he was involved in, but that it is just a side-effect of their stimulus that now pressures them to back down. No, it was dangerous manipulation that is now pressuring the Fed to pursue a course of unwinding stimulus.

The Great Unwind Is About To Begin

The unwinding of the Federal Reserve’s balance sheet has been saved to the end because it is more problematic than either the end of quantitative wheezing or the end of low-interest policy, and it is being carried out be people who have never seen a recession coming in the past and who see no reason to believe we will ever again in our lifetimes see a financial crisis like the last one.

By “the Great Unwind,” I mean the reversal of QE (quantitative tightening). While investors are buoyed a little by Yellen’s dovish indication this week that the Fed will only raise interest one more time, the reversal of QE over time will be by far the Fed’s most difficult change toward normalization to navigate.

JPMorgan Chase & Co. Chairman Jamie Dimon said the unwinding of central bank bond-buying programs is an unprecedented challenge that may be more disruptive than people think.

“We’ve never have had QE like this before, we’ve never had unwinding like this before,” Dimon said at a conference in Paris Tuesday. “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before…. We act like we know exactly how it’s going to happen and we don’t.”

All the main buyers of sovereign debt over the last 10 years — financial institutions, central banks, foreign exchange managers — will become net sellers now, he said. (Newsmax)

A risk never experienced in the history of the world. Never is a long time. That risk, anticipated to begin at the end of summer, is far greater than the mere termination of QE that already took place or than the incremental rise in interest rates. This change actually sucks liquidity out of the market, versus slowing the expansion of liquidity.

Considering the Fed has pumped $4.5 trillion of liquidity into the economy to help “recover” from the Great Recession, there is potentially a lot of unwinding to now begin, and it starts in an economy that is limping along the ground, not in the kind of recovery the Fed anticipated rewinding from. Between the European Central Bank, the Bank of the Japan and the Fed, there is $14 trillion to unwind … or, at least, some large portion of that.

The Great Unwind happens in a period where global debt has reached $217 trillion, which presents a major problem for the Fed in selling off so many bonds. They will almost certainly have to offer them at better yields more interest in order to attract buyers. That sifts throughout debt markets to raise the interest on carrying or refinancing all of this debt. Nations will have to compete with central bank yields in order to issue new debt or refi old. The European Central Bank and Bank of Japan are also looking like they may start unwinding soon, so compound all of that in your mind.

“As I believe the main factor in driving market multiples to historically high levels was QE, ZIRP and NIRP, then yes, the reversal will have major implications for markets and volatility.” Peter Boockvar, chief market analyst at The Lindsey Group, told MarketWatch.

The Fed’s Great Unwind is scheduled to start (if the Fed’s hints bear out) during the stock market’s unwind from Trumphoria, too, and during the retail apocalypse and auto market crash:

Crispin Odey, who made money for a second straight month by sticking to bearish equity bets, said the chance of a market crash is rising as growth slows and the Federal Reserve normalizes interest rates.

The credit cycle boosted by loose monetary policy has peaked and there’s a widespread slowdown in the auto, commodity, industrial and retail sectors, Odey wrote in a letter to investors. Unlike previous dips since the financial crisis, central banks aren’t responding by printing more money.

“This time they are doing the reverse,” which is likely to exacerbate the negative trend, the London-based hedge fund manager wrote. “All this sits very uncomfortably with the fun being felt in the stock markets. When I look at the move up since Trump’s election as president, I detect the walk of a drunken man.”

“The chances of car crashes everywhere are rising,” according to Odey. “Enjoy the hot summer,” (Newsmax)

The timing for the Fed’s Great Unwind does not look fortuitous. Key to understanding why the Federal Reserve always has such bad timing so that it routinely crashes its own recoveries can be found in recognizing that the Fed’s dual mandate — setting monetary guidance based on maximizing jobs and maintaining inflation at a set level — means the Fed is always aiming to create goals that may take a year to develop from the time they make any change.

Inflation is largely dependent on the wage/labor market, and a change in hiring decisions is dependent first on a change in economic conditions; so the movement of these lagging indicators that the Fed monitors the most can easily be a year or more away. Thus, the Fed will continue to move every quarter more and more toward their new bias of stimulus reduction until they see the results in their job and inflation metrics. But they are doing that when the economy is already receding. By the time they see the results in their two sacred metrics, they’ve moved further than they need to and downhill momentum has already built up.

So, they will do it again.

The Death Of Trumphoria

The irrational exuberance that superheated the stock market after Trump’s election is dead right where I said months ago it died. A quick look at any chart of its biometrics proves that:

The patient has been pretty-well flatlining for half a year with a couple of attempted jolts with the paddles that yielded no lasting results. The market has scratched its way sideways in daily tremors up and down ever since, but has gone almost nowhere for more than four months.

