Virtually every day there is an eruption of lunacy from one central bank or another somewhere in the world. In short, the central banks of the world are embroiled in a group-think mania so extreme and irrational that it puts one in mind of the spasm of witchcraft trials that erupted in the Massachusetts Bay Colony nearly four centuries ago. As a practical matter, this mania amounts to a race to the currency bottom and the final extinguishment of the price discovery mechanism in every financial market on the planet. Flying blind, the financial markets are thus bubbling - in the delirium phase - like never before. That is, until they don’t.
One thing is certain about the ensuing “race to the bottom”. Japan’s retirement colony will end up with the hindmost. And they will surely burn professors Krugman and Summers in effigy—-even if driftwood is the only fuel they have left.
The central banks are now out of dry powder - impaled on the zero-bound. That means any resort to a massive new round of money printing can not be disguised as an effort to “stimulate” the macro-economy by temporarily driving interest rates to “extraordinarily” low levels. They are already there. Instead, a Bernanke style balance sheet explosion like that which stopped the financial meltdown in the fall and winter of 2008-2009 will be seen for exactly what it is—-an exercise in pure monetary desperation and quackery. So duck and cover. This storm could be a monster.
The Federal Reserve and its owners print and party, while the rest of us work and weep..................
After last night's marvelous Bloomberg profile of Bill Gross' last days at PIMCO, we were confident that no written material today could surpass Mary Child's fascinating narrative of the fallen bond king. And then we read Cannell Capital's activist letter to one James J. Cramer, of CNBC and TheStreet director infamy, which is hands down the blockbuster reading material du jour.
At the end of the day, it is overwhelming clear that the headline jobs number is thoroughly and dangerously misleading because there has been a systematic and relentless deterioration in the quality and value added of the jobs mix beneath the headline. It has no value whatsoever as an index of labor market conditions, labor market slack or even implied GDP growth. The truth is, in an open global economy the quantity of labor utilized by the US economy is a function of its price - not the level of interest rates or the S&P 500. Currently, wage rates on the margin are too high, but the Fed’s ZIRP and money printing campaigns only compound the problem. They permit the government to fund with ultra low-cost bonds and notes a massive transfer payment system that keeps potential productive labor out of the economy, and thereby props up bloated wages rates; and it enables households to carry more debt than would be feasible with honest interest rates and competitively priced wage rates, thereby further inhibiting the labor market adjustments that would be required to actually achieve full employment and sustainable growth.
Nearly two decades of central bank financial repression have created huge distortions and imbalances in the world economy. Now they are coming home to roost as the impossibility of ZIRP forever dawns on even our mad money printers. Having created yet another round of ebullient financial bubbles, they are now getting palpably nervous.
What is really embodied in today’s report is more evidence that America’s dependency ratio is still rising and that the already crushing burden of the welfare state will weigh ever more heavily on an economy that is visibly failing as measured by any of the fundamental trends of performance. Indeed, it is well to recall that even today—after what the clueless occupant of the White House claims as 10 million new jobs when 90% of that number, in fact, represents “born again” jobs relative to the 2007 peak—-there are 110 million Americans living in households receiving means-tested benefits and 158 million in households that receive transfer payments of all types. Yet as the burden of taxation and public debt resulting from these trends weigh ever more heavily, it leaves the mad money printers resident in the Eccles Building stranded in an impossible corner.
Janet Yellen is a chatterbox of numbers, but most of them are “noise”. And that’s her term. Yet here is a profoundly important set of numbers that you haven’t heard boo about from Yellen and her mad money printers. To wit, during the “difficult” economic times since the financial crisis began gathering force in Q1 2008, the S&P 500 companies have distributed $3.8 trillion in stock buybacks and dividends out of just $4 trillion in cumulative net income. That’s right, 95 cents of every dollar they earned - including the huge gains from restructurings, downsizings and job terminations - was flushed right back into the Wall Street casino.
The Great Depression did not represent the failure of capitalism or some inherent suicidal tendency of the free market to plunge into cyclical depression - absent the constant ministrations of the state through monetary, fiscal, tax and regulatory interventions. Instead, the Great Depression was a unique historical occurrence - the delayed consequence of the monumental folly of the Great War, abetted by the financial deformations spawned by modern central banking. But ironically, the “failure of capitalism” explanation of the Great Depression is exactly what enabled the Warfare State to thrive and dominate the rest of the 20th century because it gave birth to what have become its twin handmaidens - Keynesian economics and monetary central planning. Together, these two doctrines eroded and eventually destroyed the great policy barrier - that is, the old-time religion of balanced budgets - that had kept America a relatively peaceful Republic until 1914. The good Ben (Franklin that is) said,” Sir you have a Republic if you can keep it”. We apparently haven’t.
The economic releases of the past few days are putting the lie to the Keynesian escape velocity myth. The latter is not just around the corner—-and 2014 is now virtually certain to mark the fifth year running when the boom predicted by Wall Street economist at the beginning of the year fizzled as actual results unfolded.
According to the latest Nielsen Media Research data, in the second quarter of 2014, CNBC viewership for all viewers just dropped to 162,000 - a new (and depressing for Comcast) low, on par with CNBC's viewership from Q2 of 1997! Where things get funny is when one looks at the ratings of that consummate entertainer, that self-appointed "voice of the people", Jim Cramer. Sadly for Cramer, the people are now gone. Because also according to Nielsen Jim Cramer's Mad Money show just had its lowest ever rated month in the 25-54 demo, and is about to have its second lowest rated month ever across total viewers.
"They know nothing..." - grab your popcorn and settle in for the clash of the titans as the Cramer-Geithner lovefest explodes on to your screen... the question is will we see:
Cramer 2008 "if Geithner is installed as the next Treasury Secretary then we are done, kaput, finished... we are completely and royally hosed as a nation" or
Cramer 2012 "Geithner is one of the greatest Treasury Secretaries ever."
The world’s official economic institutions are run by people who believe in monetary fairy tales. The 70 words of wisdom below from IMF head Christine Lagarde are par for the course. She asserts that a new jabberwocky expression called “low-flation” is the main obstacle to higher economic growth in Europe and the DM areas generally and that it can be cured by more central bank money printing.
As the day began with every Joe, Jim, and Harry claiming to be an expert in HFT and having prophesied all of this long ago, we thought it would be intriguing to track just how well the retail investor was edumacated on the 'rigging of markets'. It didn't take long before Bob "I'm not trying to be an apologist for HFT, but..." Pisani explained that investors should not be concerned and another talking-head popped up on CNBC to proclaim, "being a little bit front-run is not a problem... remember, it's legal." Henry Blodgett made his 'takes one to know one' bubble perspective adding confidently that "the concept that the market is rigged is crazy." Crazy indeed - until the FBI gets involved. But we leave it to Rick Santelli who summed it all delightfully in a death-match with Pisani, "I'm sorry but if a large group of people can take that one cent all day long, day-in and day-out, then there's a problem."