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October Was A "Trailer" For Real Market Turmoil, Don't Hold Your Breath For Policymakers
Excerpted from Paul Singer's letter to investors,
Policymakers in the developed world do not seem to believe (as we do) that their complete reliance on zero-percent interest rate policy (ZIRP) and quantitative easing (QE) for propping up the global economy may be the unintended but proximate cause of the poor performance of the developed economies over the last six years, rather than the cure-all nostrum that they think it is. Indeed, Europe is in the process of actually doubling down on QE, with large asset purchases by the European Central Bank expected in the near future. ZIRP and QE were concocted as emergency strategies, but their persistence post-crisis has caused distortions that have seriously interfered with the proper functioning of the developed economies. Ironically, these policies also exacerbate the income and wealth inequality that has become a source of some resentment among the public at large, as well as considerable attraction as talking points for politicians.
Policymakers do not seem willing to believe that they need to unlock and promote economic expansion through pro-growth policies, the particulars of which we have described often in the last few years. Politicians are more than willing to delegate to central bankers the entire job of generating growth, so that they themselves do not have to take political risks. For their part, central bankers keep referencing inflation targets as if inflation is a proxy for growth. It is not. The reality is that inflation only has an indirect impact on growth, so the effectiveness of inflation as an expansionary tool is extremely limited, as evidenced by the economic malaise we have witnessed in the six years since the financial crisis.
...
Perhaps the recent October apprehension in the financial markets is only a “trailer” for the next period of real market turmoil. When the next such period arrives, it could resemble a “panic” or “crash” for a short period of time, before the inevitable “cavalry” (central banks and major governments) try to calm scared investors and encourage them to stop their selling and start their buying. On the other hand, there is a very real possibility that the cavalry’s thundering hooves will cause investors to get even more frightened and run away, perhaps having lost confidence in the effectiveness of the central bankers’ toolkit (essentially permanent policies of ZIRP, unlimited asset purchasing and market manipulation, and other – yet untried – policies supporting trillions of dollars of money creation).
The next period of real market turmoil may then turn into a severe financial crisis, the exact shape of which cannot be determined in advance. It is hard to imagine what the governments can do when the signaling effect of central bank activist intervention is no longer effective to stop the crisis from spreading – unless the politicians of the world are finally goaded into taking the serious and appropriate fundamental actions necessary to ameliorate the crisis.
Don’t hold your breath.
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HFT machines know the answer.
Time to throw in the towel for rationality and reality to come back in favor. This market is so over.
Another Paul "Ziocon" Singer blathering on ZH.
He should get his own PNAC column up top like Phoenix Capital (that no one ever reads).
The "serious and appropriate fundamental actions required to ameliorate the crisis" taken by the politicians will be a major global war.
Cause that's about the only thing they know to do now.
Sadly ~ 'Holy hand grenades of Antioch' will be in short supply when clownbux eventually conflagrate
And thou shalt count to three.
No more.. No less.
Amazingly ~ That's also how many licks it takes to get to the center of a TOOTSIE POP
http://www.youtube.com/watch?v=0UYvsk6_foc
Fucking 'numeroligists' are gonna have a field day with this shit!
Soon, the Internet will only be available to illegal aliens.
HFT's are merely economic terminator's programmed to do what they're told to the point of destruction. We don't have an economic policy, we have a global suicide pact. I recoommend going long on beans and ammo.
Technically, the rally exhausts itself at ES 2060. Still waiting to go 300% short.
Politicians never take serious and appropriate fundamental actions unless it is to screw over their constituents for the interests that buy their votes.
Ridiculous! The machines are in control, are they not? They have no emotion, and they know DAMN WELL that printing money means BUY.
This high can go on forever bro! We never want to come down..
So you're sayin Fantasyland has to end at some point, maybe soon? HERESY!
Thank God it's Monday, Dancing with the Stars and The Voice are on tonight
Monday Night Football for the meat eaters.
You know, it IS possible to watch television shows, football, etc and still see the big picture for what it is.
I get the whole "bread and circuses" thing.... but that doesn't mean we can't enjoy the show whilst waiting for the collapse.
I will be watching MNF tonight and not apologizing for it.
My short bet on the market is still on.... however, I'm going to enjoy my life the best I can while waiting.
I'll be watching MNF, too - pass me a steak?
is it possible for the velocity of money to go below zero ?
Sure, when you're using greenbacks to start fires and wipe your ass I'm pretty sure you've discovered negative velocity.
As mattress stuffing - not as a savings - but as actual matress stuffing.
