Alan Greenspan's Modest Proposal: Fix Broken Economic Models By... Modeling Irrational "Animal Spirits"Submitted by Tyler Durden on 01/02/2014 15:26 -0400
We leave it to everyone's supreme amusement to enjoy the Maestro's full non-mea culpa essay, but we will highlight Greenspan's two most amusing incosistencies contained in the span of a few hundred words. On one hand the former Chairman admits that "The financial crisis [...] represented an existential crisis for economic forecasting. The conventional method of predicting macroeconomic developments -- econometric modeling, the roots of which lie in the work of John Maynard Keynes -- had failed when it was needed most, much to the chagrin of economists." On the other, his solution is to do... more of the same: "if economists better integrate animal spirits into our models, we can improve our forecasting accuracy. Economic models should, when possible, measure and forecast systematic human behavior and the tendencies of corporate culture.... Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past." So, Greenspan's solution to the failure of linear models is to... model animal spirits, or said otherwise human irrationality. Brilliant.
Here's a question-- if you're in the Land of the Free, do you think those green pieces of paper in your wallet are dollars?
They're not. A US dollar was defined by the Coinage Act of 1792 as 416 grains of standard silver. No, those green pieces of paper are Federal Reserve notes. "Notes" in this case meaning liabilities to the central bank of the United States. That makes you, me, and anyone else holding those green pieces of paper essentially creditors of the Federal Reserve, whether we signed up for it or not.
While the full impact of CMHC on the Canadian housing and banking sector remains debatable, one thing can be said: next to the Bank of Canada, it is perhaps the most critical entity in preserving the nation's financial stability. And with a key player responsible for the perpetuation of the status quo having departed Canada recently, namely Goldman's Mark Carney leaving the BOC and heading to the Bank of England, some were wondering just who would supervise thing up north if and when things turned sour. Those questions were answered on Friday, when Canada named the next chief executive officer of the government-owned housing agency. His name is Evan Siddall, and, what we assume will came as a surprise to nobody, he was formerly a banker at, drumroll, Goldman Sachs.
Once gold goes into China’s vault, it’s like going into a black hole.
Outflows of gold from ETF's amounted to 24.3 million ounces, nearly 700 metric tonnes, in 2013. Imports from Hong Kong to China totaled 26.6 million ounces or 754 metric tonnes through September alone. It is unknown where gold would come from to replenish these ETF holdings, if there was a sudden surge in demand in the West in the event of a new sovereign debt crisis or a Lehman Brothers style contagion event.
One would think that value investors from outside the industry would be all over this vacuum.
Ireland Exits Troika Bailout To Prepare For Bail-ins: Nothings Changed & Don't Believe Everything That You're ToldSubmitted by Reggie Middleton on 12/13/2013 12:11 -0400
Ireland jumps out of the frying pan and into the fire, gets burnt and then climbs right back into that damn frying pan again...
“The only thing we have to fear is fear itself.”
Emergency resolutions and legislation would be likely in many countries in the event of another Lehman Brothers collapse and another global credit and financial crisis.
Particularly vulnerable banks in each country are....
From Bernanke's infamous 2008 "not forecasting a recession" call to Fannie Mae CEO Franklin Raines 2004 "subprime assets are riskless" commentary, the following 10 "predictions" - as opposed to Wien "surprises" - will go down in infamy for their degree of errant-ness...
"What keeps us up at night? Well I can’t speak for the others, having spoken too much already to please PIMCO’s marketing specialists, but I will give you some thoughts about what keeps Mohamed and me up at night. Mohamed, the creator of the “New Normal” characterization of our post-Lehman global economy, now focuses on the possibility of a” T junction” investment future where markets approach a time-uncertain inflection point, and then head either bubbly right or bubble-popping left due to the negative aspects of fiscal and monetary policies in a highly levered world. ... investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth. The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets. “You have no other choice,” their policies insinuate.... Deep in the bowels of central banks research staffs must lay the unmodelable fear that zero-bound interest rates supporting Dow 16,000 stock prices will slowly lose momentum after the real economy fails to reach orbit, even with zero-bound yields and QE." - Bill Gross
The rock is reality. The squishy place is the illusion that pervasive racketeering is an okay replacement for an economy. The essence of racketeering is the use of dishonest schemes to get money, often (but not always) employing coercion to make it work. Some rackets can function on the sheer cluelessness of the victim(s).
Just as in the 1930s the Fed fueled deflation by not making credit available, today the opposite seems to be the case – low rates are fueling deflation and preventing markets from clearing.
"We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels.... Each investor must decide for themselves just how close to midnight they want to leave this particular party. The advice of Solid Ground is leave now as it is increasingly likely that one event will be the catalyst to very rapidly change inflationary into deflationary expectations... So perhaps it is global deflationary forces creating a bankruptcy event, somewhere in the world, that is the catalyst for a sudden change in inflationary expectations in the developed world. It can all happen very quickly; and it is dangerous to stay at an equity party driven by disinflation when it can spill so rapidly into deflation... When there is plenty of leverage in the system and any key price starts to decline then a credit event and a sudden change in inflationary expectations are much more possible than the consensus believes. So watch the TIPS, BAA bond spreads and copper if you must, but this analyst prefers to observe the party from outside.... Each investor must decide for themselves just how close to midnight they want to leave this particular party."
- Russell Napier, CLSA
There are a couple of disturbing points that came out of her take on bubbles and the rationale behind not tapering a mere 10 or 15 Billion dollars given the monthly commitment of 85 Billion in Fed Purchases every month.