It’s ironic that in a day and age where Keynesian economics is the “accepted view” we still don’t pay enough attention to what Keynes said about inflation: "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some..." The problem today is that some people believe inflation is lower than it actually is. The Consumer Price Index CPI is used to measure the cost of maintaining a certain standard of living. Now it measures the cost of maintaining a certain level of satisfaction. You can argue the magnitude of the inflation understatement but you can’t argue that the official numbers are accurate. Under reporting inflation has led to many predictable outcomes.
Given this lack of warning, depositors need to plan in advance for the day when ATMs do not work and they cannot access cash in their bank accounts. Customers could only withdraw a maximum of €300 per day from branches and ATMs, and could only carry a maximum of €3,000 while travelling out of the country
Given this lack of warning, depositors need to plan in advance for the day when ATMs do not work and they cannot access cash in their bank accounts. Customers could only withdraw a maximum of €300 per day from branches and ATMs, and could only carry a maximum of €3,000 while travelling out of the country.
There has been quite a bit of discussion lately over the rapid reduction in the government's budget deficit as it relates to economic growth going forward. There are 3 issues that will likely impede further progress on the deficit reduction in the months ahead; 1) lower rates of tax revenue, 2) weaker economic growth and 3) greater levels of spending. The good news for stock market bulls is that deepening budget deficits increase the amount of bonds that the Treasury will need to issue to cover the shortfall in spending. This will give the Federal Reserve more room to continue their current monetary interventions which have inflated asset prices sharply over the last year. Creating financial instability to gain economic stability has been an elusive dream of the Federal Reserve since the turn of the century; yet someday it is hoped that they may just be able to "catch their own tail."
My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999 and presumably Greenspan, Bernanke, Yellen, et al. will rest happy, for surely they must expect something like this outcome given their experience. And we the people, of course, will get what we deserve. We acclaimed the original perpetrator of this ill-fated plan – Greenspan – to be the great Maestro, in a general orgy of boot licking. His faithful acolyte, Bernanke, was reappointed by a democratic president and generally lauded for doing (I admit) a perfectly serviceable job of rallying the troops in a crash that absolutely would not have occurred without the dangerous experiments in deregulation and no regulation (of the subprime instruments, for example) of his and his predecessor’s policy. At this rate, one day we will praise Yellen (or a similar successor) for helping out adequately in the wreckage of the next utterly unnecessary financial and asset class failure. In the meantime investors should be aware that the U.S. market is already badly overpriced. This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that’s life. And with a Fed like ours it’s probably what we deserve.
Ignoring the facts won't help us address the insolvency of pay-as-you-go social programs.
"The recent trading environment has felt something like walking into a place and having a sense that something is wrong and dangerous but not knowing exactly what will happen or when. “QE Infinity” has so distorted the prices of stocks and bonds that nobody can possibly determine what the investing landscape would look like, or what the condition of the economy and financial system would be, in the absence of Fed bond-buying."
-Paul Singer, Elliott Management
US Fed's exit plan poses a critical dilemma and underscores important contradictions. The calendar says Europe should be talking about exits too--as aid packages for Spanish banks, and Ireland and Portugal are to wind down in the coming year--yet more rather than less assistance may be neeed.
Much has been said about the recently announced (with the release of the Fed's July Minutes) proposal for a full-allotment overnight reverse repo facility, some of it confused, some of it desperate to read deeply into what the Fed is suggesting with this superficially tightening process, and most of it just plain wrong. What the Fed is simply trying to do with the O/N RRP, in a few words, is alleviate collateral pressures for "high-quality assets" - the same thing that the TBAC has been whining about for the past 2 quarters - by making available an elastic supply of risk-free assets to a fairly broad set of investors. As BofA adds, "The full-allotment feature would mean that eligible investors could effectively place as much cash as they wished at a fixed rate, which would be determined in advance by the Fed." In brief, a Fed O/N RRP facility would substantially reduce or even eliminate concerns about the lack of high quality liquid assets.
