Central banks are fearful and unwilling to normalize but artificially high valuations across asset classes cannot be sustained indefinitely absent fundamental global growth. Central banks are in a prison of their own design and we are trapped with them. The next great crash will occur when we collectively realize that the institutions that we trusted to remove risk are actually the source of it. The truth is that global central banks cannot remove extraordinary monetary accommodation without risking a complete collapse of the system, but the longer they wait the more they risk their own credibility, and the worse that inevitable collapse will be. In the Prisoner’s Dilemma, global central banks have set up the greatest volatility trade in history.
"While it is human nature to think and expect along linear lines, our World just doesn’t work that way. Instead, everything moves in cycles, some short and shallow, while other cycles are long and deep. What we are experiencing today is the likely turning point in a very long cycle of borrowing, borrowing and then borrowing some more."
The single most important “unknown unknown” today is any random event that may unexpectedly cause global central banks to withdraw their stated support of markets. Moral hazard has contributed to a significant build up in short and leveraged volatility creating a shadow ‘volatility gamma’ that reinforces the current trend in volatility direction. Rising volatility is followed by more rising volatility and vice versa. The pattern is creating a pro-cyclical monster of short volatility that, if left unchecked will contribute to a repeat of the May 2010 Flash Crash or 1987 Black Monday Crash. August 2015 was just an appetizer.
For over 3 years we have pointed out that the surging youth unemployment was Europe's (if not the world's) scariest chart, because the last thing Europe needs is a discontented, disenfranchised, and devoid of hope youth roving the streets with nothing to do, easily susceptible to extremist and xenophobic tendencies: after all, it must be "someone's" fault that there are no job opportunities for anyone. Well, as Bloomberg reports, The World Bank has an unsettling message for young people around the globe: unless we create 5 million jobs a month, the situation is going to get worse.
The "engine of our economy", the "cradle of innovation", the "land of tomorrow" -- whatever breathless hyperbole the fawning media is using this week -- is a sham. Silicon Valley has become a factory of hype, funneling gobs of early-stage capital into whatever half-credible concepts it can think of, and then pimping the artificially-inflated initial results of those tarted-up ventures to whichever "greater fool" is willing to acquire it or buy its IPO. Let that idiot figure out if it will ever turn a profit...
Stephen Hawking has been outspoken in recent years about the catastrophic dangers humanity faces in the 21st century. He said we should be cautious in attempting to contact aliens, warning that advanced extraterrestrial life may not be friendly toward us and could destroy the human race. He also stated we should be cautious in creating strong artificial intelligence. But recently, Hawking addressed the threat he says may be more far more dangerous to the future of human civilization than robots, aliens, or quantum particles: capitalist greed.
Elliott's Paul Singer: "In A World Of Intentionally Degraded Currencies, Gold Should Be In Everyone's Portfolio"Submitted by Tyler Durden on 10/14/2015 07:59 -0500
“In a world where the value of paper money is affirmatively aimed at being degraded by central bank policy, it’s kind of surprising to me that gold can’t catch a bid...I like gold. I believe its under-owned. It should be a part of every investment portfolio, maybe five to ten percent."
"when this sort of thing happens following bullish moves it has almost always signaled the end of the bull-run. Couple this unanimity of price movement with the “reversals” noted above and we have a situation that concerns us greatly. Indeed it concerns us enough to exit our long positions entirely upon receipt of this commentary… Certainly we do not like switching positions this quickly, for we appear to be flippant and foolhardy, but history tells us that we have no choice."
The stage is being set for World War III, but most Americans are completely and totally oblivious to all of this because they are so wrapped up in their own little worlds. Most Americans still seem to assume that the Russians and the Chinese are our "friends" and that any type of conflict between major global powers is impossible. Well, the truth is that conflict has already begun in Ukraine and Syria, and tensions are rising with each passing day. It won’t happen next week or next month, but we are on the road to World War III.
Now What: How Should One Trade In A World Where "Most Indicators Have Lost Their Informational Value"Submitted by Tyler Durden on 10/13/2015 12:37 -0500
A market which trades day to day on historic "whiplashes", record short squeezes, broken trendlines, and of course, $13 trillion in excess liquidity, got you shaking your head (and burning old Finance 101 textbooks)? Don't despair: here is Macquarie with a guide of how to trade in world where "most leading indicators have lost their informational value."
"Global trade is also declining at an alarming pace. According to the latest data available in June the year on year change is -8.4%. To find periods of equivalent declines we only really find recessionary periods. This is an interesting point. On one metric we are already in a recession."
Global central banks have made a Faustian bargain with our economic soul selling our future for a false stability today. At this stage, absent continuous intervention, a large deflationary crash in the global economy is inevitable. The next Lehman brothers will be a country. The real ‘shadow convexity’ will not come from markets but political unrest or war. Peace is not the absence of conflict. Global Central Banks have set up the greatest long volatility trade in history. Buy the fear and you will be protected from the horror.
Some things you CAN see coming, in life and certainly in finance. Quite a few things, actually. Once you understand we’re on a long term downward path, also both in life and in finance, and you’re not exclusively looking at short term gains, it all sort of falls into place. Of course, the entire global economy has been hanging together with strands of duct tape for decades now, but hey, it looks good as long as you don’t take a peek behind the facade, right?
So what's left in the toolbag of central banks and states to stimulate recessionary economies if QE has been discredited? The answer: Helicopter Money.