Free Money

Suddenly everywhere you look, one after another, a story is making its way into the main stream press (albeit a trickle but that’s a tidal wave in comparison) that we may be, in fact; experiencing a “bubble” in stock prices. Even those who still believe in unicorns and rainbows (cue CNBC) are finding it harder and harder to hold onto the magic. Anyone with just a smidgen of common sense knows what’s being presented as “a miracle of economic intervention” has been nothing more than a grand escapade only made possible through the use of monetary smoke and mirrors.

In his first TV interview in 20 years, SocGen's Albert Edwards unleashes his brutal honesty on Raoul Pal in this excellent RealVisionTV discussion. From "what Japan is doing is absolutely off the scale," warnings about money-printing to the awkward reality that "policy makers cannot eliminate the business cycle," warnings instead that "they will make the eventual downturn far worse than it otherwise would be..." Edwards' discussion ranges from the UK and US "choosing lunatic policies" to describing Alan Greenspan as "a prospective economic war criminal," the SocGen strategist concludes, rather ominously, if policy-makers keep handing out free money, it will create massive problems, "there is a trigger point where you can create inflation. I don't know where that is. The central banks don't know where that is."

There’s a big macro theme playing out in Europe – a once soft economic environment that allowed lots of inefficiency is becoming tougher and forcing companies to restructure, says Chris Mayer, author of Capital & Crisis and Mayer’s Special Situations.

Perhaps echoing two entire nations' frustration, one reporter loses his cool when Mario Draghi explains how everyone else in Europe gets free money except Greece and Cyprus...

Once upon a time businesses borrowed long term money - if they borrowed at all - in order to fund plant, equipment and other long-lived productive assets. Today American businesses are borrowing like never before - to fund financial engineering maneuvers such as stock buybacks, M&A and LBOs, not the acquisition of productive assets that can actually fuel future output and productivity. 

Let’s see. The Eccles Building has grown its balance sheet by 9X since the turn of the century, but real net investment in the business sector has plunged by 33%!

We’ve tried medication. We’ve tried prayer. We’ve tried heavy drinking – all in an effort to understand how our crazy money system works. And where it leads. You’d think it would be easy. It’s just Central Banking 101, no? Well, no. It is squirrelly... and diabolically subtle. We doubt anyone understands it – especially those who are supposed to control it.

Cashing out of the “Bet on America” might get messy.

Nothing says limited government and separation of powers like a bureaucracy unaccountable to the voice of the people! Then again, Yellen doesn’t care much for democratic oversight. She’s a caricature of Randian libertarianism: someone who wants to do whatever, whenever, without rulers. The problem is Yellen isn’t operating a private railroad company. She’s the figurehead for a government institution created by Congress. If democracy means anything, it’s that voters have some measure of control over political bureaucracies.

As many of you know the FCC approved what is now considered the greatest change in the fundamental underpinnings of how the internet will be both used as well as “allowed” to be used. The regulation now known as Net Neutrality will supposedly make the internet more “fair” or “equal” to everyone. All I’ll ask you to ponder is this: How’s your cable bill working out for you? There’s a lot of known and unknowns still to be had as we sit here today. Why? Regardless of what you’ve heard or seen written in the press about this regulation; no one, and I do mean, no one knows the details to this new and sweeping regulation.

The last thing Janet Yellen needs to be doing right now is cheer-leading more risk taking on behalf of financial market participants!

The trouble with the money printing madness in the Eccles Building is that it generates huge deformations, misallocations and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century.  The resulting carnage, needless to say, is not small. Combined financial and real estate asset markdowns totaled about $7 trillion after the dotcom bust and $15 trillion during the 2008-2009 financial crisis. The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla - a crony capitalist con job that has long been insolvent, and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.

A regular reader recently raised a subject (on our Forum) which should be a frequent topic of discussion in our ultra-corrupt societies, but isn’t: usury. Everyone knows the meaning of the word: lending money at “excessive” or “exorbitant” rates of interest. Yet few of us ever contemplate its significance.

• Greece to submit loan request to euro zone, Germany resists (Reuters)
• Ukrainian forces start to quit besieged town (Reuters)
• Bank of Japan maintains policy, no surprises (FT)
• China Considering Mergers Among Its Big State Oil Companies (WSJ)
• Soros Shifts to Europe, Asia as Investors Cut U.S. Equities (BBG)
• Putin tells Kiev to let troops surrender as Ukraine ceasefire unravels (Reuters)
• Venezuela Squanders Its Oil Wealth (BBG)
• Swiss prosecutor raids HSBC office, opens criminal inquiry (Reuters)