The Next Time The BIS Wants To Warn About Monetary Kool-Aid, Bubbles, Lack Of Liquidity Or Complacency...Submitted by Tyler Durden on 10/31/2014 13:04 -0500
We have a modest proposal to the Bank of International Settlements, aka the "central banks' central bank": the next time you feel like warning the general public about: "low volatility everywhere" or that asset prices are at "elevated" level, that "it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally", that "despite the euphoria in financial markets, investment remains weak" that "the temptation to go for shortcuts is simply too strong, even if these shortcuts lead nowhere" that "As each day goes by, it seems less and less likely central banks can now really do “whatever it takes”, maybe it should discuss its asset-bubble, volatility-crushing, impotent-central banking concerns with its Board of Directors first?
We didn’t get what we first postulated yet: Crisis became calm. Contagion became cured. And last but not least catastrophe morphed into an even grander state of complacency. What we did might be even more illuminating. Here’s what a few of us also know that we are not “wrong” about:"When a monkey throwing darts can outperform most of today's so-called 'best of the best' hedge funds – we’re going to put our money on the monkey, rather than putting it anywhere close to where these people can put their hands on it for their own personal self-serving monkey business." What we don’t need – nor want – is another bowl of the 2008ish tripe washed down with this years new flavored Kool-aid.
"Low Volatility Everywhere" - BIS Sounds Alarm Alert On Pervasive Complacency Masking Systemic ShocksSubmitted by Tyler Durden on 09/14/2014 11:14 -0500
"After the spell of volatility in early August, the search for yield – a dominant theme in financial markets since mid-2012 – returned in full force. Volatility fell back to exceptional lows across virtually all asset classes, and risk premia remained compressed. By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to support elevated asset price valuations and exceptionally subdued volatility."
For the 3rd day in a row, the USDollar flatlined as JPY & AUD weakness offset GBP & EUR strength (following Kuroda's speech this morning). Stocks dipped-and-ripped once again - as they always do into and after the EU close - with the S&P managing to scramble back into the green (but not 2,000 for 3rd day in a row) in a late-day buying panic (after some Draghi headlines saying nothing new). Not everyone was drinking the same bounce-back juice as stocks with HY credit, and JPY-carry not supportive at all. Stocks seemed to track WTI crude most closely today as oil jumped higher (abov $93) compressing the Brent-WTI spread to $5. Gold, silver, and copper slipped lower once again. The Treasury curve continued to bear flatten led by 5Y weakness.
Canada is seen as the new banking safe haven and an “island of safety and stability” because of its perceived sound fiscal position, commodity wealth and solid economic performance. Now, anytime we see central bankers slapping each other on the back, we're going to be skeptical. As it turns out, Banque du Canada is actually the most pitifully capitalized central bank in the western world. They’re in such bad shape they actually make the Fed look healthy. Hong Kong’s Monetary Authority Exchange Fund is a good example of a strong balance sheet; their latest figures as of 30 June show a whopping capital reserve equal to nearly 22% of total assets. This is a massive margin of safety for the central bank. The US Federal Reserve, on the other hand, shows a capital reserve of just 1.27%. And Canada? A tiny 0.47%... as in less than one half of one percent. This isn’t safety and stability. It’s a rounding error.
Many of the macro drivers in 2007 are in place today (housing bubbling away from median incomes, richly priced equity valuations, excessive leverage in the financial system, etc.).
Although the US seems intent in playing the drums of war, perhaps realizing that its economic power is slowly headed for oblivion, to join the likes of Japan and the UK, American firms waving international flags don’t have the appetite for war that neocon elitists in the State Department or star-studded bellicosarians in the halls of the Pentagon have. Not at all! And here is where the feared industrial-military complex hopefully falls apart as globalist firms give their overall support to peace as a preferred alternative to the specter of a nuclear holocaust. Russia doesn’t want any military confrontation, nor does China, nor do American and European corporate entities that see no future in suicide. Americans need not drink the kool-aid offered by John McCain and his ilk in the Pentagon, Congress or the State Department; nor should they listen to the sad sack windmill-mouthpiece they have enlisted in the White House: Barack Obama.
Steve Forbes has had enough of the Federal Reserve and its "sinning" policies to undermine the dollar. In this brief interview with Birch Gold Group, the publisher and CEO of Forbes, Inc. exposes the damage that the central bank has created, "Bernanke was a disaster...has totally mucked up the credit markets." Blasting Janet Yellen "who needs to go to re-education camp," Forbes explains why he believes so strongly in the gold standard, and the one single scenario under which he would ever sell his gold.
"... it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.... Never before have central banks tried to push so hard... Few are ready to curb financial booms that make everyone feel illusively richer. Or to hold back on quick fixes for output slowdowns, even if such measures threaten to add fuel to unsustainable financial booms.... The temptation to go for shortcuts is simply too strong, even if these shortcuts lead nowhere in the end."
The economic releases of the past few days are putting the lie to the Keynesian escape velocity myth. The latter is not just around the corner—-and 2014 is now virtually certain to mark the fifth year running when the boom predicted by Wall Street economist at the beginning of the year fizzled as actual results unfolded.
Ghandi was once asked, "What do you think about Western Civilization?" to which he famously replied "I think it's a good idea." He may as well have been talking about free market capitalism. Capital in the 21st Century has hit the world like a new teen idol sensation. Everybody is drinking the Kool-Aid and it's being held up as the most important book ever written on the subject of how runaway capitalism leads to wealth inequality. Paul Krugman of course, loves it. As does every head of state and political hack in the (formerly) free world. So let's do something different here and accept a core premise of Capital, and say that wealth inequality is increasing, and that it's a bad thing. Where the point is completely missed is in what causes it (ostensibly "free market capitalism") and what to do about it (increase government control, induce more inflation and raise taxes). The point of this essay is to assert that it is not unchecked capital or runaway free markets that cause increasing wealth inequality, but rather that the underlying monetary system itself is hard-coded by an inner temple of ruling elites in a way which creates that inequality.
We believe Jeffrey Gundlach, et al. are wrong regarding the 10-Year Bond yield staying below 2.80% over the second half of the year.
The US shale oil "miracle" has about as much believability left as Jimmy Swaggart. Just today, we learned that the EIA has placed a hefty downward revision on its estimate of the amount of recoverable oil in the #1 shale reserve in the US, the Monterey in California. As recently as yesterday, the much-publicized Monterey formation accounted for nearly two-thirds of all technically-recoverable US shale oil resources. But by this morning? The EIA now estimates these reserves to be 96% lower than it previously claimed. Yes, you read that right: 96% lower. As in only 4% of the original estimate is now thought to be technically-recoverable at today's prices.
So far we have experienced 7 million foreclosures. Beyond that there are still 9 million homeowners seriously underwater on their mortgages and there are millions more who are stranded in place because they don’t have enough positive equity to cover transactions costs and more stringent down payment requirements. And that’s before the next down-turn in housing prices - a development which will show-up any day. In short, the socio-economic mayhem implicit in the graph below is not the end of the line or a one-time nightmare that has subsided and is now working its way out of the system as the Kool-Aid drinkers would have you believe based on the “incoming data” conveyed in the chart. Instead, the serial bubble makers in the Eccles Building have already laid the ground-work for the next up-welling of busted mortgages, home foreclosures and the related wave of disposed families and social distress.