Month: February 2014

“The market is way overdue for a 20 to 30% drop,” Marc Faber warns, “but that is not what worries him.” Sarcastically reflecting on the typical talking-head that appears on financial media, Faber adds you won’t “hear this view from someone who is fully invested,” as he “hopes the market drops 40% so stocks will become – from a value point of view – attractive.” The outspoken Faber channels Jim Grant as he exclaims, “the experience with quantitative easing is a complete failure. It has lifted asset prices and created asset inflation, but it hasn’t lifted the standard of living of most people in the U.S. nor worldwide.”

 

“I think the market is way overdue for a 20 to 30 percent correction,”

“nothing worries me… In fact, I’m hoping for the market to drop 40 percent so stocks will again become—from a value point of view—attractive.”

“But that is not the view of someone who is fully invested—obviously not.”

“Stocks are by-and-large fully priced“

“I think the experience with quantitative easing is a complete failure. It has lifted asset prices and created asset inflation, but it hasn’t lifted the standard of living of most people in the U.S. nor worldwide.”

On the chance of a bounce (and what next?)

“If the rebound fails around 1,820 [on the S&P 500] and then the market starts to drift again on the downside, and we see important shares for the market such as General Motors, GE, MMM, Coke … failing to make new highs, then I think we can assume that something more serious is in the offing.”

via Zero Hedge http://ift.tt/1e4J0vS Tyler Durden

Submitted by Shane Obata-Marusic of Triggers (pdf)

Triffin’s Dilemma: The 2014 Edition

What does it mean to be the world’s reserve currency?

Everbank’s Chuck Butler sums it up nicely in the following quote:

“Remember, the country with the reserve currency gets to receive loans at discounted borrowing costs. Also, commodities are priced in the reserve currency, meaning central banks around the world must hold the currency in their reserves to facilitate trade.”

Furthermore,

“Trading nations need dollars to lubricate trading and as foreign exchange reserves that bolster the value of their own currency and provide the asset base for the expansion of credit within their own nation”

Many different currencies have held reserve status throughout history.

This is important to note because it goes to show that, just like everything else, reserve currency status doesn’t last forever.

 

At present, the US dollar is the world’s main reserve currency.

 

That status has been a gift for the US: it has allowed it to run a deficit in perpetuity.

 

But it has also been a curse:

“The demand for safe assets feeds tha t exorbitant privilege enjoyed by the United States. This contributes to a weakening of US policy discipline as the country tends to excessively rely on easy credit in normal times and very expansionary macroeconomic policies in times of crisis. The outcome is excessive US indebtedness. The corporate sector was in debt prior to the burst of the dot-com bubble in 2001; so were the household and financial sectors before the eruption of the sub-prime crisis in 2007-08; and the official sector is in debt today.”

Moving on.

Let’s assume for a moment that the US recovers, the dollar appreciates in value relative to other currencies, the trade deficit shrinks, and QE comes to end.

 

That all sounds good, right? Yes, but maybe not for other countries – specifically those with current account deficits.

The end of easy money and artificially low interest rates will not bode well for the emerging markets.

The “faulty five” – aka the “BI ITS” – Brazil, India, Indonesia, Turkey and South Africa are particularly vulnerable because they rely on external financing to operate.

A stronger USD has multiple negative implications for their economies.

Before we continue let’s introduce the idea of Triffin’s Dilemma.

 

And now for a bit of history:

“Prior to the 1944 Bretton Woods agreement, central banks used gold as the asset to back their currencies. By the end of World War I I , the United States had established itself as the world’s creditor and largest holders of gold. Under the 1 944 Bretton Woods agreement, the US Dollar was fully backed by gold at a fixed value of 1 /35th an ounce per dollar, and foreign Central Banks could use US Dollar assets as reserves backing their currency, in lieu of gold. This agreement avoided the inevitable deflationary pressure a return to pre-war gold/currency ratios would have forced just as Europe was beginning to rebuild, and allowed US debt held abroad to be used as an asset by central banks against their local currencies. (- Zero Hedge)

