"In order for currencies to be 'exchangeable' they have to be backed by something," is the remarkably ironic initial comment from none other than debaser-of-the-entirely-fiat-dollar Alan Greenspan when asked about the "bubble in bitcoin," by Bloomberg TV's Trish Regan. Unable to "identify the intrinsic" backing of Bitcoin (or see bubbles in equity, credit, real estate, or greater fools) Greenspan is, apparently, capable of identifying Bitcoin "as a bubble," because "there is no fundamental means of "repaying' it by any means that is universally accepted." The farcical double-speak continues as the Maestro does a great job of making Bitcoin (which Ron Paul earlier noted could be the "destroyer of the dollar") look even better than the readily-printed fiat we meddle with every day.
Back in September 2012 when we, correctly, suggested that one of the main drivers of demand (and increasingly becoming the only one) for US housing, especially in the mid and high-end, was foreigners - particularly of the oligarch persuasion - who come to the US to park their embezzled and otherwise ill-gotten funds, courtesy of the NAR's anti-money laundering exemptions, which means that they can buy any house, sight unseen, cash upfront (recall that a record 60% of all home purchases are all cash, which explains why mortgage bankers are being fired by the thousands left and right), no questions asked. One thing we made very clear, though, is that since one never actually buys the real estate, but merely rents it from Uncle Sam (or any other Development Market host nation), there is little preventing the host from cranking up the tax system, or outright changing it, when the need to raise funds strikes. After all what rights do criminal foreigners with multi-million homes in New York (or San Fran, or London, or any other major metropolis that is the target of offshore capital) actually have. Which is why, over a year after this prediction, we find that if not the US (yet) then certainly London, where the housing bubble is greater than anything seen in the US thanks to Russian and Asian hot money, is doing just this.
First things first. Losing 39% of your purchasing power over the course of 13 years is criminal. This was purposely created by Greenspan/Bernanke and the Federal Reserve. We're quite sure that most Americans have not seen their wages go up by 39% since 2000; therefore the average American has lost ground. No matter how you cut it, Federal Reserve created inflation slowly but surely destroys the middle class and benefits the ruling class. Ben isn’t working for you. His mandate of stable prices has been disregarded. He does not have it contained.
- EU Fines Financial Institutions Over Fixing Key Benchmarks (Reuters)
- Euro-Area Economic Growth Slows as Exports, Consumption Cool (BBG) - someone has a very loose definition of growth
- Ukraine Officials Scour Globe for Cash as Protests Build (BBG)
- Oops: Franklin Boosted Ukraine Bet to $6 Billion as Selloff Began (BBG)
- Japan Plans 18.6 Trillion Yen Economic Package to Support Growth (BBG) - or about 2 months of POMO
- How Peugeot and France ran out of gas (Reuters)
- Iran threatens to trigger oil price war (FT)
- Abe Vows to Pass Secrecy Law That Hurts Cabinet’s Popularity (BBG)
- Brazil economy turns in worst quarter for 5 years (FT)
- Australia’s Slowdown Suggests RBA May Need to Do More (BBG)
- Biden calls for trust with China amid airspace dispute (Reuters)
Faith in the current system is as high as it has ever been, and folks don't want to hear otherwise. If you're one of those people who thinks it prudent to have intelligent discussion on some of these risks -- that maybe the future may turn out to be less than 100% awesome in every dimension -- you're probably finding yourself standing alone at cocktail parties these days. A helpful question to ask yourself is: if I could talk to my 2009 self, what would s/he advise me to do? Don't put yourself in a position to relearn that lesson so soon after the last bubble. Exercise the wisdom to look like an idiot today.
- With website improved, Obama to pitch health plan (Reuters)
- Joe Biden condemns China over air defence zone (FT)
- Tally of U.S. Banks Sinks to Record Low (WSJ)
- Black Friday Weekend Spending Drop Pressures U.S. Stores (BBG)
- Cyber Monday Sales Hit Record as Amazon to EBay Win Shoppers (BBG)
- Ukraine's Pivot to Moscow Leaves West Out in the Cold (WSJ)
- Investment banks set to cut pay again despite rise in profits (FT)
- Worst Raw-Material Slump Since ’08 Seen Deepening (BBG)
- Democrats Face Battles in South to Hold the Senate (WSJ)
- Hong Kong reports 1st case of H7N9 bird flu (AP)
- In Fracking, Sand Is the New Gold (WSJ)
In Bernanke's centrally-planned, inverse Robin Hood world, record stock prices for the few unfortunately mean record homelessness for the many: this is what the state of Massachusettes found out the hard way after it was flooded with a record number of homeless families who are overwhelming the state's emergency shelter system. As the Boston Globe reports, citing a recent report from the Department of Housing and Urban Development, the number of homeless people in shelters and living on the streets in Massachusetts has risen 14 percent since 2010 to a record 20,000 in January 2013, even as homelessness has declined nationally. However, in what may be the most curious twist, and yet another example of how perverted the incentive and capital allocation system in the US is, the nearly 2,100 families who could not find place in shelters, were housed in motel rooms at a greater cost to all US taxpayers amounting to tens of millions.
