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A Furious Albert Edwards Lashes Out At Central Bankers: "Will These Morons Ever Learn?"

Tyler Durden's picture




 

Albert Edwards is angry, and understandably so: almost exactly two weeks after warning readers to "sell everything and run for your lives" and the market was on the verge of its first correction in years, several powerful verbal interventions by central banks from the Fed, to the BOJ to the ECB have staged yet another massive rebound which has nearly wiped out all the October losses.

Central-planning aside (and ask how much the USSR would have wished for central planning to indeed have been "aside") we share his frustrations, almost to the point where we would reiterate word for word Edwards' furious outburst, as follows: "Simply put, the central banks for all their huffing and puffing cannot eliminate the business cycle. And they should have realised after the 2008 Great Recession that the longer they suppress volatility, both economic and market, the greater the subsequent crash. Will these morons ever learn?"

Obviously, they will never will because their very entire existence is based on the assumption that what they do can impact the business cycle when all it does is merely delay the inevitable. In this case, a recession whose arrival will be so violent, it will crush not only US stocks, but the overall economy, which has for the past 6 years existed purely on the Fed's CTRL-P fumes. Fumes, which by the looks of things, will evaporate at just the worst possible moment: just when half of the world's entire growth in 2015 is expected to come from the US (the other half from China).

So what is it that has peeved Edwards so much about the latest mispricing of, well, everything by the Mandarins of Marriner Eccles:

The bottom line is that there is far too much over-confidence in the US recovery. Fragile and vulnerable in itself, the US recovery now battles against the rest of the world, which like a horror movie is dragging it down into a hellish Ice Age underworld. The problem is that at, these stratospheric valuations, the market does not need to suffer an ACTUAL recession to see a crash. Like October 1987, just the fear of recession will be enough to trigger a massive market move.

Specifically, Edwards looks at implied inflation expectations - remember, this is critical for a recovery in a Keynesian context - and finds none.

The problem is that most risk assets, and especially equities and corporate bonds, are very expensive and priced for a long cycle. Meanwhile, this recovery has failed to generate any cyclical upward pressure to inflation - indeed quite the reverse. The global economy resembles a knackered old V8 engine which is now only firing on one cylinder (US). Hence, any data suggesting that the US economy is now also flagging were always likely to cause a meltdown as investors feared the imminent arrival of Japanese-style outright deflation. We note with interest that US 5-year inflation expectations in 5 years’ time have not fallen anything like as quickly as 5y expectations (see chart below). This suggests to me a continued misplaced market (over)-confidence about central banks’ ability to control events

 

Sure enough, the events from last week showed just how fast and how violent such a move would be, at least until the central bankers stepped in once again, and with chatter of QE4, made sure bad news if good news again, if only for a few weeks. However, with just one more POMO left, if only in theory, the fears of how the global economy will fare without the Fed's monetary tailwind propping up everything are going to resurface very fast.

And it is not just the US where the market is underpricing risk. Look at the chart at the top: that's right, the other place where Edwards is focusing on is China itself.

Two key items of Chinese data seem to have escaped close investor attention over the past week – maybe because of the flash crash. While I mentioned last Wednesday, what really surprised me that day was not the reaction in the wake of the US retail sales, but the fact that there was no reaction to the overnight news that China’s CPI inflation had slid to only 1.6% in September from 2% - I expected that to trigger a strong US Treasury rally in the European morning. Anyway, we have long warned that CPI inflation would gravitate downwards towards the GDP deflator, and that is indeed what is happening. Along with the 7.3% Q3 GDP data, the GDP deflator was also released showing economy-wide inflation is only around the 1% mark. Clearly, China too remains at a deflationary  precipice.

 

Source: Datastream


Finally, I was also surprised to see that the $100bn decline in China’s Q3 FX reserves, the largest quarterly fall ever, drew limited comment. As I have explained, this reflects deterioration in Chinese competitiveness from its excessively strong real exchange rate and a deteriorating of its balance of payments. If we have been warning that slower growth in FX reserves represents monetary tightening, then a decline of this order of magnitude is like a credit crunch! These data will ultimately prove to be more important than last Wednesday’s US retail sales. As I said two weeks ago “sell everything and run for your lives”.

 

So if Edwards is right, and the only two sources of growth in 2015 are taken out of the picture, watch how from 4% growth in 2014 the world grinds to an economic halt in the coming year. Which of course, would mean a global recession, if not worse, and this time not all the snows in Antarctica will save the narrative.

