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5 Things To Ponder: Sex, Money And The Carry Trade

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

In last week's newsletter, I discussed the return of "Bad News Is Good News" as the driver of the markets.  This week saw the continuation of that theme as one economic report after another came in far below expectations.  The question remains, and something I discussed this week on The Willis Report, is whether it is actually all just a function of the weather?  Of course, there is something inherently wrong with driving asset prices higher based on hopes that a weaker economy will keep the Fed's "liquidity fix" flowing to drug addicted Wall Street traders.  Under that theory, we should be rooting for an outright "depression" to double our portfolio values.  But, when put into that context, it suddenly doesn't make much sense.  Yet that is the world in which we live in...for now.

Therefore, as we wind down the week on this "options expiry" Friday, here is a list of things to think about over the weekend. 

1) The Economics Of Sex by The Austin Institute

This first bit is really just something I found interesting.  The essential mission of the Austin Institute is the dissemination of both thought-provoking and rigorous academic research on family, sexuality, social structures and human relationships.  The "economics of sex" is interesting from the standpoint that the value of "sex" has fallen precipitously over the last few decades due to scientific advances and the decline of the "moral" fabric in society.  What would it take to cause that "price" to once again rise?

 

2) Hayek On Keynes:  "Economics Was A Sideline For Him" via Zero Hedge

"Keynes will be remembered as "a man with a great many ideas that knew very little economics," Friedrich Hayek notes in this brief interview and when challenged on his 'parochial' knowledge of economic history he was "not sheepish in the least... he was much too self-assured." Hayek's perspective casts Keynes in a very different light than his fan's apostolic adoration might suggest, "he was utterly contemptuous of anything that had been done before." While Hayek describes Keynes as one of the most intelligent people he had known, he perhaps sums up the man's work in this brief phrase - "economics was just a side-line for him." As we note below, many describe Keynesian policy as 'dumb', however a more appropriate word would be 'foolish'."

 

3) Harry Dent's Big Buy Signal via Above The Market

In the late 1980s, Dent forecast that the Japanese economy, then the darling of the world, would soon enter a slowdown that would last more than a decade. In the early 1990s, he predicted that the DOW would reach 10,000. Both of these predictions were met with much skepticism, and yet both eventually came to pass.  In late 2006, he estimated the Dow would reach 16,000 - 18,000 and the NASDAQ 3,000 - 4,000.

In his 2011 book, he suggests that consumer spending will begin to plummet in 2012 with the Dow bottoming out somewhere between 3,000 and 5,600 in 2014.  After hitting bottom, stocks will experience a mini-rally in 2015-2017 before falling into a final bottom during the 2019-2023 period, when the 45-50 age group troughs because the U.S. birth rate reached its own low in 1973. 

PCE-imports-022114

Robert Seawright takes Dent to task with a recent missive.

 

"Now marketing himself as a “rogue economist,Harry Dent is forecasting “gold down to $750 an ounce, housing down 35%, oil down to $10 a barrel, the Dow down to 6,000, [and] a war between inflation and deflation” this year. The headline is indeed shocking:

 

If Only HALF of Harry’s Forecasts Come to Pass, the American Life We Know Will Disappear for Good!"


However, as a long term investor, I think we need to set aside "predictions" for a moment.  The question we should be thinking about is whether Dent's work on demographics has merit...or not?

 

4) Understanding The Carry Trade By Joseph Stuber

There is much debate over the Fed's ongoing "quantitative easing" programs and whether or not there is an actual effect on asset prices.  Joseph did a good job at explaining how the Fed's programs creates the "carry trade" that lifts asset prices.  This also explains why the markets are so fixated on the Fed's "tapering" commentary.

"The reason it matters to investors is that stock and bond prices have benefited greatly from QE and deficit spending. Not only has QE expanded M2, but a large portion of that M2 has found its way directly into stocks, pushing equity valuations higher and higher. The reason QE hasn't produced significant economic growth is in part the fact that the money created on the front-end of this process has been invested in risk assets rather than flowing into the economy to stimulate GDP growth.

