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Bernanke & Yellen Have Engineered A Financial Markets Neutron Star
Submitted by Tim Price via The Cobden Centre,
As a child I was fascinated by the concept of a neutron star. A neutron star is the tiny but immensely dense thing that’s left after a massive star explodes. Imagine something eight times as massive as our sun packed into a 12 mile diameter sphere. Gravity compresses the surviving material so profoundly that its protons and electrons are squashed into neutrons. Just how dense ? A single teaspoon’s worth of a neutron star would weigh a billion tons. That presupposes you could actually get close enough to extract a teaspoon’s worth. In reality, the gravitational pressure would reduce your body to a very thin smear on the surface of the star. Very little escapes the gravitational force of a neutron star.
I never expected to encounter a neutron star but Messrs Bernanke and Yellen at the US Federal Reserve have been kind enough to engineer one for us. Like CERN it’s been something of an international collaboration – Messrs Carney and Draghi have also pitched in to do their bit. The hybrid of Quantative Easing (QE) and Zero Interest Rate Policy (ZIRP), our current monetary neutron star has succeeded in collapsing the yields of just about every financial asset. The tractor beam of ZIRP in particular is difficult to evade. Just ask Janet Yellen. After one of the most widely anticipated FOMC meetings in history, she has boldly decided to do precisely nothing.
Today’s investors are not exactly a lucky generation. Assuming they’ve survived two precipitous declines in stock markets in the course of a decade, they’re now faced with overpriced stocks, overpriced bonds, overpriced everything. The Economist cites a Deutsche Bank study pointing out that for 15 countries going back as far as 1800, the average prices of equities, bonds and residential property stand at an all-time high. In terms of investment yield, very little escapes the monetary policy neutron star.
Assuming prices matter, the implications for future returns are somewhat grave. “This is most obvious,” writes The Economist, “in the case of bonds: a yield of 2% means the nominal return if you hold the bond to maturity will be 2%. The real return may even be negative if inflation rises.” Gilt investors today dream of even 2% nominal returns: 5 year UK government paper struggles to reach a nominal yield of 1.3%. 5 year US Treasuries offer a munificent 1.4%.
“Worse still, there is always the chance that profits or valuations will return to their historical norms. If that happens, Deutsche reckons the average real return from equities over the next ten years will be negative. The same is true for Treasury bonds, European corporate bonds and American residential property.”
Deutsche are not alone – just more honest than most investment banks these days. The asset managers GMO recently published their own 7-year average annual real return asset class forecasts. For US large cap stocks, US small cap stocks, international small cap stocks, US bonds and international bonds, those annual return forecasts are all negative.
But not quite everything in the financial universe has seen its yield obliterated by the monetary policy tractor beam. Not quite all valuations are stratospheric. In a recent piece for the Financial Times (“The going gets tough for value managers”), columnist John Gapper suggests that QE “has lifted all boats in the equity markets”. With all due respect to Mr Gapper, that is simply not true. What is true is that to identify genuine value from today’s listed equity markets, you have to go further afield than most benchmarked and index-relative fund managers are either willing or able to. A case in point: the US accounts for fully 58% of the MSCI World Equity Index. Japan, by way of contrast, accounts for less than 9% of MSCI World. Yet over 40% of the Japanese stock market trades on a price / book ratio of less than one. It is objectively cheap – despite the fact that BoJ Governor Kuroda has himself been no slouch when it comes to stimulative monetary policy. And many Japanese companies remain disgustingly under-researched by a brokerage community still shell-shocked by a grinding, two-decade bear market. Question: would you rather look for bargains in a market recovering from 20 years of underperformance – or in a market that, on the basis of current overvaluation, now faces precisely that prospect ?
Absent some entirely magical economic developments, Janet Yellen looks set to be an unlucky Fed chairman. There is a growing risk that the fabric of the financial system may start to unravel during her tenure. Commenting on last week’s do-nothing FOMC meeting, Marcus Ashworth of Haitong Securities pointed out, fairly, that this is hardly progress in rebuilding market confidence in the Fed’s communications policy: now, after last Thursday,
“We are not just data-dependent but uncontrollable foreign economy-dependent.”
