Doug Noland: There Will Be No Way Out When This Market Bubble Bursts

Authored by Adam Taggart via,

This week Doug Noland joins the podcast to discuss what he refers to as the “granddaddy of all bubbles”.

Noland, a 30-year market analyst and specialist in credit cycles, currently works at McAlvany Wealth Management and is well known for his prior 16-year stint helping manage the Prudent Bear Fund.

He certainly shares our views that prices in nearly every financial asset class have become remarkably distorted due to central bank intervention, first with Greenspan’s actions to backstop the markets in the late-1980’s, and more recently (and more egregiously) with the combined central banking cartel’s massive and sustained liquidity injections in the years following the Great Financial Crisis.

All of which has blown the biggest inter-connected set of asset price bubbles the world has ever seen.

Noland foresees tremendous losses as inevitable, as the central banks lose control of the monstrosity they have created:

This is the granddaddy of all bubbles. We are at the end a long cycle where the bubble has reached the heart of money and credit.


There will be no way out. We’re not going to get enough private credit growth to reflate things when this bubble bursts. It’s going to have to come from central bank credit; it’s going to have to come from sovereign debt.


When this bubble bursts, it will shock people how far the central banks will have to expand their balance sheet just to accommodate the deleveraging in the system. And they won’t really be able to add new liquidity to the market; they’re just going to allow the transfer of leveraged positions from the leveraged players onto the central bank balance sheets.


When you get to that point, when the market sees that transfer occurring, I predict there’s going to be fear of long-term financial instruments. We’ll see rising yields. That’s when things will become problematic.


There will be losses. Of this global bubble, I think European debt is about the most conspicuous. Sure, European junk debt is nuts, too. It currently trades at 2%. Why? Because the ECB is buying large amounts of corporate debt. The ECB has kept rates either at 0% or negative. The perception is that the ECB will keep those markets liquid.


But look at Italy. It’s rapidly approaching 135% in terms of government debt to GDP. That debt will not get paid back. But yet, the market is willing hold that debt at 1.7%. This is debt that has traded at over a 7% yield back in 2012. But here it is today at 1.7%. I mean, Europe is just grossly mispricing its huge debt market. The excesses that have unfolded in European debt across the board are just staggering.


So when we get to that point when the central banks begin aggressively expanding their balance sheets (again) but the bond markets are not happy about it, then the central banks will finally have to decide if they want to continue to inflate or if they’re going to focus on trying to keep market yields down. This will be a very, very difficult situation for central bankers when it unfolds.

Click the play button below to listen to Chris’ interview with Doug Noland (54m:31s).

These Are The Top 5 Legislative Issues That Could Force The Next Government Shutdown

House Republicans successfully managed to kick the can down the road (if only for two weeks) when they managed to pass a two-week extension last week of the continuing resolution that had been funding the government since September.

But after overcoming obstacles created by Democrats and conservative Republicans – with each camp pushing for priorities that were ultimately excluded from the extension bill – the White House and its allies in Congress will still need to figure out how to balance these demands if they want to successfully secure approval for the next funding bill by Dec. 22, the day the current extender bill requires.

Adding to the pressure on Congressional leaders, Republicans also need to work through what’s looking to be a difficult reconciliation process for the tax bill that President Donald Trump has vowed to pass before the end of the year.

With only four legislative sessions left on the official calendar (Congressional leaders reserve the right to delay the beginning of recess, something they will almost certainly need to do) the Hill has provided a quick rundown of five key issues that could possibly derail the spending bill – and finally usher in the shutdown that Trump believes could benefit the White House politically at the expense of Democrats, who are vying to take back the House and/or the Senate during next year’s midterm elections.

* * *

And the issues are…


Trump announced earlier this year that he was ending the Obama-era Deferred Action for Childhood Arrivals (DACA) program, which grants work permits to undocumented young immigrants who came to the U.S. illegally as children.


Congress has just a few months left to save the program or come up with a new solution, with DACA recipients set to lose their status beginning in early March.


Many Democrats and even some Republicans like Rep. Carlos Curbelo (R-Fla.) have demanded that any spending legislation that stretches into 2018 shield so-called Dreamers from deportation.


They view the must-pass spending bills as their best shot at getting a DACA solution over the finish line.


“We will not leave here without a DACA fix,” Pelosi vowed Thursday.


