Hedge Fund CIO: What Central Banks Have Done Is "Stunning, Unprecedented"

Tyler Durden's picture

We start a quiet Sunday with a big picture anecdote from Eric Peters' latest weekend note explaining why what central banks are trying to do is impossible, why the trend of inflation over the past 70 years is "stunning and unprecedented" and why "volatility suppression" always eventually fails.

"Anecdote", by Eric Peters of One River Asset Management

“For all of history - prior to 1955 - there was roughly equal probability of inflation or deflation in any given year,” said the economic historian.


“But since 1955 we’ve experienced uninterrupted annual inflation. It’s a stunning fact, unprecedented. To an economist in 1955, the coming 60yr inflation would have appeared less probable than a catastrophic meteor impact.”


After enduring a series of world wars, and social upheavals, policy makers conducted an experiment, removing the deflationary left-tail of our economic cycles.


“We created history’s greatest volatility-suppressing machine, and it delivered breathtaking stability.” Of course, we endured volatile periods since 1955. But life is short. And we thus lack the reference points to compare our minor wobbles to the wild booms and busts of our great grandparents.


“Minsky taught us that stability begets instability. And it stands to reason that our volatility-selling machine will break one day. We saw a glimpse of this in 2008-09.”


Perhaps the only thing more surprising than the severity of that crisis was the response of our body politic. “In 2007 if you had shown the top 100 economists a list of the extraordinary measures that central banking and economic elites would unleash in the coming decade, not a single one would have believed you.”


Politicians hate change. With very few exceptions, they stand for stasis. Our central bankers seek stability. And investors have learned to front-run them all, selling volatility into every spike using ever more complex strategies.


But volatility suppression at the lows is much easier in many ways than at the highs. In a crisis, our central banks simply go full-throttle. At the highs though, they seek the unattainable, which is perfect economic balance in a world that is inherently unstable - they attempt to crystallize the entire ecosystem. Which is as arrogant as it is impossible.”

And this is what central planning looks like visually:

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Wulfkind's picture

Feel like utter shit today.  This strain of head and chest cold hit my family and me like a freight train and instantly at that.

No worries....I am going to employ my standard investing technique thanks to Mr. Yellen and the Fed.


There....done.  Going back to bed. 

AlaricBalth's picture

Find a physician that does Myers Cocktail IV's. Also nebulize some colloidal silver.

Works for me.

GUS100CORRINA's picture

This chart is surreal everytime I see it. Have the Central Bankers lost their collective minds?

2 Thessalonians 2:11-12 (KJV)

11 And for this cause God shall send them strong delusion, that they should believe a lie:

12 That they all might be damned who believed not the truth, but had pleasure in unrighteousness.

Let me be honest with everyone at this time.

Based on where this is headed, President TRUMP's team has no option other than to add to the debt. We are dealing with 28 years of both fiscal policy and monetary policy mismanagement. In fact, I would call it CRIMINAL. Just one person's humble opinion.


Our children and grandchildren  have a very limited future if any future at all.

Lord GOD, what have we done to ourselves??

See to it that no one takes you captive by philosophy and empty deceit, according to human tradition, according to the elemental spirits[a]of the world, and not according to Christ.

JLee2027's picture

I would quibble over minor points. The fiscal mismanagement started in 1964 when Johnson took us off the Silver Standard. This was to fund the Vietnam War. Nixon of course, ended the war, but then cut the link to Gold in 1971, pushing the door wide open for a spending orgy.


It's all going to collapse. In a heap, all of a sudden (imho, the entire collapse will take a week or so once it starts, unstoppable).  All will appear lost.  Then, the divine will intervene, as the Lord is a GOD of rescue and restore things.  I once asked how all this would be fixed and the partial answer I got was "all governments will be dissolved".  I thought that most intriguing. There is Catholic prophecy about this (summary of some):




Creative_Destruct's picture

All C Bankers were assimilated into the collective delusional mind at the Universities, where they learned to worship the Keynsian, Monetary, and Free Trade Trinity.

Deplorable's picture

Turn those balance sheets back to zero.

Arnold's picture

What he meant to say was:

We cannot let our Primary Dealers fail because it will significantly affect our short term projections of owning it all.