While the NASDAQ just looks like a heart attack:

Chris Whalen, a long-time bank analyst, expects [bank] earnings to come in soft enough that the stocks will trade off. “There’s no real growth on the top line,” he told MarketWatch. After several lean years, banks have run out of expenses to cut to boost the bottom line.

And most investors are finally starting to acknowledge that the hoped-for “reflation trade” isn’t coming, Whalen said. “The Trump Bump is dead.”

Hopes that the economy would be boosted by structural reforms, including tax reform, have faded as the administration of President Donald Trump has made little leeway on its plans. (Marketwatch)

The stock market gained a little more headroom in the first half of last month, but has, again, petered out. The market is in its summer doldrums — that hot, sultry period of dead winds before the summer storms — where any gains look like a mirage, typically passing away as soon as they are reached. Relentless stories about Trump’s supposed Russian electioneering collaboration — whether true or fake — also have diminished investor hopes that a fiscal stimulus plan will come about this year, an outcome I’ve suggested is likely all year.

And FAANG stocks — those high-tech draft horses of the stock market — are now weighing down on the market with dead weight, rather than dragging it up. This is a major reversal of the pattern that has supported the market for years when many stocks were in a bear market, but the FAANG’s relentlessly pulled the averages ever skyward.

Bank of America’s chief strategist Michael Harnett sees the top forming in the market and predicts the stock market will crash this fall:

We don’t think this is “big top” in stocks;  greed harder to kill than fear; don’t think this “big top” in stocks…. summer 2017 = significant inflection point in central bank liquidity trade…will likely lead to “Humpty-Dumpty” big fall in market in autumn, in our view. But Big Top likely occurs when Peak Liquidity meets Peak Profits. We think that’s an autumn not summer story. (Zero Hedge)

In BofA’s view, the stagnant humidity we feel in the market now — the doldrums after Trumphoria  — is building toward an autumn storm more likely than a summer storm because it will required the Fed’s move into the Great Unwind to really kick things off. I’ve said summer because I’d rather err’ on the side of safety, miss a part of the ride and be out ahead of the stampede. (And I’m not a trader, just someone who has moved his retirement funds out of stocks. I do not even try to give trading advice. My interest on this blog is macro-economics — where the economy is headed — and the stock markets of this world are only a part of that (a part we now know is rigged by central banks’ direct stock purchases).

Carmageddon 0n Cruise Control

“There’s been a consistent reduction in plant output in the last six months, and what is ahead in the next six months could be pretty startling,” said Ron Harbour, a noted manufacturing analyst….

“The industry has dramatically expanded employment in the United States in the last several years, but the growth is just not there anymore,” said Harley Shaiken, a labor professor at the University of California, Berkeley.

And companies are increasingly looking to build their less profitable car models outside the United States. Ford Motor, for example, said in June that it would move production of its Focus sedan to China from Michigan….

Scaling back jobs in car plants is part of a newfound discipline among automakers to avoid bloated payrolls and inventories when sales start slipping….

Moreover, the Detroit companies have also hired large numbers of lower-wage, entry-level employees with less costly unemployment benefits….

G.M., for example, has reduced the number of shifts at several of its domestic plants….

“We are beginning to enter a period we call the post-peak,” said Jonathan Smoke, chief economist for Cox Automotive, which operates the auto-research sites Kelley Blue Book and Autotrader. (New York Times)

And auto parts are not doing any better than autos. O’Reilly Automotive Inc.’s disappointing sales slammed a sector already seen as Amazon’s next source of fodder, taking a record plunge as it missed its second-quarter projections. Advanced Auto Parts and AutoZone are also continued declining. O’Reilly shares plunged as much as 21%. It is another area where demand is shifting away from brick-and-mortar stores and toward online purchases. Some say that auto manufacturers, seeing that customers are hanging on to their old cars longer, are stiffening up competition from OEM parts, too.

Attempts To Ward Off The “Retail Apocalypse”

Mitigating forces are at work, trying to turn the massive number of closures of mall anchor stores and smaller stores into opportunity for new life, but no one knows yet if these extravagant and creative efforts will work.

Costs are escalating as mall owners’ work to keep their real estate up to date and fill the void left by failing stores. The companies are turning to everything from restaurants and bars to mini-golf courses and rock-climbing gyms to draw in customers who appear more interested in being entertained during a trip to the mall than they are in buying clothes and electronics. The new tenants will pay higher rents than struggling chains such as Macy’s and Sears, and hopefully attract more traffic for retailers at the property, according to Haendel St. Juste, an analyst at Mizuho Securities USA LLC.

“The math is pretty obvious, pretty compelling, but there are risks,” St. Juste said in an interview. “This hasn’t been done before on a broad scale.”

…So far, jettisoning and replacing undesirable tenants has been a successful formula for many landlords, but there is still a lot of work to be done, according to Jeffrey Langbaum, an analyst with Bloomberg Intelligence. Some companies won’t have the cash to keep up amid the relentless pace of store closures, he said.

