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Quote Of The Day: Central Bank Fairy Tale Edition
Markets have moved from fiction to pure fairy tale. As Bloomberg's Simon Kennedy notes, in the last week we have seen Ed Yardeni cite "The Wizard of Oz", International Monetary Fund Managing Director Christine Lagarde went with both “Alice in Wonderland” and Harry Potter, and Stephen King - the HSBC chief economist, not the author - trolled the fantasy aisle. All with a similar message - that despite the current weakness in global stocks - there is more room to fall...
The reason is that just as global growth is weakening again, central bankers who sustained much of the expansion are running out of ammunition.
“Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth,” said Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “Even the wizards are admitting that their powers to do so are limited.”
To King, markets spent most of this year caught up in a fairy tale that policy makers were on top of things.
“Like most fairy tales it can’t be true in reality,” King told a conference in Washington last week. “There’s something wrong with it.”
And finally...
Spinning a real-world warning from the film “The Big Lebowski,” Alberto Gallo of Royal Bank of Scotland Group Plc tells investors “you’re entering a world of pain.”
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Curiouser and curiouser...
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Neither blue nor red.
I'll take the gold pill.
Pricks require the blue pill.
Central Banking is central theft
Central banking is a crime against humanity!
Guess which pill I took
Neither, those look like jellybeans...
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...
www.job-reports.com
Hey, that's a good impersonation of a central banker. Now try to impersonate a rational human.............yeah, I didn't think you could.
Central Bankers cruise the Titanic
Looking behind the curtain reveals an old man operating a printing press. When asked why he continues to do this after the Emeral City has burned to the ground, he proudly states it's all I know how to do.
Because he makes a lot of money for the Lords of Emerald City fleecing the people of the realm. And Dorothy was wearing silver slippers and walking on a gold brick road. Not ruby and yellow brick. I wonder how the synagogue goers of Hollywood knew they needed to change the 'scrip'?
Adelle - Skyfall
All with a similar message - that despite the current weakness in global stocks - there is more room to fall...
Ill post a comment I mentioned in the Brent Crude Crash thread. Just because it will hel me sleep better.
If the price of oil keeps dropping, whats stopping Russia or China from dumping dollars into the market to buy up oil? Then after dropping the cash and flooding the market, wouldnt that make the price of oil skyrocket against the dollar? Also, at that point, what would be stopping Russia and China from repricing their oil surplus in BRICS denominations and putting them on sale in the oil market? Would countries rather buy taht oil? And even if they lost a few hundred million in the move wouldnt be cheaper than all out war?
Does that make sense to anyone? Or am I totally wrong in this line of thought?
At least you are thinking. That puts you up over these guys by a league or two.
Thanks, but in all honesty, compared to a banker...that dont take much ;) this is a serious question I have though. I mean, to me that would make sense. But, I dont know if thats how it would work, wanted some of the folks that are way over my head to help me figure that out. Just because its what I would do, dosent mean it can be done. Just seems like a logial move against a cum drunk enemy.
Where would they store it in the meantime? Can't have dozens of supertankers just sailing the oceans in circles, or could they?
Cant they just buy the fixed price and take delivery at the contracted price as sold? I guess the seller could reneg, but that would be an act of war?
Or, I could imagine given the Chinese capacity for manufacturing they could whip up several hundred starage tanks per week. Or just buy them on Ali-Baba! I really dont know, but I seriously have a weird feeling about all of this. It just seems...off....could be the scotch talking though.
It is a good theory, Russians would be killing a couple birds with that stone.
It is easy enough to pump oil back down the hole.
Just like storing gaz underground.
They could not buy enough oil to empty thier dollar wad because everyone else is buying oil too. As abbie mentioned where would they put it all. Russia sells the stuff so they would not be a buyer, they are a seller. If your idea worked USA could simply buy all the oil for the next 10 years with printed dollars and destroy the world.
Clearly you've never heard of Ar-bi-trage.
Yes supertankers can and do act as floating storage. US oil imports are down so I'm sure a bunch of tanker capacity is marginal or unprofitable. Why not fill them up and gamble on some currency arbitrage? Goldman is that you?
If they put the oil on the market in BRICS currencies, demand for those currencies will drive their value up against the dollar, which hurts their export economy. Everyone wants their currencies to be weak v. the USD because it helps their exports. This is where the "race to the bottom" concept comes in with JPY, RMB, EUR all trying to position lower against USD.