 

Here is a simple graphic that demonstrates this dynamic:"

QE-how-it-works

 

5) QE Is Here To Stay via Pragmatic Capitalist

I have discussed previously that the U.S. is likely now caught in a "liquidity trap."  Cullen's comments regarding "QE-4EVA" is suggestive of that view being correct.

"Why do I think this?  Well, first of all, the Fed’s balance sheet is going to remain large for a long time because the Fed isn’t going to shrink its balance sheet by selling assets.  So the effects of QE are here to stay.  But more importantly, I think the economy is operating at a muddle through pace for reasons I’ve discussed previously and that means that the Fed will maintain an accommodative interest rate structure for some time.

 

The interesting thing about this potential world is that it means QE is the new policy tool of choice.  In other words, QE could potentially replace interest rate policy as the primary policy variable.

 

QE is probably here to stay in some form for the foreseeable future.  In fact, it could become THE policy tool of choice in future business cycles…"


As always, I hope that you will have an enjoyable weekend.

 

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Fri, 02/21/2014 - 18:12 | 4463384 F-Tipp
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One thing I take away from all these number articles is to go long photoshopped number graphics.

Fri, 02/21/2014 - 18:31 | 4463395 Cult_of_Reason
Cult_of_Reason's picture

"Deeply Divided Ukraine?" Where is that idiot Martin Armstrong? Kharkiv is in Eastern Ukraine.

"Down with Zack" - in Kharkiv Yanukovych met thousands of protesters

http://translate.google.com/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&i...

http://www.youtube.com/watch?v=s72NLnabzcY

P.S. I was told that in Ukrainian "Zack" means a criminal.

Yanukovych escaped from Kiev

Ukrainian President Viktor Yanukovych instructed to take out valuables from the Presidential Administration, as well as his residence in Mezhigorie. Commander in Chief of this learned from sources in the Office of the State Guard, who prepared the departure airport Gostomel Yanukovich in Kharkov.

Plane left there at 22.40.

The plane was chartered by the route Kyiv-Kharkiv-Mariupol-Russian Federation.

Administration of the President Yanukovych in his residence did not return.

Also, the source reports that the entourage of President resettled protection armored vehicles, in particular, on Toyota Land Cruiser and Mercedes transit German numbers.

http://translate.google.com/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&u=http%3A%2F%2Fglavcom.ua%2Fnews%2F186940.html&search_plus_one=form&act=url

Putin's puppet dictator jumped on a plane to avoid the protesters' deadline tomorrow and justice? Coward!

Protesters threaten violence if Yanukovych doesn't resign now

President Viktor Yanukovych received an ultimatum from militant protesters on EuroMaidan: Resign now or else.

http://www.kyivpost.com/content/politics/protesters-threaten-violence-if-yanukovych-doesnt-resign-now-337343.html

Fri, 02/21/2014 - 18:31 | 4463435 Levadiakos
Levadiakos's picture

The people of and are toppling their socialist overlords. We're still re-electing ours.

Fri, 02/21/2014 - 18:35 | 4463448 NOTaREALmerican
NOTaREALmerican's picture

Our socialism give loot to over 50% of the population.

The key to socialism is keeping just enough people happy.

Show of hands of how many love their OWN Big-Gov socialist scam?

Fri, 02/21/2014 - 18:42 | 4463463 Levadiakos
Levadiakos's picture

Our promise to cut spending AFTER the debt ceiling is raised is a little like Bill Clinton promising an intern an engagement ring

Fri, 02/21/2014 - 19:12 | 4463471 Cult_of_Reason
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Kharkiv is in Eastern Ukraine right next to Russia.

PUTIN IS NEXT!