The only question is Edwards will be right this time, or if the "morons" will once again have the last laugh?

 

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Thu, 10/23/2014 - 19:23 | 5369820 tawdzilla
tawdzilla's picture

"Will these morons ever learn?"

There is no incentive for them to learn.

Thu, 10/23/2014 - 19:31 | 5369855 Charles Wilson
Charles Wilson's picture

Amen, and you wouldn't "learn" either if, with every transaction you got a small percentage of the take placed into your bank account.That's how you get to move into a $32 mill house away from the Riff-Raff.

I wouldn't want to learn my lesson either.

Thu, 10/23/2014 - 19:47 | 5369923 SWRichmond
SWRichmond's picture

the central banks for all their huffing and puffing cannot eliminate the business cycle

Of course not, but they CAN make the swings a lot bigger, on their own timing, which they control.

Cui bono?

Thu, 10/23/2014 - 19:54 | 5369954 XitSam
XitSam's picture

They won't learn because they think they are doing the right thing. 

Thu, 10/23/2014 - 20:49 | 5370172 pods
pods's picture

I think the main problem with all these articles is the false assumption that these central bankers are working for our benefit.

They are working for their owners.  And that ain't us.

Simple as that. If we benefit, it is a byproduct of their mission, not the goal.  Positive collateral damage if you will.

pods

Fri, 10/24/2014 - 01:31 | 5371133 Wild Theories
Wild Theories's picture

collateral benefit, I like that

kinda like standing downwind of a crackhouse on fire

Thu, 10/23/2014 - 19:58 | 5369963 ebworthen
ebworthen's picture

$250K+ per year with all the .gov benefits and catered meals.

$250K per speaking engagement or a cushy job on Wall Street after retirement.

Yup, zero incentives there, besides no incentive to piss off their bankster masters while on the job.

Thu, 10/23/2014 - 20:11 | 5370022 Conax
Conax's picture

 

+1

Them ten-penny nails burn, man.

Fri, 10/24/2014 - 00:14 | 5370979 Implied Violins
Implied Violins's picture

Ring-shank nails are the new hollow points, man:

http://homerepair.about.com/od/interiorhomerepair/ss/nails_types_6.html

Those go in, they ain't comin' out without a pound'o'flesh attached.

Thu, 10/23/2014 - 20:19 | 5370059 teslaberry
teslaberry's picture

they learn perfectly. they print money for year after year, and they get shit ass rich. so they keep doing it. it doesn't stop until the pavlovian effect of getting rich after printing money stops.

 

and that doesn't stop until everyone is so destitute, that something breaks. 

Thu, 10/23/2014 - 19:25 | 5369825 nosoeawe
nosoeawe's picture

comparing morons to central banksters is an insult to morons everywhere

Thu, 10/23/2014 - 19:26 | 5369832 kaiserhoff
kaiserhoff's picture

The massive grain harvest has cut prices in half.  That will slowly, very slowly cut food prices over the next year, probably more, as will the decline in energy costs.

Deflation is looking good.  Bullish, but then, everything is.

Thu, 10/23/2014 - 19:35 | 5369845 ghostofgo
ghostofgo's picture

What makes anybody think that the oligarchs want the economy to improve?  They fucking HATE the middle class with all their guts.  Should be fucking obvious at this point.  They want everybody completely fucking powerless.  The goal is to keep things just like this FOREVER.  Tighten the fucking shackles a bit tighter every year.  They'll give you gay marage, weed, and a phone. 

Thu, 10/23/2014 - 20:32 | 5370102 teslaberry
teslaberry's picture

this is what is so infuriating about the political left.

even the ones who aren't just thoughtless morons, are naively sucked into the view that feminism egalitarianism and legalism and weedism and gayism and the suite of identity politics based pandering-ism is going to make everyone good and better off.

panderology is now the opiate of the masses. it is the secular religion of pander-ology that is now the main dialectical weapon, NOT RELIGION, wielded by the modern oligarchs against the people, to distract from the slow and persistent destruction of their property rights, right to privacy and securities in communications and things, to their general liberties, and their abilities to participate in competitive free markets that can provide them a reasonable price for their food, their labor, their interest bearing upon savings,

panderology is used to distract the liberal left from the major issue, which is big brother and big banker. and the fucking morons on the left just lap it up like dog vomit.

