Swan Song Of The Central Bankers, Part 1: Last Week Wasn't A Mistake

Authored by David Stockman via Contra Corner blog,

Last week's twin 1,000 point plunges on the Dow were not errors. Instead, these close-coupled massacres, which wiped out $4 trillion of global market cap in two days, marked the beginning of a bear market that will be generational, not a temporary cyclical downleg.

What hit the casino wasn't an air pocket; it was a fundamental change of direction, signaling that the three decade long central bank experiment with Bubble Finance has now run its course.

Moreover, this epochal pivot is not tentative or reversible in any near-term time frame that matters. That's because the arrogant but clueless Keynesian academics and apparatchiks who run the Fed think they have succeeded splendidly and that the US economy is on the cusp of full-employment.

So they're now hell-bent on positioning the central bank for the next downturn. That is, they are reloading their recession-fighting "dry powder" thru interest rate normalization and a second giant experiment----this time in shrinking their balance sheet by huge annual amounts under a regime called quantitative tightening (QT).

Needless to say, both the magnitude and the automaticity of this impending monetary shock are being completely ignored by Wall Street in favor of bromides like "the market knows" QT is coming because the Fed has been transparent in its forward guidance.

So what? Knowing the steamroller is coming doesn't stop you from getting crushed if you remain in its path. In fact, the $600 billion annualized bond dumping rate incepting in October is a fearsome number; it's larger than the entire $500 billion Fed balance sheet as recently as the year 2000.

By your way, that had taken 86 years to accumulate through two world wars, the Great Depression and 9 lesser recessions. Yet that monumental change of dimension has faded from the working knowledge of Wall Street punters and commentators alike only be virtue of the insane 9X expansion to $4.5 trillion that occurred over the subsequent 14 years.

Moreover, you can count on the Fed's impending bond selling spree to get a turbo-charge from the bond pits.

As we insisted on Fox Business this AM, the fast money will soon figure out that the best way to print profits is to pivot with the Fed. That is, just as they were buying what the Fed announced it would be buying in the tens of billions per month during the era of QE, leveraged traders will start selling what the Fed has announced it will be selling during the new ball game of QT.

That will cause the impending bond market yield reset, in turn, to overshoot to the upside. Accordingly, the 10-year yield, which touched another new high at 2.88% early this AM, will be ripping through 3.0% shortly; and then be on its way to 4.0% and beyond.

Indeed, that's virtually inevitable. With the ECB, BOE, PBOC and BOJ all moving toward tightening in one fashion or another, the US bond market will have to clear $1.8 trillion of supply during FY 2019, but with little prospect of uptake from foreign central banks or their local bond markets.

That's right. The GOP fiscal geniuses now running the government, who inherited $700 billion of red ink for the upcoming year as a bipartisan legacy of decades past, have promptly layered on another $500 billion. That stems from the unfunded tax cut at $280 billion and from $220 billion more flowing from last week's spend-a-thon and the associated rise in interest payments.

Indeed, since Congress so dramatically front-loaded the tax-cut, the argument that "growth" will close the gap has been reduced to a bad joke. Even if it boosted GDP growth by a full 1.0 percentage point next year, the gain to GDP would be $200 billion and the associated revenue uptake would be less than $40 billion.

In the context of a $4.6 trillion annual spending level, call that a 0.9% rounding error and be done with it. And don't expect that the s0-called growth dividend will catch-up a few years down the road, either.

The fact is, FY 2019 will end in month #124 of the current business expansion (incepting in June 2009). That would make it the longest business expansion in recorded history and more than double the average cycle.

As we also argued on Fox this AM, if we even reach that point before the next recession hits, it should be considered a minor miracle. After all, the "yield shock" directly ahead is going to throw everything "priced-in" down there on Wall Street into a cocked-hat---including the likelihood that rising rates will rip $20 per share out of S&P 500 earnings (see below).

But to think you can go another 3-4 years without a recession is surely delusional; and to expect to get all the way through 2027 without a downturn (a putative 219 month expansion), as do both the current Trump budget and CBO baseline, would be downright inconceivable.

