Well the day has finally arrived that after two years of promises, jawboning and hope - the European Central Bank finally announced they will take the plunge into the Quantitative Easing (QE) pool. Whether or not the ECB's QE program has the desired effect or not will not be realized for a while. However, this week's reading list is a variety of opinions and initial takes on the "ABC's of the ECB's QE."
Central bank policy is creating liquidity. Wrong --- the growth in broad money is slowing across the world.
Central bank policy is allowing a frictionless de-gearing. Wrong --- debt to GDP levels of almost every country in the world are rising.
Central bank policy is creating inflation. Wrong --- inflation in most jurisdictions is now back to, or below, the levels recorded in late 2009.
Central bank policy is fixing key exchange rates and securing growth. Wrong --- in numerous jurisdictions this exchange rate intervention is slowing the growth in liquidity and thus the growth in the economy.
Central bank policy is keeping real interest rates low and stimulating demand. Wrong --- the decline in inflation from peak levels in 2011 means that real rates of interest are rising.
Central bank policy is driving up asset prices and creating a positive wealth impact which is bolstering consumption. Wrong --- savings rates have not declined materially.
Central bank policy is creating greater financial stability. Wrong --- whatever positives impact central banks are having on bank capital etc they have failed to prevent the biggest emerging market debt boom in history.
My conclusion is that the SNB deliberately screwed the market, and in the process shot itself in the foot for 30-50 billion dollars. What were they thinking?
The 30 Year U.S. Treasury bond yield hit 2.35% yesterday. Long term interest rates are not controlled by Yellen. They reflect the economic prospects of the country. When they are rising it means the economy is doing well. When they are plummeting to all time lows, the economy is either in recession or headed into recession. Take your pick. No amount of government data manipulation, feel good propaganda spewed by the captured mainstream media, or Ivy League educated Wall Street economist doublespeak, can change the fact this economy is in the dumper and headed much lower. The Greater Depression is resuming its downward march toward inevitable war.
We see far too much complacency out there when it comes to interest rates, in the same manner that we’ve seen it concerning oil prices. We live in a new world, not a continuation of the old one. That old world died with Fed QE. Just check the price of oil. There have been tectonic shifts since over, let’s say, the holidays, and we wouldn’t wait for the ‘experts’ to catch up with live events. Being 7 weeks or two months late is a lot of time. And they will be late, again. It’s inherent in what they do. And what they represent.
The Fed may raise rates a token amount this year, but the move will be largely symbolic. You can bet there will NEVER be a shock and awe interest rate raise.
Here is the chart which we affectionately call the scariest chart for the US shale industry - namely the US rig count drop, which as Goldman notes, "is faster and larger than in any other bear market."
That's not why it is scary. The reason why is that the current rate of rig collapse is nowhere near enough. In other words, before the new pricing equilibrium can be established, virtually the entire US energy sector in its current appearance will have to be wiped out!
Just 2 short months ago we warned of the rising voice among the cognoscenti tilting their windmills towards the concept of "helicopter money," as Deutsche bank noted, "perhaps there's an increasing weariness that more QE globally whilst inevitable, is a blunt growth tool and that stopping it will be extremely difficult (let alone reversing it) without a positive growth shock." Committing what Commerzbank calls "the ultimate sin" is now reaching the mainstream as Germany's Der Spiegel notes it is becoming increasingly clear that Draghi and his fellow central bank leaders have exhausted all traditional means for combatting deflation; and many economists are demanding that the European Central Bank hand out money to consumers to stimulate the economy.
"Something Is Not Right" Jeff Gundlach Is "Concerned About Health Of The Economy & Financial System"Submitted by Tyler Durden on 01/05/2015 21:30 -0400
Having warned of the "terrifying consequences" of oil prices staying this low, DoubleLine's Jeffrey Gundlach, in an extensive interview with Finanz und Wirtschaft, warns he is "beginning to see signs of investor concern around the edges about the health of the economy and about the financial system. Historically, when junk bonds give up the ghost and treasuries remain firm, it is a signal that something is not right." Touching on everything from a string dollar to Indian stocks, and from Oil to bonds, and The Fed, Gundlach concludes, "the only places where there is inflation is in places that are painful. Raising interest rates against that backdrop seems like a poor idea. So I just hope the Fed thinks carefully about what it is doing." Boxed-in much?
The surreal nature of this world as we enter 2015 feels like being trapped in a Fellini movie. The .1% party like it’s 1999, central bankers not only don’t take away the punch bowl – they spike it with 200% grain alcohol, the purveyors of propaganda in the mainstream media encourage the party to reach Caligula orgy levels, the captured political class and their government apparatchiks propagate manipulated and massaged economic data to convince the masses their standard of living isn’t really deteriorating, and the entire façade is supposedly validated by all-time highs in the stock market. It’s nothing but mass delusion perpetuated by the issuance of prodigious amounts of debt by central bankers around the globe. But now, the year of consequences may have finally arrived.
Martin Armstrong, Max Keiser and High-Level Economists Weigh In
All of this is political theater. The big story for the markets is not interest rates. It is the US Dollar.
"The Fed Is Heading For Another Catastrophe... Central Banking Has Lost Its Way" Stephen Roach WarnsSubmitted by Tyler Durden on 12/24/2014 11:17 -0400
America’s Federal Reserve is headed down a familiar — and highly dangerous — path. Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-2009. The consequences could be similarly catastrophic. The Fed’s incrementalism of 2004-2006 was a policy blunder of epic proportions. The Fed seems poised to make a similar — and possibly even more serious — misstep in the current environment. In these days of froth, the persistence of extraordinary policy accommodation in a financial system flooded with liquidity poses a great danger.
Despite the authorities' best efforts to keep everything orderly, we know how this global Game of Geopolitical Tetris ends: "Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out."
"I’m tired of being outraged!"