TIPPING POINT .. when Police backs off .. & military REFUSE to kill their own citizens... PLUTOCRACY loses.

BTW, the government official from Crimea (another Putin's puppet in Ukraine) who was threatening yesterday to push for Crimea separation from Ukraine is under arrest.

Fri, 02/21/2014 - 19:12 | 4463529 The Vineyard
The Vineyard's picture

OK.  OK.  Capitalism good.  Socialism bad.  We get it.  However, I still want Uncle Sam to fix my teeth for free.  Bitches.

Fri, 02/21/2014 - 20:56 | 4463682 Cult_of_Reason
Cult_of_Reason's picture

Security Service in Kharkiv is burning documents.. Reminds me of East Berlin in late 1989

https://twitter.com/EuromaidanPR/status/436652554697465857/photo/1

Zaharchenko already in Belarus

Acting. Interior Minister Vitaly Zakharchenko fled from Ukraine to Belarus.

This in his " Facebook "wrote Tatiana Mokridi.

"Zaharchenko just crossed the Ukraine-Belarus border", - said the activist.

February 21 deputies supported the decision of suspension from duties and. about. Interior Minister Vitaly Zakharchenko.

Late in the evening on February 21 MP from the "Fatherland" Andrew Paruby, citing its own sources, said today Zaharchenko plans to flee the country. He also said that if the former interior minister did leave the country, it announced an international search.

Recall a few hours earlier, President Viktor Yanukovych, Parliament Speaker Volodymyr Rybak and head AP Andriy Klyuyev flew in Kharkiv.

http://translate.google.com/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&i...

Fri, 02/21/2014 - 19:58 | 4463676 bilejones
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Yet the top tax rate in Putin's socialist hellhole is 13%, half that of Ronnie Reagan's capitalist paradise rate.

Funny dat.

 

 

Fri, 02/21/2014 - 20:10 | 4463691 Cult_of_Reason
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Oil and gas exports account for more than 50% of Russia’s budget revenue; hence, "low" federal income tax rate at 13%, BUT there are other additional taxes in Russia, as VAT at 18% rate.
http://www.zerohedge.com/news/2014-02-21/russia-freezes-aid-ukraine-urge...

Fri, 02/21/2014 - 19:03 | 4463503 LMAOLORI
LMAOLORI's picture

 

 

As Norman Thomas (who got a million dollars from the CIA) said...

 

"The American people will never knowingly adopt Socialism. But under the name of 'liberalism' they will adopt every fragment of the Socialist program, until one day America will be a Socialist nation, without knowing how it happened." -- Norman Thomas, Socialist Party Presidential Candidate and co-founder of the American Civil Liberties Union (ACLU).

http://news.google.com/newspapers?nid=1314&dat=19670226&id=2AAzAAAAIBAJ&...

Fri, 02/21/2014 - 19:21 | 4463563 NOTaREALmerican
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Re;  American Civil Liberties Union

Interesting.  One of the organization fighting the NSA.

Looks like we're just stuck with the socialist (smothering-mommy) and fascists (kick-ass daddy) fighting it out in the USA,  like everywhere else. 

Fri, 02/21/2014 - 20:59 | 4463835 calltoaccount
calltoaccount's picture

 

"Re;  American Civil Liberties Union

Interesting.  One of the organization fighting the NSA."

 

And damn grateful we should be for anyone stepping forward.

 

 

ACLU v. Clapper – Challenge to NSA Mass Call-Tracking Program ... https://www.aclu.org/.../aclu-v-clapper-chall...
 
American Civil Liberties U... 

Jan 2, 2014 - The ACLU has filed a lawsuit challenging the constitutionality of the National Security Agency's mass collection of Americans' phone records.

