The world has gotten so used to ultra-low interest rates that even economists and money managers seem to be shocked by what happens when rates start creeping back towards normal levels. Some of the mini-bubbles that formed in an essentially free-money environment are now starting to leak.
"Markets don’t have a purpose any more - they just reflect whatever central planners want them to. Why wouldn’t it lead to the biggest collapse? My strategy doesn’t require that I’m right about the likelihood of that scenario. Logic dictates to me that it’s inevitable..."
Trump’s election has given hard money advocates the most hope in over 30 years that our nation’s failed monetary policy will be reformed. Mixed with the current hawkish wave that is already percolating in the veins of some FOMC members, Trump’s future appointments can have a huge impact on the central bank’s immediate decision-making. One can only hope that the president-elect will stick to his guns and do the right thing.
"We are experiencing deep economic problems and it is the fault of the economics discipline. Their macro theories suck... But, there is no mechanism forcing it to alter its models when they don’t appear to work."
At bottom, it is not central bank stimulus and intervention alone that drives equities and bond markets; it is the naive faith and willful ignorance of average market participants. There is a problem with this kind of economic model, however. Reality is never kept in check indefinitely. Fiscal truths will be exposed, one way or another.
Last week, the Federal Reserve decided to keep US interest rates unchanged, marking its 96th month of life at the zero bound. Apparently, for all of its "data dependence", the Fed feels the economy could still benefit from *just* a little more of its ZIRP happy juice. But as anyone with a little common sense will tell you,More is not always better. It's quite possible to have too much of a good thing. And in its pursuit to kick the can for a little longer, the Fed has crossed a dangerous line.
Our liquidity-drunk “markets” remain over-priced due to the chronic intervention of the global central banking cartel, which has demonstrated over and over again that it won't tolerate even the slightest drop in asset prices. Once faith in central banks is lost, their power to delay the deflationary day of reckoning goes with it. The stupendous amount of debt they have helped heap onto the financial system since 2008 will start going into default and the only question that will matter is: Who is going to eat the losses?
If you really want to know who we “deplorables” are it’s rather simple - we are the ones who refuse to participate in the operation of the machine. We are the cogs who refuse to cooperate. We will not grease the gears. We will not stoke the furnace. We will stop the whole damn thing in it’s tracks, because, for the sake of future generations, we must.
The overnight session started with more weakness out of Asia, where chatter that the BOJ may end up doing nothing despite all the trial balloons (as we hinted yesterday), sent the USDJPY sliding, pushing the Nikkei lower, leading to a 7th consecutive decline in the Topix, the longest such stretch since 2014 even though the BOJ is now actively buying a record amount of ETFs. However, the modest dip in S&P futures and European stocks proved too much for BTFD algos, and risk promptly rebounded.
While Put-Call ratios, VIX curves, and Fear-Greed Indicators are better known, the so-called "Complacency" Index - comparing real profitability of companies to their risk - has never been more complacent. In fact, markets are more 'exuberant' than at the peak in 2000 and 2007...
In the latest Target2 monthly update, Bank of Italy's liabilities toward other eurozone nation soared by €35 billion in August, just shy of the biggest monthly increase on record, and reached an all time high of €327 billion, surpassing the previous records set in 2012, just prior to Draghi's infamous "whatever it takes" speech.