"Indeed, Europe is in the process of actually doubling down on QE, with large asset purchases by the European Central Bank expected in the near future."
"expected"?
i'll believe it when i see it (large scale buying)
"there is a very real possibility that the cavalry’s thundering hooves will cause investors to get even more frightened and run away, perhaps having lost confidence in the effectiveness of the central bankers’ toolkit"
haha
"Politicians are more than willing to delegate to central bankers the entire job of generating growth, so that they themselves do not have to take political risks."
absolutely,
of course, it helps that the majority of members in congress are millionaires (or will be if they exit office and become lobbyists) ... and have 7 or 8 (9?) figure stock portfolios ... can't imagine why they let the Federal Reserve make them richer ... much richer
There´s no Santa?
This was what many of us said back in 2008 when it all went to shit and Government claimed an absolute right to step into this needed market correction and distortion and bubble in housing and prevent the correction from going forward. "ZIRP and QE were concocted as emergency strategies, but their persistence post-crisis has caused distortions that have seriously interfered with the proper functioning of the developed economies."
Government saw that many of it's main campaign contributors, the banks and wall-streeters, house builders and RE industry, would suffer horrible losses, and Bankruptcy would haunt many of Washington's main bases for cash contributions. So, instead of letting the badly needed market forces to sweep away distorted and manipulated bubbles, they stepped in using the Fed and Tax Payer money to double down on keeping all Washington's friends solvent.
In the process, those in the real economy. The workers, the savers, the small businesses and the industrial economy were sacrificed to feed the financial bubble economy. Since then, nothing has changed. Savers have had every penny of due interest stolen, workers have had wages and benefits slashed, small business has been destroyed by the big corporate interests with access to ZIRP billions to drive them out of business, and industrial production has suffered at the hands of private equity, feed by ZIRP billions, who come in a strip mine profitable industries and leave them in debt and under capitalized. YET, the financial economy has prospered like never at any time in American history!
If you are looking for real economic growth, not debt or asset inflation based? Forget it. We jumped the shark, Banks, Wall-Street and the mega corporations have all grown powerful on QE, asset purchases and stock market inflation. The fact is, there is no real economic growth, welath creation, underpinning the out of control stock market.
Housing is showing us what happens. No matter how low the interest rates, no matter how low the down payments, no matter how easy the loan terms, People don't have the wage growth to support the ability to service the mortgages long term! So they can't buy houses! Only young folk I know who have bought a resonable starter home have done it with parents MONEY. On their own, they could never do it. The other anchor around their necks are the dubious student loads for some chicken shit "on line" university, or "chicken shit" junior college.
You will know it is over when the credit card machines stop functioning. And by that time, it will be way too late to save yourself. Until then, it's BUY! BUY! BUY!
October was in turmoil? Maybe if you or a loved one had Ebola, or you or a loved one were beheaded by ISIS.
Other than that, I don't know where the turmoil would have been?
It's all hunky dorey. The recession is over. Nobody is working but that's a sign of the recovery. Permanent holidays for everyone!
Money has zero value. You'll soon find out what that means.
What is in the central banker's tool kit?
Cheap money - there is only one tool (with a couple of different settings)
Whoever said money does not grow on trees was wrong!
"ZIRP and QE were concocted as emergency strategies, but their persistence post-crisis..."
Which means the crisis has never ended and is ongoing.
In his next-to-last sentence, Mr. Singer tells us that politicians have to take steps to ameliorate the crisis, but he does not suggest what those steps might be.
I don't see why politicians would do anything...until a REAL crisis unfolds. What incentive is there for them to act at all? Typically, politicians will exploit a crisis, but they don't generally like being close to starting one...even one that may be deperately needed. I don't see them providing anything more than lip service.
It only ends when confidence is lost, right? What if everyone simply agrees it will never end? A neo-Keynesian dream. Mountains of debt, but as long as it is serviced at 0%-2%, who cares? Losing confidence crashes the house of cards and everyone loses. So...we simply remain status quo....easing when things slow down, then tightening a wee bit when they heat up...a permanent state of low growth is maintained...just enough to prevent revolt. Inequality can be masked through a shadow compensatory system, and as long as control of the MSM is maintained, and effective marginalization efforts keep the ZH bunch and their ilk in check, then good to go, right?
I suppose something like that could go on awhile. But that environment would not be profitable for big finance. They NEED growth of at least 2%. Without that, their resources will be drained very quickly.
Also, such a chronic stagnant economy would blow up government budgets, and the dominoes will start falling.