Alan Greenspan

No, it wasn't Ben Bernanke or Alan Greenspan, it wasn't Jean-Claude Trichet or his successor Mario Draghi, nor was it Mervyn King, Carney, Shirakawa, or Hildebrand. The answer, as shocking as it may sound, was...

Reclaiming the Founding Fathers' Vision of Prosperity

Barclays index of high yield bond total returns is now 63% higher that its pre-crisis peak. This compares to an equivalent total return index for the S&P 500 was only 12% (and it has yet to break the October 2007 highs). These numbers are astronomical in the face of micro- and macro-fundamentals and while equity markets remain the policy tool du jour for the central planning elite, it appears they are perhaps starting to become a little concerned that driving all the retiring boomers 'safe' money into risky bets may not end so well. Just as Alan Greenspan stepped on the throat of equity markets with his now infamous 'irrational exuberance' speech, we wonder, as Bloomberg notes, if last night's speech to the Economic Club of New York by Bill Dudley is the new normal equivalent, as he noted, "some areas of fixed income - notably high-yield and leveraged loans - do seem somewhat frothy," just as we warned here. With the high-yield index trading at 5.56% yield - the lowest in over 25 years and loans bid at 98.27 (the highest since July 2007), perhaps he is right to note, "we will need to keep a close eye on financial asset prices."

There once was a time when it was fair to say that Alan Greenspan was the biggest living contrary indicator of all time. Long before he became known to a wider audience, in early January of 1973, he famously pronounced (paraphrasing) that 'there is no reason to be anything but bullish now'. The stock market topped out two days later and subsequently suffered what was then its biggest collapse since the 1929-1932 bear market. That was a first hint that stock market traders should pay heed to the mutterings of the later Fed chairman when they concerned market forecasts: whatever he says, make sure you do the exact opposite. The reason why we feel he must be relegated to third place is that since then, arguably two even bigger living contrary indicators have entered the scene: Ben 'the sub-prime crisis is well contained' Bernanke, and Olli 'the euro crisis is over' Rehn. Admittedly it is not yet certain who will be judged the most reliable of them by history, but in any case, when Greenspan speaks, we should definitely still pay heed...

Despite the all-knowing Alan Greenspan confirming there is no irrational exuberance currently, Oaktree Capital's Howard Marks is less convinced. Though he is not bearish, he lays out rather succinctly the current pros and cons for equities - based on the various 'valuation' arguments, discusses the folly of the equity risk premia, and highlights the dangers of extrapolation and what history can teach us... "appreciation at a rate in excess of the cash flow growth accelerates into the present some appreciation that otherwise might have happened in the future... it isn't just a windfall but also a warning sign."

Paul Krugman just did something mind-bending. In a recent column, he cited Minsky ostensibly to defend Alan Greenspan’s loose monetary policies. Krugman correctly identifies the mechanism here — prior to 2008, people forgot about risk.  Macroeconomic stability bred complacency. And the longer the perceived good times last, the more fragile the economy becomes, as more and more risky behaviour becomes the norm. Stability is destabilising. The Great Moderation was intimately connected to markets becoming forgetful of risk. And bubbles formed. In endorsing Minsky’s view, Krugman is coming closer to the truth. But he is still one crucial step away. If stability is destabilising, we must embrace the business cycle. Smaller cyclical booms, and smaller cyclical busts. Not boom, boom, boom and then a grand mal seizure.

The dark ages were an awful time. Considering the brightest days delivered constant warfare, the burning of books, and the fear of barbarians, no one ever looked forward to the darkest days. Fast forward 1,600 years, and the darkest days of the European debt crisis are finally over - not because the bad debt has been written off or due to the consolidation of all debt, but simply because everyone has said so. Exactly who is telling lies and who is telling the truth will only be determined in due course. Without a doubt, global economic growth remains stagnate, yet stock markets are booming. Our message on financial markets remains very consistent – do not confuse strong financial markets with a strong underlying economy. While this may sound like hogwash to many investors and investment professionals, it is the extreme, unorthodox, and never-before-tried policies by the World’s central banks that is the reason for the march higher for stocks. Regardless, for those who honestly believe in the recovery, ask yourself the following questions...

