Truth Frequency Radio
Jan 03, 2015

fm.cnbc.com_2015-01-03_11-20-22Investment Watch Blog

The 2014 holiday season is expected to be the best for retailers in three years. Whether it was lower gas prices, confidence in the job market or egg nog-related, the Main Street consumer decided to splurge.

So if Main Street is spending money again, 2015 just may be the year that Wall Street and the rest of the 1 percent go back to doing what they love — and what the 99 percent loves to hate them for — spending money.

I hit up some of Wall Street’s favorite spending haunts and here’s what I found.

Ten warning signs of a market crash in 2015

Stock markets opened lower on the first day of trading of 2015, and the credit markets that forewarned the 2007 crash are showing signs of strain

The FTSE 100 slid on the first day of trading in 2015. Here are 10 warning signs that the markets may drop further.

Vix fear gauge

For five years, investor fear of risk has been drugged into somnolence by repeated injections of quantitative easing. The lack of fear has led to a world where price and risk have become estranged. As credit conditions are tightened in the US and China, the law of unintended consequences will hold sway in 2015 as investors wake up. The Vix, the so-called “fear index” that measures volatility, spiked to 18.4 on Friday, above the average of 14.5 recorded last year.

Rising US Treasury yields

With the Federal Reserve poised to raise interest rates for the first time in almost a decade, and the latest QE3 bond-buying programme ending in October last year, credit markets are expecting a poor year for US Treasuries. The yield on two-year US Treasuries has more than doubled from 0.31pc to 0.74pc since October.

Credit insurance

Along with the increased US Treasury yields, the cost of insuring against corporate credits going bad is also going up. The cost of insuring investment grade US corporate credit against default has become 20pc more expensive, rising from lows of 55 to 66 since July, according to Markit.

Rising US credit risk

The wider credit market is also flashing warning signs. The TED spread, as reported by Bloomberg, is the difference between the rate US banks are willing to lend to each other and the Federal Reserve rate, which is seen as risk free. The TED spread is taken as the perceived credit risk in the general economy, and increased 9pc in December to its highest level since the end of 2013.

Rising UK bank risk

In the UK, a key measure of risk in the London banking sector is the difference between the London interbank offered rate (Libor) and the overnight indexed swap (OIS) rate, also called the Libor-OIS spread. This shows the difference between the rate at which London banks are willing to lend to each other and the Federal Reserve rate which is seen as risk free. On Friday, the Libor-OIS spread reached its highest level since October 2012.


Commodity collapse

Commodity markets have been the lead indicators for a global slowdown, as the prices for oil and iron ore more than halved in value last year. The Bloomberg Global Commodity index, which tracks the prices of 22 commodity prices around the world, fell to fresh five-year lows on Friday at 104.17.


Quant work suggests a stock market crash is looming

The observations below are based exclusively on quant work that relates to this past December. I have published preliminary findings already, but now that December has come to an end, this is a summary observation.

The observations I am making below compare each December since the turn of the century to December of 2014 to attempt to identify similarities. Although my first observation was to attempt to identify where the market would stop falling and how much the market would bounce after it stopped falling, this one now shifts to what this past December might mean for 2015.

2014 was the third weakest December on record since the turn of the century and only 2007 and 2002 were weaker than 2014. Reasonably, the market wasn’t down much in 2014, but that doesn’t change its place in this observation.

Debt Jumps $100 Billion On Last Day Of Year!

It seems like it was only yesterday when we reported that, in yet another sleight of hand for the US Treasury and Social Security Administration, US debt rose by $32 billion on the last day of November sending total US debt above $18 trillion for the first time ever.  As we further noted, it also meant “that total US debt has increased by 70% under Obama, from $10.625 trillion on January 21, 2009 to $18.005 trillion most recently.”

Fast forward to today when we are happy to report that according to the US Treasury, America’s debt-funded spending spree, while supposedly slowing down if looking at the declining monthly budget deficit report, never actually has.