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"It's Not Bearish, It's Simply Sane"

Tyler Durden's picture




 

Submitted by Tim Price vai The Cobden Centre blog,

March 17 – Bloomberg (Kelly Bit): “Ray Dalio, founder of the world’s largest hedge fund firm, Bridgewater Associates, told investors there’s a risk that the Federal Reserve could create a market rout similar to that of 1937 if it raises interest rates too fast… ‘We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart,’ Dalio and Dinner wrote. ‘We think it would be best for the Fed to err on the side of being later and more delicate than normal.’”

 

“Sometimes I feel as if I’m living on a different planet. As much as I respect the intelligence and market acumen of Jeffrey Gundlach and Ray Dalio, I take strong exception with some of their comments on Fed monetary policy. Dangerously flawed policymaking is only perpetuated by further delays in rate normalization. I also reject the comparison to 1937. Even at its 1937 highs, the Dow remained about half the 1929 peak. Unemployment sat above 14%. Today’s parallels are much closer to 1929. Regrettably, the Fed drew the wrong lessons from the “tech” and mortgage finance Bubble episodes. Now, everyone wants this party to last forever.”

 

–       Doug Noland, Credit Bubble Bulletin. (Bridgewater’s $169 billion under management might have something to do with it.)

Caesar:            “What say the augurers ?”

Servant:           “They would not have you to stir forth today.

Plucking the entrails of an offering forth,

They could not find a heart within the beast.”

 

–       William Shakespeare, ‘Julius Caesar’.

Millions of investors across western economies have been peering nervously into the sky for clues about future market direction after unprecedented goings-on in the heavens. Analyst Marti Venal of CravenFokker Investments commented that a vast swathe of the earth’s surface being suddenly plunged into darkness was probably not a terrific omen for the stock market, although he was willing to make an exception for every IPO that his employer had underwritten. Senior astrologist Jed Meggar-Boom of Pimhole Securities disagreed, pointing to his firm’s proprietary research into clay models of sheep livers, and advocated taking aggressive leveraged positions in four year Danish mortgage securities. The executive management team of the ..AndIt’sGone Hedge Fund Consortium were taking no chances, having replaced their Chief Executive Officer for the duration of the solar eclipse with a substitute, atop a bronze throne, made up of twigs; former CEO Greg Ponzee was reportedly hiding under the coffee machine with one of his secretaries. Not all capital markets participants elected to flee the intriguing and possibly auspicious solar disturbance; market-makers at DweezilZap Securities, directly in the path of the moon’s umbra, as at press time had ritually sacrificed all the firm’s interns and were running around the dealing room smeared in camel dung. (Commentators pointed out that this was actually a regular occurrence, especially after a heavy Thursday night.) Typically, the closer observers were to the City of London, the more likely they were to experience utter diminution of their critical faculties. Those further away had an uninterrupted and entirely clear view of the spectacle. And not all sky-watchers enjoyed a cosmic display of equal duration. Two days after the event had concluded, and as Phoebus’ fiery chariot was once again wheeling through the heavens unassailed, Federal Reserve chairperson Janet Yellen admitted to being still completely in the dark.

*  *  *

We jest, of course. Or do we ? In a world in which hundreds of analysts spend thousands of man hours debating the presence or absence of the adjective ‘patient’ in the latest FOMC minutes, it’s sometimes difficult to distinguish between satire and reality. Keynes expressed the problem well:

“..we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time – perhaps for a long time.”

The danger lies not just in mismanagement of a machine. The danger lies in the over-simplicity of the metaphor itself. What if the economy is not some machine offering essentially binary outcomes, what if the economy is in fact (as it surely is) a complex living, breathing thing reflecting the countless interactions between millions of individual economic actors, who are ultimately less rational than the economics ‘profession’ would have us believe ?

In such an economy, people err. The authoritarian instinct starts to reveal its limitations, rather publicly. It is facile to believe that a self-appointed committee of twelve people tasked primarily with protecting the interests of the banking system that ultimately employs them can assert the ‘correct’ price of money for the 320 million people in that economy and indirectly for the 6.7 billion who live outside it. It would be ludicrous to believe anything else. But that is the system we currently have.

It is, as Doug Noland points out, nearly two years since Ben Bernanke talked of winding down QE and starting to normalise monetary policy.

The Fed’s current focus should not be the dollar, CPI or even the employment rate. The primary consideration after six years of zero rates and $3.6 trillion of monetisation should be Financial Stability. The Fed needed to be prepared to counter securities market and speculative excesses. They have failed to do the obvious, and Wednesday’s [FOMC] meeting confirms they will remain firmly in Bubble accommodation mode.

