We heard from several central banks in the last few days, and what they had to say was just one more reminder that we are in a Hill Street Blues financial world. So, hey, let’s be careful out there - and then some!
During the heyday of post-war prosperity between 1953 and 1971, real final sales - a better measure of economic growth than GDP because it filters out inventory fluctuations - grew at a 3.6% annual rate. That is exactly double the 1.8% CAGR recorded for 2000-2014. The long and short of it, therefore, is that there has been a dramatic downshift in the trend rate of economic growth during an era in which central bank intervention and stimulus has been immeasurably enlarged. How exactly is the Fed helping when the trend rate of real growth has withered dramatically?
Any entity or investor who is using aggressive leverage in US Dollars will be at risk of imploding
China Stocks Soar To 7 Year High After Collapse In Exports; US Futures Slip On Continuing Dollar SurgeSubmitted by Tyler Durden on 04/13/2015 06:55 -0400
If there was any doubt that global trade is stalling, it was promptly wiped out following the latest abysmal Chinese trade data which saw exports tumble by 15% - the most in over a year - on expectations of a 8% rebound, with the trade surplus coming in at CNY18.2 billion, far below the lowest estimate. While unnecessary, with the Chinese GDP growth rate this Wednesday already expect to print at a record low, this was further evidence of weak demand both at home and abroad. Weakness was seen in most key markets, and the strength of China's currency was partly to blame, which again brings up China's CNY devaluation and ultimately QE, which as we wrote some time ago, is the ultimate endgame in the global reflation trade which, at least for now until the CBs begin active money paradropping to everyone not just the 0.01%, is only leading to inflation in stocks and deflation in everything else.v
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.
As usual, US stocks are the last to “get it.” But this won’t last for long. The S&P 500 is sitting on the ledge of a massive cliff. And when it finally tumbles, the move will be both fast and violent.
Massive misallocations of capital stare at us like wild caged animals through the bars of a cage in the zoo!
Janet Yellen noted that everything was awesome and that stocks were now slightly "on the high side" of their historical range. It appears no one showed her the Russell 2000 which has a valuation multiple of just about 90x LTM earnings (as reported by the 2000 companies which comprise the index, and which were certified as accurate by 4,000 CEOs and CFOs on penalty of jail time). The mystery of how the Fed remains so stubbornly bubble blind - just like it did during the dotcom and housing bubbles - is thus revealed. The self-evident reason is that the purported geniuses who comprise our monetary politburo drink the Wall Street Cool-Aid about forward ex-items EPS. The Fed is driving a two-ton bubble machine, but has no clue that it has become a financial death trap.
The US Dollar took down Oil, commodities, even emerging market currencies. Stocks will be next. The first REAL sign that the 2008 Crash was coming occurred when the US Dollar began to skyrocket in the summer of 2008.
If the Fed indeed raises rates in June, we're likely to begin to see periphery sovereign debt defaults
The Fed and other Central Banks are trying to maintain the illusion that they have everything in control by talking about interest rates, but the reality is that the US Dollar carry trade is ABOVE $9 trillion in size. That is almost as large as ALL of the money printing that occurred between 2009 and 2013.
The transparent truthlessness of the Fed’s basic premises go far to explain the chasm between official policy and reality - though it does not explain the appetite for plain lying of the supposedly informed minority cohort of the public, the deciders among us in business, politics, and media. Within th enext few months (between "patient" removal, token rate hikes, and reversals to QE4), the Fed will be completely out of cred. This will be the biggest disaster of all, since the loss of faith in august institutions will rage through every polity in the advanced economies. Nobody will believe any longer in anything they say or do, and especially the value of the papers (or digits) they denominate as money.
Why understanding of market cycles is crucial for investment success
There was a point in 2010 when American capitalism might have had an opportunity to heal itself and commence on a long march toward sustainable growth and real wealth gains. But the monetary politburo would have none of it - keeping the pedal to the metal until this very moment... and the rest is history. The Fed and the other central banks around the world have fomented a new and even more virulent and dangerous financial bubble.
Yellen has created a narrative about the US economy, especially the (un)employment rate, and with the narrative is now firmly in place, Yellen and her stooges can claim they have no choice but to hike In short, Janet Yellen will go down into history as the person responsible for what may be the biggest economic crash ever, or at least delivering the final punch of the way into it, a crash that will make the rich banks even much richer. And there is not one iota of coincidence in there. Yellen works for those banks. The Fed only ever held investors’ hands because that worked out well for Wall Street. And now that’s over. Y’all are on the same side of the same trade, and there’s no profit for Wall Street that way.