In his 712-page tour de force, The Great Deformation, David Stockman dissects America’s descent into the present era of “bubble finance.” it’s hard to refute Stockman’s perspective on the Fed’s role in the housing bubble. But that won’t stop some from trying, and especially the many academic economists beholden to the Fed. Research papers have stealthily danced around the Fed’s culpability for our crappy economy, as we discussed here. More importantly, if Stockman is right about bubble finance, there’s more mayhem to come. Consider that denying failure and persisting with the same strategy are two sides of the same coin. Just as investors avoid the pain of admitting mistakes by holding onto losing positions, Fed officials who claim to have done little wrong are also more committed than ever to propping up asset markets with cheap money. For those concerned about another policy failure, a key question is: “As of today, where do we stand with respect to bubbles and bubble finance?”
As we begin 2014, it is important to recognize the levels of INSANITY currently existent in the world enabling us to understand the apocryphal nature of the times we live in and prepare ourselves to meet the challenges it represents. The world is leveraged to an extent that has never before seen in history! Debt now masquerades as NOMINAL growth and REAL growth has ceased. Headline economic reports are now nothing more than POLITICALLY CORRECT HOAXES to FOOL the public at large and mask the betrayal of the public by the leaders who hold the reins of power. ECONOMIC Stagnation emerged after the 2008 Global financial crisis and in real terms has NEVER ENDED!
Europe is recovering, right? Wrong. As Nigel Farage raged last night, things are not what they seem and even the IMF is now beginning to get concerned again (especially after Lagarde's call yesterday for moar from Draghi and every other central banker). As Bloomberg's Niraj Shah notes, it's not just the PIIGS we have to worry about (or not), Denmark, Finland, Norway and Poland have been added to the IMF’s list of countries with the potential to destabilize the global economy.
In what will likely be the current Federal Reserve chairman's "exit interview", Ben Bernanke will be speaking at the Brookings Institution on "The Fed Yesterday, Today, and Tomorrow." We are sure there are plenty of messages our readers would like to leave for outgoing chair who Senator Bob Corker described as "the biggest dove since World War II," proclaiming his "degrading effects on our society." Of course, Bernanke will leave knowing he started to exit (and all is well - so what happens next is not his fault) though the following chart may be useful when he, we are sure, reminds the world of his inflation record...
Fed's Fisher Says "Investors Have Beer Goggles From Liquidity", Joins Goldman In Stock Correction WarningSubmitted by Tyler Durden on 01/14/2014 14:40 -0400
"Continuing large-scale asset purchases risks placing us in an untenable position, both from the standpoint of unreasonably inflating the stock, bond and other tradable asset markets and from the perspective of complicating the future conduct of monetary policy," warns the admittedly-hawkish Dallas Fed head. Fisher goes on to confirm Peter Boockvar's "QE puts beer goggles on investors," analogy adding that while he is "not among those who think we are presently in a 'bubble' mode for stocks or bonds; he is reminded of William McChesney Martin comments - the longest-serving Fed chair - "markets for anything tradable overshoot and one must be prepared for adjustments that bring markets back to normal valuations."
The eye of the needle of pulling off a clean exit is narrow; the camel is already too fat. As soon as feasible, we should change tack. We should stop digging. I plan to cast my votes at FOMC meetings accordingly.
Most are aware of Alan Greenspan’s 1966 essay - written when he was an acolyte of Ayn Rand - in which he sang the praises of the gold standard. Obviously, that early work would later prove awkward for Greenspan, as he held the reins of the fiat money engine known as the Federal Reserve. However, a reporter for Barron's unearthed a copy of Greenspan’s NYU doctoral dissertation, which he took great pains to bury, showing that when his professional ambition wasn’t involved, Greenspan could understand perfectly well (a) the virtues of a commodity money and (b) the dangers of a housing bubble. If the Austrians are right in laying the blame for the housing bubble on Greenspan’s loose monetary policy following the dot-com crash, then Greenspan can’t plead ignorance: He knew what he was doing.
Last week, Grant Williams reviewed the equity markets in an attempt to see how equity investors managed to scamper through 2013 with the friskiness of puppies when all about them lay doubt and potential disaster. His answer - of course - quantitative easing. This week Williams takes a deep dive into bonds and bullion in an effort to comprehend how the bond market managed to navigate the same 12-month period and see what can be learned about 2013 in order to forecast for 2014. The effect on the Fed’s balance sheet is plain to see - a very steady, predictable line; and markets love steady and predictable. So what happens when the 'predictability' ends...? The guardians of the global economy are relying on numerous logical fallacies to continue their path to oblivion...
