The biggest bond fund manager on the planet likely had a bad day today and judging by his comments during the following Bloomberg TV interview, he is not too impressed with the current Fed head, who is "driving in a fog," or the front-runner to fill Ben's shoes, Yellen "is a Siamese twin in terms of policy... [preferring someone] who would emphasize Main Street as well as Wall Street - which has been the emphasis for the past three or four years." The mistake the Fed is making, Gross explains, "is blaming lower growth on fiscal austerity and expects towards the end of the year once that is gone, all of the sudden the economy will be growing at 3%," or more simply the error of their policy-making ways is "to think that is a cyclical as opposed to a structural problem in terms of our economy." The bottom-line is that Gross sees less Taper (due to disinflation) and warns "those who are selling treasuries in anticipation that the Fed will ease out of the market might be disappointed."
The 20th century could be categorized as THE century when communications took off and we started living in each other’s pockets. Lives had been ruined by war, trouble and strife. Wealth had been redistributed beyond belief. There were no longer just a few that were making the profits, but there were growing classes of people that wanted recognition.
Bank of America, Wells Fargo and JPMorgan Chase control 67.87% of 1-4 Family First Liens NPLs yet only had 32.62% of the charge offs in the quarter.
The fact of the matter is, QE policies are really not so different from how central banks functioned back in the “old-normal” days of the earlier 2000s. They still just bought an asset and paid for it by increasing the money supply. One critical difference is that in order to increase the money supply by as much as they did, the central banks of the world had to change the scope of assets they were willing to buy. Herein lays the rub. By expanding its range of acceptable assets, the Fed created a market for these assets that did not exist. As a result it maintained their prices above which the market deemed necessary to clear – an essential occurrence in market economies. Instead, by expanding its asset purchases through quantitative easing policies, the effects we see are unreasonable prices among some financial assets, and a housing sector unable to sell its unsold inventory.
How Another Housing Bubble Was Blown … And Why
The airwaves are full of stories of economic recovery. One trumpeted recently has been the rapid recovery in housing, at least as measured in prices. The problem is, a good portion of the rebound in house prices in many markets has less to do with renewed optimism, new jobs, and rising wages, and more to do with big money investors fueled by the ultra-cheap money policies of the Fed. It seems entirely wrong that the Fed bailed out big banks and made money excessively cheap for institutions, and that this is being used to price ordinary people out of the housing market. Said another way, the Fed prints fake money out of thin air, and some companies use that same money to buy real things like houses and then rent them out to real people trying to live real lives. At the same time, we are also beginning to see the very same hedge funds that have re-inflated these prices slink out of the market now that the party is kicking into higher gear – all while new buyers are increasingly having to abandon prudence to buy into markets where the fundamentals simply aren't there to merit it. Didn't we just learn a few short years ago how this all ends?
In almost every asset class, volatility has made a phoenix-like return in the last few days/weeks and while equity markets tumbled Friday into month-end, the bigger context is still up, up, and away (and down and down for bonds). From disinflationary signals to emerging market outflows and from fixed income market developments to margin, leverage, and valuations, here is the 'you are here' map for the month ahead.
The Great Economic Transformation! The Chinese are suckers for adjectives to describe and give power and eminence to their attributes, actions or constructions. The Long March. The Cultural Revolution. The Great Wall, the Yellow River. A good adjective always makes it sound as if it’s true. The Chinese have taken over as the superlative attributor to everything. The tallest (soon-to-be) building in China, the Shanghai Tower, is the living proof that China plans on making itself into a byword for superlatives it’s ‘–est’ everything these days.
The spin-doctors are hard at work talking up America’s subpar economic recovery. All eyes are on households. Thanks to falling unemployment, rising home values, and record stock prices, an emerging consensus of forecasters, market participants, and policymakers has now concluded that the American consumer is finally back. Don’t believe it. In short, the American consumer’s nightmare is far from over. Spin and frothy markets aside, the healing has only just begun.
As the global equity and bond markets grind ever higher, abundant signs exist that we are once again living through an asset bubble – or rather a whole series of bubbles in a variety of markets. This makes this period quite interesting, but also quite dangerous. This can be summarized in one sentence: How could this be happening again so soon?
Read 'Em and Weep
China is in the midst of an urban revolution, with hundreds of millions of migrants moving into cities every year. Since 2011, for the first time in history, more than half of China’s 1.3 billion citizens (690 million people) are living in cities. Another 300-400 million are expected to be added to China's cities in the next 15-20 years. New Premier Li Keqiang recently proposed accelerating urbanization in China, and said urbanization is a “huge engine” of China’s future economic growth. Yet, China’s urban dream may be derailed by the lack of affordable housing in cities for the massive influx of urban residents.
Credit Shock Dead Ahead: China Money Formation Soars To 2-Year High As Delinquent Loans Surge By 29%Submitted by Tyler Durden on 05/10/2013 08:33 -0400
A month ago we pointed out that even as the Chinese credit bubble - at a record 240% of GDP on a consolidated basis - is now clearly out of control, the far more disturbing aspect of China's credit-fueled economy is the ever declining boost to economic growth as a result of every incremental dollar created. Indeed, as the economic response to "credit shock" becomes lower and lower, even as the inflationary impact lingers, the PBOC is caught between a stagnating rock and an inflationary hard place. Nonetheless, there are few options and with the shark-like need to continue growing, or at least moving, in order to prevent collapse, China did precisely what we expected it to do: boost credit growth even more despite the obvious tapering economic impact of such money creation. Sure enough, overnight China reported that its M2 growth accelerated in April from 15.7% in March, to 16.1% on a Y/Y basis: the fastest pace of credit creation in two years. Yes, the PBOC may not be creating money, but the Chinese pseudo-sovereign commercial banks, sure are, and at a pace that puts the rest of the world to shame.
If the American people truly understood how the Federal Reserve system works and what it has done to us, they would be screaming for it to be abolished immediately. It is a system that was designed by international bankers for the benefit of international bankers, and it is systematically impoverishing the American people. The Federal Reserve system is the primary reason why our currency has declined in value by well over 95 percent and our national debt has gotten more than 5000 times larger over the past 100 years. The Fed creates our "booms" and our "busts", and they have done an absolutely miserable job of managing our economy. So why is the Federal Reserve doing it? Sadly, this is the way it works all over the globe today. In fact, all 187 nations that belong to the IMF have a central bank. But the truth is that there are much better alternatives.
The economy has changed in structural ways; preparing for the old economy is a sure path to disappointment. Millions of young people will be graduating from college over the next four years, and unfortunately, they will be entering an economy that has changed in structural ways for the worse. It's easy to blame politics or the Baby Boomers (that's like shooting fish in a barrel), but the dynamics are deeper than policy or one generation's foolish belief in endless good times and rising housing prices.