 

“I have argued for a number of years now that it was imperative for the Fed to begin extricating itself from market intervention and manipulation. It was never going to go smoothly, but when it comes to dealing with market distortions and Bubbles, the earlier the better. The scope of the Bubble has now grown to unprecedented dimensions – throughout virtually all securities and asset markets – and it’s global: stocks – small caps, mid-caps, large-caps – risky and “defensive” – growth and income; bonds – sovereign, corporate, “developed” and “developing”; and all varieties of derivatives. Anything providing a yield.

 

“The fundamental issue is a desperate need for the Fed to commence a process of normalising the pricing of market risk. Savings needs to generate a positive real return. The enormous ongoing flow of (unsuspecting) savings into grossly inflated risk markets only exacerbates systemic risk. The Bubbling corporate debt market needs to be tested – and some market discipline reinstated.

 

The ETF and “bond” fund complexes, recipients of Trillions of flows, need to be tested – and market discipline allowed to run its course. The self-reinforcing stock buybacks, M&A and other “financial engineering” need to be tested by a period of tighter finance and associated risk aversion. Will they stand up ?”

The financial world has bifurcated sharply into just two camps: savers, and speculators. All the forces of the world’s central banks have been devoted to shafting the former and encouraging the latter. The process ends badly. When Danish borrowers are paid to borrow by their banks and Danish savers are penalised for keeping money in the bank, something has gone gravely wrong with the financial system. Something is rotten, and not just in Denmark.

Market historian Russell Napier develops this theme:

“..in the Eurozone the failure of monetary policy is more palpable. We have inflation and interest rates already in the world of ‘minus zero’. And it is not just the ECB’s deposit rate which has entered minus zero territory. The yield on seven-year German Bunds has fallen from 3.2% in 2011 to -0.03% today. At the short end of the curve the yield on three-month government paper has declined to -0.91% in Denmark, -0.80% in Switzerland and -0.25% in Sweden. There are now trillions of Euros of financial assets which yield less than banknotes.

 

“The Solid Ground has opined before on how such a development marks a distinct limit to monetary policy. The banknote is now becoming an increasingly attractive investment and any move to banknotes away from deposits creates a run on the banking system. This has not happened. Yet. However, with the vast bulk of ECB purchases of assets still to come, the move to negative nominal interest rates has just begun. At some stage a shift to banknotes will begin and the limits to monetary policy will become much clearer.

 

The spluttering torch of reflation will have to be passed to governments, and extreme government measures, such as outlawing cash holdings, are already under discussion. Investors should look to the imposition of a Tobin tax on capital inflows in Sweden, Switzerland or Denmark as a key indicator that central bank action will have to be bolstered by direct government intervention in markets.”

In all the annals of investing, few seemingly innocuous phrases incorporate as much by way of grave implication as those four words, “a shift to banknotes”. 2008 was bad. With central bank policy now at the outer reaches of the possible and even of the theoretical, the outlook is certainly uncertain. Not wishing to participate in the terminal stages of a momentum-driven bubble is not bearish so much as simply sane.

 

 

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Mon, 03/30/2015 - 14:59 | 5942913 world_debt_slave
world_debt_slave's picture

history doesn't have to repeat, but it can rhyme

Mon, 03/30/2015 - 15:53 | 5943167 FieldingMellish
FieldingMellish's picture

but there is no rule that says it has to rhyme either

Mon, 03/30/2015 - 17:28 | 5943506 ThroxxOfVron
ThroxxOfVron's picture

And most people don't know when their language is metered

Mon, 03/30/2015 - 20:02 | 5943916 Tall Tom
Tall Tom's picture

So you believe that it is just by happenstance that it rhymes?

 

You do not believe in cyclical theory?

 

You fail to recognize patterns?

 

Come on into the Casino, my boy. We have a seat for you, you VIP.

 

You have been the man we are looking for.

 

Waitress!!! Get this man a drink, or two.

 

Have you ever played Roulette? We have some fun games for you, my man.

 

You want a piece of the action? No problem.

 

What?!? You don't have any money?

 

Get the fuck outta here!!!

Mon, 03/30/2015 - 15:01 | 5942920 Ruffmuff
Ruffmuff's picture

market says "bring your money to me"

Market says, "thank you for your donation"

Mon, 03/30/2015 - 15:08 | 5942951 Arthur Schopenhauer
Arthur Schopenhauer's picture

Millions of investors, eh? I talk to people all the time who have NO money invested in stocks or bonds. I came across this article a few weeks ago that bears this out.  We should try to remember there actually are lots of people who don't want anything to do with this ponzi scheme.

