The trio of macro-prudential policy, the onset and evolution of shadow banking, and the nebulous concept of financial stability may have become a toxic cocktail which can be instrumental in moving forward the Federal Reserve’s timeline for lift-off zero bound rates. The intuition here is stooped in concepts of volatility and how market structure evolution may contribute or detract from asset volatility. Volatility is the square root of time. Financial repression times time equals volatility. Financial repression and/or macro-prudential policy times time equals the inverse of financial stability. Financial stability inverted equals volatility squared.
October 15th, 2014 wasn`t a market crash!
The picture of this very old telephone reminds of our “esteemed” Federal Reserve. They really seem incapable of any modern thought. Their parallels to, and fears of, the Great Depression [Former Chair Bernanke], seem to drive 2009-2015 monetary policy. It reminds me of incredibly stale thinking... sort of like their incredibly stale personalities. I suppose it’s a good match for them but not for the citizens of the world subjected to their currently ineffective and intellectually lazy policies... rooted in very ancient [just like most of them] history.
All problems, all crises, have at least one solution, if not many solutions. There is no such thing as an unwinnable scenario. Some may not be smart enough or courageous enough to see it, but the solution is always there, waiting to be discovered. The only fight that cannot be won is the fight in which the enemy makes all the rules and we foolishly abide by those rules. Life is not a game of chess, and a man can choose to be more than a pawn anytime he has the guts to do so. Collapse is already upon us; now we must decide who will determine what happens next.
Claiming to own X quantity of gold is one thing, and reporting how many times the gold has been pledged as collateral is another.
Operating and reported earnings have turned sharply lower over recent quarters which has historically been associated with major market peaks. As shown below, it is also important to notice that revenue has tended to lag these downturns in earnings previously. This is because the measures used to substantially boost profitability from each dollar of revenue generated through accounting gimmickry, share repurchases, and cost cutting are finite in nature. When the effect of those manipulations fade, so does the inflated profitability generated from each dollar of revenue. This will be something worth watching closely over the next few quarters particular as the commentary of a "continued secular bull market" continues to hit the headlines.
The war on cash is escalating. Just a week ago, the infamous Willem Buiter, along with Ken Rogoff, voiced their support for a restriction (or ban altogether) on the use of cash (something that was already been implemented in Louisiana in 2011 for used goods). Today, as Mises' Jo Salerno reports, the war has acquired a powerful new ally in Chase, the largest bank in the U.S., which has enacted a policy restricting the use of cash in selected markets; bans cash payments for credit cards, mortgages, and auto loans; and disallows the storage of "any cash or coins" in safe deposit boxes.
"As the Russians gradually assumed control of Uranium One in three separate transactions from 2009 to 2013, Canadian records show, a flow of cash made its way to the Clinton Foundation... Since uranium is considered a strategic asset, with implications for national security, the deal had to be approved by a committee composed of representatives from a number of United States government agencies including the State Department, then headed by Mr. Clinton’s wife, Hillary Rodham Clinton... And shortly after the Russians announced their intention to acquire a majority stake in Uranium One, Mr. Clinton received $500,000 for a Moscow speech from a Russian investment bank with links to the Kremlin that was promoting Uranium One stock."
"Companies that obsessively buy back their shares could be making a big mistake," Moody's head of head of leveraged finance tells CNBC, echoing what we have said on too many occasions to count. With IG supply at all-time highs and with companies pouring the money into share repurchases instead of investing in future productivity and growth, we say yet again that the theatre of financial engineering will continue only until it can no longer continue.
The reality is, like dominoes, that once one of these issues becomes a problem, the rest become a problem as well. Central Banks have had the ability to deal with one-off events up to this point by directing monetary policy tools to bail out Greece, boost stock prices to boost confidence or suppress interest rates to support growth. However, it is the contagion of issues that renders such tools ineffective in staving off the tide of the next financial crisis. One thing is for sure, this time is "different than the last" in terms of the catalyst that sparks the next great mean reverting event, but the outcome will be the same as it always has been.
American banks have largely gained from low interest rates, British banks have suffered losses as a result and in the Eurozone they have been hugely detrimental to banks’ profitability. The ones who have undoubtedly lost out were those quintessential Keynesian villains: the savers. The medicine prescribed by the central banks to correct their “bad” ways has cost them billions. And given that yields have continued to go down since McKinsey's report was published, their misery has only increased. More high fives from Keynes! And yet, even within those groups the impact has been uneven. Who in the household segment is suffering the most because of ultra-low interest rates? The retirees, of course.
Students are left with a debt burden that can’t be written off by declaring bankruptcy, very few jobs in their fields of study, wages that can barely cover the debt payments, and no chance of ever owning a home. They were told by their parents, politicians, and the mainstream media that college was the path to prosperity. They were lied to.
In a stunning shun to Congressional lawmakers, WSJ reports that The Fed has failed to comply with a request that the bank-owned entity identify the individuals who leaked The FOMC Minutes to Medley Global Advisors a day before the official release in October 2012. Rep. Jeb Hensarling sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22. The deadline passed without any response by the Fed...
Ask yourself: where do you think this is going? Do you really think your home country will be more free and more prosperous in five years? If not, it’s time to come up with a Plan B...
Hence, if and when a genuine price for risk reappears, the effect may be greatly magnified as it was in the US housing market a few years back under not dissimilar circumstances. As Karl Popper noted, volatility can be suppressed in a capitalist system, but it must ultimately reappear. Sooner or later, we will face a good deal of fireworks.