But conservatives have put their foot down on the issue, saying that attaching any DACA deal to a continuing resolution would be a non-starter with the Republican conference.


GOP leaders in both chambers have made clear that they oppose linking DACA to government spending bills, setting up a potential showdown at the end of the month.


Republicans have in the past had to rely on Pelosi and the Democrats to pass stopgap funding bills, though the House passed the two-week spending bill this week without Democrats. However, Democratic support will still be needed in the Senate.


“A DACA solution will be a standalone solution,” Rep. Mark Meadows (R-N.C.), chairman of the far-right House Freedom Caucus, told reporters on Thursday. “If DACA gets attached to the spending bill, there will be major, major pushback.”


It’s all but certain that Congress will need to pass another continuing resolution (CR) on Dec. 22 in order to buy more time to write a massive, omnibus spending package.


But defense hawks and conservative members of the House Freedom Caucus worry that yet another short-term spending bill would be harmful for the military.


They are insisting that leadership boost money for the Pentagon before the end of the year – and have threatened to vote against another CR this year if that doesn’t happen.


One option being considered would be to move a legislative package that funds defense at higher levels through September alongside a short-term patch to fund the rest of the government at current levels through January.


It’s unclear whether Democrats would be willing to go along with the idea. Their support would be crucial in the Senate, where at least eight Democratic votes are needed to overcome a filibuster.


Democrats have traditionally insisted that any increase in defense spending above budget caps be paired with an increase in spending on domestic programs.


But House Republicans could just jam the Senate with the defense-first package and dare vulnerable Democrats like Sens. Joe Manchin (W.Va.) and Claire McCaskill (Mo.) to vote against a bill fully funding the military, especially with the escalating nuclear threat from North Korea hanging over their heads.


“Then they can go home and explain why they can’t fund the American military when the House did,” said Rep. Tom Cole (R-Okla.), an Appropriations cardinal.


Further complicating spending talks is the commitment that Senate Majority Leader Mitch McConnell (R-Ky.) gave to Sen. Susan Collins (R-Maine) to help win her vote for the GOP tax reform bill.


McConnell pledged to support passage of two bipartisan ObamaCare fixes before the end of the year, which could be attached to a government funding bill.


But House conservatives say they oppose the measures seen as simply propping up ObamaCare.


To lock up the necessary Republican votes for the two-week CR this week, House GOP leadership promised that the next spending bill would not contain funding for ObamaCare cost-sharing reduction (CSR) payments, according to Rep. Mark Walker (R-N.C.).


“The three things that we’ve been told are not going to happen as part of our agreement: no CSRs, no DACA, no debt limit,” said Walker, chairman of the conservative Republican Study Committee

Disaster aid.

Lawmakers on both sides of the aisle want to provide more supplemental funding for hurricane-ravaged Puerto Rico, Texas and Florida, as well as for western areas devastated by wildfires.


The thinking is that disaster aid could be attached to the next CR, but members are still debating the price tag, according to Walker.


The White House last month requested another $44 billion in disaster aid, which would be the third infusion of cash to help with relief and recovery efforts.


But the funding request has been under fire from lawmakers who say it doesn’t go far enough to address the damage from the string of natural disasters.


And the White House has insisted that the latest disaster package be offset with cuts to non-defense federal programs, which could be problematic for Democrats.

Children’s health-care and the opioid crisis:

Democrats are also fighting for two health care priorities that could have bipartisan support: the renewal of a popular children’s health program and more money to combat the opioid crisis.


Many members are pushing to renew the Children’s Health Insurance Program (CHIP), which expired in September.


Republicans have said the issue could be attached to the next CR in an effort to sweeten the pot and attract more Democratic votes for the stopgap bill.


Democrats have also indicated that they want additional funding to fight the deadly opioid crisis in a larger spending deal.


Trump declared the opioid epidemic a public health emergency this year, but he stopped short of declaring it a national emergency — a designation that would have allocated new federal money toward the crisis.


It’s unclear, however, if additional dollars will come in a spending package.


“We’ve done a lot, put a lot of resources into combating opioids already,” the Senate’s No. 3 Republican, Sen. John Thune (S.D.), said earlier this month. “If they’ve got a proposal, I’m sure we would take a look at it, but I don’t know that that’s at least on the agenda at the moment.”

