Question: what would you say to those who are concerned that when the ECB buying up bonds, electronically printing money, whatever one calls it, is the first chapter in a story that leads inevitably towards hyperinflation. What is your response to that?
Answer: I think the best way to answer to this is have we seen lots of inflation since the QE program started? Have we seen that? And now it's quite a few years that we started. You know, our experience since we have these press conferences goes back to a little more than three years. In these 3 years we've lowered interest rates, I don't know how many times, 4 or 5 times, 6 times maybe. And each times someone was saying, this is going to be terrible expansionary, there will be inflation. We did OMP. We did the LTROs. We did TLTROs. And somehow this runaway inflation hasn't come yet.
Market Wrap: Futures Lower After BOJ Disappoints, ECB's Nowotny Warns "Not To Get Overexcited"; China SoarsSubmitted by Tyler Durden on 01/21/2015 06:55 -0500
Three days after Chinese stocks suffered their biggest plunge in 7 years, the bubble euphoria is back and laying ruin to the banks' best laid plans that this selloff will finally be the start of an RRR-cut, after China's habitual gamblers promptly forget the market crash that happened just 48 hours ago and once again went all-in, sending the Shanghai Composite soaring most since October 9, 2009. It wasn't just China that appears confused: so is the BOJ whose minutes disappointed markets which had been expecting at least a little additional monetary goosing from the Japanese central bank involving at least a cut of the rate on overnight excess reserves, sending both the USDJPY and US equity futures lower. Finally, in the easter egg department, with the much-anticipated ECB announcement just 24 hours away, none other than the ECB's Ewald Nowotny threw a glass of cold water in the faces of algos everywhere when he said that tomorrow's meeting will be interesting but one "shouldn’t get overexcited about it."
Major central banks claim to be independent, but they are totally under the control of politicians. Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that’s all well and good in principle until the economy spins out of control – at zero-bound growth and rates central banks and politicians becomes one in a survival mode where rules are broken and bent to fit an agenda of buying more time. What comes now is a new reality...
The Fed's own favorite mouthpiece Jon Hilsenrath (for more see "On The New York Fed's Editorial Influence Over The WSJ"), just released a piece in which he claims, or rather his sources tell him, that the Fed is "on track to start raising short-term interest rates later this year, even though long-term rates are going in the other direction amid new investor worries about weak global growth, falling oil prices and slowing consumer price inflation." In other words, just like the ECB in 2011, the Fed which has hinted previously that it will hike rates just so it has "dry powder" to ease once the US economy falls into recession, will accelerate a full-blown recession in the US when it does - if indeed Hilsenrath's source is correct and not merely trying to push the USDJPY higher (for reference, see Reuters "exclusive" report on the Samsung takeover of Blackberry, denied by both parties within hours - hike some time this summer.
A few days after the SNB shocked the world when it became the first central bank to pull out of its currency war with the ECB, leading to an epic defeat not only for the Swiss economy whose exports are now set to crash and various brokers and macro hedge funds who were short the Swissy (even as the SNB is nursing an epic balance sheet as as result of its failed 3+ year intervention), and following the latest Chinese snub of its overzealous stock gamblers, next up on the "shock and awe" bandwagon may be none other than the Bank of Japan (something we noted over the weekend in "Is The BoJ The Next SNB?"), where according to Reuters, any hopes for even more QE may be dashed after a ruling party lawmaker and one of the architects of Prime Minister Shinzo Abe's "Abenomics" policies said that the Bank of Japan "does not need to ease monetary policy further this year unless the economy is hit by a severe external shock."
Market Wrap: Chinese Stocks Crash As Financials Suffer Record Drop; Commodities Resume Decline; US ClosedSubmitted by Tyler Durden on 01/19/2015 07:12 -0500
Following last week's Swiss stock market massacre as a result of a central bank shocker, and last night's crack down by Chinese authorities, it almost appears as if the global powers are doing what they can to orchestrated a smooth, painless (as much as possible) bubble deflation. If so, what Draghi reveals in a few days may truly come as a surprise to all those- pretty much everyone - who anticipate a €500 billion QE announcement on Thursday.
Over the past couple of years there has been a rising chorus of individuals warming to the idea of a new secular bull market. This is not surprising given the seemingly unstoppable rise of asset prices since the financial crisis despite a litany of geopolitical and economic headwinds. But are the "ingredients" that spurred the previous two secular bull market periods in existence today?
The surreal nature of this world as we enter 2015 feels like being trapped in a Fellini movie. The .1% party like it’s 1999, central bankers not only don’t take away the punch bowl – they spike it with 200% grain alcohol, the purveyors of propaganda in the mainstream media encourage the party to reach Caligula orgy levels, the captured political class and their government apparatchiks propagate manipulated and massaged economic data to convince the masses their standard of living isn’t really deteriorating, and the entire façade is supposedly validated by all-time highs in the stock market. It’s nothing but mass delusion perpetuated by the issuance of prodigious amounts of debt by central bankers around the globe. But now, the year of consequences may have finally arrived.
'... assuming equity prices rise by 10% this year, for their bond allocation to stay at 37% (same as of Q3 2014), US pension funds and insurance companies would have to buy $550bn of bonds in 2015."
Another year of putting lipstick on the zombie known as the global economy, kept walking only thanks to $11 trillion in liquidity injections by the world's central banks and tens of trillions of new Chinese credit created out of thin air and promptly misallocated and embezzled, and the results are in. The bottom line: according to Nielsen, is that despite the S&P recording a whopping 53 all time highs, and the Dow rising over 18,000, the channel that was once must watch financial TV for mom and pop, and has since devolved into endless cheerleading of failed policies and rigged markets, namely CNBC, just suffered its worst year in, well, ever.
If the tech mania was based on magic, and the housing mania was based on a supposed fact that was historically untrue, today’s mania is a mania of manias, interlinked and resting on premises that are patently illogical, contradicted by both the historical record and current experience. Those premises are: central planning works, government debt promotes prosperity, and economic growth stems from central banks buying that debt with money they create from thin air. On these premises rest manias in governments, their debts, and central banking.
The American people are feeling really good right about now. For example, Gallup’s economic confidence index has hit the highest level that we have seen since the last recession. In addition, nearly half of all Americans believe that 2015 will be a better year than 2014 was, and only about 10 percent believe that it will be a worse year. And a lot of people are generally feeling quite good about the people that have been leading our nation. Unfortunately, when things seem to be going well common sense tends to go out the window. Sadly, what we are experiencing right now is so similar to what we witnessed in 2007 and early 2008. The stock market had been on a great run, people were flipping houses like crazy and most people were convinced that the party would never end. But then it did end – very painfully.
It is truly amazing to see the contortions into which some analysts twist themselves, trying to make the historical facts fit their economic models.
Do you want to know if the stock market is going to crash next year? Just keep an eye on junk bonds. Prior to the horrific collapse of stocks in 2008, high yield debt collapsed first. And as you will see below, high yield debt is starting to crash again.
In October it was Jim Bullard's "QE4" hint that sent the stock market on an all-time record-breaking run of gains, which no lesser institution than the central banker's central bank - The BIS - lamented "the markets' buoyancy hinges on central banks' every word and deed." And then just two days ago, The Fed did it again: by the mere appearance of grandma Yellen (and the words "patient" and "considerable"), US stocks explode to their greatest back-to-back gains in almost six years. So it is perhaps ironic that no more mainstream media publication than USA Today has finally realised, there are no fundamentals anymore...