Anteater's picture

That's what the Talmud promised the Chosen people, and what the Khazarian Tribe will bring to pass.

Debt slavery isn't so bad. It's like plantation slavery, but you get to pay taxes using their play money.

You buy their processed dog kibble in their stores. You wear their slave-made clothes at 'Ivanka's Stuff'.

You tithe them to indoctrinate your children into wage-slavery, to keep their Machine running. And you

pay out of the last small portion of your retirement they haven't looted for warehousing and cremation.

The orderlies in your final days on earth are slaves just like you, even the preacher who never comes,

dying on a gurney in a hallway, another raisin in the sun, as the Golden Towers rise higher and higher.

It's beautiful isn't it?! I mean, you never look up, you don't dare as a sheep, but it really is beautiful....

sonya55's picture

I Like the way you think

Croesus's picture

@ Anteater:

The World Conquerors (Marschalko) does a great job of covering what you posted, and was written almost 60 years ago...good post!

nmewn's picture


See, its really just a cry for help ;-)

TeamDepends's picture

Death to the money changers!

DontWorry's picture

Using dirt from one hole to fill in another.  You still have a hole.

City_Of_Champyinz's picture

And that hole is growing by the minute...

Stuck on Zero's picture

Lets declare a war against holes. We can bomb them endlessly and never run out of targets.

oldguyonBMXbike's picture

And, lots of decaying bodies.

No_More's picture

Like Amelia Bedelia trying to cut holes out of a blanket. You just end up with bigger holes & no blanket.

illuminatus's picture

Problem is that it's the central banksters making whole nation economies digging the hole while they sit around on top enjoying the good life. If we ever get to the bottom of the hole it will be us trying to get out while they are still partying claiming they were only trying to help.

Rainman's picture

Arrogant and impossible definition : ... primary dealers project 5 rate hikes and a $2.75T Fed balance sheet by the end of 2018.

Tyler Durden's picture

And the market now expects just 2.5 rate hikes until Dec. 2018.

No_More's picture

Is half a market rate hike like 'kinda pregnant'?

anarchitect's picture

Yes, it's a rate hike that will be quickly aborted.

DingleBarryObummer's picture

I think we are too far to the end stages of the USD ponzi for that to happen.

Mr 9x19's picture

problem with exp.  curves is the statement are made at T1, but as the projection rise, the  society also keep evoluting, so, looking at the rising curve and what already risen behind, you only realize that there is no stop. the very concept of the exp  to the moon leading to explosion never going to happen, and there is a magnificiant explication for this, it is the same to the moon that watered the 2008 fire, by printing 5tr.

you will have twisted minds, mental illness that will provide physical wars to satisfy egos but the financial world will always keep going, give me all the money of the world, i assure you i will keep finding way to spend it.


detached.amusement's picture

but they are paired with some other curve that looks like an asymptote from here

Dilluminati's picture

That rate hike applied against ARM, Student Loans, Consmer Credit, etc will for every 1/4 basis raised deduct a 1/4 basis from real GDP.  Simply jaw boning that isn't going to happen.  

What gives? Profit growth pops as GDP stalls


People should be frightened that the same MSM who peddles these stories and rumors then runs an article of WTF nature when it appears that the real economy is a swirling turd bowl.

onthedeschutes's picture

Not if but when will it go supernova?  So many banksters...so few nail guns.

directaction's picture

In early 1918 the newly-formed USSR cancelled all debts both public and private. 
At some point we, too, shall have no other option.
All Power to the Soviets!  

Arnold's picture

That would be... all power to the Bolsheviks, the pitiable pawns.
Soviet was more than a generation later.

K_BX's picture

Its always the same narrative - f*ck the public over. At the moment the public (i.e central banks) is paying way over the top for assets, leaving the taxpayer with the bag - redistributing ressources from the public to the top 0,01%, heading into socialism(&destroying price discovery). When socialism fails ressources are redistributed from the public to the few powerful at bargain prices. rinse and repeat. 

Wall street  always searches for the weakest link  that can be exployted in the game and thats the public at the moment. I wish everyone could see and understand that.



lew1024's picture

Cancel the debts that bought all the oligarchs all of the world's choice properties, businesses, patents, ...?