You can’t overstate the baleful effects for Americans of living in the tortured landscapes and townscapes we created for ourselves in the past century. This fiasco of cartoon suburbia, overgrown metroplexes, trashed small cities and abandoned small towns, and the gruesome connective tissue of roadways, commercial smarm, and free parking is the toxic medium of everyday life in this country. Its corrosive omnipresence induces a general failure of conscious awareness that it works implacably at every moment to diminish our lives. It is both the expression of our collapsed values and a self-reinforcing malady collapsing our values further. The worse it gets, the worse we become. The citizens who do recognize their own discomfort in this geography of nowhere generally articulate it as a response to “ugliness.” This is only part of the story. The effects actually run much deeper.
The Fed is busy doing everything in its considerable power to get credit (that is, debt) growing again so that we can get back to what it considers to be “normal.” But the problem is that the recent past was not normal. For the Fed to achieve anything even close to the historical rate of credit growth, the dollar will have to lose a lot of value. This may in fact be the Fed’s grand plan, and it’s entirely about keeping the financial system primed with sufficient new credit to prevent it from imploding.
The ruling triumvirate consisting of the military-industrial complex, global bankers, and governments have misappropriated nearly every pillar of society. Here's how we combat this.
In Feb 2007, Oaktree Capital's Howard Marks wrote 'The Race to the Bottom', providing a timely warning about the capital market behavior that ultimately led to the mortgage meltdown of 2007 and the crisis of 2008 as he worried about "carelessness-induced behavior." In the pre-crisis years, as described in his 2007 memo, the race to the bottom manifested itself in a number of ways, and as Marks notes, "now we’re seeing another upswing in risky behavior." Simply put, Marks warns, "when people start to posit that fundamentals don’t matter and momentum will carry the day, it’s an omen we must heed," adding that "the riskiest thing in the investment world is the belief that there’s no risk."
- Winter storm lashes eastern U.S., threatens Thanksgiving travel (Reuters)
- Fed Reveals New Concerns About Long-Term U.S. Slowdown (BBG)
- Private equity keeps $789bn of powder dry (FT) - because they are "selling everything that is not nailed down"
- Merkel and SPD clinch coalition deal two months after vote (Reuters)
- Japan approves new state secrecy bill to combat leaks (BBC)
- CLOs are the new black: Volatile Loan Securities Are Luring Fund Managers Again (WSJ)
- Health website deadline nears (WSJ)
- Norway Debates $800 Billion Wealth Fund’s Investment Options (BBG)
- Set of global trade deals stalls (WSJ)
- Berlusconi To Learn Fate In Senate (Sky)
- Silvio Berlusconi withdraws support from Italy’s government (FT)
The mainstream media staple 'common wisdom' within the financial markets is that when the Federal Reserve "tapers," or eventually ceases, its current bond buying program that interest rates will begin to rise. However, there are three primary issues which should be considered that fail to support this widely held belief. The Federal Reserve has gotten itself trapped into creating an asset bubble in the equity markets because any reversal of policy leads to severely negative economic consequences. With the current economic recovery cycle already very extended in historical terms, along with the financial markets, it is unlikely that we have just begun a growth cycle that will allow the Federal Reserve to extract its support. The reality is quite the opposite, and the next asset rotation will not be from bonds to stocks; but just the opposite.
This is a macro global trend well underway and I don't see anything in the cards stopping it.
In fitting with the pre-holiday theme, and the moribund liquidity theme of the past few months and years, there was little of note in the overnight session with few event catalysts to guide futures beside the topping out EURJPY. Chinese stocks closed a shade of red following news local banks might be coming under further scrutiny on their lending/accounting practices - the Chinese banking regulator has drafted rules restricting banks from using resale or repurchase agreements to move assets off their balance sheets as a way to sidestep loan-to-deposit ratios that constrain loan growth. The return of the nightly Japanese jawboning of the Yen did little to boost sentiment, as the Nikkei closed down 104 points to 15515. Japan has gotten to the point where merely talking a weaker Yen will no longer work, and the BOJ will actually have to do something - something which the ECB, whose currency is at a 4 year high against Japan, may not like.