 

 

 

 

Fri, 02/21/2014 - 20:51 | 4463815 calltoaccount
calltoaccount's picture

you guys can't seem to get it straight :  F A S C I S M

socialism is something else.  

but comrade goebbels wouldn't mind your confusion

Fri, 02/21/2014 - 18:18 | 4463404 HyBrasilian
HyBrasilian's picture

Lance Roberts [Bless your soul]... You worry about 'INNbux' [& HAL computers] & the carry trade... I'll worry about the SEX while you're occupied with that...

Fri, 02/21/2014 - 18:20 | 4463409 TeamDepends
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Keynes was also hung like a doormouse.

Fri, 02/21/2014 - 18:33 | 4463441 Levadiakos
Levadiakos's picture

He nicknamed it "Hairy Dent"

Fri, 02/21/2014 - 18:27 | 4463427 NOTaREALmerican
NOTaREALmerican's picture

Keynes freed humans from the moral stigma that borrowing was immoral.

Is that Japanese lady still involved in the Carry Trade?   I remember a few years ago when she living off that and when she stopped the world would end.

I thought Harry Dent was a character in a Star Trek episode?

Fri, 02/21/2014 - 18:40 | 4463457 Levadiakos
Levadiakos's picture

Obama was seen recently at a Star Trek convention dressed as that tall black guy with the huge bumpy forehead

Fri, 02/21/2014 - 18:32 | 4463440 Yen Cross
Yen Cross's picture

    This my friends is what you call "Zero Price Discovery". The Fed. has it's claws in almost every asset class and category.(blackmarkets excluded)

    When this house of cards comes crashing down the destruction will be amplified by many magnitudes of 2008.  This, because of the complacency, corruption, graft & greed, that the Fed. has promoted in the financial and equity markets.

Fri, 02/21/2014 - 19:06 | 4463514 ATG
ATG's picture

Let's ponder this as the Sushi Olympics wind up with a big bang

 

http://usnvrepcan.blogspot.com/2014/02/i-am-citizen.html

Fri, 02/21/2014 - 19:07 | 4463516 GFKjunior
GFKjunior's picture

The Austin "Institute" is a garbage organization of neo-cons. They are not liked in Austin. The group is right wing trash run by a snobby Yale alum and a collection of east coast sociologists, economists, and humanitarians. 

Fri, 02/21/2014 - 19:10 | 4463523 ebworthen
ebworthen's picture

Economic alchemists trying to turn lead into Gold while the bankster mafia robs the public treasury.

Execution is the crime for treason.

Fri, 02/21/2014 - 20:35 | 4463782 22winmag
22winmag's picture

Like the scene in Swordfish where Travolta shoots the senator through the heart... for treason.

 

We need some real life Gabriels and fast!

 

http://www.imdb.com/title/tt0244244/

Fri, 02/21/2014 - 19:43 | 4463638 pashley1411
pashley1411's picture

Great article.   QE is the inevitable tool, whether of choice or not, because once interest rates are (effectively at) zero, interest rates can't be used anymore.   So policy makers next go to ===>

QE/money printing.   Once the value of the currency goes to zero, then QE will no longer be a useful tool, so policy makers next go to ===>

rifles and firehoses.

Sat, 02/22/2014 - 09:46 | 4464743 d edwards
d edwards's picture

The carry trade chart was helpful to me-I always wondered how $$ got from the Fed to the stock market.

Sun, 02/23/2014 - 04:25 | 4467369 TheCosmicTaco
TheCosmicTaco's picture

I clicked on this because I saw the words sex and money. Now I am disappointed. Where's the sex? I was expecting at least a self shot of Yellen's taco...

Mon, 02/24/2014 - 03:59 | 4470045 Cashcollateral
Cashcollateral's picture

Ah Harry Dent. Was he predicting this before or after he predicted the Dow would go to 40,000? What about when both of his flagship mutual funds went out of business?

Morons, and by extension those who serve to populairse the writings of morons deserve to be ignored.

By this token, the Tylers need to start positing under individual identities so I can tell which ones to read and which to ignore for future...

Do NOT follow this link or you will be banned from the site!