Edit: I should add that Russia and China are trading outside of USD, but presumably in a trade-neutral way as to not affect their external exchange rates. E.g. they're explicitly NOT putting the oil on the market but doing a "side deal." This does reduce demand for dollars (weakening the USD) but in a different way than the oil deal you're proposing would.
Okay, Im with you so far. So in a way wouldnt what I suggested be more of a "shock and awe" approach? Not outside the realm of possibility, but unlikely only for the fact that those countries, at present, desire USD for a trade mechanism? So if the USD is exposed as weak, couldnt a move like that signal a shift in power? So my question would be this. What would be stopping the trade between the countries fleeing USD? And also, wouldnt emerging markets be more likely to invest in a currency that is showing a strong position, thus encouraging those countries to reposition their currencies with a strengthening BRICS exchange? Also, if this scenario did play out, wouldnt our very own SWIFT policy put us at even greater risk since we would be asking for even more USD for the same amount of product, so wouldnt that flood the fiat market even further since they would be pouring in even more rapidly as various countries began fleeing the weakest position?
Sorry for going over this again, but this seems like a very vulnerable weak position to be in, considering the political climate. Not being argumentative just asking! :)
You are about 60 days ahead of yourself. Kudos for anticipating the next move in response to this price smash in oil. What you outline will likely happen if Putin takes the bait. In fact, I'm of the opinion that these moves by the US are 100% incendiary and provacative, trying to get Putin into a war but Putin won't bite. When he does bite, the US is in for a bit of a shock, because he has China and others with him. Should be interesting.
A common, repeatable mistaken assumption since the end of WWII is that Russian (or Soviet in prior iterations) and Chinese interests overlap.
Even now, with warmer relations between the two nations, China is nowhere near the point where it can afford to alienate the U.S., and a simple look at China's trade balances/imbalances with its trading partners will confirm this.
It's basic calculus. Or basic calculations.
And by the way, China is in a world of hurt right now given its intense dependence on exports and its rapidly cooling domestic economy.
I was going to head to bed trulz but now you've got me thinking about this sort of scenario. 8 hours was going to be great!
"So if the USD is exposed as weak, couldnt a move like that signal a shift in power?"
Ding ding ding, we have a winner. The key here is that's a signal for the end of the game, not a play during the game.
What is stopping trade between countries fleeing the USD? Having significant business with the US. China, for example, is utterly dependent on exports to the US, to leave the USD would kill their US export trade and literally kill the Chinese economy. So they won't do it.
What you are seeing is countries making precise non-USD trade agreements, likely set up to be completely balanced in trade. This lets them escape the USD without dealing with currency surplus/deficit issues -- but that type of arrangement is explicitly not something that happens with a reserve currency (after all, you store your funds in a reserve currency, and they're avoiding that storage issue... for now.) You are seeing a lot more emerging market trade happening either in RMB or via these exchange agreements.
"...greater risk since we would be asking for even more USD for the same amount of product"
What I think you're actually trying to describe is when other countries disgorge themselves of USD, there are more USD outside the US available for purchasing the same amount of goods, and you end up with price inflation because people are dumping dollars (e.g. they're getting rid of them because of perceived excahnge risk and lower value.) This isn't due to higher prices being demanded, it's due to oversupply of currency. There's a term for this, it's called hyperinflation. As above, this happens at the end of the game, not a play during it. It's what you get when a reserve currency loses its "reserve" status.
Cheap oil is a boon to China right now, they still have (fake) growth. Low oil hurts Russia, some MENA. Hurts US frackers, will close down, loss of jobs. Oil will go back up with vengeance.
A better idea than that would be if Russia and China have been secretly shorting oil since it was $110.
Then when the demand panic and the jumbo fracking supply panic and various and sundry rumors hit the pits, Russia and China start dumping their current production hand over fist on the spot market.
Finally after it is announced that abiotic oil is discovered in the Crimea. Oil starts to trade in single digits, when the 2 naughty countries start covering their shorts to prevent the price from going negative.
It seems to me that they could probably move the markets in the short run, but supply & demand will still win out longer term.
Russia already has a lot of oil. Maybe they could just store it, but if they dump it on the market they haven't really gained anything.
Rather than buying it, I suppose they could just cut back production and spend down the dollars they have...