So there are some isolated pockets of value out there in stocks, but none whatsoever discernible to this observer from within the bond market – and doubtless plenty of skirmishes in the currency wars to follow. The Fed has managed to paint itself into an extraordinary corner. It has blown a pivotal opportunity to begin normalising interest rates and made its next attempt – if it ever even bothers – that much more problematic. The next flashpoint may not now be in stock markets themselves but in the international bond markets that dwarf them. Bonds, stocks, property – all in a bubble, and with the Fed having exhausted all its current and indeed feasible ammunition. Let’s not mention those $5 trillion of bonds the Fed happens to hold, the prices of which are only likely to appreciate further in an environment of entrenched deflation that will smash the economy in the process. Hardly a picture of progress on the part of our monetary central planners. Janet Yellen may yet go down in history as the very first person, and Fed governor, to have successfully squashed herself.
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Lets not all act shocked this was after all the plan .
Asset price to income shows that the main issue facing Millennials is not education prices but asset prices. The boomers got to buy low and are selling high, only time will tell but the millennials probably won't be so lucky.
Is Congress letting the Fed take full responsibility for this correction? Not seeing, speaking, hearing, but remaining aloof, hoping they have good reason and support to reign in the Fed?
Janet is going to resign due to "health concerns" and pass the shit sandwich to a gentile as the bagholder. FDIC insure that shit.
the fed is performing its basic function as long as it returns 6% annually to its owners
I think that the term "immensely dense" does in fact describe The Fed and most Central Banks and planners.
"Hey Janet, would you hold this bag for me?" - Ben Bernanke
Then they should have picked a guy. Crucifying 'granny' might not work out as they planned, especially if granny starts really flapping her gums about what she knows.
She could end up looking like a victim. And if she breaks down and cries? Well, good luck with that plan then. Especially if she exposes the big players in an attempt to save her ass.
Look, old women slip and fall all the time...
don't overthink this.
Hips, it's always the hips. Well unless she is at the top of some stairs.
Most millenials I know are priced out to such an extent that they aren't buying in. Buy property? Why bother when most will inherit one anyway... or demographics floods the market with property in a decade or two which will push prices lower anyway?
Myself, I see where this shit show is headed, so I keep on stacking...
All according to plan. They serve their money masters well. Unfortunately, this is in fact global Weimar!
hedge accordingly.
Didn't you hear? It's no longer global Weimar ... The libtards call it climate change now.
She isn't the only one, Obama opening his pie hole seems to make markets puke by the looks of what is going on right now.
He's got a funny way of ending world poverty. Unless its getting us all killed , that would be one way
Lotsa grave diggin' jerbs.
O giving big speeches just reaffirms what everyone already knows.
It was engineered by Greenspan and Bernanke, Yellen's just been the (unlucky?) one to inherit the poisoned chalice.
This is why Yellen couldn't finish her speech the other day;
https://www.youtube.com/watch?v=Pzs-Lz5i108
DavidC
Often times good people with human empathy project their values onto to others, if she wasn't a member of corruption she wouldn't be there.
She just got all choked up, could have happened to anyone on the public stage in Hartford.
it was engineered by Goldman, JP Morgan...it was relayed by Greenspan and Bernenke....Yellen will be lucky to make out alive. Her Co-head Fisher will be lucky to escape with his hide intact. things are spiraling badly. The immigration thing is just another black swan in flight
Greenscum and the Bernank - 2 dodos who have never taken a risk in their lives, lived on a salary and pension with Cadillac health plan. No SS or Obobmbacare for them. Clearly we are governed by our lessers.
Click Asness was talking g about the Fed painting itself in a corner 10+ years ago. That's why he's got waterfront in Greenwich.
So - why couldn't or won't they raise rates a tad say 6 weeks before Christmas {I presume they can meet to do so at will} on the theory that even if a small move is "bad" - it would be papered over by the holiday shopping/credit binge while still telgraphing hopey changey...
*then* - when shit slides down the economy's arse in February, they can actually lower again?
May be a dumb question, of course - but anyone willing to take a stab?
Bernanke went on 60 minutes, trembling with saliva sticking to his lips, clearly nervous.
Yellen has discomfort during a speech, TIA or not, she clearly did not present with confidence.
The reality here is that dishonesty can never be hidden. If what they are doing is legitimate, I fail to understand why they are nervous and uneasy. Clearly the body language speaks that they are lying and fear their inevitable failure.
Either that or they both have gas !!!
Overpriced everything? Uh... Au Ag?
99% of the AuAg traded is just paper and as such way overpriced... When 100% of the trades revolve about fizz... Then watch out...
