Yesterday we highlighted the European people's growing 'revulsion' against Europe and overnight we got yet another confirmation that the status quo - despite record low bond yields and record high stock and real estate prices - are losing their grip on control. Having taken the lead in the polls last week, UKIP's Nigel Farage has scored a major victory in local elections in England with early results pointing to considerable gains for the euro-skeptic party:
UKIP GAINS 20 SEATS IN EARLY ENGLISH LOCAL-ELECTION RESULTS
U.K. TORIES LOSE 20 SEATS IN EARLY LOCAL-ELECTION RESULTS
As Reuters reports, one MP noted "I think Nigel Farage for quite a lot of those people is just a big sort of two fingers stuck up at what they feel is a sort of hectoring, out-of-touch elite."
For two decades now mainstream Keynesian economists have been gumming about China’s remarkable economic boom and its accumulation of unprecedented foreign exchange reserves. The latter hoard has now actually crossed the $4 trillion mark. But this whole narrative is PhD jabberwocky with a Wall Street accent.
Today Korea is one of the most economically and technologically advanced nations on the planet, but it wasn't always like that. Merely fifty years ago it was one of the poorest places on Earth.
A day after the Federal Reserve warned that "low level of expected volatility implied by some financial market prices might also signal an increase in risk appetite" and this complacency; the Bundesbank has decided to try and jawbone back investors' exuberance across Europe. As Die Welt reports, while stocks and bonds are near record highs across Europe - thanks to the ECB's Mario Draghi's promises, Bundesbank board member Andreas Dombret warned "we see risks - despite the fact that markets are calm," and perhaps incredibly suggested investors "flatten all risks now to avoid the herd behavior."
A simple way of grasping the precarious situation China has found itself in is with this useful diagram which summarizes the negative loop that China's economy (which essentially means housing market which as SocGen recently explained is indirectly responsible for 80% of local GDP) could fall into should the government not promptly move to address the emerging dangerous situation, i.e., resume aggressive easing.
It is not too early to ask how the present US business cycle expansion, already more than five years old, will end. The history of the last great US monetary experiment in “quantitative easing” (QE) from 1934-7 suggests that the end could be violent. Autumn 1937 featured one of the largest New York stock market crashes ever accompanied by the descent of the US economy into the notorious Roosevelt Recession. As we noted previously - it's never different this time...
- McDonald’s Workers Arrested at Protest Near Headquarters (BBG)
- U.S. Sends Troops to Chad to Hunt for Abducted Nigeria Girls (BBG)
- BofA Scrapping Market-Making Unit Amid Trading Scrutiny (BBG)
- Biggest attack in years kills 31 in China's troubled Xinjiang (Reuters)
- Intense Fighting Flares in Eastern Ukraine (WSJ)
- Fed Officials Tussle Over Labor Market Slack (Hilsenrath)
- Ikea Economics Lure Central Bankers Seeking New Tools (BBG)
- When Putin ordered up new hospitals, his associates botched the operation (Reuters)
- Norway’s $33 Billion Man Steps Up Search in Asia Real Estate Bet (BBG)
If you believe that the U.S. economy is heading in the right direction, you really need to read this article. As we look toward the second half of 2014, there are economic red flags all over the place.
FOMC Minutes Show Fed Fears No Inflation Risk; Worries About Complacency, Discusses "Low Level Of Volatility"Submitted by Tyler Durden on 05/21/2014 14:03 -0400
These are the minutes from an FOMC meeting that raised economic assessments for the year the day that Q1 GDP printed at +0.1%. No big surprises from the minutes...
- *FED SAW NO INFLATION RISK IN FUELING JOB GROWTH, MINUTES SHOW
- *FOMC PARTICIPANTS SAW `NEARLY BALANCED' RISKS TO ECONOMY
- *A NUMBER OF FOMC PARTICIPANTS SAW POSSIBLE RISK IN WEAK HOUSING
- *SEVERAL FOMC PARTICIPANTS SAID LOW VOLATILITY MAY SIGNAL RISK
More of the same from the FOMC minutes - which have been carefully prescribed to reflect just enough confusion as to provide every stock bull (and bond bear) with just enough ammo to BTFD once more unto the breach. With 2 Fed speakers yesterday and 4 today, it seems the Fed is keen to interpret the minutes for everyone through the only tool they have left - communications... Volatility is a concern due to complacency; low rates have consequences; new normal terminal rate lower than historical norm; taper will proceed; doves more dovish, hawks more hawkish.
The Greenspan Housing Bubble Lives On: 20 Million Homeowners Can’t Trade-Up Because They Are Still UnderwaterSubmitted by Tyler Durden on 05/20/2014 21:16 -0400
One of the most deplorable aspects of Greenspan’s monetary central planning was the lame proposition that financial bubbles can’t be detected, and that the job of central banks is to wait until they crash and then flood the market with liquidity to contain the damage. In short, China didn’t “save ” America into a housing crisis; the Greenspan Fed printed America into a cheap debt binge that ended up impairing the residential housing market for years to come. In any event, for those Millennials who do manage to accumulate a down payment by the time they are in their early 30s there is precious little starter home inventory available. The Greenspan mortgage debt serfs from the previous generation are blocking the way. Monetary central banking is an economy wrecker. Here is just one more smoking gun of proof.
Equity markets are not happy about the Fed's Charles Plosser's economic exuberance ("3% growth no matter the weather" which is 20% above consensus of 2.5%) and his 'good-news-bad-news' monetary policy hawkishness ("may need to raise rates sooner rather than later"). But perhaps the most crucial part of his speech this morning was what the headlines notably left out. Plosser admonished his global central bank brethren: "if central banks do not limit their interventionist strategies and focus on returning to more normal policymaking aimed at promoting price stability and long-term growth, then they will simply encourage the financial markets to ignore fundamentals and to focus instead on the next actions of the central bank." Simply put, he warned, "central bankers have become too sensitive and desirous of managing prices in the financial world.."
Bitcoin's competitive environ is already prompting a race towards negative margin, and despite such VCs have dumped nearly $100 million in 3 companies in as many months. Here's what I see coming down the pike...
An economy where most people work for the state or a global corporation is an economy that has lost its knowledge of the key entrepreneurial building blocks.
China's or the UK's?