"Experience in other countries that have entered into this territory should sober you up on the likely economic and inflation impact. No country that has gone into negative rates has experienced major shifts in its growth and inflation profile – minor, yes; major, no. As a consequence every dip into negative rates has been followed by additional moves."
One thing policy makers should have learned after watching Greece unravel last summer is that capital controls almost always backfire. Once the market (not to mention the populace) senses panic, it's all downhill from there and make no mistake, there's blood in the water here.
Over the last 5 years the various Fed QE (quantitative easing) interventions into the capital markets has facilitated dumb luck trading into “genius” status, and no clue analysis into “spot on brilliant” prognostications. The real issue at hand is many believed their own press, and the current state of egg on their face would make many a Denny's blush. As bad as that sounds – it gets worse.
"It is more than anywhere the symbol of the Chinese Dream with all its challenges and contradictions, an Orwellian vision of a bright future caught up by a less flamboyant reality."
This week is simply the worst we had in recent history for markets, RBS exclaims, the worst ever start to the year for The Dow, the worst since 1999 for S&P and the second-worst for credit since 2008. Worst still is, they think there’s more weakness ahead and that many fundamental risks will continue to haunt markets. Why? Simple! Investors drank too much policy kool-aid last year.
The amount of wasteful over investment on companies and ideas that should have never seen the light of a ledger book, let alone day, has been astounding. Without the intervention of the Fed’s QE (quantitative easing) free money enabling risk taking to supersede business fundamentals to fund and fuel speculative investments in ways that mirror the dot-com days: there would be no "Valley" as it currently stands. Unicorns, Non-GAAP, IPO’s, and more were the terms bandied or used to encapsulate what it was to be a "disrupter." Now with iconic Silicon Valley impresarios such as Theil or others being reported that to be looking for ways to cash out without an IPO, a nuclear winter pertaining to the world of Unicorns may be as '1' is said to represent: imminent.
While most hedge funds will be glad to close the books on a year in which they once again dramatically underperformed a market which hugged the flatline courtesy of just a few stocks (even as most stocks posted substantial declines) and where "hedge fund hotels" such as Valeant suffered dramatic implosions, a handful of traders generated impressive returns for their investors and made billions by going against the herd.
The talking heads were busy this week powdering the GDP pig. By averaging up the “disappointing” 1.5% gain for Q3 with the previous quarter they were able to pronounce that the economy is moving forward at an “encouraging” 2% clip. And once we get through this quarter’s big negative inventory adjustment, they insisted, we will be off to the ‘escape velocity’ races. Again. No we won’t! The global economy is in an epochal deflationary swoon and the US economy has already hit stall speed. It is only a matter of months before this long-in-the-tooth 75-month old business expansion will rollover into outright liquidation of excess inventories and hoarded labor. That is otherwise known as a recession.
The US and world economies are drifting inexorably into the next recession owing to the deflationary collapse of commodities, capital spending and world trade. These are the inevitable “morning after” consequence of the 20-year global credit binge which has now reached its apogee. The apparent global boom during that period was actually a central bank driven excursion into the false economics of household borrowing to inflate consumption in the DM economies; and frenzied, uneconomic investing to inflate GDP in China and the EM. The common denominator was falsification of financial prices. By destroying honest price discovery in the financial markets, the world’s convoy of money-printing central banks led by the Fed elicited a huge excess of financialization relative to economic output.
Baldly stated, the United States government is the greatest danger to peace and freedom the world has ever known. This is true precisely because it has held aloft the torch of liberty for so long, an example to the world of what a society based on individual freedom can achieve. That is the great paradox of American power. As we abandon our libertarian heritage – even as we retain the forms of a constitutional republic – we destroy what made our power possible. The process is reversible: we can restore our old republic – but only if we give up the mirage of empire.
"... this time we would see deeply negative interest rates in the US (and Europe). Sweden has led the way, dipping their toe below the water line with their current -0.35% policy rates but there will be more, much more along these lines. For if -0.35% is possible, why not - 3.5% or less? It goes without saying that deeply negative interest rates would be accompanied by a massively expanded QE4 in the US. The last seven years of exploding central bank balance sheets will seem like Bundesbank monetary austerity compared to what is to come."
"We’re exhausted by your antics and empty promises. If we so much as sniff continued nuclear development, we are going to covertly and overtly stop you, even if that means military action and pre-emptive strikes on your nuclear facilities."
It doesn’t make sense to you. And it shouldn’t to anyone. Unless – they first go directly to the ‘house bar and media entertainment center’ that is always open and always free with spiked Kool-Aid™. It works better and is cheaper than actual liquor. It’s not actually a drink per se. It’s just hoopla and endless propaganda for the masses. That’s why it’s free and encouraged. It keeps everyone happy within the walls and enhances the experience, while simultaneously acting as one non-stop running commercial to entice anyone foolish to think they too can get rich quick. All legal by the way. The laws were adapted to fit the criteria.
The private economy and its millions of savers exist for the convenience of the apparatchiks who run the central bank. In their palpable fear and unrelieved arrogance, would they now throw millions of already ruined retirees and savers completely under the bus? Yes they would.