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Axel Merk: Why Asset Prices Must Return To Lower Levels
Submitted by Adam Taggart via Peak Prosperity,
Saying it's been a busy week and half on the central bank front is perhaps a sizeable understatement.
First, the Swiss National Bank stunned the world (and its brethren central banks) by removing its peg to the Euro. This was quickly followed by Mario Draghi finally making good on his longtime threat of firing QE bazooka, announcing that the ECB will pursue a 60 billion Euro per month easing program for the next 16 months. And amidst all the smoke, the Canadian central bank snuck in a surprise rate cut to its interest rate.
To make sense of both the "Why?" behind these extreme moves, as well as the "What?" in terms of their implications, Axel Merk, founder and Chief Investment Officer of Merk Funds joins us this week.
In his opinion, recent events are exactly the kind the symptoms he's been expecting as the prime strategy pursued by central banks since 2008 -- to force capital into speculative assets -- approaches its natural and inevitable denouement. Indeed, he projects the surprises in store for us and the systemic instability we're beginning to see are just getting started:
Ultimately, central banks are just sipping from a straw in the ocean. I did not invent that term. Our senior economic advisor, Bill Poole, who is the former president of the St. Louis Federal Reserve taught us this: that central banks are effective as long as there is credibility.
What central banks have done is to try to make risky assets appear less risky, so that investors are encouraged or coerced into taking more risks. Because you get no interest or you are penalized for holding cash, you've got to go out and buy risky assets. You've got to go out and buy junk bonds. You have to go out and go out and buy equities.
The equity market, volatility until not long ago, has been very low. When volatility is low, investors are encouraged to buy something that is historically risky because it is no longer risky, right?
But as the Swiss National Bank has shown, risk can come back with a vengeance. The same thing can happen of course, in any other market. If the Federal Reserve wants to pursue an "exit" to its intervention, if it wants to go down this path, well, volatility is going to come back.
Everything else equal, it means asset prices have to be priced lower. That is the problem if you base an economic recovery exclusively on asset price inflation. We are going to have our hands full trying to kind of move on from here. In that context, what the Swiss National Bank has done is it is just a canary in the coal mine that there will be more trouble ahead.
Click the play button below to listen to Chris' interview with Axel Merk (35m:23s)
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How many fucking canary are there out there ??? They should all be dead and buried these past 6 years !
Not until the pumps pushing fresh air in run out of fuel.
It's only pining for the fjords...
But Jim Cramer told me stocks would go up forever!
CNBC gets vindictive:
http://tinyurl.com/kvfnzj8
Cramer is the Pee Wee Herman of market TV, except less believable and lucid....
"good, we can finally start the
big meeting". Booyah
The CBs have put the cart before the horse for 6 years, claiming asset appreciation will cause economic growth, when the opposite is true. So they have juiced stocks and bonds, yet... no economic growth in REAL terms, just a transfer of wealth to the top .01%
Yes, asset prices are adjusting as we speak.
The Fed need to get the hell out of the way.
Yes the very rich do quite well but so do all those pension plans that the government would have to support if asset prices crashed.
The fundamental problem is that everyone is saving in paper, paper that can be printed at willl, by one country.
The rejection of the dollar will lead the world to return to using gold as a reserve asset for central banks and as a optimal savings vehicle for individuals.
At some point a pension plan will blow up here.
"We've got euros on the balance sheet and they are worthless."
In the case of the SNB...what, 800 billion?
Pension shortfalls are a disaster waiting to happen and buttclowns like CalPers are lying as fast as they can to avoid the lynchings that will follow when it all falls apart.
Late last year pension backstops were thrown under the bus to pay for Wall Street swaps gambling backstops where Wall Street has permission for AIG 2.0 with the passage of Cromnibus.
