Most investors today have no idea what is happening in the bond market today and have exposed themselves to incredible amounts of risk. Because a global crisis in the government bond market has never occurred in our lifetime – advisors, financial planners and big banks continue the tradition of telling their clients that bonds are safer than stocks. As a result, investors remain heavily invested in the bond market and are therefore smack dab in the middle of the riskiest investment they’ll ever see.
"Wall Street bankers inflate bubbles in everything from government bonds to Hillary Clinton's speaking fees... Americans get paid less today than 10 years ago. But healthcare and college tuition cost more every year... Our nuclear bases still use floppy disks. ... Instead of going to Mars, we have invaded the Middle East. We don't need to see Hillary Clinton's deleted emails: her incompetence is in plain sight... Now we are told that the great debate is about who gets to use which bathroom. This is a distraction from our real problems. Who cares? "
S&P 500 futures are set to open at new all time highs, with global stocks rallying as the yen weakened and the Nikkei soared on speculation Japan is about to unveil the first instance of "helicopter money"-lite, as well as due to a continuation of better-than-expected U.S. jobs data. Further speculation that Italy's (and Europe's) insolvent banks will be bailed out has further boosted sentiment.
"I believe times are about to get quite rough economically and politically. But, at the same time, I’m very optimistic about what’s happening in science and technology. So let me hazard some predictions..."
America is a third world country, it’s just not ready to accept that reality yet. Politically it is thoroughly corrupted, economically it is too deeply indebted to ever extricate itself, morally it is without direction, rudderless in dangerous seas and heading for the rocks.
It is now painfully obvious that Ben Bernanke blew it big-time by not raising rates three years ago when the economy and markets enjoyed tailwinds. The former Federal Reserve chairperson, who has claimed the mantle of savior of the global economy, foolishly kept rates at zero until tailwinds turned to headwinds, at which point he handed Janet Yellen the unenviable task of raising rates as the headwinds are strengthening.
"For over 40 years, asset returns and alpha generation from penthouse investment managers have been materially aided by declines in interest rates, trade globalization, and an enormous expansion of credit – that is debt. Those trends are coming to an end.... A repeat performance is not only unlikely, it is impossible unless you are a friend of Elon Musk and you’ve got the gumption to blast off for Mars. Planet Earth does not offer such opportunities."
Students of Austrian business cycle theory are familiar with the term malinvestment. A malinvestment is any poor use of resources or capital, commonly made in response to bad policy (usually artificially low interest rates and/or unsustainable increases in the monetary supply). Here, we introduce a related term: malincentive. While not part of the official economic lexicon, I consider a 'malincentive' a useful word to describe any promise of short-term gain whose long-term costs outweigh any immediate benefits enjoyed. Malincetives and malinvestment go hand-in-hand. In my opinion, the former causes the latter. As humans, we respond remarkably well to incentives. And dumb incentives encourage us to make dumb investments.