In this context, the Fed's resolve to dump $600 billion per year back into the bond pits should not be underestimated. As our colleague Lee Adler pointed out recently, the Fed has so determinedly adverted to auto-pilot with respect to it bond selling campaign that it not only announced it would refrain from commenting about it in its meeting minutes, but has now even stopped publishing the monthly runoff schedule.

That get's us to the market's misplaced confidence that after a moderate-sized hissy fit on Wall Street, the Fed and other fellow-traveling central banks will back-off from normalization and QT. The fact that the head of the New York Fed and Goldman plenipotentiary at the central bank, Bill Dudley, pointedly referred to last week's two-day $4 trillion stock plunge as "small potatoes" is perhaps a hint of things to come.

In that vein, the next chairman of the ECB in waiting, also left little to the imagination.

German Bundesbank President Jens Weidmann called on the European Central Bank Thursday to wind down its giant bond-buying program after September, urging officials not to be distracted by a stronger euro currency or volatility in global financial markets.

Here's the thing, however. Wall Street's complacent belief that the auto-pilot shift toward QT will be turned-off and reversed in the event of a recession is badly misplaced. That's because the era of Bubble Finance has turned business cycle causation upside-down.

Collapsing bubbles on Wall Street, not credit excesses on main street, are now the trigger for recessions. Accordingly, the Fed and other central banks are now strictly in the mop-up business, as the 2008 crisis so dramatically documented.

During the 16 months between the stock market peak in November 2007 and the March 2009 bottom, global market cap plunged from $62 trillion to $26 trillion. The Fed and other central banks were powerless to stop the $37 trillion bloodbath because it was not really triggered until September 2008 after the Lehman collapse; it was then that the C-suites began to jettison excess inventories and labor with nearly reckless abandon.

For example, the goods producing sector----mining, energy, manufacturing and construction---is far more cyclically sensitive than the US economy as a whole, where large swath of employment such as government (22 million jobs) and health and education (33 million jobs) are nearly immune to downturns. Thus, when fear ripped through the C-suites in September 2008 owing to collapsing stock prices and stock options, the  goods sector dumped inventories and workers like there was no tomorrow.

During the 10 months from September 2008 through the following June, more than 2.8 million workers were sacked, which represented 13% of employment at the December pre-recession peak and upwards of 70% of all jobs lost in the good-producing sectors during the entire Great Recession. In January 2009 alone, the sector lost 433,000 jobs or 2% of its payroll.

Stated differently, the corporate C-suites of America have been turned into financial engineering joints by 30 years of Bubble Finance. They are driven by short-term stock prices and the massive stock option packages attached to them.

Accordingly, when financial bubbles inevitably burst the resulting collapse of stock option values triggers full-on panic. At that point, anything which can possibly pacify the angry gods of the casino gets teed-up for desperate action, thereby giving rise to sweeping "restructuring" plans and drastic liquidation of fixed assets and inventories.

In the case of manufacturing, for example, inventories kept building during the first nine months of the statistically declared recession. But after the stock collapse in September 2008, inventories were dumped with malice aforethought. During the next 10 months more than 15% of manufacturers inventories were pitch overboard, causing ricocheting impacts among upstream suppliers and workers.

So the question is not whether a weakening economy will cause the Fed to take QT off auto-pilot. Instead, the issue is what might catalyze a continuation and acceleration of last week's stock plunge, thereby triggering the next bout of recessionary mayhem in the corporate C-suites?

We think the answer to that question is lurking in plain sight. To wit, the unfolding rise of bond yields in no way will resemble the comforting Wall Street myth that it's already "priced-in". In the case of the S&P 500, for example, the interest expense margin on sales averaged about 3.75% during the 1994-2008 period, and could be taken as the pre-QE and pre-ZIRP baseline.

Notwithstanding a veritable tsunami of corporate debt issuance during the past nine years, however, the interest margin in 2016 was only 2.00%. And that was after the amount of corporate debt outstanding had ballooned by more than one-third.