* * *

As the Trump administration continues to get its legislative bearings after Trump’s hectic first year in office (a year in which he accomplished many of the priorities that he set out during the campaign, including recognizing Jerusalem as Israel’s capital, rolling back financial regulation and defanging some of the EPA’s most stifling regulations), the president has wasted no time setting out his next major priority: The $1 trillion infrastructure spending plan to help rebuild America’s crumbling roads and bridges.

The Wall Street Journal revealed still more details of the plan, which helped flatten the yield curve last week after Trump revealed that he intends to push ahead on one of his most crucial, yet long-delayed, promises.

While some in Congress might balk at still more deficit-expanding spending, polls show that a majority of Americans – even those who loathe the president – support this aspect of his agenda.

Recent polling showed that 52% of voters who supported Hillary Clinton in 2016 back an infrastructure program, according to the survey. Some 53% of white male respondents in states won by Clinton support an infrastructure initiative, as well as 51% of voters who say they disapprove of the job Trump is doing as president.

All of which begs the question: Will this be the issue that finally forces red-state Democrats to break with the “Chuck and Nancy” enforced plan for mass obstruction and throw their support behind the president’s agenda?

After all, their political futures may depend on it.  

Bama Blowout? Latest Fox News Poll Shows Doug Jones With Commanding 10-Point Lead Over Moore

With voting set to get underway in the controversial Alabama Senate race in about 24 hours, the latest Fox News Poll of likely voters shows a commanding 10-point lead for Democrat Doug Jones.  The poll was conducted among likely Alabama voters on Thursday through Sunday using traditional polling techniques, including a list-based probability sample with both landlines and cellphones.

Of course, as with all the “fake polls” that inaccurately predicted Hillary’s sweeping victory last fall, one key variable in determining the accuracy of polling data is predicting who will show up to vote tomorrow…a task which even Fox admits is “impossible to know.” 

This race’s uniqueness is significant.  It is impossible to know who will show up to vote in a special election to fill a seat in the middle of a term in an off-year.  And it’s December, a time when people expect to be going to the shopping mall, not the voting booth.

That said, there are numerous red flags which don’t bode well of Moore’s chances including strong support among Independents for Jones as well as waning support from evangelical Christians.

The small subgroup of independents breaks for Jones by 29 points.


Support for Moore among white evangelical Christians is down 8 points since last month: it was 73 percent in November and stands at 65 percent now.


And his advantage among men has dropped from 12 points last month to just 3 points now.  In addition, Republican men (41 percent) are less likely than GOP women (50 percent) or Democratic men (53 percent) to be “extremely” interested in the race.


“Moore might prevail if only the people who typically vote in Alabama elections turn out Tuesday, which is often what happens in special elections,” says Democratic pollster Chris Anderson, who conducts the Fox News Poll with Republican counterpart Daron Shaw.


“But this appears to be a special, special election with blacks and young voters animated by a caustic Republican candidate and the chance of winning a statewide election with national implications, and at the same time some Republicans and many moderates are turned off by Moore, too.”

All that said, this latest Fox News poll deviates substantially from the Real Clear Politics average which includes a series of polls that show a commanding lead for Moore…the exact opposite of what Fox News found.


Meanwhile, offering up the latest evidence of how critical the establishment parties consider this race to be, CNN pointed out this morning that former President Obama recorded a robocall for Jones over the weekend saying “This one’s serious. You can’t sit it out.”

“This one’s serious,” Obama says in the call. “You can’t sit it out.”


Two Democratic officials familiar with the Alabama race tell CNN that Obama recorded the phone message in recent days, at the very time Trump stepped up his own involvement in the campaign with a recorded message. Obama does not mention Moore by name.


“Doug Jones is a fighter for equality, for progress,” Obama says. “Doug will be our champion for justice. So get out and vote, Alabama.”


Obama’s message to voters — intended to specifically reach black voters whose turnout is critical for Democratic candidate Jones — comes on the eve of a special election that has drawn extraordinary national attention and divided the Republican Party over whether sexual allegations against Moore make him unfit for office.

Of course, only time will tell if this is just another fake poll or if Republicans made a serious blunder in their decision to support a high controversial candidate who was doomed from the moment sexual assault allegations against him first surfaced last month.

