Japan

Contrarianism And The Danger Of Taking Hugh Hendry's "Blue Pill"

We will readily admit that one cannot know with certainty whether the bubble in risk assets will become bigger. However, it seems to us that avoiding a big drawdown may actually be more important than gunning for whatever gains remain. We don’t think it is a good idea to simply “take the blue pill” and rely on the idea that the effects of the money illusion will last a lot longer. It is possible, but it becomes less and less likely the higher asset prices go and the more money supply growth slows down. If no-one can say when, then the “blue pill” strategy has a major weakness. It means that things could just as easily go haywire next week as next year.

A Mania Of Manias

If the tech mania was based on magic, and the housing mania was based on a supposed fact that was historically untrue, today’s mania is a mania of manias, interlinked and resting on premises that are patently illogical, contradicted by both the historical record and current experience. Those premises are: central planning works, government debt promotes prosperity, and economic growth stems from central banks buying that debt with money they create from thin air. On these premises rest manias in governments, their debts, and central banking.

Hugh Hendry Embraces The Central-Planning Matrix: "I Am Taking The Blue Pills Now"

Hugh Hendry's Eclectica Fund has had a great Q4 (up 3.3%, 4.0%, and 5.0% in the last 3 months) despite portfolio risk being quadruple his 'old normal'. How did he achieve this? He begins... "There are times when an investor has no choice but to behave as though he believes in things that don't necessarily exist. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully. The good news is that mankind clearly has the ability to suspend rational judgment long and often... He who hangs on to truth has lost. The economic truth of today no longer offers me much solace; I am taking the blue pills now."

2014 (In 5 Narratives)

2014 is in the bag and there's something for everyone to celebrate. Here are the narratives that painted the past year - what’s real about them versus what we’re being told they are about.

As Greek Default Risk Soars To 66%, Morgan Stanley Warns ECB May Be Unable To Launch QE

"The Greek political turmoil is likely to complicate matters for the ECB’s preparation of a sovereign QE programme. The prospect of the ECB potentially incurring severe losses is likely to intensify the debate within the Governing Council, where sovereign QE remains controversial. It could also make the start of a buying programme already on January 22 even more ambitious. In addition, the spectre of default could create new limitations on any sovereign QE design."

Japan Is Writing History As A Prime Boom And Bust Case

The fate of countries like Japan is really in the hands of central bankers. However, central planners are not able to manipulate markets infinitely. At a certain point, something has to give. That is when the markets will give up and disbelief will replace trust. In such a bust scenario, people flee down the Golden Pyramid of asset classes to their safe haven, being gold.

Commodity Prices Are Cliff-Diving Due To The Fracturing Monetary Supernova - The Case Of Iron Ore

The worldwide economic and industrial boom since the early 1990s was not indicative of sublime human progress or the break-out of a newly energetic market capitalism on a global basis. Instead, the approximate $50 trillion gain in the reported global GDP over the past two decades was an unhealthy and unsustainable economic deformation financed by a vast outpouring of fiat credit and false prices in the capital markets. In short, when the classical Austrians talked about “malinvestment” the pending disasters in the global steel and iron ore industries (and also mining equipment and other supplier industries) are what they had in mind.

The American People Are Utterly Clueless About What Is Going To Happen As We Enter 2015

The American people are feeling really good right about now.  For example, Gallup’s economic confidence index has hit the highest level that we have seen since the last recession.  In addition, nearly half of all Americans believe that 2015 will be a better year than 2014 was, and only about 10 percent believe that it will be a worse year.  And a lot of people are generally feeling quite good about the people that have been leading our nation. Unfortunately, when things seem to be going well common sense tends to go out the window. Sadly, what we are experiencing right now is so similar to what we witnessed in 2007 and early 2008.  The stock market had been on a great run, people were flipping houses like crazy and most people were convinced that the party would never end. But then it did end – very painfully.

The Clash Of Civilizations

What scares me about the Clash of Civilizations is that the three leaders of the three biggest civilizations – the US (Western), China (Sinic), and Russia (Orthodox) – will misplay their hands and take on another civilization directly or, worse, take on each other, and that will vaporize the Narrative of Central Bank Omnipotence in a nanosecond. The existential risk here for markets is not that China/Russia/Europe/America might “collapse”, whatever that means. No, the existential risk is that the great civilizations of the world will be “hollowed out” internally, so that the process of managing the ten thousand year old competition between civilizations devolves into an unstable game of pandering to domestic crowds rather than a stable equilibrium of balance of power.

Faith In Abenomics Falters: Foreign Investor Flows Collapse 94% In 2014

It appears, despite all the promises, all the lies, and all the constant propaganda, that foreign investors have finally seen right through Shinzo Abe's risible plan to revive the Japanese economy by crashing its currency (just like Russia?). As Bloomberg reports, after pumping record amounts of cash into Japanese shares last year, they’ve hardly added to holdings in 2014. Inflows are down 94 percent this year to 898 billion yen ($7.5 billion), on pace for the smallest annual amount since the 2008 global financial crisis.

What If The World Can't Cut Its Carbon Emissions?

However desirable it may be to protect the Earth from the dire consequences of a runaway climate the chances that the world will agree to cut its emissions quickly enough to stay below the 2C threshold are somewhere between zip, zilch and zero. (There’s also the question of whether cuts of the magnitude necessary would be politically, economically and technologically achievable if the world does agree, but we’ll leave it aside here.) Now imagine that you are one of the prominent politicians – Obama, Kerry, Merkel, Ban Ki-moon, Hollande, Cameron, Davey, whoever – who have publicly and repeatedly stated that climate change is the greatest threat facing the world, that the world is in serious trouble if nothing is done to stop it but that a solution is still within our reach. What do you tell people when next year’s make-or-break Paris climate talks show that it isn’t?

Scottish Government Confirms Ebola Diagnosed In Glasgow Patient

We wonder if England will be reconsidering the secession vote?

  • *SCOTTISH GOVT: CONFIRMED EBOLA CASE DIAGNOSED IN GLASGOW
  • *SCOTLAND: PATIENT IS A HEALTH CARE WORKER, RETURNED FROM SIERRA LEONE DEC. 28

After Japan's stock market slid overnight following reports of Ebola in Tokyo, one wonders what a recurrence of Ebola headlines will do to risk complacency this time? Perhaps, since the Ebola Tzar's work is done in America, they can lend him out to The Scots?