Fri, 10/24/2014 - 01:57 | 5371165 livefreediefree
livefreediefree's picture

Wow, Tesla. You adopted the vernacular, rhythm, and hyperbole of the left, and almost perfectly inverted it. Awesome.

Thu, 10/23/2014 - 21:46 | 5370470 So It Goes
So It Goes's picture

Dude,

Wise up.  They give you football, McDonalds, and religion - for Christ's sake.

Thu, 10/23/2014 - 23:34 | 5370830 HomersGhost
HomersGhost's picture

Excellent comment.

Do you have an obama phone?

http://youtu.be/Ax-2i71bqGw

Thu, 10/23/2014 - 19:32 | 5369856 jubber
jubber's picture

guess he got his shorts rammed up his arse like everyone else...

Thu, 10/23/2014 - 19:36 | 5369872 Bumbu Sauce
Bumbu Sauce's picture

Quit presupposing that they are trying to do good.

Thu, 10/23/2014 - 19:36 | 5369876 ListenToTISM
ListenToTISM's picture

They learnt everything they needed to know more than 100 years ago.

The masses' propensity to live by the saying 'never ascribe to malice that which can be explained by incompetence' only serves to assist the malicious and the incompetent.

The central bankers are making a mint - do really think they are incompetent?

Thu, 10/23/2014 - 19:41 | 5369893 disabledvet
disabledvet's picture

I say "do not run from Full Retard but embrace it!"

Every one of these clowns is a NATIONAL SOCIALIST and an ASPIRATIONAL HERMANN GORING.

The question is not to panic but "let the panic come to you."

I agree...this is speculative on my part...but its not levered and not dependent on fairies and unicorns!

Thu, 10/23/2014 - 23:30 | 5370835 HomersGhost
HomersGhost's picture

"Every one of these clowns is a NATIONAL SOCIALIST and an ASPIRATIONAL HERMANN GORING.
"

Nazi!
Holocaust!
666 million!

Thu, 10/23/2014 - 19:48 | 5369926 I Write Code
I Write Code's picture

This is what they call a rhetorical question?

Thu, 10/23/2014 - 19:50 | 5369934 SillySalesmanQu...
SillySalesmanQuestion's picture

C'mon, these are 1st class, grade A, 24 karat, cream of the cream, professional, thieving, lying, cocksucking, motherfucking, certifiable morons.

God I miss longsoupline...he was much better at this.    ;)

Thu, 10/23/2014 - 19:51 | 5369941 I Write Code
I Write Code's picture

Three things make earth unquiet
And four she cannot brook
The godly Agur counted them
And put them in a book –
Those Four Tremendous Curses
With which mankind is cursed;
But a Yellen when She Fedeth
Old Agur entered first.

Thu, 10/23/2014 - 19:50 | 5369944 Thisson
Thisson's picture

So how to you invest in a global recessionary environment?

50% gold as a deflation hedge and 50% silver as an inflation hedge?

Fri, 10/24/2014 - 00:17 | 5370986 Implied Violins
Implied Violins's picture

Don't forget 50% lead. 100% of this market is half metal.

Thu, 10/23/2014 - 19:53 | 5369947 q99x2
q99x2's picture

With the money they are raking in. I hope they don't learn any more.

Thu, 10/23/2014 - 19:54 | 5369955 kchrisc
kchrisc's picture

I wish that people would quit calling these people "stupid" or "morons."

Stupid or moronic, they are thieves.

An American, not US subject.

 

"My guillotine doesn't care either."

Thu, 10/23/2014 - 19:57 | 5369969 Kreditanstalt
Kreditanstalt's picture

Seems like all these Masters of the Universe expect to be able to get out through that little teeny-tiny door when the CB liquidity music stops...

Thu, 10/23/2014 - 20:15 | 5370046 Irishcyclist
Irishcyclist's picture

As the crisis goes in to it's 7th year, central banks and all the other "solutions" have failed to solve the crisis.

Perhaps that was the purpose?

Thu, 10/23/2014 - 20:17 | 5370048 himaroid
himaroid's picture

Hey Al, you need to sign up with ZH and learn proper insulting and name calling. Morons?

Fri, 10/24/2014 - 01:27 | 5371124 NidStyles
NidStyles's picture

Some people are not as adept with language as the rest of us.

