Blowing In The Wind

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,

The bond markets almost always rolls before the equity markets. The bond markets are much bigger, the major participants are more pessimistic and, given the sheer size of some institutions, they have to get set up earlier. The emphasis is also quite different with fixed income focused on yield and return while stocks are more concerned with appreciation. Each market has benefited dramatically from the flood of money provided by the central banks and the Fed, in particular, buying the majority now of Treasuries and mortgage backed bonds that get issued. Don’t fool yourself or search around for unimportant and trivial reasons; this is what has primarily driven all of the markets. Insatiable demand by the Fed and the other major central banks has far outdistanced supply and Economics 101 still works.
The problem with writing a commentary focused on warning people away from getting in trouble is that a great many people are only really happy when they are in trouble. This is a noticeable quality in many human beings. The second problem is that a great many people do not wish to hear it even if they very grudgingly admit that you could be right. A warning is more important than a good idea. Ideas are scored in eighths and quarters while a warning is measured in scores of points. The final problem with a well-reasoned warning is that many people hear it and think you are calling for Armageddon when all you were trying to say is, “Be careful walking; the floor ahead is slippery.”
The problems that could have been catastrophes, especially in Europe, have been quelled by ever larger amounts of money thrown at them by the ECB, by the EU loosening every directive that they have ever created and by the “Save the World” promise of Mr. Draghi. The EU recently said they may cap their ESM fund which would cap the Draghi put but no one paid much attention to the announcement as we float through our Novocain world. To leave our present condition will most likely require an event that will wake the markets from their dream walking state though there is another possibility which is that the Whale Sharks in fixed income beginning to stir and the long end of the yield curve begins to fall back significantly. These boys are determined to make their move before Mr. Bernanke makes his and they are on constant alert for any slight movement that may indicate that the Chairman’s hand is moving towards the chess board. It is just a game of chicken really but the stakes are the biggest in the world.
Besides an event then, the next Black Swan that may appear on the horizon, there is a fundamental mis-match now caused by the actions of the central banks. The money pours out like honey and must be used somewhere and so it is but the economic fundamentals are horribly out of tune with the next high notes that are being played in the markets. The numbers out of Europe this morning were dismal and even the stalwart, Germany, was hobbled and sunk to the first rung of possible recession. GDP in Europe fell -0.6% for the quarter and -0.9% from a year ago which was the worst showing since the first quarter of 2009 when the effects of the Lehman disaster first crept into the reported figures. Germany was down -0.6%, France down -0.3%, Italy down -0.9% and Greece; hailed, praised and applauded by everyone in Europe these days was down a whopping -6.0% from last year. So much for hailing, praising and applauding and pass the Ouzo please.
Getting it right is NOT as important as not getting it wrong. Please re-read the last sentence. Getting it right helps some but getting it wrong can be a disaster for your career, for your firm and for your client’s money. You may not think that every line I write is a pearl of wisdom but, unlike what Europe dishes out these days; it is not horsemeat either. Look around you; it is a small and connected world. Japan, where the median forecast was for 0.4% growth in the last quarter reported out a negative -0.4% for the quarter only exacerbating the dilemma as when Asia and Europe are in a downward spiral it is quite likely that the Red, White and Blue is about to be tarnished. The printing of money is the tout and it is a powerful force indeed but economic fundamentals will play Hell when they catch up and overtake the little blue and green pieces of paper that, to quote Mr. Dylan, are “Blowing in the Wind.”
European economies straight from script of Les Miserables. The dispensing of horsemeat on the Continent in food and otherwise. The oncoming of some sort of Asian Flu. Class warfare in America and the entire construct supported by a House of Cards relying solely on the printing presses housed in Washington, Frankfurt, London, Tokyo and Beijing. The beginnings of a small game of “Currency Wars” and the markets sit and ask the famous question; “What, me worry?”
Nothing to worry about of course. Nothing. Though I hope you do not find me impolite if I remark that the deodorant is woefully inadequate.

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Nid's picture

Stronger Gold, stronger USD today? Anyone?