I don't think so. Currencies will get decimated as this carnage unfolds, relative to the USD which should continue to surge in a deflationary event like this. So through the eyes of everybody but an American, gold and silver would be rising. That should produce even more demand. So I'm pretty sure gold and silver will hang tight with the USD until the USD's turn finally comes up. Then precious metals will explode in value against all currencies. Especially silver... big time. Nah... you're ok.
In this freakin' scary scenario that is unfolding (and is going to get a hell of a lot scarier), I'd sure as hell rather have some metal than have none.
"She choked in front of the world, man!" - Gerald Celente
Colliding neutron stars produce gold, coincidence?
Overpriced government, too
"Today’s investors are not exactly a lucky generation. Assuming they’ve survived two precipitous declines in stock markets in the course of a decade, they’re now faced with overpriced stocks, overpriced bonds, overpriced everything"
In my opinion Bitcoin gold silver is going to be the only game in town millenial investors, based on the detah of fiat and Bitcoin's disruptive potential of several trillion dollar industries.
Give a man a gun and he can rob a bank, Give a man a bank and he can rob the world.
there are trains pulling into town to take you to the promised land
" Janet Yellen may yet go down in history as the very first person, and Fed governor, to have successfully squashed herself."
Neat - can I see that please?!?
"Absent some entirely magical economic developments, Janet Yellen looks set to be an unlucky Fed chairman."
Aren't they all?
The stock market crashed a record 22% in one day, under Greenspan. Greenspan was then unlucky when the Nasdaq bubble burst. Bernanke was unlucky when the housing bubble burst.
Now it is Yellen's turn.
I have a feeling that Yellen might end up looking more like a patsy that was set up to take the fall...That little old grandma look might just save her ass if she plays her cards right.
The ultimate manipulation is that its called a "commie plan"...by those on the Repug aisle.
Add a bit of statist spice to neo-feudalism and you make it totally incomprehensible for common man :
Oh Wait they're commies...
Oh Wait they're racists for blacks...
Oh Wait they're for universal NWO ...
Oh wait they're Zion deniers...
Oh wait its so statist its soviet...
Bottom line: stick to commie; its something you find under your bed if you be true American; since McCarthy made it respectable. Like Mcdonalds.
Manifest Destiny : we are all free market anarchists. Whatever that means.
Play on, as anything goes; even Trump sitting on Palin's rump !
That's Entertainnnnnnment !
Meanwhile Yellen will print print print... to save the Commie Oligarchy!
For those who want to ride piggy back on other people's innovative talents by playing at the FINANCIAL CASINO its not an easy world to be an investor.
Hahaha! Invest in the Casino and EXPECT IT to be honest ....well, well.
Where is Adam Smith ???
It isn't Yellen's legacy that's gonna take the hit. It is Obama.
It looks like this is unraveling a bit ahead of schedule. If it continues, Obama will leave office with an economy in tatters. All the phony jaw-boning about "recovery" will look pretty bad in the aftermath. As will his refusal to go after the banks when he had the chance, and the support, to get something done. His accommodation of the bankers will look a LOT more like collaboration in the rear-view mirror.
These things will be considered, and mulled over, and reconsidered again and again by all those who lost out. Even the ACA, his 'signature achievement', will look more like the "gift" to his rich friends in the insurance industry that it actually WAS.
This guy will have a legacy even worse than GW's. And because Obama lacks the 'affable stupidity' of GW and the cabal of Cheneyesque behind the scenes string pullers, it will be far more difficult for him to deflect the blame. He's smart, he KNEW better, and everyone knows that. More was expected, and he failed to deliver.
And should we see a major development overseas, he'll get hammered for that too. Perhaps he should have reconsidered that second term.
I think the OP means "Death Star" rather then neutron.
neutron stars probably don't exist at all...
Great analogy. Yellen and the Cohort crew have certainly "gone where no man has gone before". Love it.
Super Mario 64 Music - Merry-Go-Round EXTENDED
https://www.youtube.com/watch?v=NCsD-mEUB0c
Bernanke and Yellen subscribe to the Linus Maxim of macroeconomic theory:
https://s-media-cache-ak0.pinimg.com/236x/70/c0/0d/70c00d5baaf9bd8c5574fd78c53ef89f.jpg
Absent some entirely magical economic developments, Janet Yellen looks set to be an unlucky Fed chairman. There is a growing risk that the fabric of the financial system may start to unravel during her tenure.
Of course it's going to unravel on her watch. Why do you think she had a stroke during last week's speech?