But they might also consider the exact opposite tack. Cutting back or buying up a lot to try and raise prices helps their competitors. Alternatively, they could try and flood the market and bankrupt some of those shale market plays and other high cost competitors. That might also hammer some of the derivative players. Who knows, as leveraged as some of those guys are they might cause a cascading problem there for some folks, if that is something they would shoot for. They could play the other side of those bets before they made their move to recoup some of their losses perhaps.
If I Only Had a Brain - The Wizard of Oz (4/8) Movie CLIP (1939) HD
http://www.youtube.com/watch?v=nauLgZISozs (2:41)
Follow The Yellow Brick Road The Wizard Of Oz YouTube
http://www.youtube.com/watch?v=1cwCIkKFFR4 (1:00)
The recent drum beats and flames of war have distracted many people from focusing on the economy. The markets are extended beyond beyond, all this comes at a time when the IMF is calling for more QE.
It seems this might be a good time to review the reasons this is economically unsound at a time markets are setting new record highs as economies continue to struggle. The policies of the last six years have yet to produce the desired and expected results promised. As a consolation many economist, bankers, and those who have benefited greatly tell us we would be in far worse shape if we had not taken this course. Now it seems Central Banks and the IMF are clueless on how to proceed and a policy going forward. More on the lack of a clear path in the article below.
http://brucewilds.blogspot.com/2014/09/central-banks-and-imf-clueless-on...
Rumpelstilzchen
Yes, MarsInScorpio, "Investors around the world are shocked, shocked..." is another movie reference to faux astonishment.
But now you know cuz you hang out with us ;-)
The only thing to do when a person is wrong is to be right, by ceasing to be wrong.--Jesse Livermore
One of my heroes.
There are a thousand ways to be wrong, and only one way to be right. Do the math here simpleton, we already know which side ur on.
The Central Banks are full of shit. They somehow thought that by pulling the money levers they could solve demographic problems, ebola problems, deficit problems, geopolitical problems etc.
And the rest of the population with the exception of most ZH readers have shit for brains for not only believing the Central Bank mantra but also for hitching a ride with them.
Let the axe swing and let it fall where it may at the direction of a free market or else risk the axe falling by the hand of an angry mob.
I agree, except that I'm about ready to hand the axe over to the angry mob if they'd like to eventually get angry enough to deserve to wield it
Consider yourself lucky that I am willing to listen to you. Pay no attention to the man behind the curtain. The great and powerful Oz has spoken.
"Investors are shocked..." no, investors are stupid and deserve anything they (don't) get. Sheeple.
Disingenuousness surpassed only by their cowardice and moral bankruptcy.
It is not greed. It is not corruption. It is blackmail. Fear is the only currency in their worlds these days.
Toto has pulled back the curtain
And Dorothy wants to go back to the safety of Auntie Em in Kansas
You can't get a happier ending than that
Well maybe you can but only in a massage parlor
blue-pill : eyes-closed, slavery
red-pill : eyes-open, a chance
no pill : awake, alert, sane
Artifical actions = artificial results!
We all should of known this by now.
So a question I've had for a while, if they untaper and QE4 what good will it do? Still no wage inflation in sight... Fed wants it but can't get it. Surprise, surprise, communism doesn't work.
It's still not communism.
I think it's like using a rope to pull a car that's hopelessly stuck in a mud pit. This global economy is suffering from the effects of having demand pulled forward for too long through the use of credit, and it's just not going to be pulled forward anymore. No matter how they try.
They'll just have to blow up the car with Hellfire missiles and the foreign factories making them. That should solve the aggreagate demand problem.
They will now have to move in the direction of tax cuts or tax rebates or gigantic public works programs to get the money out and circulating in the Main Street economy. The Fed will now have to convince the Congress to support even greater deficit spending.
How about we try taking the foot off the gas pedal of the "you didn't build that" economic agenda?
"central bankers who sustained much of the expansion are running out of ammunition."
Yellen & Co. respond:
"I know what you’re thinking: 'Did they fire four shots or only three?' Well, to tell you the truth, in all this excitement, I’ve kinda lost track myself. But being this is QE, the most powerful stimulus in the world, and would blow your short SPY positions clean off, you’ve got to ask yourself one question: 'Do I feel lucky?' Well, do ya, punk?
Them wizards are really lizards.
Follow the Yellow (gold) Brick Road, bitchez!