Too Big To Fail

"Shadow Convexity" Means The Death Of Modern Portfolio Theory

The entire global financial system is leveraged to the 'Modern Portfolio Theory' concept that stocks and bonds are always anti-correlated. It is impossible to estimate how many trillions of dollars are managed according to the simple 60/40 mantras but let us just assume something north of $1.4 trillion and something south of "more money than God."  However, the truth about the long-term (132-year) historical relationship between stocks and bonds is scary.  The last three decades of extraordinary anti-correlation has been an era of falling rates, globalization, accommodative monetary policy, and very low volatility of CPI. With the global economy now at the zero bound, those days are over.

BlackRock, The Stock Market, & The Alleged Evils Of "Volatility"

We would argue the main reason for Blackrock’s attempt to persuade the exchanges to adopt its recommendations on trading halts is that Blackrock itself is inconvenienced by downside volatility. Presumably the company is no stranger to leverage (how else can it squeeze out large returns with a portfolio this large in a ZIRP world?) and is therefore forced to exercise stop loss orders itself when the market declines fast. Such attempts to “regulate” everything, even the price swings markets are allowed to make, are attempts to stem oneself against nature.

Bernanke: The Courage To Print - Reading Between The Lies

The Fed needs to extricate itself from manipulating the financial markets. It needs to end backstopping market liquidity. It must never again print Trillions of new “money” out of thin air. Because so long as the marketplace perceives that the markets are "too big to fail", there will be speculative excess, major securities markets mispricings and Bubble fragilities. No one – average investor or sophisticated financial operator – has a clue as to the degree Fed policies have distorted asset prices.

The Perilous Misperception That Central Bankers Have Mitigated Market Risk

Never have markets carried so much risk. And never have markets been as vulnerable to an abrupt change in perceptions with regard to central banker competence, effectiveness and capabilities. At the minimum, global markets will function poorly, but risk is now high for a disorderly – Party Crashing - "run" on financial markets, as faith in central banking begins to wane.

Bank Of England Economist Calls For Cash Ban, Urges Negative Rates

Just three short years ago, Bank of England chief economist Andy Haldane appeared a lone voice of sanity in a world fanatically-religious Keynesian-esque worshippers. Admissions in 2013 (on blowing bubbles) and 2014 (on Too Big To Fail "problems from hell") also gave us pause that maybe someone in charge of central planning might actually do something to return the world to some semblance of rational 'free' markets. We were wrong! Haldane appears to have fully transitioned to the dark side, as The Telegraph reports, he made the case for the "radical" option of supporting the economy with negative interest rates, and even suggested that cash could have to be abolished.

The Next Financial Crisis Won't Be Like The Last One

It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets. The core paradox - that central banks can't control both domestic and global FX markets with the same set of policies - cannot be resolved by printing $1 trillion, or even $5 trillion. Printing money to fix one problem leads to another set of problems that are only made worse by additional money-printing.

 

Fourth Turning: Crisis Of Trust, Part 1

We're beginning to believe the nation will not be unified behind a common cause when the coming financial eruption unleashes molten lava of chaos, punishing economic distress, civil strife, class warfare, race wars, and ultimately global war. As Strauss and Howe foretold, the establishment (aka corporate fascist military industrial surveillance state) has seen a sequential loss of popular trust as their blatant corruption, sociopathic stranglehold on the levers of power, and unrelenting greed have angered the critical thinking aware citizens of this country. The next leg down in this Greater Depression will sever the remaining trust, disintegrating any remaining support for the existing civic order. What comes next will be heavily dependent upon whether the 5% to 10% of liberty minded believers in the Constitution are able to gain the trust of the masses.

Anyone Who Believes The COMEX Numbers Is Very Naive (They Are Much Worse!)

Following our detailing the Comex gold futures to deliverable physical gold ratio that is now north of 200:1, several correspondents noted that "they are probably bluffing...based on JPMorgan's previous lies, the real number is likely significantly higher than 200:1." History tells us that all Ponzi schemes and market interventions fail, and it appears we are on the cusp of a massive failure in the scheme to cover up the truth about the precious metals market.

Nomi Prins: Mexico, The Fed, & Counterparty Risk Concerns

This level of global inter-connected financial risk is hazardous in Mexico, where it’s peppered by high bank concentration risk. No one wants another major financial crisis. Yet, that’s where we are headed absent major reconstructions of the banking framework and the central bank policies that exude extreme power over global economies and markets, in the US, Mexico, and throughout the world. Mexico’s problems could again ripple through Latin America where eroding confidence, volatility, and US dollar strength are already hurting economies and markets. The difference is that now, in contrast to the 1980s and 1990s debt crises, loan and bond amounts have not just been extended by private banks, but subsidized by the Fed and the ECB.  The risk platform is elevated. The fall, for both Mexico and its trading partners like the US, likely much harder.

Is The Stock Market Now "Too Big to Fail"?

By turning the health of the economy into a reflection of the stock market, the Status Quo has made the stock market into the one bellwether that matters. In effect, the stock market is now integral to the economy as a measure of sentiment and evidence that all is well with the economy as a whole.

The Age Of Voodoo Finance

 

The Jackson Hole gathering may end up providing at least some clarification, but not even close to the manner in which everyone seems intent on inferring. With Janet Yellen’s notable absence, there isn’t the same sort of celebrity about what would have been the media hanging upon every word; that is, after all, what the Federal Reserve has become, not an organ of stability or even expertise but a public relations effort aimed squarely at trying to convince everyone possible that it is. Given the unique circumstances at the moment, the real issue is not whether they might raise rates but just how much systemic misdirection has already been revealed even to the least attentive of people.