Bond Bears Beware As Ag Prices Hit Record Low

Long-end bond yields are lower and the front-end higher once again this morning as the US Treasury yield curve continues to confound by flattening. Bloomberg macro strategist Mark Cudmore suspects there is more to come… for one simple reason, so often overlooked…

Via Bloomberg,

Cheaper eats are great, but maybe not if you’re one of the many expecting a sustainable bump in bond yields next year.

Falling food prices risk wrecking the forecasts — seen pretty much every December for years now — for yields to climb in the new year. Ten-year Treasury rates haven’t closed a year above 2.45 percent since 2013.


Bond bears seem to struggle to incorporate structural disinflationary pressures that have come from technology and globalization.


The Bloomberg Agriculture Subindex on Monday hit its lowest level since the series began in 1991. Technology and science are making the agriculture industry increasingly efficient, and there are still plenty of production gains to be made globally.



Combined with the overhang of energy supply that’s capping oil prices — and therefore processing, transport and distribution costs — that means the long-term trend remains one of cheaper food prices.


And food prices are a key component of consumer price index baskets around the world.


The impact is global, real and seems to be constantly underestimated.


Since Saturday, China, Denmark, Norway and the Czech Republic have all released CPI prints where the annual rate was both decelerating and below expectations. Food prices were specifically cited in China’s case.

None of this is to argue that bond yields can’t spike higher for short periods, notes Cudmore, but it’s just an argument to highlight that structural disinflationary pressures from technology remain strong and shouldn’t be dismissed.

With several major central banks indicating that the marginal bias is to tighten policy, that will further crimp price rises. And that doesn’t bode well for a sustainable broad rise in developed-market yields.

“It’s A Crisis Situation”: One Chart Explains Why Obamacare Is Locked In An Inescapable Death Spiral

Ever since it was signed into law in 2010, defenders of Obamacare have dismissed staggering surges in annual premiums by highlighting only the rates paid by those fortunate enough to receive subsidies.  In fact, last year we wrote about Marjorie Connolly’s, from Obama’s Department of Health and Human Services, response to the Tennessee insurance commissioner’s fear that the exchanges in his state were “very near collapse” after a staggering 59% premium surge:

“Consumers in Tennessee will continue to have affordable coverage options in 2017. Last year, the average monthly premium for people with Marketplace coverage getting tax credits increased just $2, from $102 to $104 per month, despite headlines suggesting double digit increases,” said Marjorie Connolly, HHS spokeswoman, in a statement.

We’re unsure whether Connolly’s comment was just propaganda intended to defend a failing piece of legislation or an intentional, blatant admission that the Department of Health and Human Services just doesn’t care about the majority of Americans, the so-called 1%’ers, who are facing debilitating increases in healthcare costs simply because they manage to live above the poverty line.  We’ll let you decide on that one.

Be that as it may, as the Miami Herald points out this morning, roughly half of all Obamacare participants, nearly 9 million people in aggregate, don’t qualify for the subsidies that Connolly praised and have been forced to absorb debilitating premium increases for the past several years.

Meanwhile, the pie chart above from 2017 doesn’t count the 1,000’s of unsubsidized “millionaire, billionaire, private jets owners” making over $50,000 per year who have already been forced to drop their healthcare coverage because it was simply unaffordable…a move which the Reiter family in Florida was forced to consider for 2018 after the premiums on their policy surged 54% to a cost of $40,000 per year.

As open enrollment for Affordable Care Act coverage nears the deadline of Dec. 15, and Florida once again leads all states using the federal exchange at, Heidi and Richard Reiter sit at the kitchen table at their Davie home and struggle to piece together the family’s health insurance for 2018.


The Reiters buy their own coverage, but they earn too much to qualify for financial aid to lower their monthly premiums. For 2017, they bought a plan off the exchange and paid $26,000 in premiums for family coverage, including their two sons, ages 21 and 17.


Keeping the same coverage for 2018 would have cost the Reiters $40,000 in premiums, a 54 percent increase. So they selected a lower-priced plan that covers less but costs $29,000 in premiums.


“That’s more than a lot of people’s mortgage payments,” Richard Reiter said. “For me, it’s a crisis situation.”

Of course, while the Herald attempts to blame the Trump administration for Obamacare’s continued premium hikes in 2018, we would just remind everyone once again that premiums surged an average of 113% across the United States during Obama’s last term…

But sure, it’s all Trump’s fault.

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