Carry Trade

Bubbles arise if the price far exceeds the asset’s fundamental value, to the point that no plausible future income scenario can justify the price

Once upon a time businesses borrowed long term money - if they borrowed at all - in order to fund plant, equipment and other long-lived productive assets. Today American businesses are borrowing like never before - to fund financial engineering maneuvers such as stock buybacks, M&A and LBOs, not the acquisition of productive assets that can actually fuel future output and productivity. 

Let’s see. The Eccles Building has grown its balance sheet by 9X since the turn of the century, but real net investment in the business sector has plunged by 33%!

The stock market is totally mispricing what's coming.

What in god’s name does Janet Yellen think she is doing? Just a few weeks ago she established the ridiculous Fedspeak convention that “patient” means money market rates will not rise from the zero bound for at least two meetings. Now she has modified that message into “not exactly”.

Financial markets and investing reflect the same characteristics as my attempt at keeping fit

The last thing Janet Yellen needs to be doing right now is cheer-leading more risk taking on behalf of financial market participants!

With historically low long-term interest rates, the opportunity cost of holding gold and silver are close to zero or even negative, in other words you would “lose” money if you buy bonds (the benchmark) instead of gold and silver. When people realize that their money is not “safe” with the banks they will start withdrawing cash from their accounts and buy physical gold and silver instead. Depending on circumstances this could possibly bring down the (fractional) banking system. Why keep money in an account that gives you a negative return? Swiss banks are already witnessing stronger than normal interest for physical gold.

A couple of days ago a Café member sent me some of the latest commentary by Martin Armstrong of Armstrong Economics, formally of Princeton Economics International. As you will read, he continues his rant against "the gold promoters," a rant that seemed more than vaguely familiar.

What an understatement!

This problem DWARFS Greece, Spain, Italy, even France (combined).

The phony 5.7% domestic unemployment rate reported yesterday has nothing to do with full employment. The relevant number in the report is that there are still 101 million working age Americans who do not have jobs, and only 45 million of them are on OASI retirement benefits. And that says nothing about the tens of millions of job holders who are employed far less than a full 40 hour work week. In short, there is a surfeit of available labor at home and abroad, meaning 3-4% wage gains are not coming down the pike any time soon or ever. So if that’s what the Fed is waiting for - then the so-called “lift-off” may not be coming even this year. And in any event, the trivial 25 bps increases in the funds rate that may eventually come have nothing to do with interest rate “normalization” or the return of honest price discovery in the casino. And that suits the needs of the Wall Street gamblers just fine.

"Fuck the CHF and the SNB!" "Those bastards lied to us - I'll never trust them again!"

The last time that stocks were strongly disconnected from reality and the US Dollar began to rally hard was 2008.

What happens if one expands the Eurozone NIRP universe to include the debt of other countries including Japan, Denmark, Sweden, Switzerland and so on? Conveniently, JPM has done the analysis and finds that a mindblowing $3.6 trillion of government debt traded with a negative yield as recently as last week. This represents 16% of the JPM Global Government Bond Index, or in other words nearly a fifth of all global government debt is now trading with a negative yield, meaning investors pay sovereigns, using other people's money of course, for the privilege of buying their issuance!

Shortly after yesterday’s open, the S&P 500 was down nearly 2% and off its recent all-time high by 3.5%. But soon the robo-machines and day traders were buying the “dip” having apparently once again gotten the “all-clear” signal. Don’t believe it for a second! The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world.

It’s terrifying how fast the whole Swiss yield curve sank under the waterline of zero. Now even the 15-year bond has negative interest. The franc has reached the end.