After WW I I , America was the only industrialized country still intact. Through the Marshall Plan and rebuilding Japan and later South Korea, America was lending huge amounts of dollars to other countries, which in turn were used to collateralize their own currencies. America was able to run huge trade surpluses and our economy was booming. But, then Triffin’s Dilemma came into play. The demand for dollars around the world exceeded America’s ability to back it with gold. Those sneaky folks at the Federal Reserve printed more dollars anyway. And, when other countries figured out what was happening there was a run on America’s gold reserves and so President Richard Nixon had no choice but to stop backing the dollar with gold. However, the dollar remained the world’s reserve currency because of the size and strength of the  US economy. ” (Source)

Despite the fact the US dollar is still the world’s reserve currency, “The IMS [international monetary system] is not in a better situation today. The quandary under the BW system – the lack of a credible anchor for international monetary and financial stability – continues to exist. Key issuers and holders of reserve currencies pursue domestic objectives independently of what would best serve the global system and even their longer-run interest. To the extent that these policies pay insufficient attention to negative externalities for other countries and longer-term macroeconomic and financial stability concerns, they tend to produce unsustainable imbalances and fuel vulnerability in the global financial system. In particular, a large body of literature supports the view that a worldwide glut of both liquidity and planned savings over investment – stemming from, respectively, reserve-issuing and reserve- accumulating economies – was a key driver of the hazardous environment at the root of the global financial and economic crisis which broke out in summer 2007” (Source)

Will Triffin’s dilemma be relevant again in 2014 and going forward? Many people believe that it will.

The US is now producing a lot more energy and importing a lot less – on a net basis.

 

This is causing their trade deficit – which has been negative for the better part of 50 years – to shrink.

 

If we think of the trade balance as part of the supply of US dollars then – as a result of the dollar’s world reserve currency status – a reduction in the trade deficit means fewer US dollars leaving the country.

This has implications for other countries because they use USDs to buy US assets and for reserves.

Triffin’s Dilemma is that the country that issues the world’s reserve currency will have to choose between:

1 ) running a trade deficit in perpetuity – risking of a loss of confidence in its currency and solvency while the rest of the world enjoys an adequate supply of USDs.

or

2) running a trade surplus and enjoying an appreciation in the value of the dollar while the rest of the world suffers from a lack of liquidity and collateral.

Either way, there are negative implications for world growth. In the first example – in which the US runs a trade deficit in perpetuity
– the US continues to add to its debt and risks undermining its ability to pay off that debt. In the second example – in which the US runs a trade surplus – emerging market currencies are put under pressure by the USD potentially leading to capital outflows, a higher cost of debt, and global financial instability.

When Bernanke first mentioned the possibility of a reduction in asset purchases in May of 2013, emerging market currencies – in particular the BIITS – sold off in a big way.

At the same time, GDP forecasts for the emerging markets (started to get) (were) revised downwards.

That was the tell.

What I mean is that that’s when we first got a glimpse of what would happen if and when this giant monetary experiment came to an end.

In other words, the end of easy money isn’t going to be easy.

If emerging market currencies continue to depreciate then the relative value of the cash flows of companies that operate within those countries will fall.

In that case, it’s likely that net capital outflows from those markets would continue.

 

This flight of capital could force emerging market countries to increase their interest rates in an attempt to remain competitive for acquiring external financing.

With more money going towards interest payments, growth will be limited even further. What’s more is that an increase in the relative value of the USD will cause the price of imports, financial assets, and external debt to rise in local currency terms.

Lastly, and arguably most importantly, a smaller trade deficit or trade surplus will result in a reduction in foreign exchange reserves held at emerging market central banks.

Source

As those banks use their dollar reserves to buy back their domestic currencies in an effort to curb inflation they will 1 ) reduce their ability to “protect” their currency in the future and 2) reduce the asset base against which bank reserves are backed.

In conclusion, the falling trade deficit in the US is likely to increase the relative value of the dollar.

If, in addition to an improving balance of trade, the fed continues to taper its asset purchases, then it’s likely that emerging market currencies and ETFs will face increasingly negative pressures.

Source

 

Basically, there is no easy way out of this giant moral hazard driven debt bubble that the world’s central banks, and in particular the fed, have created.

I am hoping for the best but I’m not sure how this will play out. The entire world is in way over its head in debt…

Source

And somehow, whether it’s deliberate or forced, we need to get rid of it all.