Accordingly, the bottom-of-the barrel net interest margin was not due to deleveraging, but, instead, was a function of drastic financial repression by the Fed and other central banks. The latter had become so extreme by 2016, in fact, that upwards of $14 trillion of sovereign debt traded with negative yields and the fundamental benchmark for corporate bonds---the 10-year UST----hit an all-time low of 1.35% in July.

And that's where the skunk is hiding in the woodpile. Should the 10-year bond rise to even 3.5% during the year ahead (reflecting a 75% increase from the 2.0% average of 2016), the interest margin on the S&P 500 would revert to at least its 3.75% pre-2008 baseline average.

Needless to say, the serious adverse implications for earnings are nowhere baked into the current Wall Street hockey sticks.

Thus, during 2016, the pre-tax interest margin on the S&P 500 according to the guru of corporate earnings, Ed Yardeni, amounted to $22.30 per share; and, at an effective tax rate of 26.5%, the after-tax cost was $16.40 per share.

By contrast, at a 3.75% interest margin, the pre-tax cost would be $42.50 per S&P 500 share, while at the new lower effective tax rate of about 16%, the after-tax cost would rise to more nearly $36 per S&P 500 share.

In a word, that potential $20 per share cost of rising yields is nowhere "priced-in". For that matter, not even a fraction of that amount is embedded in the Wall Street hockey sticks--if any at all.

As we said, knowing that the steamroller is coming, does not mitigate the bodily mayhem of remaining in its path.

And most especially, not when the steam-roller is being operated by central bankers who are oblivious to the epic bubbles and wild-west speculation that has been fostered throughout the warp-and-woof of the financial system after nine years of massive money printing and decades of central bank "puts".

In that context, it is fair to say that everybody has been picking up nickels in front of the steamroller----the legendary pros and homegamers alike. For instance, Ray Dalio, who is the godfather of the risk parity trade, which is among the most sophisticated short vol trades, was celebrated by the media on January 23 for saying at Davos that,

"If you're holding cash, you're going to feel pretty stupid."

What a difference 10 days can make. Undoubtedly, even some of his investors are wondering exactly what part of the anatomy he is holding now----given that during February to-date, the risk parity trade is down by 5%.

"About 10 days ago, that’s where I thought we were. However, recent spurts in stimulations, growth, and wage numbers signaled that the cycle is a bit ahead of where I thought it was."

This is just another way of saying that Bubble Finance has sown the seeds of its own destruction by causing foolish action on both ends of the Acela Corridor. With the budget now on automatic pilot and borrowing accelerating at unprecedented rates for the tail-end of a business expansion, it is only a matter of time before the bond market "yield shock" triggers carnage in the risk trades.

Last week's ETF/ETN explosion on the vol trade was only the tip of the iceberg. The real size in vol shorts was lodged in the much bigger positions represented by hundreds of billions invested in risk parity, vol control, naked puts, and CTA trend following strategies.

As one astute hedge fund trader, Eric Peters, observed over the weekend:

 Relative to the aggregate of all other forms of volatility selling, they’re (ETFs) not big, just really painful. They make for good headlines too. So the question now is whether the pain/spark of their blowup is enough to ignite bigger structural volatility shorts?”

(A) “This is the equivalent of the June 2007 Bear Sterns moment. In this scenario, market participants see the VIX ETF/ETN complex implosion as an isolated event sparked by poorly constructed products. Once investors really understand how they were constructed, they gain comfort in the ‘superiority’ of the strategies that they currently use to sell volatility (uncapped variance, risk parity, vol control, put selling, etc). They feel smart. And continue selling. Until a more widespread volatility unwind inevitably unfolds - probably tied a bit more closely to the economy and QE exits by the ECB/BOJ.”