- India Joins Brazil to China in Efforts to Tighten Liquidity (BBG)
- Seven dead as police and protesters clash in Egypt (Reuters)
- U.S. senators fail to cut deal, head for showdown on filibuster (Reuters)
- Gasoline Tankers Beating Crude for First Time on Record (BBG)
- Smithfield's China bidders plan Hong Kong IPO after deal (Reuters)
- Bitcoin ETF plan struggles to find support (FT)
- Big Home Builders Gobble Up Rivals Starved for Cash (WSJ)
- Putin wants Snowden to go, but asylum not ruled out (Reuters)
- Zimmerman's lawyer calls prosecutors 'disgrace' to profession (Reuters)
- McDonald’s to bring Big Mac to Vietnam (FT)
- Korean Pilots Avoided Manual Flying, Former Trainers Say (BBG)
Richmond Fed's Lacker: "Falling Markets Should Not Be Too Surprising... Further Volatility Seems Likely"Submitted by Tyler Durden on 06/28/2013 08:24 -0500
"Bond and stock markets fell sharply in response, but that should not be too surprising. The Chairman’s statement forced financial market participants to re-evaluate the likely total amount of securities the Fed would buy under this open-ended purchase plan — in other words, how much liquor would ultimately be poured into the punch bowl. Market participants also had to reconsider their estimate of when the Federal Reserve would begin to remove the punch bowl by raising interest rates. These reassessments appear to have warranted price changes across an array of financial assets. As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely." - Richmond Fed's Jeffrey Lacker
By my count we are now in our fourth “Recovery Summer.” The recession was officially (and mistakenly) declared over in June 09. Yet, no data series in economics not influenced drastically by liquidity and a zero interest rate policy (e.g., stock prices and home prices) supports the claim. Recovery advocates point to the stock market as a barometer of how well the economy is doing. A key takeaway is that the stock market misled people during the 1930s and may be doing the same thing today. Those who want to argue against this position will declare the 1930s an unfair comparison because it was a Great Depression. Just what makes them think what we are in today is not the same thing, although not yet as far advanced. Given the trillions of dollars wasted to hide the true condition of the economy, that is not an unreasonable possibility. This liquidity hides the true nature of the economy (also falsely drives up financial asset prices) and creates even bigger distortions in the real economy.
On one hand we have bad Hilsenrath sending mixed messages saying the Fed may taper sooner (with good Hilsenrath chiming in days later, adding it may be later after all), depending on whether HY bonds hit 4% YTM by EOD or mid next week at the latest. On the other, even resolute Fed doves are whispering that a tapering may occur as soon the summer, so in a few months, and halt QE by year end. Bottom line - confusion. So who better to arbitrate than the firm that runs it all, Goldman Sachs, and its chief economist Jan Hatzius, who issues the following Q&A on "tapering." His view: "not yet." Then again, Goldman is the consummate (ab)user of dodecatuple reverse psychology, so if Goldman says "all clear" the natural response should be just as clear.
The promises made to the 76 million baby Boomers cannot be met. It's really very simple: promises made when the economy was growing by 4% a year and the next generation was roughly double the size of the generation entering retirement cannot be fulfilled in an economy growing 1.5% a year (and only growing at all as the result of massive expansions of public and private debt) in which the generation after the cohort entering retirement is significantly smaller. We desperately need an adult discussion focused on reality rather than resentment. The solution will require dismantling open-ended, everyone-deserves-everything Medicare, which will bankrupt the nation itself. The solution is currently "impossible". What nobody dares say is that if the 76 million Boomers press their claims to the point the nation is bankrupted, then the next generations (X and Y) will have to wrest political power from the retirees, not for their own sake but for the sake of the nation and for the generations behind them.
- PBOC Says China Shouldn’t Be ’Blindly Optimistic’ on Inflation (BBG)
- Foreigners Buying Half of London New Homes Prop Up Building (BBG) - first they come for the foreign deposits, then for the real assets...
- Investors Rediscovering Margin Debt (WSJ) - well, yes: it is at record highs
- China issues new rules targeting wealth management fund pools (RTRS)
- Navy $37 Billion Ships Seen Unsuitable Have 2-Year Window (BBG)
- New York may have to drop claims against BofA over Merrill (RTRS)
- FBI Rejects Boston Police Stance in Spat Over Terror Data (BBG)
- In eastern Syria oil smugglers benefit from chaos (RTRS)
- Microsoft prepares U-turn on Windows 8 (FT), Microsoft admits failure on Windows 8 (MW), After Bumpy Start, Microsoft Rethinks Windows 8 (NYT)
- China reports four more bird flu deaths, toll rises to 31 (Reuters)
- Republicans shift stance on US budget (FT)
- NYC Tallest Condo Corridor Gets New Entrant With Steinway (BBG)
- U.S. Says China's Government, Military Used Cyberespionage (WSJ)
- China rejects Pentagon charges of military espionage (Reuters)
- Bank of China Cuts Off North Korean Bank (WSJ)
- Libya defense minister quits over siege of ministries by gunmen (Reuters)
- London Recruiter Says City Job Vacancies Rose 19% (BBG)
- Colleges Cut Prices by Providing More Financial Aid (WSJ) or, said otherwise, loans
- Jeweler agrees to plead guilty in KPMG insider-trading case (LA Times)