Oh well, who cares about things in the past?

The underlying question in Bill Gross' latest monthly letter, built around Jeremy Stein's (in)famous speech earlier this month, is the following: "How do we know when irrational exuberance has unduly escalated asset values?" He then proceeds to provide a very politically correct answer, which is to be expected for the manager of the world's largest bond fund. Our answer is simpler: We know there is an irrational exuberance asset bubble, because the Fed is still in existence. Far simpler.

Whenever I endeavor to explain America’s current economic situation to a person who likely receives most of his information from skewed mainstream news sources, I try to use two comparisons; the Great Depression, and Weimar Germany, because what we are experiencing is actually a combination of elements from both events. In the end, the madness of debt spending is going to annihilate this country anyway.  Fiat printing and infinite QE will eventually result in the dumping of our currency as the world reserve, causing devaluation and hyperstagflation.  Stimulus and the monetization of government liabilities are crippling us.  The problem is, this nation is irrevocably dependent on such measures.  Cuts will result in almost similar catastrophe, but on a faster time frame and perhaps a slightly shorter duration (depending on who runs the show in the aftermath).  I’ve been saying it since 2008 – there is no easy way out of this situation.  There is no silver bullet solution.  There will be struggle, and there will be consequence.  It is unavoidable.  All we have to decide now is how we will respond when the inevitable disaster comes.

Waste and Fraud Are the Real Causes of the Deficit

All Capitalist Systems Have Some Inequality.  We Don’t Want To Prevent All Inequality … Just Economy-Wrecking Levels

Everyone Knew Iraq Had No WMDS … and Was Not Behind Anthrax Attacks or 9/11

We urge readers to do a word search for "Moody's" in the official department of justice release below. Here are the highlights:

DOJ COMPLAINT ALLEGES S&P LIED ABOUT ITS OBJECTIVITY - when it downgraded the US?
HOLDER SAYS S&P'S ACTIONS CAUSED `BILLIONS' IN LOSSES - did Moody's actions, profiled previously here, which happens to be a major holding of one Warren Buffett, cause billions in profits?
HOLDER SAYS `NO CONNECTION' BETWEEN S&P SUIT, U.S. DOWNGRADE - just brilliant

Pure pathetic political posturing, because it was the rating agencies, whose complicity and conflicts of interest everyone knew about, who were responsible for the financial crisis. Not Alan Greenspan, not Ben Bernanke, and certainly not Wall Street which made tens of billions in profits selling CDOs to idiots in Europe and Asia. Of course, the US consumer who had a gun held against their head when they were buying McMansions with no money down and no future cash flow is not even mentioned.

The practice of gold leasing has been endorsed by none other than Alan Greenspan, former Chairman of the Fed. The gold is leased to a bullion bank, which typically pays one percent interest to the Fed, with a promise to return it on a specified date. The bullion bank then sells the gold on the open market and uses the proceeds to buy Treasury bonds, which will net a three to four percent return. The nicest thing about such an arrangement is that the lessor continues to claim it on his balance sheet as a line item: “gold and gold receivables.” After all, an asset that we have leased out is still an asset, even if it has now been sold by the lessee. In effect, this means that, if you bought a gold bar today, it is possible that it is a bar that was shipped from the Bundesbank to the Federal Reserve decades ago and is presently listed by the Fed on its balance sheet as “gold and gold receivables.” Both you and the Fed are claiming to possess the same gold bar. The fly in the ointment, of course, is that only one bar can be the actual bar. The other is a receivable and therefore is an asset on paper only. This, of course, means that there is less gold in the world than has been claimed. How much less? That’s anyone’s guess.