When the next crisis comes there will no doubt be economists and commentators who blame it on some proximal event, like the failure of a large important financial institution. Don’t be fooled. The seeds of the next crisis are already sown. Fed policy under Ben Bernanke and Janet Yellen has distorted the economy in a way that makes it precariously fragile, and susceptible to collapse.
Shortly before leaving the Fed this year, Ben Bernanke rather pompously declared that Quantitative Easing "works in practice, but it doesn’t work in theory." There is, of course, no counter-factual. But to suggest credibly that QE has worked, we first have to agree on a definition of what "work" means, and on what problem QE was meant to solve. We think the QE debate should be reframed: has QE done anything to reform an economic and monetary system urgently in need of restructuring? We think the answer, self-evidently, is “No”.
Less than a week after the NAR reported September existing home sales which surged at a 5.17 million annualized pace, the highest since September 2013, rebounding from the August drubbing which was also the worst miss in 2014, today the NAR flip-flopped and disappointed sellside expectations of a 1.0% rebound following the August -1.0% decline, rising a modest 0.3%, and less than half the 2.2% expected increase from a year ago, rising only 1.0% Y/Y. This was the third miss in the series in the last 4 prints.
Willem Middlekoop, author of The Big Reset – The War On Gold And The Financial Endgame, believes the current international monetary system has entered its last term and is up for a reset. Having predicted the collapse of the real estate market in 2006, (while Ben Bernanke didn't), Middlekoop asks (rhetorically) - can the global credit expansion 'experiment' from 2002 – 2008, which Bernanke completely underestimated, be compared to the global QE 'experiment' from 2008 – present? - the answer is worrisome. In the following presentation he shares his thoughts on the future of the global monetary system; and how gold, the US and China are paramount for its outcome.
What do an old German bank note, a current $100 bill, and an apple all have in common? The answer, according to ConvergEx's Nick Colas, is that these simple objects can tell us much about the current investment scene, ranging from Europe’s economic challenges to the U.S. Federal Reserve’s attempts to reduce unemployment. Colas takes an “object-ive” approach to analyzing the current investment landscape by describing 10 common items and how they shape our perceptions of reality. The other objects on our list: a hazmat suit, a house in Orlando, a barrel of oil, a Rolex watch, a butterfly, a heating radiator in Berlin, and a smartphone.
Dear NSA Employees, You Now Have a Green Light to Loot and Pillage. It’s Time to Get Paid: Are you just another one of those frustrated NSA employees who feels that unconstitutionally spying on your fellow citizenry under false pretenses isn’t giving you same thrill it once did? If so, have no fear.
Just in case you need another reason to dislike the thieving Federal Reserve.
Equity markets live and die on several well-established conventions, according to ConvergEx's Nick Colas, noting that these are the rules that investors use as the bedrock of their fundamental analysis. The volatility of the last few weeks shows that some of these paradigms are now under attack. Chief among the question marks: “Do central banks always have the power to tip the balance between growth and recession?” Another rising concern: “Can stocks constantly shrug off recessionary signals from commodity and fixed income markets?” Lastly, “How many exogenous, if largely unpredictable, global events can equities ignore before their collective weight halts a bull market?” Bottom line: the debate on these topics isn’t over for October or the balance of the year.
We have been discussing the widespread belief in "the narrative of central bank omnipotence" for a number of months (here and here most recently) as we noted "there are no more skeptics. To update Milton Friedman’s famous quote, we are all Bernankians now." So when Saxobank's CIO and Chief Economist Steen Jakobsen warns that "the mood has changed," and feedback from conference calls and speaking engagements tells him, there is a growing belief that the 'narrative of the central banks' is failing, we sit up and listen.
- It wasn't Obama this time: Pakistani teen, Indian activist win Nobel Peace Prize (Reuters)
- Surging VIX Shakes Bulls as S&P 500 Charts Go Haywire (BBG)
- Global shares hit six-month low as growth worries mount (Reuters)
- Police, protesters clash in St. Louis ahead of weekend of rallies (Reuters)
- We're Sitting on 10 Billion Barrels of Oil! OK, Two (BBG)
- Spain seeks answers as seven more enter Ebola isolation (Reuters)
- Iran will sell its oil to Asia in November at the biggest discount (BBG)
- Redefining honeypot: U.S. DEA 'most interested' in U.S. investors in Canadian marijuana firms (Reuters)
- UKIP Wins First Commons District With Conservative Defector (BBG)
- Fake Ebola Patients Help Hospitals Prepare for Next Case (BBG)
First a secret "Doomsday book", and now this?
In recent months, this prognostication has been gaining traction that a second, more severe crash - one that reflected the level of debt - is inevitable. There are two primary camps amongst economists with regard to the economic direction that a crash will generate: inflationists and deflationists. The argument goes back and forth, yet there seems to be the misconception that one must be either an inflationist or deflationist. This is not at all the case.
- Ebola Patient Fights for Life as Contacts are Monitored (BBG)
- GPIF Unlikely To Announce New Portfolio Until November: Delay Could Rattle Investors Hoping Fund Will Invest More in Stocks (WSJ)
- High risk Ebola could reach France and UK by end-October, scientists calculate (Reuters)
- Neves to Face Rousseff in Brazil in Surprise Comeback (BBG)
- Hong Kong democracy protests fade, face test of stamina (Reuters); A Hong Kong Protest Run on Fumes and Instant Noodles (WSJ)
- Putin Clans Said Gridlocked Over Arrest as Sanctions Bite (BBG)
- Surging dollar may be triple whammy for U.S. earnings (Reuters)
- Lloyds Said to Cut Thousands of Jobs as CEO Cuts Costs (BBG)
Carmen Segarra said, “I come from the world of legal and compliance, we deal with hard evidence. It’s like, we don’t deal with, you know, perceptions.”
How ironic. Segarra worked at the Fed.