"The policy actions that cause financial repression entail a number of unintended consequences. These include potential asset price bubbles, convergence in asset allocation strategies of otherwise heterogeneous financial market participants and an increase in economic inequality. With regards to the latter, the impact of foregone interest income for households and long-term investors is substantial. At the same time, the equity rally has predominantly benefited society’s wealthiest." The hit to US savers: nearly a half trillion.
GE’s announcement that its getting out of the finance business should be a reminder of how crony capitalism is corrupting and debilitating the American economy. The ostensible reason the company is unceremoniously dumping its 25-year long build-up of the GE Capital mega-bank is that it doesn’t want to be regulated by Washington as a systematically important financial institution under Dodd-Frank. Oh, and that its core industrial businesses have better prospects. We will see soon enough about its oilfield equipment and wind turbine business, or indeed all of its capital goods oriented businesses in a radically deflationary world drowning in excess capacity. But at least you can say good riddance to GE Capital because it was based on a phony business model that was actually a menace to free market capitalism. Its deplorable raid on the public purse during the Lehman crisis had already demonstrated that in spades.
There is much more going on than just a problem in the Japanese bond market...
There is a $100 trillion bond market out there that has been priced by a handful of central bankers, not a planet teeming with exhuberant savers. The mad descent of the former into the whacky world of QE and ZIRP has caused a double whammy distortion in the bond markets of the world. So, no, there isn’t a savings glut in the world; there is an outbreak of destructive central bank bond buying and money market price pegging that is virtually destroying the world’s bond market. What we have is a fraud wrapped in a bogus theory. Only none dare call it that. At least, not on bubblevision.
These are your euro money markets on central planning. The ECB is attempting to help correct the distortions created by its QE program by lending out its holdings in order to grease the wheels of European repo markets, but as JPM notes, the central bank's program will likely not be sufficient.
What a wonderful and perfectly representative dichotomy of where monetarism stands. We have Bernanke - the former, massive practitioner of QE - telling the world how it does nothing much; while at the exact same time Draghi - the latest - tells the world its super-healing and supporting properties. What’s reconcilable about those two positions is simply asset bubbles, as they are what stand against the former and remain the only, dim hope of the latter.
This is why Bernanke said rates won’t normalize in his lifetime: any normalization means a crisis magnitudes larger than the 2008 crash.
Is the BoJ's back against the wall? We certainly think so as the evidence increasingly supports the notion that the central bank is bumping up against the limits of accommodative monetary policy and may soon be headed — as we've variously predicted —for "failed nation" status.
The "ECB Taper" Twitter feed is born and SocGen says QE in Europe has a long ways to go with Mario Draghi having fulfilled only 7% of his promise to monetize the entirety of euro net issuance.
If the credit market was "overheating" when only one-third of all loans had no covenants, we wonder what Stein would say now, two years later, when just one-third of all loans have covenants... if anything?
“In my 30-year career, it’s one of the most unattractive risk-return propositions that I’ve seen,” DoubleLine's Bonnie Baha says. Between abysmally low yields, heightened rate sensitivity heading into a rate hike cycle, and balance sheet re-leveraging on the part of US corporations, it’s a bad time to be betting on corporate credit.
Centrally issued money centralizes wealth and generates systemic inequality. This is equally true of all centrally issued currencies. But the inequity that is intrinsic to this system is politically, socially and financially destabilizing, and so this system is unsustainable.
Asia Superbubble Unstoppable: Hong Kong Up 10% In Past Week; Soaring Dollar Pushes Euro Back Under 1.06Submitted by Tyler Durden on 04/10/2015 06:53 -0400
Overnight market news was once again driven by the Asian superbubble, where as expected, the Hang Seng (+1.22%) soared once more and is now up 9.5% for the week, following news the Hong Kong Exchanges and Clearing Ltd (HKEx) expects it will "substantially increase" quotas for the stock connect program between Hong Kong and Shanghai, HKEx Chief Executive Charles Li said on Friday. The exchange could boost the current quotas, which cap how much mainland investors can buy Hong Kong stocks and vice versa under the trading link, by more than 20 or 30 percent, Li said at a media briefing in Hong Kong. Li did not give a precise date for when the quotas would be raised, but one thing is clear: everyone in China, and Hong Kong, must be all in stocks if the Chinese housing bubble can not be reflated. The Shanghai Comp closed higher by almost 2.0% following better than expected Chinese inflation data, while HK stocks continued their recent rally to closer higher by 9.5% for the week.
Who’s dumb enough to buy this stuff—10-year debt at negative yields and 100-year debt in a doomed currency? Institutional investors, of course—large pension funds and the like. You might look at news like that and think, well, that’s crazy, I’d never do that. But the fact is, it’s being done with YOUR MONEY. Just like Winston Churchill commented that it’s false to characterize the fighting at places like the Somme, Verdun etc. in WWI as battles, when they were actually more like prolonged sieges, what’s happening in the financial world today is similar. The financial world today is the same. Billion dollar stimulus packages. Quantitative Easing 1, 2, 3… Negative interest rates. Negative long-term debt yields. Cash withdrawal and transaction controls. Higher taxes. Capital controls...
The Treasury flash crash and similar recent events in currency markets are "shots across the bow," Jamie Dimon says in his latest letter to shareholders. The JPM chief goes on to warn, as we have for years, that declining liquidity in credit markets is likely to exacerbate future crises: "The likely explanation for the lower depth in almost all bond markets is that inventories of market-makers’ positions are dramatically lower than in the past. For instance, the total inventory of Treasuries readily available to market-makers today is $1.7 trillion, down from $2.7 trillion at its peak in 2007. The trend in dealer positions of corporate bonds is similar."