LVP, a key aspect of the transformation of the perception of 'money' lies in the digitization. Cash becoming an item of suspicion, even in small quantities. Increased regulation on limits on transaction, beta-tested in Europe, coming to US in due time. Metals will always continue to reign supreme, and gold may even end up be the next reserve, but do not discount the endgoal of the merger of technology and transaction: total one-way 'transparency'.
gold will be the default currency in the background while the race to the bottom continues. may the last currency standing win; backed by another rising economy with enough force to keep all the others at bay, (war baby war).
another ponzi currency will emerge. gold will not be allowed to back a currency. the ptb will not allow such system-they learned that they can't create enough fiat without enough gold to back it, and maintain control.
but gold will be that insurance the last currency standing will have a check and balance for the next period of debt slavery.
long gold whist the race continues.
After it alls falls apart things will be put back together with gold but until then its magic paper all the way down.....
"...asset prices have to be priced lower."
Of course! Now that all the doomed hyper-inflated mortgages and commercial loans have sold at face value to Central Banks/Govenments and even .GOV Bonds have been flipped at enormous profits back to Centaral Bank/Governments via QE; it's time to engineer a huge valuation crash and take all that freshly minted credit/money and buy up the real assets on the cheap.
QE was the sowing. The crash will be the reaping.
It will be sold to the public as the Banksters being well intentioned altruistic citizens and bravely propping the system by buying at the lows!
Thomas Jefferson is that you ?
Corporate insiders will take the vast sums provided by their firms in stock buy-backs at record high valuations and will 'bravely and for the good of the company and other shareholders' buy back their shares at incredible discounts.
THEN is will of course be time to 'reward shareholders with higher dividends'.
Thomas Jefferson is that you ?
"It will be sold to the public as the Banksters being well intentioned altruistic citizens and bravely propping the system by buying at the lows!"
That's one lie that even a lot of sheeple won't buy.
OK, so they will know it's bullshit. Like they know lottsa what they are told is bullshit.
What are they gonna DO about being fed yet another line of bullshit?
-Vote in a Republican? -No, wait: a Democrat!
-Move to Florida? -No, wait: to California!
That depends. Does it jeopardize either panem or circenses? If yes, they'll take to the streets, and it won't be like OWS. If no, we'll probably get another OWS.
I think I smell gas.
It was me.
If the dollar fails it will not result in a loss to the banking system. Nominally they come out OK. The current property owners will find it easier to service old debt. They will still their homes as long as they can service the debt. I don't think we will see a deflation in which people lose their homes. the would kill world economy and the rest of the world will chose other options than continuing in the dollar system. The new currency will allow the banking system to continue.
So in short: there is time to short some stocks. Read here about good sell shorts:
http://prudentvalueinvestor.blogspot.com
the problem with shorting, is when your broker recalls the shares you sold short, before they move in your favor. and frequently force you to buy to cover at a higher price.
Shut up. Nothing but up. You can't even short ice on the equator.
Pay...off...debt.
sorry but have to disagree. all the snb did was validate the (conspiracy) theory that central bank gangsters set the price of everything.
The SNB had no choice in the face of a global currency war. Central bankers are setting upon each other as each round of this war goes on. There is no coordination or conspiracy, this is a bloodbath. Soon China will need to make a move and then I don't see how the US can avoid more QE. This is ugly.
Globalism is the problem. Trade imbalances and labor/regulatory arbitrage are destabilizing.
Everybody cannot get rich exporting expensive stuff to each other and importing cheap stuff to each other. The financiers and those controlling global distribution networks might become fabulously wealthy; but, it is at the expense of local/domestic labor and local/domestic retail customers who are all being shafted at the paycheck and the check-out whether they individually understand it or not.
Devaluations asymetrically damage the most vulnerable/poorest portions of a populace and only accelerate/exacerbate the unbalanced distribution of wealth. Labor in the US has been deprived of it's due share of domestic productivity gains for over 30 years.
QE under a credit/debt-based currency regime is not a panacea for accumulated trade imbalances and cost arbitrages.
Having the reserve currency makes that effect on the US even worse. It requires that there be a certain minimum amount of dollars floating around outside of the us, and the ways that other countries get that is either by purchasing USD denominated assets, or selling us stuff for dollars. The less productive the US is, the more we have to rely on other countries selling shit to us just to keep the system afloat.
Just default already.
The money is worthless.
i'd rather listen to angela merkel.
Several LARGE adjustments are indicated by track records to date. Look at the URL at my DOGGONE bio.