Thu, 10/23/2014 - 20:16 | 5370049 Ewtman
Ewtman's picture

Once again, I re-iterate... it's a bubble. Bubbles always burst. And the bigger the bubble, the more violent the burst.

 

http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...

 

Thu, 10/23/2014 - 20:25 | 5370076 shovelhead
Thu, 10/23/2014 - 20:29 | 5370098 alexcojones
alexcojones's picture

ALL by Design. Kick the can down the road,

Over the cliff and watch the sheeple follow, while they have their Lear jets fueled and waiting and palatial getaways all picked out with Ex-Seals and tinpot dictators in their pockets.

ALL BY DESIGN, fellow ZHers

Thu, 10/23/2014 - 20:34 | 5370118 Temerity Trader
Temerity Trader's picture

“They cannot eliminate the business cycle”….who f***ing cares? They CAN push stocks to the moon just by talking. Shorts have been fried so many time it’s not even funny to watch anymore.  This is the ‘New Normal’ and there is nothing else. Bears will eventually be right, but long broke. Another TRILLION cheap Fed $ to flow into stock buybacks and you’re gonna go short?  Sure these no-growth companies will finally collapse under their debt load, but might take a while at 1%.

 

Meanwhile, Fed-enabled financial engineering roars on, until, <”…Yields on bonds from a Caesars Entertainment Corp. (CZR) unit are diverging in a sign that the casino company will be unable to satisfy warring creditor classes and increase the odds of a bankruptcy..”> From one of the most profitable casino companies ever! Now to a $24 BILLION bankruptcy.

 

The corporate barons cash out their soaring stock options and laugh all the way to the bank as the gutted balance sheet ensures collapse after they leave. The banks are left holding a bag of s*** and demanding bailouts. The little people are wiped out; they never learn. Rinse repeat

Thu, 10/23/2014 - 20:59 | 5370206 bugs_
bugs_'s picture

Will the politicians ever learn to not nominate such bankers?

Will the voters ever learn to stop voting for the politicians that nominate such bankers?

Who would have ever thought that WE would wind up having to take the punch bowl away from the Fed?

Thu, 10/23/2014 - 21:18 | 5370318 Pumpkin
Pumpkin's picture

Ever learn?  They learned long ago how to steal the best.

Thu, 10/23/2014 - 21:39 | 5370430 I Write Code
I Write Code's picture

Like the classic restaurant review:

"The food there is pure poison - and such small servings!"

Thu, 10/23/2014 - 21:41 | 5370438 Jack Burton
Jack Burton's picture

The big trading houses and hedge funds are all about following the Fed where the Fed promises to lead. Like the "We will do whatever it takes" statement. The attempt to end the business cycle and end Bear Markets, end corrections and end recessions. The self correcting mechanism is eliminated. By that, they have ended capitalism, we have no price discovery, no real competition and no real markets. The smart money rides the Fed coat tails, which are carefully messaged to the upper end investing world. They are fully aware of every Fed move, BEFORE it is moved.

Certainly, we live in a 1% socialism, a 1% Iron Rice Bowl Communism. The elites have "shit canned" market driven capitalism and repaced it with a Supreme Soviet that prints and manipulates all to transfer wealth to the 1%.

How long can the Fed fight the real economy? Well, I thought for maybe two to three years, I was way fucking wrong. They are six years plus and going!

Fri, 10/24/2014 - 00:58 | 5371080 cherry picker
cherry picker's picture

I think where our assumptions went wrong is we assumed the old rules apply.

One huge assumption we made is in the dollar.  At one time it was backed by gold.  It was like a debit and credit thing.  All the dollars printed were offset by gold.  They went off that some decades back.

Now it is not a paper dollar anymore backed by anything except confidence.  The digits that represent dollars, whether they represent actual paper or not is only as good as what people agree to what it represents when trading for products and services.  So if we all agree $60 K will buy us a nice sportscar and someone will manufacture and sell it to us for $60 K, whether it be paper or digits, it is worth something.

As long as it can purchase food, shelter and other stuff they can keep on playing this game and that may be for a very long time.  Fundamentals no longer count as we observed in the last crash where a good many DOW components were removed or ceased to exist, just to be replaced.

