How Long Can #Markets Climb A Wall of #Worries?

"Little wonder investors are so complacent. Wall Street hit a new record on Friday with all eyes on US Federal Reserve chief Jerome Powell, who this week will be — guess what? 

Cutting interest rates."

 

Four flashpoints that may unsettle booming stock markets in the coming year 

In 2008, the financial system teetered on the brink of collapse. It was a crisis triggered by a catastrophic debt build-up in America's housing market that, once it burst, infected the US and the global banking system.

Ultimately, the contagion and fear was contained. But the underlying problems were never really addressed, let alone solved. They were merely papered over with vast amounts of extra debt created out of thin air.

Remarkably, central banks since then have managed to avoid yet another debt-inspired meltdown by sending interest rates to zero and then negative territory. 

What they now most fear is another financial market implosion that could spill over and cripple the real economy. But as they've demonstrated time and again, they will stop at nothing to avoid one.

How long can this state of suspended animation continue, where supposedly free markets are so easily manipulated? Investors appear to have become lulled into believing it will continue indefinitely.

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BUFFET IS UNSETTLED

#Tesla's HUGE Losses Continue - Shares Crash As #Solvency Concerns Rise

Company also announces departure of chief technology officer

 

Tesla has reported a bigger-than-expected loss of $408m (£327m) in the second quarter and said its chief technology officer JB Straubel will step down.

Despite a record delivery of 95,356 cars in the quarter, Tesla’s revenue also disappointed forecasts. The shares of the Palo Alto, California-based company fell more than 11 per cent in after-hours trading on Wednesday.

Chief executive Elon Musk said Tesla expects to break even this quarter and turn a profit in the last three months of 2019, after successive losses in the first half of the year.

Mr Straubel, a Tesla veteran who pioneered its electric batteries, will become a senior adviser. His departure completes the replacement of long-standing senior executives at the top of the company.

Mr Straubel will be replaced by one of his subordinates, Drew Baglino.

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THEY SAW IT COMING...

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#Abstractions Can No Longer #Stimulate Physical #Economy

"History shows that the collapse of economies is very common. Collectively, we have closed our eyes to this possibility ever happening to the world economy in the modern era. If the issue with collapsing demand causing ever-lower energy prices is as severe as my analysis indicates, perhaps we should be examining this scenario more closely."

Why stimulus can’t fix our energy problems

By Gail Tverberg

Economists tell us that within the economy there is a lot of substitutability, and they are correct. However, there are a couple of not-so-minor details that they overlook:

• There is no substitute for energy. It is possible to harness energy from another source, or to make a particular object run more efficiently, but the laws of physics prevent us from substituting something else for energy. Energy is required whenever physical changes are made, such as when an object is moved, or a material is heated, or electricity is produced.
• Supplemental energy leverages human energy. The reason why the human population is as high as it is today is because pre-humans long ago started learning how to leverage their human energy (available from digesting food) with energy from other sources. Energy from burning biomass was first used over one million years ago. Other types of energy, such as harnessing the energy of animals and capturing wind energy with sails of boats, began to be used later. If we cut back on our total energy consumption in any material way, humans will lose their advantage over other species. Population will likely plummet because of epidemics and fighting over scarce resources.

Many people appear to believe that stimulus programs by governments and central banks can substitute for growth in energy consumption. Others are convinced that efficiency gains can substitute for growing energy consumption. My analysis indicates that workarounds, in the aggregate, don’t keep energy prices high enough for energy producers. Oil prices are at risk, but so are coal and natural gas prices. We end up with a different energy problem than most have expected: energy prices that remain too low for producers. Such a problem can have severe consequences.

Let’s look at a few of the issues involved:

[1] Despite all of the progress being made in reducing birth rates around the globe, the world’s population continues to grow, year after year.

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EXPONENTIALS TELL THE FUTURE

INVESTORS BEWARE: #Vancouver's Unaffordable #RealEstate #Bubble Burst - Now, Is #Toronto Next?

" we need to upend our fundamental and flawed assumptions about how housing works. Because right now, we’re just building on top of them."

Over the past 20 years, Toronto and Vancouver – two of Canada’s three most populous cities – have built 400,000 homes between them. That’s an enviable number for any city in North America seeking to increase supply, a reliable tactic for relieving a housing crisis.

But for its efforts, Toronto and Vancouver continue to top international rankings of unaffordable cities. That highlights a cold reality: We cannot build our way out of this affordability crisis.

We’re not alone. In cities such as Cairo, Sydney and New York, real estate has become hyper-commodified. Housing is now seen as a matter of selling, not dwelling, as made plain by Wall Street’s growing interest in the business of housing. And as a result, people cannot afford shelter – even though a significant number of housing units in those very same cities remain wholly unoccupied.

The fundamentals of Canada’s housing system are broken. And while there is a way forward that’s within reach, it will require us to reject many tightly held 21st-century assumptions about the housing economy.

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Canada At Risk As 'First Cracks' Appear In Global Housing Bubbles: UBS

House prices are now falling in half of the cities that have the highest risk of a bubble burst, Swiss bank says.

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HOUSING BUBBLES - MASSIVE UNPRECEDENTED DEPRESSION LOOMS

#FED Should Hold Off #Rate Cuts

"While the proverbial Rubicon has been crossed with the Fed's latest rhetoric, it should carefully weigh the consequences of disappointing a financial market addicted to liquidity and losing its most valuable asset - its credibility"

THE latest statement by the Fed all but confirmed an upcoming rate cut in the months ahead. While the dovish U-turn made by Fed chairman Jerome Powell since December has definitely brought relief to the market, the fact is that the data-driven Fed of 2018 has been replaced by a market-driven Fed today. This is because the economic indicators are still relatively strong, but the drumbeat of preventing another market meltdown like the one in the final quarter of 2018 has grown louder.

The narrative goes like this: the Fed raised interest rates four times in 2018, the last one amid heightened trade tensions between the US and China, and this has caused the stock market to fall by more than 20 per cent. Some market indicators, especially the spread between the three-month interest rate and the 10-year Treasury note yield, have also gone negative - indicating that the market is expecting deflation in the future to compensate for lower long-term returns. Since the market represents the collective wisdom of all investors, their prognosis of the state of the economy must not be too far off.

In the past, such a market prediction would have been corroborated by weak economic indicators. This time, however, economic indicators have remained strong.

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ALTERNATIVE VIEWS SEE CUT COMING