Good idea.

max2205's picture

Looters know where to go when the time comes 

ModernMusket's picture

Usually hair weave shops from what I see on the news...

Dilluminati's picture

All of these NPL's will result not in inflation but the tighest round of global deflation.   Sorry to share that here, but until there is a cleansing that means no higher bids in metals, you should have gotten out in that last bubble in Gold.

SimmerDown's picture

I disagree. In an uncontrolled deflationary crash Gold would spike as people seek a safe haven. The Rickards scenario is another possibility. The currency system is reset with a gold peg = higher gold.

markar's picture

Seriously? Think about how many trillions of fiat paper have been printed since gold peaked at $1900/oz. When the supression scheme ends, the price will skyrocket 5 fold.

canisdirus's picture

Improbable. Against fiat, maybe, but only among those in need of gold. Few need, want, or possess the stuff, so the value is low. It's far more likely that it will drop relative to fiat and goods. You can't eat it, you can't shoot it, it doesn't provide shelter, and you can't use it to produce any of these things.

The historic value of gold and silver were due to their rarity and the fact kings/emperors/governments demanded them in tribute/taxes. The latter gave them most of their value. There are presently none that demand them, so the little value they have are due to scarcity, practical necessity, and the demand for jewelry. If any of these decrease, their value will decrease further.

loveyajimbo's picture

"Few need, want, or possess the stuff (gold), so the value is low."

Dude, you are the dumbest of dumb shits.  You are obviously unaware of China, Russia and India, among many others, accumulating gold like crazy, and beginning to use it as a basis for trade. The crooks at JP Morgan and Goldman are accumulating both gold and silver in huge amounts...

I think you must have confused "Colonoscopy" with "Lobotomy" too.

Troy Ounce's picture


It seems to be rather difficult to educate yourself on gold:

Canis please send an email to the Fed telling them they should sell all "that stuff" because it serves no purpose.


canisdirus's picture

The Fed doesn't own any gold, they don't need to. They have absolutely nothing backing the FRNs they peddle (which they don't even print).

Yog Soggoth's picture

Do you believe that ETF's come from outer space? Seriously, where do you get this bad information from. The only reason more people aren't hoarding gold is because they can't afford it, but the rich folk and every central bank in the world are doing just that. If you bought in 2007 then waited 4 years you would have over doubled your profit. Even with the down turn it is still hanging pretty steady in the 1260's. To me that is a solid place to park some cash with the potential to make a lot by being in the right place at the right time.

canisdirus's picture

Doubled your investment? That chump change when the FRN supply is now 6x what it was in 2007.

There's still nothing backing it. It could collapse to essentially no value overnight. Someone could find an easy way to convert one atom into another and have practically unlimited gold. Hell, people have already done it, just not in quantity...yet.

lasvegaspersona's picture

You assume that  what should happen will. Never does...rules will be changed and the Fed will save us. Somewhere, sometime, someones will realize that the Fed's new money is rapidly losing value and soon many will bail into real things...gold especially.

A deflation in a system in which more fiat can be printed at will is no longer possible. Politics will not permit it.

explosivo's picture

Over the short term as velocity tanks it can appear as though deflation is happening. Not for long, because the Fed will just do a helicopter drop to stop the "deflation".

Not My Real Name's picture

You seem to think the purchasing power of gold is tightly correlated to its price expressed in dollars. If so, you're wrong. The dollar price of gold may go to $10 in a severe deflation -- but should that happen I guarantee you that, worst case, it will buy the same amount of real things as it does today with the dollar-price of gold above $1000 ... and I suspect gold will actually end up buying more.

CHX13's picture

At some point they will ditch the dollar/Euro/Yen and pull out a new dollar/Yen/Euro, 1 for 100 or so and the gold price may still be exactly the same... Fiat money and debts are the bubble, not gold !

Deep Snorkeler's picture

America Really Has a Perfectly Balanced Economy

1. Corporate power and Washington DC, combined into a giant racketeering operation.

2. US FIRE Economy: a shadow world of finance, insurance and real estate,

based on fraud and falsified values.

3. Silicon Valley: a fusion of freak show barker, with technology of the absurd,

capped by ecstatic lust.


UnschooledAustrianEconomist's picture

Don't be so arrogant and claim it for the US only. Rest of the world can play that awesome song, too.