Source

What used to be known as the business cycle – i.e. a cycle wherein a period of expansion is followed by a recession which cleanses the system of malinvestment – doesn’t exist anymore. Currently, the entire economic system is centrally planned. Instead of letting the nature run its course, the world’s “best and brightest” minds in economics – the central bankers – have decided to try and outsmart it. I f the US continues to operate without regard to the effects on the rest of the world, then world growth will be negatively affected.

Triffin’s dilemma: the 201 4 edition might turn out to be a prime example of the negative consequences of keeping money too easy for too long – i.e. suppressing interest rates and monetizing deficits. Unfortunately, policies that were intended to “smooth out” the economic cycle have only resulted in bigger booms and busts.

Source

Someone’s going to be left holding the bag. Try not to let it be you.

via Zero Hedge http://ift.tt/1e4EhdC Tyler Durden

Submitted by Shane Obata-Marusic of Triggers (pdf)

Triffin’s Dilemma: The 2014 Edition

What does it mean to be the world’s reserve currency?

Everbank’s Chuck Butler sums it up nicely in the following quote:

“Remember, the country with the reserve currency gets to receive loans at discounted borrowing costs. Also, commodities are priced in the reserve currency, meaning central banks around the world must hold the currency in their reserves to facilitate trade.”

Furthermore,

“Trading nations need dollars to lubricate trading and as foreign exchange reserves that bolster the value of their own currency and provide the asset base for the expansion of credit within their own nation”

Many different currencies have held reserve status throughout history.

This is important to note because it goes to show that, just like everything else, reserve currency status doesn’t last forever.

 

At present, the US dollar is the world’s main reserve currency.

 

That status has been a gift for the US: it has allowed it to run a deficit in perpetuity.

 

But it has also been a curse:

“The demand for safe assets feeds tha t exorbitant privilege enjoyed by the United States. This contributes to a weakening of US policy discipline as the country tends to excessively rely on easy credit in normal times and very expansionary macroeconomic policies in times of crisis. The outcome is excessive US indebtedness. The corporate sector was in debt prior to the burst of the dot-com bubble in 2001; so were the household and financial sectors before the eruption of the sub-prime crisis in 2007-08; and the official sector is in debt today.”

Moving on.

Let’s assume for a moment that the US recovers, the dollar appreciates in value relative to other currencies, the trade deficit shrinks, and QE comes to end.

 

That all sounds good, right? Yes, but maybe not for other countries – specifically those with current account deficits.

The end of easy money and artificially low interest rates will not bode well for the emerging markets.

The “faulty five” – aka the “BI ITS” – Brazil, India, Indonesia, Turkey and South Africa are particularly vulnerable because they rely on external financing to operate.

A stronger USD has multiple negative implications for their economies.

Before we continue let’s introduce the idea of Triffin’s Dilemma.

 

And now for a bit of history:

“Prior to the 1944 Bretton Woods agreement, central banks used gold as the asset to back their currencies. By the end of World War I I , the United States had established itself as the world’s creditor and largest holders of gold. Under the 1 944 Bretton Woods agreement, the US Dollar was fully backed by gold at a fixed value of 1 /35th an ounce per dollar, and foreign Central Banks could use US Dollar assets as reserves backing their currency, in lieu of gold. This agreement avoided the inevitable deflationary pressure a return to pre-war gold/currency ratios would have forced just as Europe was beginning to rebuild, and allowed US debt held abroad to be used as an asset by central banks against their local currencies. (- Zero Hedge)

After WW I I , America was the only industrialized country still intact. Through the Marshall Plan and rebuilding Japan and later South Korea, America was lending huge amounts of dollars to other countries, which in turn were used to collateralize their own currencies. America was able to run huge trade surpluses and our economy was booming. But, then Triffin’s Dilemma came into play. The demand for dollars around the world exceeded America’s ability to back it with gold. Those sneaky folks at the Federal Reserve printed more dollars anyway. And, when other countries figured out what was happening there was a run on America’s gold reserves and so President Richard Nixon had no choice but to stop backing the dollar with gold. However, the dollar remained the world’s reserve currency because of the size and strength of the  US economy. ” (Source)