37% Of Americans Spooked By The Stock Market

By Clayton Browne 

A recent survey from Credit Donkey1 highlights that many Americans are still afraid of investing in the stock market. In fact, according to the survey, 31% of U.S. males and 43% of U.S. females are afraid of investing in equities2.

This survey of over 1,200 Americans by Credit Donkey reveals that 46% of respondents are afraid of death and 37% of respondents are afraid of investing in the stock market.

Details on the Americans and the stock market survey

Gender played a major role in beliefs about the stock market. Males typically had more faith in the stock market, while females have a stronger belief in the banking system3. Just over 78% of males compared to 70% of females believe in the stock market, and 69% of males compared to 73% of females believe in the banking system.

Almost 69% of males plan to invest in stocks in the future compared to 57% of females (investing in stocks “seems like a good way to lose money,” one female respondent wrote).

Around 76% of the survey respondents said investing in mutual funds is a good idea, and 54% are likely to invest in mutual funds in the future (59% of males compared to 50% of females).

Three-quarters of the respondents replied investing in bonds4 is a good idea, and 51% are likely to invest in bonds in the future (56% of males, 47% of females).

More than 76% say real estate is a good investment, and 56% are likely to invest in real estate in the future. Moreover, 49% said real estate is a better investment than stocks (52% of females , 46% of males).

Finally, 31% of survey respondents replied that investing in foreign currency is a good idea (38% of males, 25% of females).

Stock market investing perceived as risky and rigged

Of note, 73% of respondents said they feed that investing in the stock market is like gambling, while 31% think the stock market is rigged5.

Many of the respondents who are afraid of investing in stocks say their concerns are related to the high risks. “I’m afraid of losing the money,” one respondent noted. “Plus, I don’t have time to constantly watch the market.”

Skepticism about the stock market was also prevalent. A number of respondents said they were wary of putting their trust in brokers, corporations, and the financial system in general. “Putting my money in the hands of someone else is scary,” commented one respondent.

The post 37% Of Americans Spooked By The Stock Market6 appeared first on ValueWalk7.

References

  1. www.creditdonkey.com/afraid-investing.html
  2. www.valuewalk.com/2015/02/european-equities-hedging-or-not
  3. www.valuewalk.com/2015/03/distribution-economics-wall-street
  4. www.valuewalk.com/2015/03/a-value-investing-based-approach-to-catastroph...
  5. www.valuewalk.com/2015/03/michael-lewis-surprised-by-reaction-to-flash-b...
  6. www.valuewalk.com/2015/03/37-of-americans-spooked-by-the-stock-market
  7. www.valuewalk.com

www.valuewalk.com/sign-email

Mon, 03/30/2015 - 15:23 | 5943022 KnuckleDragger-X
KnuckleDragger-X's picture

We are relying on greedy and stupid people to keep the markets afloat but you can only strangle the goose for so long before it lno longer lay's golden eggs. We are reaching a trigger point but we don't know what will set it off and if your in a gunfight in a dark room, don't expect to win, just hope you get out of it alive.

Mon, 03/30/2015 - 15:16 | 5942980 ebworthen
ebworthen's picture

1932, not 1937 - not sure why everyone misses that and says "1937".

"Bearish" is a label for someone in the casino, the opposite of "high-roller".

Labels help to obfuscate the game and focus attention on the players and entice participation.

Mon, 03/30/2015 - 19:51 | 5943885 Tall Tom
Tall Tom's picture

1932 was the very depth of the Great Depression.

 

The market had rallied from the depths and recovered somewhat until the crash of 1937.

 

From wikipedia...

 

http://en.wikipedia.org/wiki/Great_Depression

 

There is no consensus among economists regarding the motive force for the U.S. economic expansion that continued through most of the Roosevelt years (and the 1937 recession that interrupted it). The common view among most economists is that Roosevelt's New Deal policies either caused or accelerated the recovery, although his policies were never aggressive enough to bring the economy completely out of recession. Some economists have also called attention to the positive effects from expectations of reflation and rising nominal interest rates that Roosevelt's words and actions portended.[53][54] It was the rollback of those same reflationary policies that led to the interrupting recession of 1937.[55][56] One contributing policy that reversed reflation was the Banking Act of 1935, which effectively raised reserve requirements, causing a monetary contraction that helped to thwart the recovery.[57] GDP returned to its upward trend in 1938.

 

You can read about the Recession of 1937-1938  here...

 

http://en.wikipedia.org/wiki/Recession_of_1937%E2%80%9338

 

Likewise it is feared that the rollback of the reflating policies in the last year and previous year will lead to a similar 1937 style recession.