“For the most part, these companies have been able to redevelop and backfill space,” Langbaum said. “That’s great, but the big wave is still coming.”

…For Ziff of Time Equities, which buys outdated malls and renovates them, it doesn’t matter how you categorize the expenses of making over a center for the modern era, or if there is a linear path to a return on a particular project. Whether it’s installing a fireplace in a new food hall, or buying artwork for the common area, the aim is to drive higher traffic and tenant sales, he said. Ultimately, it’s all cash going out the door. (Newsmax)

The response teams to the retail crisis are already at work on makeovers, but the costs are high, and no one knows yet if it will work beyond a few well-positioned success stories. The fact that they are taking such major risks shows how significance this retail paradigm shift is.

Government Bankruptcies Continue To Grow

I recently reported on the near-default situation of several states, showing how deeply to the core of the state the residual problems of the financial crisis cuts. You can add to that list of serious funding problems, the capital city of Connecticut:

Like many other local governments across the country, Hartford — city of Mark Twain and the young John Pierpont Morgan — has been grappling with budget problems for years. On the same day that Illinois lawmakers finally scrapped together a long-overdue budget, Hartford hired the law firm Greenberg Traurig LLP to evaluate its options, which include bankruptcy. It would be the first prominent U.S. municipality to seek protection from its creditors since Detroit did so in 2013. (Newsmax)

The rise in both corporate and national defaults right now is showing up in other areas of the world, too:

Sovereign government and corporate defaults in both developed and developing economies are beginning to emerge. For example, China has registered in 2017 its highest level of corporate defaults in the first quarter of a calendar year on record. Delinquencies and charge-offs in the United States soared to $US1.4 billion in the first quarter of 2017, the highest recorded level since the first quarter of 2011….

In May 2017, six major Canadian banks were downgraded by Moody’s Investor Service (Moody’s) as concerns rise over soaring Canadian household debt and house prices leave lenders more vulnerable to losses. Moody’s also downgraded China’s sovereign debt in May 2017 for the first time since 1989 and has warned of further downgrades if further reforms are not enacted….

In May 2017, S&P has downgraded 23 small-to-medium Australian financial institutions as the risk of falling property prices increases and potential financial losses start to increase. In June 2017, Moody’s downgraded 12 Australian banks, including Australia’s four major banks.

Standard and Poor’s and Moody’s downgraded bonds for the US State of Illinois down to one notch above junk bond status as the state has over $US 14.5b in unpaid bills. (Zero Hedge)

These pressures are spreading at a rate that could be considered endemic around the world by next year.

More Storm Clouds Keep Gathering

Credit demand for both credit cards and auto loans has gone deeply negative for the first time in years. Credit cards briefly touched into the negative in 2012 with a 4% decline; but this year’s decline of 11% far exceeds that. Auto loans haven’t gone negative since 2011, but are now seeing a 14% decline.

US tax receipts have matched this negative move, also down about 14% this year with an uptick last month. They haven’t gone negative since the Great Recession, other than a brief downtick of about -4% in 2011. Other than that brief downtick, a negative turn of this indicator has exactly matched with every recession in the post WWII era.

Factory orders took their second monthly drop and fell by more than economists expected. Durable goods orders declined in April and May, following a year of steady albeit slight growth.

Even the formerly blind Fed Chair Alan Greenspan sees that we are now entering what he says will be a long, “very tough” period of stagflation. He anticipates GDP will bump up to growth of 3% for the second quarter, but says that is misleading number, “a false dawn,” that is merely born of problematic adjustments happening this quarter. “The presumption that we’re going to come bouncing back is utterly unrealistic.” (Newsmax) That’s quite a change for Greenspan who, like most central-bank chiefs, never saw trouble coming in the past.

Bank of America Merrill Lynch’s “Sellside Indicator” hit its highest level since the official end of the Great Recession in June 2011.  The indicator measures how bullish strategists are on US equities, now showing a strong move toward the “jump out and sell” side.

The Chicago Fed National Economic Activity Index took its biggest drop since August, 2016.

US mortgage applications and home purchases have seen steep declines recently. The week ending the month of June, usually a hot time for buying, dropped week-on-week by the most in half a year, even as interest rates had returned to nearly their lowest levels. Correspondingly, pending home sales fell each month from March through May. A majority of economists polled by Reuters, naturally, forecasted that May sales would increase. Here’s dirt in your eye, Economists.

In summary, nothing happening this summer threatens my forecast from the beginning of the year, which said that a major economic breakdown would become evident by summer and that the stock market would crash sometime between early summer and the start of 2018, with it likely to be earlier than later. I’ve bet my blog on it, and I’ll comfortably stay with that bet. I don’t think the above confluence of forces proves that bet right, by any means; but clearly forces are continuing to build strongly in that direction. There is, in fact, almost nothing on our horizon in the US that looks like a playful summer on the beach. (I hope YOU have such a summer, but I am speaking in terms of the economy.)

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