"If you look at the entire radar screen of things developing both domestically and internationally, we are plunging deep into a perfect storm of policy failure. There is blowback everywhere. First, the wreckage of prior policy mistakes of our intervention with foreign policy is coming home to roost. Second, monetary central planning is now coming to a dead-end. It is inflating the third financial bubble of the century and the Fed is now clueless as to how it will manage to unwind the massive balance sheet expansion it has been undertaken. And third, the fiscal doomsday machine continues to crank on. Washington is ignoring the fact that we are six years into a business cycle expansion and we are still running massive deficits and there is no cushion for the next upset that comes to the economy. Now, why is all of this important? Because I think the foreign policy failures -- the collapse of the American Imperium as I call it -- is at the center of this, and it will push all of these things in the wrong direction."
Things in China are getting downright biblical. First it was the floating animal apocalypse: who can forget the 16,000 floating pigs, followed by a thousand dead ducks, culminating with 5 dead black swans. But nothing quite beats the dramatic impact of the inner river of Wenzhou flowing blood red.
The escalation of turmoil in the world is yet to play a role for the market, but be warned: everything economic has a delayed reaction of nine to twelve month – whenever there is an action there will be a reaction. If the present state of alertness continues through the summer you can bet on higher energy prices having a serious impact on not only world growth but also on markets. Simply put, Steen Jakobsen concludes, "prepare for less growth, less certainty and more geopolitical risk."
"In economics, [the mainstream] rely on experts who don't know what they are talking about," explains Professor Steve Keen in this brief but compelling documentary discussing 'when the herd turns'. "Herd behavior is a fundamental aspect of capitalism," Keen chides, but it is left our of conventional economic theory "because they don't believe it;" instead having faith that investors are all "rational individuals" (e.g. willing to pay 112x for OpenTable), which he notes, means "[economists] can't foresee any crisis in the future." The reality is - "we do have herd behavior" and people will follow the herd off a cliff unless they are aware its going to happen. "Contrary to herd wisdom, financial crisis are not unpredictable black swans..."
The individual or system that never experiences dissent, volatility or stress is systemically unhealthy and increasingly prone to sudden "gosh, I didn't see this coming" collapse. The individual who walks daily (i.e. aerobic exercise) is healthier than the couch potato, but the individual who routinely engages in short bouts of strenuous activity has the added benefits of triggering rebuilding/repair responses. Political economies, government agencies, enterprises and communities are no different, as all systems respond the same way: either growing brittle and vulnerable by suppressing dissent and volatility or maintaining strength, resilience and adaptability by encouraging dissent and volatility. Our centralized government and bank have spared no expense to ruthlessly suppress these essential forces of healthy systems at every turn. The cost of their gross incompetence has yet to be paid, but it will be paid, and in full, in the years ahead.
Central bank's ongoing and so-far-successful efforts to crush short-term volatility and encourage hapless individuals into the world's nominally rising stock markets has had consequences. Inequalities abound (rich vs poor, corporate profits vs capex/jobs, bond yields vs growth hopes) but nowhere else is this more evident - given the ever-increasing crescendo of the drum-beat of war around the world - than in oil price volatility. As the chart below shows... oil price volatility is at its lowest in 21 years. We can't help but be reminded of Taleb's priceless phrase that "there is no freedom without noise - and no stability without volatility."
Five years ago, we were the first to bring the world's attention to the staggering profitability of several firms that engaged in 'high frequency' trading that presented themselves as 'liquidity providers' and suggested (in our ever so humble way) that mark liquidity was in fact shrinking and this could lead to a 'black swan of black swans' long before the flash crash was even dreamed of. Fast forwarding to today, after hundreds of articles, not only is the mainstream "getting it" but such behemoths as Cliff Asness - who happens to run one of the world's biggest quant funds - are forced to pen a WSJ op-ed to explain it's all a fallacy and blame a lowly blogger (or digital dickweed) for starting all this naysaying five years ago.