(B) “This VIX ETF/ETN spark ignites other structural volatility shorts over the coming days/weeks, driven by a critical mass of risk managers across the financial industry not wanting to be the last to de-risk. Selling of risk assets increases volatility and this sparks more selling of risk assets in a reflexive way. In this scenario, visions of the ETF/ETN blowup makes value investors more patient in buying the dip. And with a new Fed governor, you don’t get a swift response. It’s bombs away for risk asset prices.”

Either way, the day traders will be the last to get the word---especially since more than half of today's fund mangers have been in the business less than nine years (i.e. the got their long pants after the 2008 meltdown).

As one 29-year old certified millennial and London fund manager, Ben Kumar, told Bloomberg,

After $3 trillion was erased from global stocks in a week, he’s weighing whether to buy on the dip now—or wait a bit longer. “I don’t even think that this move is a wake-up call,” he said on Tuesday.....“I haven’t worked in a different era to this one, but who says we’re going back to the old era?

We'd bet most surely we are.

Comments

JRobby HopefulCynical Tue, 02/13/2018 - 10:34 Permalink

"the three decade long central bank experiment with Bubble Finance has now run its course."

Thanks for playing. Your hopes and dreams are crushed, health declining, retirement - nonexistent.

It is amusing to watch the continuing discussions of Fed decisions based on completely false statistics applied to models that were of some use during a period of functioning markets.

Just one glaring example: pension funds are going broke, a lot of them. Are markets functioning? Or not functioning?

In reply to by HopefulCynical

Give Me Some Truth old naughty Tue, 02/13/2018 - 10:50 Permalink

The most news-worthy and important "NON-mistake" last week was Congress "suspending" the debt ceiling. Note, it was not just raised a little and extended for three months this time. It was "suspended" for at least 13 months (which actually means 17 months the way these things work).

What this means to you and me is that "they" can print as much as they want or need for the next year and a half. And, as if to prove it, they added $500 billion of "new spending" and showed again that any "spending caps" are null and void.

Basically, they protected the printing press, which means they protected the Status Quo.

In reply to by old naughty

chestergimli Give Me Some Truth Tue, 02/13/2018 - 12:59 Permalink

Ford said, You can print a bond or print a bill. The only difference is that you have to pay interest on the bond.  Everything would be A OK if the treasury just printed up the bills bypassing the privately owned federal reserve.  There would be no inflation generated as the bills would match the GDP that was being generated.  However, the problem is getting the usurious Jews out of the way.

In reply to by Give Me Some Truth

Voluntary Exchange JRobby Tue, 02/13/2018 - 10:43 Permalink

WE THE AWAKE, in order to preserve life on this planet, declare independence and freedom from those who claim, or submit to, forced subjugation of people by other people.

We hold these truths to be self evident, that all are equal with regard to the laws of nature:

Actual "law" causes that which makes the rain to fall, and the earth to support the seed. To cause the earth,water, air, and sun to promote life. Those who harm life break such laws. Thus, theft, fraud, and physical aggression, when they harm people's capacity to promote life, also violate the natural law. People are not able to make "laws" but some choose to create lies to control other people and call their lies "laws". It is not in people's nature to make actual, (natural), laws. True natural laws have existed from the beginning. They may be discovered but such laws are not made by human hands, and the consequences of breaking them are inescapable. In order to promote life people can and do make AGREEMENTS. Those who break their agreements often harm life.

Life is more important than human happiness, for without life there is no human happiness. But happiness promotes well-being that can aid the support of life. Thus, those actions that promote happiness but do not impede the sustaining of life do not violate natural law.

It takes time, understanding, and tools for people to do things that promote life. Thus, those who take other's liberty away and force others to serve them, or who steal from them, or who harm their understanding or capacity, they violate natural law. It further follows from this that life, liberty, property, and the capacity to experience happiness can all be defended against attacks by those who choose to harm these things. If further follows that when it is possible, those who are harmed by such actions are entitled to restore their condition to an equivalent state at the expense of those that harm them. Without restitution, life, liberty and property are endangered.

It follows that a person who steals a piece of bread to avoid starvation is not the same degree of threat as someone who impairs the capacity of the earth or its people to sustain life. It takes wisdom to understand the circumstances of a particular action. Thus consultation and adjudication among interested parties is to be preferred to action taken in haste or anger or dictates from those who posses power.

