Being grateful boosts your happiness. Here are ten sickening wonderful things we're grateful for in the new normal...
Chair Yellen frequently reminds us how effective and innovative QE is as a monetary policy tool. She even referred to the monetary actions, of her former boss, as heroic at a commencement speech this past spring. Literally…QE has saved the financial world. So, why are we, the citizens of this great country, no longer worthy of the almighty, far ranging and omnipotent QE? Ms. Yellen, don’t you stop this money printing anytime soon. Just erase that thought from your mind just like you can simply erase away all my financial worries with that great machine of yours. We, the ignorant public, are so relying on you. As we see it there is just no downside to any of this money printing.
March was a record month for CLO issuance with $15.2 billion in deals coming to market, bringing the YTD total to $29 billion and making Q1 2015 the best first quarter in history for CLO new issue volume. And while a JPM analyst who spoke to Bloomberg says managers “want to get deals done early before risk retention kicks in,” we're confident that it’s all about keeping credit flowing to deserving borrowers and not at all about a desire to keep exposure to 5% of a collateral pool littered with loans to “companies that are of lower credit quality or that do not have a third-party evaluation of the likelihood of timely payment of interest and repayment of principal” off of the books.
Centrally issued money centralizes wealth and generates systemic inequality. This is equally true of all centrally issued currencies. But the inequity that is intrinsic to this system is politically, socially and financially destabilizing, and so this system is unsustainable.
Guarantees based on extracting higher taxes, borrowing trillions of dollars and creating trillions more out of thin air only guarantee eventual systemic implosion.
Either Greece will stop trying to save the failed past and look into the future, treating the crisis and the adjustment program as opportunities to finally implement urgently needed reforms, or the country will be eventually forced to exit the euro, in our view. Economics 101 teaches us that an economy can survive within a monetary union only if it has fiscal policy room and structural flexibility to respond to asymmetric shocks. In our view, Greece had none and has none. We see no solution for Greece within the Eurozone without reforms.
"I'm not sure [European QE] is going to do anything - certainly, nothing that's good. The fundamental problem here, as I see it anyway, is that the European banking system is still broken... I think, increasingly, bankers are discomforted more than anything else (it's not just the ex central bankers but increasingly the people that are still holding the levers)... they are starting to ask whether they have somehow been backed into a place where they don't really want to be.... Unfortunately, [it] is getting bigger and bigger. There is a possibility at least that this whole exercise could end very badly."
It matters not who is in charge of the Fed or what rules Congress may insist that it adopts. Once money printing, via fiat or fractional reserve credit creation, is seen to be both feasible, justified, and legal nothing and no one can stop it. The political pressure to fund government programs will be irresistible. Everyone knows that the Fed seemingly has the ability to solve their problem by monetizing the federal debt. Should it refuse to do so, we would see riots in the streets similar to what is happening in Europe as protesters target the European Central Bank. The only solution is to destroy the monster that makes it all possible, the Fed.
The BoJ may now run into the same inconvenience in its efforts to control the stock market that it encountered on the way to monopolizing the JGB market: there’s only so much out there to buy. "BOJ held 3.85t yen ($32.0b) of ETFs at end-2014 and plans to boost these holdings by 3t yen per year; at this pace, the current market value of 11.5t yen in ETFs would be entirely bought by BOJ by end-2017," Bloomberg notes.
"Dear President Obama, Senators, and Members of Congress:
Americans now owe $1.3 trillion in student debt. Eighty-six percent of that money is owed to the United States government. This is a crushing burden for more than 40 million Americans and their families.
I urge you to take immediate action to forgive all student debt, public and private."
Financial markets are upside down. Financial repression and belief in the “Fed put” pushed investors further and further out the risk curve over the past six years. Too many asset managers have remained fearful of underperforming peers and benchmarks; a powerful incentive to stay ‘risked-up’. The psychology of bullish, and faith in Fed abilities, have been too firmly embedded in the investor class. Given that markets don’t seem to want to believe that a June hike looks probable, we expect an outsized market reaction to a hike, lower long yields to accompany it, a flatter curve, wider credit spreads, higher market volatility, and materially lower equity markets.
Government mandated fiat currency simply does not work in the long run. We have empirical evidence galore – every fiat currency system in history has failed, except the current one, which has not failed yet. The modern fiat money system is more ingeniously designed than its historical predecessors and has a far greater amount of accumulated real wealth to draw sustenance from, so it seems likely that it will be relatively long-lived as far as fiat money systems go. In a truly free market, fiat money would never come into existence though. Greenspan was wrong – government bureaucrats cannot create something “as good as gold” by decree.