- Omnicom, Publicis call off proposed $35 billion merger (Reuters)
- Apple in talks for $3.2bn Beats deal (FT)
- Alibaba IPO Grew Out of ’80s Chaos and Guy From Goldman (BBG)
- Nigeria's president at WEF pledges to free kidnapped girls (Reuters)
- JPMorgan Joins Wells Fargo in Rolling Out Jumbo Offerings (BBG)
- It's 1999 all over again: Young Bankers Fed Up With 90-Hour Weeks Move to Startups (BBG)
- ECB stimulus talk knocks euro, peripheral yields (Reuters)
- Deutsche Bank Currency Crown Lost to Citigroup on Volatility (BBG)
- London Taxis Plan 10,000-Car Protest Against Uber App Use (BBG)
- Pfizer Holders Could Face Tax Hit in a Deal for AstraZeneca (WSJ)
Some people are either born or nurtured into a time warp and never seem to escape. That’s Janet Yellen’s apparent problem with the “bathtub economics” of the 1960s neo-Keynesians. As has now been apparent for decades, the Great Inflation of the 1970s was a live fire drill that proved Keynesian activism doesn’t work. That particular historic trauma showed that “full employment” and “potential GDP” were imaginary figments from scribblers in Ivy League economics departments—not something that is targetable by the fiscal and monetary authorities or even measureable in a free market economy. Even more crucially, the double digit inflation, faltering growth and repetitive boom and bust macro-cycles of the 1970s and early 1980s proved in spades that interventionist manipulations designed to achieve so-called “full-employment” actually did the opposite—that is, they only amplified economic instability and underperformance as the decade wore on.
6 Years After the Financial Crisis Hit, The Big Banks Are Still Committing Massive Crimes
Bad Government and Central Bank Policy Are the MAIN CAUSE of Runaway Inequality
This eruption of late cycle bubble finance hardly needs comment. Below are highlights from a Bloomberg Story detailing the recent surge of leveraged recaps by the big LBO operators. These maneuvers amount to piling more debt on already heavily leveraged companies, but not to fund Capex or new products, technology or process improvements that might give these debt mules an outside chance of survival over time. No, the freshly borrowed cash from a leveraged recap often does not even leave the closing conference room - it just gets recycled out as a dividend to the LBO sponsors who otherwise hold a tiny sliver of equity at the bottom of the capital structure. This is financial strip-mining pure and simple - and is a by-product of the Fed’s insane repression of interest rates.
If there’s one thing we all know about banks and bankers: they love to tell tales in public of how much they value their customers. However, what you’ll never hear them profess in private: is how much they trust them. Although one may think that’s unseemly, believe it or not there is another entity banks hold at an even lower tier. Other banks. One of the known facts people remember about the melt down in 2008 (as opposed to general public) was when the banks no longer trusted each other, and what they earlier claimed was “collateral” wasn’t actually worth what it was stated to be. As we recently explained in How China’s Commodity-Financing Bubble Becomes Globally Contagious, the implications of this development and the consequences it portends just might make it the proverbial “canary in a coal mine.” The underlying issue that makes this far more dangerous or different from times past is three-fold...
A ‘Perfect Storm’ of demography and debt will economically and financially doom almost every country on earth. It will be TEOTWAWKI – ‘The End Of The World As We Know It’. No, it’s not the end of life or even the end of civilization. However, when it’s all over, nothing will ever be the same and that includes the disappearance of much of the middle class. The good news - The storm won’t last forever. The bad news is there will be much more pain before it ends unless you make an effort to understand what’s happening and why.
Military Keynesians Are Full of Sh ... (Cough) ... Shallow Myths
Investors take note. One of the primary market props of the last five years is being removed. What happens when the markets finally catch on?
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.
Despite Janet Yellen's meet-and-greet with the unemployed and criminal classes, the absence of Ben Bernanke has seemingly empowered several Fed heads to be just a little too frank and honest about their views. The uncomfortable truthsayer this time is none other than Dallas Fed's Fisher:
*FISHER SAYS FED POLICIES HAVE MADE THE RICH 'MUCH RICHER' (but...)
*FISHER: UNCLEAR IF FED POLICIES WILL BENEFIT THE MIDDLE-CLASS
We wonder how President Obama, that crusader for fairness, equality and all time Russell 2000 highs, will feel about that? In the meantime, just like the Herp, QE is the gift that keeps on giving.. and giving... and giving... to the 0.001%.
We are now entering the fifth season of head-fakes about “escape velocity” acceleration in as many years. Yet the Wall Street stock peddlers and their financial media echo boxes are so fixated on the latest “delta”—that is, ultra short-term “high frequency” data releases—that time and again they serve up noise, not meaningful economic signal. The larger point here is that the Kool-Aid drinkers keep torturing the high frequency data because they are desperate for any sign that the Fed’s $3.5 trillion of QE has favorably impacted the Main Street economy. And that’s important not because it might mean some sorely needed income and job gains for middle America, but because its utterly necessary to validate the Fed’s financial bubble.
During the course of its massive money printing campaign after the financial crisis of 2008, the Fed drove the 30-year mortgage financing rate down from 6.5% to 3.3% at its mid-2012 low. The ostensible purpose was revive the shattered housing market which had resulted from the crash of its previous exercise in bubble finance. But what it really did was touch off another of those pointless “refi” booms which enable homeowners to swap an existing mortgage for a new one carrying a significantly lower interest rate and monthly service cost. Such debt churning exercises have been sponsored repeatedly by the Fed since the S&L debacle of the late 1980s.
The Fed’s transmission mechanism to the household sector is blocked. The business credit expansion channel to higher GDP is blocked, too. The flood of demand by which the Fed endeavors to “pull” idle and underemployed workers back into production cannot be activated if the US economy has reached a condition of peak debt, as we strongly believe to be the case. Indeed, when the credit expansion channel is broken and done, all the Fed’s liquidity “accommodation” flows into the Wall Street finance channel where it pulls up the price of existing financial assets, not the employment rate of idle labor. This much is obvious, yet Yellen and her monetary politburo keep on attempting to flood the nation’s macroeconomic bathtub with more “demand”. Worse still, they fail to note that even if they could induce business and households to bury themselves deeper in debt that it wouldn’t necessarily have a salutary impact on the “labor market”— the ostensible target of their strenuous ministrations.
Employment is a function of demand by customers on businesses. As opposed to many economists and politicians, businesses do not hire employees to be "good samaritans." While such a utopian concept is fine in theory, the reality is that businesses operate from a "profit motive." The problem is quite clear. With the consumer heavily leveraged, the inability to "spend and borrow" is reducing aggregate demand. As stated, the current level of aggregate demand simply isn't strong enough to offset the rising costs of taxes, benefits and healthcare (a significant consideration due to the onset of the Affordable Care Act) associated with hiring full-time employees. Therefore, businesses initially opt for cost efficient productivity increases, and only hire as necessary to meet marginal increases in customer demand which has come from population growth.