Justice can be defined as that which promotes all life, as well as human liberty and happiness in the most stable and long lasting ways. It is often not easy to discover. Sometimes a child can better know justice than a room full of deceived people. But in general the determination of "justice" might rely on the adjudication -(judging of the applicability of natural laws)- of all parties that are affected by the decision and/or by those that might be trusted to adjudicate the issue as determined by an interested party's presence or willingness to hire a person or group for that service. This is justice by voluntary consent. The more diverse the viewpoints of those involved the better. "Justice" as imposed by those who live by, or support theft (taxation) is often not very just.

Land, air and water are a very important subject as most life depends on the "health" of these things. When land is in use by those who live by voluntary exchange and who do not harm life, or do not harm human well-being, life is promoted. To avoid conflict the following rules can be attempted: the first to use the land in a non-life threatening manner is considered the trustee of the land on behalf of all Early life. That person or group or their heirs may continue to use it or dispose of it through voluntary exchange. Those who secretly harm the land without regard to future life, violate the natural rights of people in the future. Those who harm air or the water that touches or passes through "their" land commit a trespass against those harmed by such water or air. Where there is dispute, a process of adjudication is in order. But this process must rely on a system of voluntary exchange among all interested parties. One of the outcomes of such adjudication is that a person or group that fails the test of being a "trustee" of that land is no longer it's "owner".

We the AWAKE who choose to respect natural laws, wish to document the present peril of the Human Race, and have observed the following:

Those who choose to subjugate other people -(authoritarians)- do not just impose force on their own slaves and "tax-payers" they seek to impose force against other gangs of criminals -(other governments)- who are likewise stealing from other sets of slaves. And those who refuse to support these authoritarians in their crimes are treated worst of all. If we do not support their crimes the way the criminals demand, those who love truth and real freedom are placed in rape-cages or murdered if they try to defend themselves.  In most cases, those who just try to walk away from their tyranny are not just stopped, they are punished as well. Even if the victim agrees to fork over large amounts of wealth first to try and "buy" freedom, they are only sometimes allowed to leave if they fist become the slave of some other crime gang that also conspires in this evil delusion called "authority".

These gangs of criminals also cooperate with other gangs -("United Nations")- and make it very difficult for those who wish to live according to natural law and mutual respect, or to survive, or even flee from their tyranny. They seek in all possible ways to harm those who see them for the criminals that they are.

They have squander huge amounts of wealth in the designing and production of weapons of destruction so horrible that to use them in quantity would destroy both themselves as well as their enemies. These weapons have no utility to preserve life, since their general use places all life in peril. And their mere existence risks destruction by accident without there being an actual attack.  Compared against the huge amount of well-being that could have been achieved by using wealth in another way, it is cheaper to build houses for, and feed and cloth all your "enemies" rather than build such pointless "defenses".

They have conspired to destroy the minds of our children. They teach lies as truth, and destroy a child's ability to think clearly or see the world as it is. And they insist that the families of their victims pay for this crime or the parents loose their children, and/or they loose their homes, and/or they loose their jobs or reputations, and/or they get thrown in rape cages, and/or if they defend their children they can even be murdered.

Those who call themselves "government" make sure it is difficult for those who speak the truth about them to share their ideas. They heavily control or corrupt all forms of "media". And seek to destroy any who would reveal or explain their crimes.  This is no surprise, those who will steal from you will certainly lie to you. And they will eventually kill you if they think it furthers their purpose.

These fools who view themselves as our "superiors", in most cases fail to even comprehend that every bit of wealth they steal or extort is a missed opportunity for the Human Race. It represents a tragedy of missed potential and sub-optimal outcomes. Most of them have no idea how to create human wealth or well-being. They hold the productive in contempt. Truly the "Makers" can live without the "Takers"!