Monedas's picture

Everyone knows, the horse is a much cleaner animal than the cow .... their stool confirms it .... neat biscuits versus sloppy meadow pies .... it's not even close ?

falak pema's picture

as usual Mark is off the mark. 

That Cb printing is seen as real asset printing. If the Oligarchs say its money then who are we to question it?

The only thing that can bring this house down is private sector Oligarchs upsetting the CB play, or, intra CB warfare as with Yen /USD standoff occuring.

idea_hamster's picture

That and Les Mis is a tale told of a world of deflation and gold-standard hard money.

Not hatin' -- just sayin'.

Nothing To See Here's picture

Even that they can manage. Until more PM physical delievery is asked from the bullion banks, pushing gold's price out of COMEX control, TPTB can manipulate everything.

lasvegaspersona's picture

Do you really believe 30,000 small fry buying an ounce means anything?

The end will come when the last CB closes its vault and puts out a sign that says: "Gone fishing, will re-open for gold sales next week." By the time the paint is dry on that sign the world will know that the market for gold futures, forwards, swaps and ETFs is over. Only physical will count.

Creepy Lurker's picture

"Do you really believe 30,000 small fry buying an ounce means anything?"

It does for the small fry.

I am more equal than others's picture

Its a dry wind.... its drying up all the fields of dream for the great conflagaration to come.  Oh the humanity, oh the humanity......

Svendblaaskaeg's picture

"Its a dry wind...."

No, CAGW mean more water vapor, more moist air because of evil co2, IPCC says so, activist James Hansen and Al Gore say so - so must be true!

There goes your dryness

...and CAGW mean less temperature difference between the poles and aquator, the difference that drives the winds

There goes your wind


marco1324's picture

Balloons always pop when you least expect them to.

cliffynator's picture

"...the economic fundamentals are horribly out of tune with the next high notes that are being played in the markets."


Fundamentals? Heck, even the technicals are being ignored!

Yen Cross's picture

 These markets don't even know what to do. They are so structurally broken, and synthetic.

busted by the bailout's picture

There is very little wheat in this article's chaff.

vote_libertarian_party's picture

"class warfare in America"???


As long as cable is working there will be nooooooo problems.

Everybodys All American's picture

remember when there used to be a free market?

1000yrdstare's picture

Wake me when we are at the "Long Pork" stage

1000yrdstare's picture

On second thought, I hope I am awake before that stage....

shovelhead's picture

My prepper supplies consist of cases of Billy Rays BBQ sauce, a chunk of bacon and a string.

Hunting for meat is a waste of energy when you can get fresh meat delivered to your door.

I still have to plant some cole slaw bushes.

Just Ice's picture

Should be good lure for possums or rats...

q99x2's picture

If the markets are controlled at this time by a catalyst from the central banks then what is to say, since the central banks have control of the electrons that represent money, that the central banks already don't have complete ability at this to control the markets as more than a catalyst but rather as a buyer of last resort of the world's stock markets?


JR's picture

You make a good point.  And, in that this “House of Cards relying solely on the printing presses” has total control, why is the economy slipping away from them? It’s because central control doesn’t mean success.

The right or wrong of the effects of these printing presses, as Grant demonstrates, is being determined over the long term now at every level of society, melding into chaos worldwide as economies and soecities break apart. 

The EU and USA verdict on central bank planning is in, being writ large by the bejeweled invisible fingers of the bankers who used coercive self-interests for destructive and violent ends. Their world experiment is collapsing.

It’s going to take the peaceful self-interests of the invisible hand of every individual working in a free market for peaceful ends, “directing industry so as to produce the greatest value,” to slap the greedy fingers of the Keynesian collectivists. In short, it’s going to take "lowbrow" capitalism to destroy "highbrow" Keynesianism to save the economy.

As writer Melvin D. Barger said: “We choose the ends when we choose the actions."

lasvegaspersona's picture


Electrons or paper, if they are electrons held as reserves at  the Fed they are as good as paper. In the end the Fed buys anything thrown its way to prevent the dreaded deflation. Soon, what was a world of electrons held in our credit accounts, becomes paper.Then come the wheelbarrows as 'inflation' becomes hyperinflation, when only paper will do.