In our era of omnipotent central banks worshipped by the Status Quo, we have a goddess of financial transitions--Janus Yellen, the two-faced chair/deity of the Federal Reserve - to usher in the Great Transition from risk-on to risk-off.
- Thank you market Chief Risk Officer Bernanke/Yellen: Calpers to Exit Hedge Funds, Divest $4 Billion Stake (BBG)
- World stocks hit one-month low, caution ahead of Fed (Reuters)
- U.S. Efforts to Build Coalition Against Islamic State in Iraq, Syria Are Hampered by Sectarian Divide (WSJ)
- Time to throw away some more good money: Sears Borrows $400 Million From Lampert’s ESL Investments (BBG)
- Wildfires rage in California drought, hundreds forced to flee (Reuters)
- United Offers $100,000 Buyouts to Flight Attendants (BBG)
- Biggest Banks Said to Overhaul FX Trading After Scandals (BBG)
- You mean you have to pay? Administration threatens to cut off ObamaCare subsidies to 360,000 (The Hill)
- RBS Said to Dismiss Most of Team Overseeing Central Europe Debt (BBG) they will be hired by the ECB
Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites. The Swiss people appreciate the work their forefathers put into building up large gold reserves, a respected currency, and a strong, independent banking system. They do not want to see centuries of struggle squandered by a central bank. The results of the November referendum may be a bellwether, indicating just how strong popular movements can be in establishing central bank accountability and returning gold to a monetary role.
Even the most avid Bulls should grasp that market corrections of 10% to 20% are statistical features of all markets. Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.
The uncorrected half-cycle advance since 2009 has been accompanied by a resurgence of proponents advocating that stocks should simply be bought and held indefinitely, regardless of price. As Graham & Dodd warned, "it is important to note that mass speculation can flourish only in such an atmosphere of illogic and unreality." The over-arching reality is that there is a cliff at the edge of what appears to be a permanently high plateau.
Forget the noise... it's time to back up the truck.
Straight-forward discussion about the investment climate and the week ahead. Light on hyperbole, heavy on analysis.
Central bank stimulus is not leading to virtuous circles but to vicious ones. How can we get out? – Only by changing our attitudes to monetary interventions fundamentally. Only if we accept that interest rates are market prices, not policy levers. Only if we accept that the growth we generate through cheap credit and interest-rate suppression is always fleeting, and always comes at the price of new capital misallocations. The prospect for such a change looks dim at present. The near-term outlook is for more heavy-handed interventions everywhere, and the endgame is probably inflation. This will end badly.
A recent Fed paper reports that the Fed's wild money printing orgy has failed to produce much CPI inflation because “consumers are hoarding money”. It is said that this explains why so-called "money velocity" is low. Sadly, they are misinformed: In short, “hoarding” cannot possibly harm the economy. The same, alas and alack, cannot be said of money printing.
Bank of England plans to make bondholders and depositors bear the cost of bailing out failing banks has led Moody’s to downgrade its outlook on the UK banking sector.
Mario Draghi broke new ground once again this morning by pushing rates even negative-er. We are sure the ECB's top man will further explain how ABS purchases, TLTRO, and even sovereign QE are just around the corner (so keep buying)...
The chance of EURCHF breaking the peg at 1.2000 have increased from 10% to 25-30% based on European Central Bank monetary policy, geopolitical risk and a lack of policy choices for the Swiss National Bank. This means that being long EURCHF no longer is a safe bet and although the 70% chance of the floor being both defended and protected is still high, the tail-risk involved is becoming too concerning.
This month's Bill Gross letter, notably shorter than usual, is as close to the bond manager discussing an Austrian economics worldview as we will likely ever see him: in brief, it's all about the credit/money creation, with an emphasis on the use of proceeds of said creation under ZIRP, i.e., malinvestment , or as Gross puts it: "credit growth is a necessary but not sufficient condition for economic growth. Economic growth depends on the productive use of credit growth, something that is not occurring."
Is it possible, that in globally interconnected economy, the U.S. can stand alone? It certainly seems that the answer to that question is currently "yes" as financial markets hit "new all-time" highs and economic data has rebounded in the second quarter following a sharp Q1 decline. However, as is always the case, the issue of sustainability is most critical.
Having singularly failed to reform or restructure their dilapidated economies, many governments throughout the West have left it to their central banks to keep a now exhausted credit bubble to inflate further. Unprecedented monetary stimulus and the suppression of interest rates have now boxed both central bankers and many investors into a corner. Bond markets now have no value but could yet get even more delusional in terms of price and yield. Stock markets are looking increasingly irrational relative to the health of their underlying economies. The euro zone looks set to re-enter recession and now expects the ECB to unveil outright quantitative easing. If the West wishes to regain its economic vigour versus Asia, it would do well to remember what made it so culturally and economically exceptional in the first place. We seem to be close to the endgame.