The authoritarians corrupt and cooperate with other cultural and educational centers of power. They conspire to change history, modify sacred texts, suppress truthful teachings, bribe and influence to perpetuate their crimes. They seek control of religions (or in some cases are an appendage of a corrupt religion). They share in the delusion that some are entitled to rule others, their justification is manufactured by cultural deception,subversion, and false gods. Instead of being a blessing to the people they are a curse. They suppress inventions that could make life flourish, and destroy those who's inventions could promote life on our planet.

Those who claim the authority to make "laws" confound the natural rights of people. They cripple restitution with the "Limited Liability" scam they have produced. They take turns in and out of power, stealing wealth through the latest scams they have  hatched with their "laws". This is why their laws exist. This is why they lust to be in control. Not only do they directly steal wealth, they indirectly impoverish by destroying the capacity of honest enterprises to compete in a free market. They ruin the planet and life as they enrich themselves and their partners in crime. They attempt to stamp out all markets that they do not control. They try to make it impossible to buy or sell without their consent or control. Those who attempt to store wealth are assaulted in endless ways, including the confiscatory fraud of paper money and central banks.

For these ongoing crimes and countless others, WE THE AWARE declare:

We are out of time! You authoritarians must not be permitted any more destruction. Not only are our lives in direct peril, but the lives of all our current and future children. Your crimes do not just destroy today, they literally destroy millions and millions of tomorrows! For us and countless other species upon the Good Earth. We must not (again?) become the laughing stock of the universe, therefore:

We will do all that we can to not pay you any "taxes" ever again.

We will conduct our commerce only with those who respect natural law and natural rights. Will will grow a new civilization based on voluntary exchange and reject the initiation of force and the lie of "authority".

We will use ways of communicating and exchanging wealth that you cannot control. We reserve the right to self-defence against aggression in a place of our time and choosing and temperament. Without this basic right and the will to exercise it civilization and most life on this planet will perish.

We will endeavor to protect our children from your corruption, and reject your "public" schooling.

We will work and campaign to educate others to wake up so that we together in cooperation can avert the extinction you are creating.

If it is possible we instruct you people who call yourselves "government" or who believe in governmental force, to change your ways. WAKE UP! STOP SCORCHING THE EARTH! You are not God and you do not own us! The Earth is for all life, not just the play thing of authoritarians. Our path to the stars is through cooperation, not authoritarian violence. Choose life, so that you may live!

In reply to by JRobby

Give Me Some Truth Voluntary Exchange Tue, 02/13/2018 - 11:08 Permalink

Excellent description of what's taking place. Never mentioned is all of the great things for the world that might have/could have/would have happened if so much wealth hadn't been confiscated for their means.

And intimidated people generally do NOT do the good things they would otherwise have done.

One example: If all the billions (trillions?) that have been directly spent to fight "global warming" had simply been spent to construct more guardrails along dangerous sections of roadways and highways, tens of thousands of lives would have been saved. Millions of costly and debilitating injuries would have also been prevented. Contrast this "what could have been" to what we obtained - Not one life saved by, say, preventing a hurricane.

And my example deals only with direct "environment" expenditures. All of the taxes and regs have kept untold billions and trillions from being spent on other things/initiatives.

They know not what harm they have caused. Or maybe they do. They just don't care as long as they obtain more control and get to feel more virtuous.

 

In reply to by Voluntary Exchange

Voluntary Exchange Machbet Tue, 02/13/2018 - 12:03 Permalink

If you are looking for the Kingdom of God to come and save us in the nick of time, perhaps you should look within yourself first. If you claim Christianity try reading Luke 17:21 first. If the Kingdom exists within each and every person then who can claim authority over anyone else? And if the "Kingdom" can come at a different place and different time for each individual, then will the Kingdom ever come to those who are looking for it outside of themselves?

