Last month in “Who Is Buying?”, we pointed out the glaring disconnect between aggressively negative equity flows and record highs on the S&P and Nasdaq. With some corporate management teams still stuck in buyback blackout limbo, it seemed strange that equities were still being bid given that share repurchases are set to be the biggest catalyst for US stocks in 2015 (as a reminder, Goldman sees pension funds and households combining for outflows in excess of $400 billion).
The financial markets don't just dominate the economy--they now control everything. In 1999, the BBC broadcast a 4-part documentary by Adam Curtis, The Mayfair Set ( Episode 1: "Who Pays Wins" 58 minutes), that explored the way financial markets have come to dominate not just the economy but the political process and society.
In taking the lessons of OIS in 2007-08 to analysis, the immediate approach would be for skepticism about OIS in isolation right from the start. To that end, LIBOR-OIS suggests absolutely nothing out of the ordinary by itself.
As the saying goes, you can know a person by the quality of his or her enemies. This is also true of societies, where moral evolution can be traced by simply listing the things on which they declare war. Not so long ago, for instance, the world’s good guys — the US, Europe’s democracies and a few others — fought existential battles against fascism and communism. Then they went after poverty and discrimination. They were, at least in terms of their ideals, on the side of personal freedom and opportunity and against institutionalized control.
Japan continues to provide the best refutation of monetary policy as anything other than destructive. With its economy stripped bare of dynamic essentials after thirty years of the Bank of Japan’s “lead”, marginal changes are left as remnants of nothing more than monetary transmission. In the space of QQE, that has used up and destroyed what was left of Japan’s once-dominant trade position, leaving the economy to hollow out from the inside as Japan Inc transfers to Offshore Inc.
With the increasing socioeconomic tension in the United States, it is reasonable to expect that the population could begin to see the scaling back of police state methodology and the beginnings of a more democratic process which reflects the growing demand for fair and equitable representation.
Nowadays many countries’ social and political structure relies on debt-driven consumption and increasing levels of entitlements.
Blame the policy makers. To drive economic growth, boost living standards, and manage growing inequality, policy makers have used debt and monetary tools to create economic activity. This has resulted in excessive borrowing and imbalances in global trade and capital.
Governments played a part, too, allowing the buildup of social entitlements to win or maintain office. Private companies also encouraged the growth of employee benefits to avoid immediate pressure on wages as well as boost current earnings and share prices.
Whenever I am in Amsterdam, I go to a bookstore and browse the second-hand shelves in the economics section. Recently I found two books by Dr. Jelle Zijlstra: “Dr. Jelle Zijlstra, Conversations and Writings” (1979, second edition) and “Per Slot Van Rekening” (1992, fifth edition). The latter title is a Dutch figure of speech that may be translated as “The Final Settlement.”
A black swan event is a metaphor for an enormous problem that develops underneath the surface and then suddenly puts the whole financial system at risk. The financial crisis of 2008 was a black swan event, for example, that slowly developed in the US real estate market where excess had ruled in the years before.
China is thought to be the great growth story of the post-2008 era. China’s economy not only bottomed before the developed world, but by most accounts, China was thought to be the engine that pulled the world out of recession, thanks to its near-clocklike hitting of 7%+ in GDP growth per year.
Despite the radical alteration as to what is taught in “business” schools, credit is not capital and it will never be. No amount of math will make it so, but the longer it remains operative the greater the potential we all end up with something even worse.
The dollar is always losing value. To measure the decline, people turn to the Consumer Price Index (CPI), or various alternative measures such as Shadow Stats or Billion Prices Project. They measure a basket of goods, and we can see how ...
The current equities bull run seems unstoppable. No amount of geopolitical concerns, Greek default fears, rate hikes, US dollar strength, crude oil price volatility, Russian sanctions or whatever else you can think of can put a dent on it.We got a little cautious in mid-February given some pretty significant divergences with key market internals and credit indicators. For instance the advance-decline line (cumulative weekly up issues minus down issues in NYSE and NASDAQ combined) was suggesting
This is probably one of the most important posts I’ll write all year. The reason is because in order to displace the current paradigm, the public needs to deeply and intellectually understand exactly where the real cancer resides.
Joe Russo's insight:
Good definition of Oligarch within this piece along with other insightful and troubling statistics.....
On September 21, 2008, Goldman Sachs announced its intention to become the then-fourth largest bank holding company, bringing it under the Federal Reserve’s regulatory umbrella. The timing of the change makes perfect sense, a week after Lehman triggered an ongoing panic, but in the perspective of wider systemic arrangements it was an odd attempt at resolution. With Merrill Lynch cold-fused with Bank of America and Lehman being torn by the wolves of insolvency and bankruptcy, there weren’t to be any investment banks left.
If you’ve been scratching your head since the middle of last year as consumer confidence surveys depicted an optimistic, eager to spend consumer while other hard economic data was showing a sputtering economy, we’re here to put your mind to rest. You’re not crazy. The U.S. economy is dramatically diverging from where most consumers think it is and we have three charts to prove it.
For those of a certain age there is little mystery as to Grace Slick’s inspiration for White Rabbit. Or at least we don’t think so but then things are not always as we perceive them to be. Alice in Wonderland, the story that is the inspiration for Grace Slick’s composition, can be seen as merely a nonsensical children’s story. Or as a warning about the inevitable loss of one’s innocence. Or as a cautionary tale about the sometimes meaningless and nonsensical puzzles that life presents us and the futility of trying to solve them. So was Grace Slick singing about the psychedelia of the sixties or just longing for the innocence of her childhood or shamelessly pandering to an audience to sell records? With the myth that has grown up around the song, we are unlikely to ever know the truth. As for Jabberwocky, a poem that appears in the sequel to the original Alice story, I don’t have any idea what Carrol was getting at with that bit of whimsy. Sometimes nonsense is just nonsense.
The theme this week has been one of killing currencies, or monetary genocide, as that seems to be reaching once-believed improbable levels of descent. While not specifically a self-contained series, the prior pieces, which are relevant to this discussion, are here,here and here. My intent so far as this angle is far more speculative, looking ahead at projecting a possible, or many possible, end point(s). This relates to the overriding governing dynamic that I believe defines our time, in both the financial and real economic realms. It is the supercycle; the rise and now fall of the eurodollar standard.
There was no third consecutive quarterly liquidity event on April 15, but I think there was an observation of the same systemic crack that just didn’t, this time, go anywhere. I have been highlighting repo rates particularly during April where GC rates failed to reset as they had done after every other quarterly window dressing. This time was already notable as the quarter-end surge in GC was completely out of line with anything else really going back to 2009, which raised suspicion to begin with. That repo rates lingered in an elevated position suggested either that regular, systemic problem or a hint at an entirely new repo regime perhaps related to a resetting of interbank hierarchy in anticipation to and of the end of ZIRP.
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