Once again the smell of NAPALM is in the air
Citi's credit group is bullish; but, as they admit, for all the wrong reasons. Bullish, because they still believe that the extraordinary liquidity environment which has dominated the last four years will remain in place this year (despite tapering) and for the wrong reasons because aside from their doubts about the foundations of much of the economic recovery itself, nearly all the factors that they would normally base their view on the markets on seem to be pulling in the opposite direction. In their own words, "everything is expensive; and the market is driven purely by a variant of the Greater Fool's Theory."
As we begin 2014, it is important to recognize the levels of INSANITY currently existent in the world enabling us to understand the apocryphal nature of the times we live in and prepare ourselves to meet the challenges it represents. The world is leveraged to an extent that has never before seen in history! Debt now masquerades as NOMINAL growth and REAL growth has ceased. Headline economic reports are now nothing more than POLITICALLY CORRECT HOAXES to FOOL the public at large and mask the betrayal of the public by the leaders who hold the reins of power. ECONOMIC Stagnation emerged after the 2008 Global financial crisis and in real terms has NEVER ENDED!
Propaganda, phony fixes and more debt can only cover the widening gap between fiscal reality and official fantasy for so long. So what else besides the potential for another global financial meltdown bears watching in 2014? Here are a few worthy prospects... as we doubt the same illusions and tricks will get the global economy through 2014-2015 unscathed.
"When it comes to market events, there have been no impactful black swans - the so-called unexpected 'tail events," Mark Spitznagel notes in his excellent new book, The Dao Of Capital: Austrian Investing in a Distorted World, explaining that, "what were unseen by most, were indeed highly foreseeable" by others. The Fed planted the seeds for the last financial crisis and "when you prevent the natural balancing act, you get growth that shouldn't be happening."
The financial crisis of 2008 could have been the wake-up tall that, like the Yellowstone fires of 1988, alerted so-called managers to the dangers of trying to override the natural governors of the system. Instead, the Federal Reserve, with its head "ranger," Ben Bernanke, has deluded itself into thinldng ft has tamped down every little smolder from becoming a destructive blaze, but instead all it has done is poured the unnatural fertilizer of liquidity onto a morass of overgrown malinvestment making a even more highly flammable. One day - likely sooner than later, it will burn, and when that happens, the Fed will be sorely lackng in buckets and shovels and must succumb to the flames.
At the center of any military campaign is the art of deception. In the military nothing is done without a strategy, generally planned well in advance, and the misdirection of the enemy is always part of any campaign. It would be a political disaster for Israel to attack Iran. We may begin our consideration with this premise. On the other hand, it would be politically acceptable for Israel to respond to any aggression that was inaugurated by Iran. Self-protection is always a respectable retort. The Israeli attacks are not irrelevant.
First it was floating dead pigs, then ducks, then black swans, then mass chicken exterminations, then fish, and now more pigs and also a brand new entrant to the Chinese animal apocalypse: dogs. AP reports that hundreds more pigs have been found dead in China - this time together with dozens of dogs. "A total of 410 pigs and 122 dogs were discovered in homes and at farms earlier this week in a village that comes under Yanshi city's jurisdiction in central Henan province, authorities said Wednesday. The city's propaganda office said that the deaths were being investigated but that they suspected they had to do with nearby chemical factories. The factories have been ordered to suspend production and help police with a criminal investigation into the incident, according to a report on a Henan provincial news website."
Shanghai just can't catch a break - first it was floating dead pigs, then ducks, then black swans, then mass chicken exterminations, and now fish. From the Telegraph: " Just weeks after over 16,000 putrefying pigs were pulled from Shanghai's Huangpu river, more than 250kg of dead carp had to be retrieved from a river in the city's Songjiang district. Mystery still surrounds the cause of death, but numerous explanations have surfaced in the Chinese media since residents first complained about the foul-smelling fish last Monday. Theories reportedly include climate change, electrocution, an explosion or even a drug overdose. The Shanghai Daily quoted a local government official who "speculated" the fish could have been "drugged." So, in China things are so good, even the fish are ODing on sleeping pills? Hardly, but the fact that this is even floated "out there" just shows how miserably The Onion has missed its IPO window.