Fri, 10/24/2014 - 04:18 | 5371302 andrewp111
andrewp111's picture

I have always thought the Central Banks can float anything as long as the availability of physical fundamentals (particularly energy) are in their favor. The power to print is unlimited. Physical resources are finite and cannot be printed. But with oil dropping in price, it looks like they can keep the game going for years to come. That was the big surprise to me - the boom in shale oil. They might even be able to keep it going past Obama's term of office in order to get Hillary elected. It almost looks like political systems may crack before resource fundamentals do. Separatist movements are in a good bull market worldwide.

If Saudi Arabia ever cracks and gets taken over by ISIS, it will be getting near the endgame.

Thu, 10/23/2014 - 22:26 | 5370614 jm
jm's picture

 

Uh, Albert... way too many bad calls to be asking anyone "Will these morons ever learn?"

 

 

Thu, 10/23/2014 - 22:36 | 5370646 TooBearish
TooBearish's picture

Dear Albert - who's the fukking moron here? the FED has a trading desk now staffed with Ex-GS and JPM traders that rivals the size of both....they can price fix anything they want....just get out of the way if u dont wanna play....Gartman looks genius here...LOL and KMA.

Thu, 10/23/2014 - 23:19 | 5370784 TabakLover
TabakLover's picture

This guy understands the markets about as well as doctors understand how not to get ebola.  Maybe they could use him over at "Doctors without Brains"   Jeez.

Fri, 10/24/2014 - 00:13 | 5370975 jm
jm's picture

Pretty shocking newsflow tonight.  3 mnth JGB yield at -0.0037 while Kawasaki heavy industries just crushed their profit numbers: 18bln vs expected 12bln

 

 

 

Fri, 10/24/2014 - 03:26 | 5371262 zerohedgejjxxzz12
zerohedgejjxxzz12's picture

I really have trouble with the idea that TPTB don't know what they are doing with the economy, I think a lot of them know full well what they are doing, they are trying to rape the vessel before it sinks, everyman for them selves (politician, banker, Wall street puke) trying to get all they can while they can.

Fri, 10/24/2014 - 06:40 | 5371391 Last of the Mid...
Last of the Middle Class's picture

It's called a positive feed back loop. They do it and are rewarded for it, there is no way it will stop as long as they're in charge. Period. The rest of society and the world be damned they want what they want when they want it and they're in charge of the money supply. The rest of us are just labrats along for the ride on this huge economic Titanic.

Fri, 10/24/2014 - 09:52 | 5371914 Chuck Knoblauch
Chuck Knoblauch's picture

Stop rewarding companies that boost their earnings (EPS) through buybacks.

It's a deception and evetone knows it.

Fri, 10/24/2014 - 10:17 | 5372034 sohailelder
sohailelder's picture

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Fri, 10/24/2014 - 10:49 | 5372209 Vin
Vin's picture

Mr. Edwards, you make a few very important errors.

1- These people are not morons, idiots, or fools.  They are soldiers under the command of the banking families.  The Rothschilds order their central banks to implement decisions based upon their own needs, not upon economics.  The central bankers do as their instructed.

2- Why do you keep looking for answers within your economic models?  There are no legitimate markets left.  "Markets" implies a price-discovery function that is totally absent in these rigged markets.  You're not facing this reality.  You can certainly "dance with the devil" by figuring out what's best for the central bankers bosses and then positioning yourself accordingly, but you better stop dancing before they pull the plug.

Fri, 10/24/2014 - 12:41 | 5372752 El Hosel
El Hosel's picture
  • ..... Any Relation to Quince Edward?
Fri, 10/24/2014 - 14:39 | 5373429 malek
malek's picture

Relax guys, this recent dip was just the August 2007 equivalent.

It's going to take a few months longer, but fun times are ahead!

Fri, 10/24/2014 - 14:40 | 5373430 malek
malek's picture

dupe

Sat, 10/25/2014 - 21:11 | 5377689 Pogo5187
Pogo5187's picture

Hate to agree with the consensus, but, there it is.

"Neo-Keynesian economics" is surely NOT about efficient market theory, but is rather a "false flag" meme by which the sheeple can be convinced that they (TPTB) really do know better than we (Austrian economics aficionados).

The central banks eliminate risk for their bankster pals (via bail-ins, bail-outs, etc), bankrupt the pensioners with ZIRP, the rest of us with inflation above the interest rate, and stand by to buy everything for pennies on the dollar when the music stops.
Got phyz?

Wed, 10/29/2014 - 17:12 | 5391393 sohailelder
sohailelder's picture

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