There is so much unintntional misdirection in this article I do not know where to begin..Bernanke, Yellen, Greenspan before and all the others are not policy makers. The Fed itself is an extravagant fig leaf shielding the real powers that direct it and the US government from behind the curtain: Goldman Sachs, JP Morgan, select European banksters and a few others, the largest Fed primary dealers. Is there one individual at the top of the evil pyramid? No. There is shared power and an alliance/conspiracy of mutual self interest....which is the plundering of YOU, the hundreds of millions of US victims and Billions worldwide. This is the force behind Globalism, and what some refer to as the new world order which is simply total domination of all countries worldwide by Wester Financciers those crafty alchemists who creat something (that you desparately need) from absolutely nothing, which everone worldwide then chases after with varying success, enslaving themselves with the "credit" that comes from nowhere. Every State government in the US is in hock to these people as is the federal government in Washington. When I say in hock I mean "owned".
The US was takn over in 1913, and was the richest prize of all previous conquests. There was a revolt against this "order" in Germany in 1933, but I had better not go there. There is way too much imbedded brainwashing to overcome.
Don't focus on puppets, whether they are Fed chairwomen or US presidents, CON-gress... whatever....as the media tries to entice you to do.
OK!
Let us fix what is broken!
First of all, tell the truth:
http://showrealhist.com/yTRIAL.html
http://realmoney.thestreet.com/articles/09/28/2015/bear-market-carnage-w...
Bear Market Carnage: Who Will Be Hit First?
By Jim Collins
September 28, 2015
Carnage. It's a one-word description of what's going on in the markets. To really understand the force and violence of selling pressure, one must look beyond the three "major" indices. The DJIA, S&P 500 and Nasdaq composite are all trading in correction territory, as of today's noontime pricing. All three major indices were down at least 10% from the recent mid-July market highs.
That's all well and good, but if you lift the hood, you are going to find many sub-indices, non-US indices and asset classes that waved goodbye to correction territory. They are now being gripped by the jaws of the bear.
A bear market is generally defined as a decline of at least 20% from recent highs, so twice as damaging as a correction. But there's a subtext to these words that you might not find by Googling them.
The term correction implies a temporary condition that is followed by a return to an uptrend.
The term bear market implies an extended period of lower stock prices. That's the difference. Bear markets last; corrections don't.
And it is the duration of bear markets that makes them so darn unpleasant. The ramifications are felt widely, and so much more so, when there is absolutely no yield anywhere else in the world, but for high-yield and emerging markets bonds -- markets that are experiencing declines worse than those felt in the U.S. stock market.
But can't an investor just wait it out? If you are an individual, you might be able to, but remember that individuals represent (according to Goldman Sachs) only 34% of direct U.S. stock ownership. Institutions own the rest of the shares outstanding, and many of them -- for different reasons -- need equities to perform well in order to meet their obligations.
That's the problem with this Fed-QE, marshmallow-world fantasyland that has been in effect since the end of 2008. Capital gains have replaced yield as a means of generating required returns, and that is just not sustainable.
This environment has encouraged risk-taking, and as risk is removed, the nominal wealth of the world's economy is lowered. Simply put, people are worse off.
Who gets hit first?
Investment banks. Lower equity prices lead to less deal flow, and the bulge-bracket banks have supported themselves through fees generated from stock and bond offerings. That can -- and will -- dry up very quickly.
State and local governments. The perilous finances of some of America's most populous cities and states has been well-reported. But the key point isn't that deficits are being run -- although they are, and cities like Chicago are implementing draconian measures to try and stem the bleeding -- it's that long-term liabilities are unfunded to an even greater degree when fund returns don't meet their benchmarks. An example would be the Teachers' Retirement System of Illinois. TRS had 41.2% of its assets in stocks as of March 31. The recent pullback in equity prices could put their already underfunded pension plan into serious financial jeopardy.
... with a diamond heart!
http://www.scientificamerican.com/article/neutron-stars-contain-dia/
http://www.universetoday.com/112769/an-earth-sized-diamond-in-the-sky-the-coolest-known-white-dwarf-detected/
"In the long run, we're all dead." Quite true, for the "long run" is now, John Maynard Keynes and the people he was speaking to are dead, and we the living get to deal with their disaster.
Keynesianism is like a reactor that produces unlimited free energy for 100 years, then explodes, rendering the Earth uninhabitable.
Wanna bet whether Yellen realizes what a disaster she is in, and faked her "mild stoke" as a setup excuse to "retire" in the next week or three?
If you listen to her mutter in her sleep, you can hear...
let someone else take the wrap...
let someone else take the wrap...
let someone else take the wrap...