In 1970, when 11% of adult Americans had bachelor's degrees or more, degree holders were viewed as the nation's best and brightest. Today, with over 30% with degrees, as the WSJ notes, a significant portion of college graduates are similar to the average American - not demonstrably smarter or more disciplined. Furthermore, declining academic standards and grade inflation add to employers' perceptions that college degrees say little about job readiness. As we noted recently, change is coming as more and more realize college may not be worth it. Educational entrepreneurship offers hope that creative destruction is coming to higher education. The cleansing would be good for a higher education system still tied to its medieval origins - and for the students it's robbing.
Please welcome the nation's new chief slumlord, Janet Yellen. The previous top slumlord, Ben Bernanke, has retired from the position of Chief Slumlord (i.e. chair of the Federal Reserve) to the accolades of those who benefited from his extraordinary transfer of wealth from the many to the few. Why is the chairperson of the Fed the nation's top slumlord? Allow us to explain... We only need to understand two facts to understand the Fed's role as Slumlord.
The “Ig Nobel Prize” is parody of the Noble Prize that is awarded every year for the most trivial scientific achievement. For example, the 2007 recipient for the ‘Ig Nobel Peace Prize’ went to the United States Air Force Wright Lab in Ohio, for proposing the development of a ‘gay bomb’ that could be dropped in hostile territory and make enemy troops sexually attracted to each other. Make love, not war? So when we opened my email yesterday and saw the subject line: “Central Bank Governor of the Year”, we immediately presumed it was a similar satire. It wasn’t...
If Americans in particular want to pursue any solution to the threat of globalism or dollar collapse, they are going to have to start with themselves, and the community around them. Online trade is the last thing they should be worried about. Only when neighborhoods, towns, and counties become producers and self suppliers will they be safe from financial instability. Only when those same communities band together for mutual aid and self defense will they be safe from tyrannical political entities. Bitcoin accomplishes nothing in either of these categories, making it possibly the most popular non-solution for liberty to date. Bitcoin is consistently touted as a superior option to precious metals as a way to decouple from central bank fiat. Under examination, though, it appears to me that bitcoin is instead a deliberate distraction away from gold and silver, and other tangible solutions; in other words, we believe it to be a form of controlled opposition.
"Paper and digital markets levitate, central banks pull out all the stops of their magical reality-tweaking machine to manipulate everything, accounting fraud pervades public and private enterprise, everything is mis-priced, all official statistics are lies of one kind or another, the regulating authorities sit on their hands, lost in raptures of online pornography (or dreams of future employment at Goldman Sachs), the news media sprinkles wishful-thinking propaganda about a mythical “recovery” and the “shale gas miracle” on a credulous public desperate to believe, the routine swindles of medicine get more cruel and blatant each month, a tiny cohort of financial vampire squids suck in all the nominal wealth of society, and everybody else is left whirling down the drain of posterity in a vortex of diminishing returns and scuttled expectations."
Evolutionary theory as a perspective for understanding human behavior within capital markets is a more useful perspective than what economic theory has become... a cloistered, brittle theology that day after day becomes more abstract in its formation and more narrow in its application. The first and most basic lesson of an evolutionary perspective properly applied: we are well served as investors to jettison the superiority complex that comes with living in the present and looking back on what naturally seems a benighted past. The notions of liberal progress and evolution-as-hierarchy are so deeply ingrained that we assume that whatever behaviors are new or modern, including modern investment management practices or modern investment strategies (or modern monetary policy), must be part and parcel of some advancement over what existed in the past. In truth there is no up-and-to-the-right arrow associated with evolution; there is no intelligent design pushing us “forward”.
With the critical 50th Yes vote just being cast, Janet Yellen has officially become the first woman to head the central bank in its 100 years of existence. The vote continues, and the only question now is whether the current tally of 27 No votes will surpass the Bernanke record of 30 objections to the central bank head.
While there were some concerns that due to adverse weather conditions, the Yellen vote may take longer than usual with many senators’ return to Washington D.C. delayed, for now proceedings are going according to schedule: the vote is expected to proceed at 5:30 pm Eastern, with one option being that the roll call could begin as planned, leaving the tally open for a number of hours to allow latecomers to vote. As a reminder, Yellen needs a simple majority (51 votes if no senators abstain) with Democrats holding 55 seats in the Senate, so there will be no major surprises and Yellen will receive confirmation. The only open question is how many Republicans will abstain from supporting Yellen, and whether this will surpass the previous record of 30 Senators refusing to support Ben Bernanke during his 2010 renomination. . In the meantime, the actual debate surrounding Yellen's confirmation is set to begin at 3 pm Eastern.