 

We have been in a Depression for quite awhile...since the 2008 crash. Nobody wants to admit that. But the technicals were fulfilled.

 

(Bank Failures, Deflation, massive unemployment Municipal failures, inequality of wealth distribution, payoff of Bank Loans by people,etc.) 

 

I am shocked that you did not bother to research it since everyone says it. If many analysts are writing about a particular event and you have no clue as to what that event is, then it is to your benefit to research it rather than ridicule the analysts' "ignorance".

Mon, 03/30/2015 - 15:16 | 5942986 Mr. Bones
Mr. Bones's picture

Is it bad that when my eyes swept across "CravenFokker" my brain registered Craven Fucker?

Mon, 03/30/2015 - 16:28 | 5943309 BadLibertarian
BadLibertarian's picture

It sounds like a mashed-up George R. R. Martin / Robert De Niro insult: "He was a craven little fokker."

Mon, 03/30/2015 - 15:23 | 5943018 lasvegaspersona
lasvegaspersona's picture

"They could not find a heart within the beast"....same as it ever was....

Mon, 03/30/2015 - 15:30 | 5943048 NoIdea
NoIdea's picture

I guess gold is also worth less than banknotes then?

Mon, 03/30/2015 - 15:40 | 5943096 Sanity Bear
Sanity Bear's picture

Sanity is bad for your portfolio. Give in to the madness, it's the only way.

Mon, 03/30/2015 - 15:58 | 5943197 max2205
max2205's picture

40 x sales is not insane.....or is it?

Mon, 03/30/2015 - 22:52 | 5944362 Magooo
Magooo's picture

March 17 – Bloomberg (Kelly Bit): “Ray Dalio, founder of the world’s largest hedge fund firm, Bridgewater Associates, told investors there’s a risk that the Federal Reserve could create a market rout similar to that of 1937 if it raises interest rates too fast… ‘We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart,’ Dalio and Dinner wrote. ‘We think it would be best for the Fed to err on the side of being later and more delicate than normal.’”

 

Fuck off Dalio.   If the Fed so much as blinks these markets crash into a billion pieces and CIVILIZATION ENDS.

And Ray gets to eat bark and grass like the rest of us.

How can you not know that Ray?  

 

Read my lips --- interest rates will NEVER significantly rise.  EVER. PERIOD.

 

This time is very very different. This time we are fighting for our lives --- we are fighting to delay the end of civilization.

 

That is whaty the Fed absolutely will NOT tolerate a market crash --- because they know that if they allow that we are over.

 

Look at what happened in 2008 --- they will do everything possible to try not to revist that.

 

Because GROWTH STOPPED in 2008 due to $147 oil.   Rather than allow that nightmare to play out they did the only thing they could do ---- pump TRILLIONS of dollars of QE into the economy to try to generate some sort of growth --- andy sort of growth. 

 

If injecting crack into the markets would have acheived 0.1% more growth I guarantee you --- they would have done that.

 

Because when this blows apart (and it will) and the dust settles ---  there will be no pieces to pick up.

 

THE PERFECT STORM (see p. 59 onwards)

The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

 

DO YOU GET IT NOW RAY?  DO YOU UNDERSTAND?

 

WE ARE MORE THAN FUCKED --- WE ARE DEAD

Tue, 03/31/2015 - 06:30 | 5944783 Majic
Majic's picture

I have a job that requires me to interact with members of the public during stressfull times in their lives.  A frequent denominator I see among the people is denial.  Often what they are in denial of is really no big deal from my perspective, but they cling to their denial like a drowning man.

     So it should come as no surprise to see the denial relating to the current global state of the economy.  When I read a comment from someone browbeating the metal stackers, or pissing and moaning "ZH will be right about a prediction some year"  I just shake my head.  So many hard facts and figures support the idea that the U.S. is in a depression, hell, just really look around and notice the misery on main street America.

     The 80's sitcom Murphy Brown had an episode where someone asked Brown why she was so unflappable.  Her answer was "If its not happening to me, it doesn't matter".  I see a lot of that kind of attitude here on ZH when someone who seems to be in denial or is a shill starts to pontificate how the doom porn hasn't been right yet.  Bullshit!  It has been right all along.

Tue, 03/31/2015 - 06:52 | 5944806 thecrud
thecrud's picture

What I have learned is the market crashes it always does the market is high is not when to chase it.

Keep your powder dry wait for the crash then move in Banks for a buck OK We all still need toilet paper 50 cents a share OK.

Case tractors Cat Im in., Now you can let the peasants squabble among themselves.

 

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