In reply to by Machbet

Voluntary Exchange blindfaith Tue, 02/13/2018 - 13:49 Permalink

Do you think I am preaching? That person who expects the evil angels have been bound, is he even interested in  "civil discourse"? If I expose him to an idea in his own culture that is shared by many other wisdom texts of other cultures, and it happens to reject the idea of human authority, does that make me a "preacher". To be fair, I am the son of a preacher man. ;)

Nice thing about text, you are free not to read anything you don't like. I prefer his possibility of expansion of thought more than I fear your particular experience of mild displeasure. I hope I have not caused you any harm... if so, just put me on ignore and your problem is solved. I would not expect everyone to be interested in what I wrote specifically for that person who claims something wonderful has happened in the heavens.

In reply to by blindfaith

Voluntary Exchange fishwharf Tue, 02/13/2018 - 13:19 Permalink

I don't think that I can agree that he was making the same points. I am not against large scale organization. I am opposed to involuntary exchange and the claim of authority and the subsequent exploitation of others practiced by authoritarians.

Technology is created by understanding nature, as such it can be used for either good or evil. Those who have no respect for other people's natural rights, naturally tend to use technology for evil. Thus the last party that should ever be put in a place to utilize technology is the crime syndicate known as government. By agreeing to pay taxes people accomplish exactly that.

Those who control multinational corporations are often co-conspirators with the thieves calling themselves the "state". It is very difficult to create and sustain a large multi-national except by the assistance of the criminal state and the suppression of genuinely free markets. Laws that attempt to keep knowledge of nature as a kind of "intellectual property" are crimes. Declaring a code for life as property is a double crime. Only things that are actually scarce can qualify as property. That which can enrich everyone's life without harm to others by sharing, and who's cost of reproduction approaches zero, if it is "owned", it creates sub-optimal conditions for progress when it is hoarded. If you want to keep an idea, keep it secret if you can.

In reply to by fishwharf

Give Me Some Truth JRobby Tue, 02/13/2018 - 11:18 Permalink

Re: Those pension funds

I think they are key. Which is another reason I firmly believe the stock and bond markets will not be allowed to really crash. More and more of these pensions are putting more and more of their money into stocks. If the value of their stock portfolios crash, state governments will be forced to make up the difference even more so than they already are. That is, a stock market crash would necessitate yet another massive bailout of state government budgets.

The people who pull the levers behind the curtain get this. They thus will do everything they can to make sure this does not happen.

In reply to by JRobby

skbull44 HopefulCynical Tue, 02/13/2018 - 10:37 Permalink

Eventually the modern monetary alchemists will fail in their ongoing interventions in a complex system where volatility will pop up somewhere totally unexpected causing their house of cards to collapse; however, constantly shilling that THIS IS IT only serves to delegitimize the critics (such as DS). Yes, the time will arrive when the controllers lose control but NO ONE has a crystal ball to know that it is NOW...no, NOW...wait, NOW...any second now...we will only (possibly) recognize it well after the fact.

 

https://olduvai.ca

In reply to by HopefulCynical

TeethVillage88s Tue, 02/13/2018 - 10:28 Permalink

The Rule are the Rules till they aren't.  Central Banks, Regulators, Congress, Private TBTF Banks, FSB.org, BIS, ECB, WB, IMF... can change the rules, change the currency, change currency exchange rules, change trading rules with things like Schengen or NAFTA or WTO or Bretton Woods in 1944,... Globalism requires Normalization to Asian Ideas and Legalities... plus new currency, changes to Treasury Purchases, changes to hypothication of Sovereign Collateral, Restrictions to Debt/Credit/Currency to keep some players out???

P.K.Snosage Tue, 02/13/2018 - 10:34 Permalink

Oh, but I thought that the vix trade had been rigged and that there was accordingly a stampede to the door, whenever a little bit of selling wobbled the boat?    Then every Tom, Dick and Harry crawled out of the woodwork to attach their own theory to events:  telling us (to date) that the sell-off has similarities to 1937, 1987, 1997, 2002, 2007, 2008 and 2010.   

Bonaparte Tue, 02/13/2018 - 10:38 Permalink

Hmmm. living in a bomb shelter in the backwoods with a 10 year supply of jerky and dried beans, armed with a AK-47, suddenly seems rational, once again.