Mark Spitznagel: "Mises will ultimately be right yet again about the inevitable final collapse of the current asset boom brought about by credit expansion. The term “black swan” (the surprising, unforeseen event) used for bursting financial bubbles has been and will remain a misnomer - we can and, indeed, should expect such tumults to occur at some point as a consequence of massive central bank intervention and economic distortion."
Ron Paul: "As to the unwinding of this mess, I’m convinced that when the current expansion ends it will be abrupt, gigantic, and worldwide. The 43-year expansion of Fed credit and debt, delivered to us by a fiat dollar standard, and held together artificially by an undeserved trust will end badly."
A few days ago, when we looked at what is one of the last tax havens in the world, the principality of Monaco, we uncovered not only the world's most expensive Penthouse costing a whopping $400 million, but got some perspective on how far one's dollar really goes, or doesn't. Because when it comes to asset inflation there is a world for the "rest of us", where according to Janet Yellen "inflation is noisy" and any spikes should be ignored, and one for the 1%, where inflation is essentially off the charts. In fact, a world where as the following anecdote fiat prices hardly matter.
In the rush to make QE’s taper and the follow-on “forward guidance” appear more data-related than of due concerns about the structural (and ultimately philosophical) flaws in the economy, the regressionists of the Federal Reserve have come up with more regressions - a 19-factor model to determine Yellen's 'labor market conditions'. What does this mathematical reconstruction of the labor market tell us about the labor market? If you believe the figures, this has been one of the best recoveries on record. No, seriously...
The popular view concerning the Fed is that it is apolitical. Anyone who considers the timing of the Fed’s actions knows this is false. However, for the vast majority of Americans, including financial professionals, the Fed is thought to be an apolitical entity focusing exclusively on economic and financial matters.
The fourth (or is it fifth?) dead cat bounce in the US housing market is rapidly fading, as we just confirmed by the latest Case-Shiller Home Price Index data for the month of June, which saw a Y/Y increase in home prices of just 8.07%, below the 8.3% expected, and the slowest increase since December 2012. As the report noted, "for the first time since February 2008, all cities showed lower annual rates than the previous month." On a monthly basis, the NSA index, Case-Shiller's preferred, rose by 1.0% for the 10 and 20-City composite, with the Seasonally Adjusted composite declining for the second consecutive month: the last time there were two consecutive monthly declines during a price declining phase was in late 2010.
Martin Feldstein, Harvard University professor alludes to what many in the financial community recognize that risk-taking is out of control.
When the majority of Americans examine the world around them, they see a stock market at record highs and modest apparent improvement in the economy, but, as John Hussman notes, they also have the sense that something remains terribly wrong, and they can't quite put their finger on it. QE-induced speculation misallocates resources that might otherwise contribute to long-run growth, and while conditions could certainly be worse, the benefits of this economic recovery have been highly uneven. The economy is starting to take on features of a winner-take-all monoculture that encourages and subsidizes too-big-to-fail banks and large-scale financial speculation at the expense of productive real investment and small-to-medium size enterprises.
The Federal Reserve’s prevailing view of the world seems to be that a) QE lowers interest rates, b) lower interest rates stimulate jobs and economic activity, c) the only risk from QE will be at the point when unemployment is low enough to trigger inflation, and d) the Fed can safely encourage years of yield-seeking speculation – of the same sort that produced the worst economic collapse since the Depression – on the belief that this time is different. From the foregoing discussion, it should be clear that this chain of cause and effect is a very mixed bag of fact and fiction.
Janet Yellen has essentially confirmed QE’s demise; good riddance. Unfortunately, I don’t think that is the final end of QE in America, just as it hasn’t been the end time after time in Japan (and perhaps now Europe treading down the same ill-received road). The secular stagnation theory, that we think has been fully absorbed in certainly Yellen’s FOMC, sees little gain from it because, as they assume, the lackluster economy is due to this mysterious decline in the “natural rate of interest.” Therefore QE in the fourth iteration accomplishes far less toward that goal, especially with diminishing impacts on expectations in the real economy, other than create bubbles of activity (“reach for yield”) that always end badly. What Krugman and Summers call for is a massive bubble of biblical proportions that “shocks” the economy out of this mysterious rut, to “push inflation substantially higher, and keep it there.” In other words, Abenomics in America. Japanification is becoming universal, and the more these appeals to generic activity and waste continue, the tighter its “mysterious” grip.
The econ data this week signal the US Economy is in a bull market (not the same as the Fed -roided stock and commodity markets), now let`s hope we can keep inflation from spoiling the party!
If you’re a girl and you’re old and you’re grey and you’re the size of a hobbit, who’s going to get angry at you? If your predecessor had all the qualities anyone could look for in a garden gnome, and his predecessor was known mainly as a forward drooling incoherent oracle, how bad could it get? Think they select Fed heads them on purpose for how well they would fit into the Shire? Janet Yellen has a serious problem: the story no longer fits.
There are a lot of market participants so far from reality due mainly to an incompetently dovish Fed led by Yellen that the amount of re-pricing is just off the charts...
Confused by what Janet Yellen said? As it turns out, so is everyone else, where the prevailing sentiment across the sell-side analysts was that Yellen was not dovish enough. Then again, with expectations bordering on Yellen giving the "BTFATH" green light, there is no way she was not going to disappoint...
Out of the gate - based on the fact the word "slack" was present and the word "bubble" was not, stocks ramped higher as J-Yell's J-Hole speech hit. Bond yields surged (led by 5Y) and the USDollar also surged (as gold shrugged). However, once the machines were done, humans reacted to the fact that this was not the "full dovish" speech that was 'priced in' and have started to sell stocks back... but then again - we always have Draghi later to save Friday...
Not full-dovish, risk assets face tremendous downside potential. Key highlights: YELLEN SAYS FOMC SEES SIGNIFICANT UNDER-USE OF LABOR RESOURCES; YELLEN SEES ROOM FOR WAGE INCREASES THAT DON'T BOOST INFLATION; YELLEN REITERATES ASSET BUYING TO BE COMPLETED IN OCTOBER; YELLEN SAYS FASTER PROGRESS ON GOALS MAY BRING RATE RISE SOONER