Despite the fact the US dollar is still the world’s reserve currency, “The IMS [international monetary system] is not in a better situation today. The quandary under the BW system – the lack of a credible anchor for international monetary and financial stability – continues to exist. Key issuers and holders of reserve currencies pursue domestic objectives independently of what would best serve the global system and even their longer-run interest. To the extent that these policies pay insufficient attention to negative externalities for other countries and longer-term macroeconomic and financial stability concerns, they tend to produce unsustainable imbalances and fuel vulnerability in the global financial system. In particular, a large body of literature supports the view that a worldwide glut of both liquidity and planned savings over investment – stemming from, respectively, reserve-issuing and reserve- accumulating economies – was a key driver of the hazardous environment at the root of the global financial and economic crisis which broke out in summer 2007” (Source)

Will Triffin’s dilemma be relevant again in 2014 and going forward? Many people believe that it will.

The US is now producing a lot more energy and importing a lot less – on a net basis.

 

This is causing their trade deficit – which has been negative for the better part of 50 years – to shrink.

 

If we think of the trade balance as part of the supply of US dollars then – as a result of the dollar’s world reserve currency status – a reduction in the trade deficit means fewer US dollars leaving the country.

This has implications for other countries because they use USDs to buy US assets and for reserves.

Triffin’s Dilemma is that the country that issues the world’s reserve currency will have to choose between:

1 ) running a trade deficit in perpetuity – risking of a loss of confidence in its currency and solvency while the rest of the world enjoys an adequate supply of USDs.

or

2) running a trade surplus and enjoying an appreciation in the value of the dollar while the rest of the world suffers from a lack of liquidity and collateral.

Either way, there are negative implications for world growth. In the first example – in which the US runs a trade deficit in perpetuity – the US continues to add to its debt and risks undermining its ability to pay off that debt. In the second example – in which the US runs a trade surplus – emerging market currencies are put under pressure by the USD potentially leading to capital outflows, a higher cost of debt, and global financial instability.

When Bernanke first mentioned the possibility of a reduction in asset purchases in May of 2013, emerging market currencies – in particular the BIITS – sold off in a big way.

At the same time, GDP forecasts for the emerging markets (started to get) (were) revised downwards.

That was the tell.

What I mean is that that’s when we first got a glimpse of what would happen if and when this giant monetary experiment came to an end.

In other words, the end of easy money isn’t going to be easy.

If emerging market currencies continue to depreciate then the relative value of the cash flows of companies that operate within those countries will fall.

In that case, it’s likely that net capital outflows from those markets would continue.

 

This flight of capital could force emerging market countries to increase their interest rates in an attempt to remain competitive for acquiring external financing.

With more money going towards interest payments, growth will be limited even further. What’s more is that an increase in the relative value of the USD will cause the price of imports, financial assets, and external debt to rise in local currency terms.

Lastly, and arguably most importantly, a smaller trade deficit or trade surplus will result in a reduction in foreign exchange reserves held at emerging market central banks.

Source

As those banks use their dollar reserves to buy back their domestic currencies in an effort to curb inflation they will 1 ) reduce their ability to “protect” their currency in the future and 2) reduce the asset base against which bank reserves are backed.

In conclusion, the falling trade deficit in the US is likely to increase the relative value of the dollar.

If, in addition to an improving balance of trade, the fed continues to taper its asset purchases, then it’s likely that emerging market currencies and ETFs will face increasingly negative pressures.

Source

 

Basically, there is no easy way out of this giant moral hazard driven debt bubble that the world’s central banks, and in particular the fed, have created.

I am hoping for the best but I’m not sure how this will play out. The entire world is in way over its head in debt…

Source

And somehow, whether it’s deliberate or forced, we need to get rid of it all.

Source

What used to be known as the business cycle – i.e. a cycle wherein a period of expansion is followed by a recession which cleanses the system of malinvestment – doesn’t exist anymore. Currently, the entire economic system is centrally planned. Instead of letting the nature run its course, the world’s “best and brightest” minds in economics – the central bankers – have decided to try and outsmart it. I f the US continues to operate without regard to the effects on the rest of the world, then world growth will be negatively affected.

Triffin’s dilemma: the 201 4 edition might turn out to be a prime example of the negative consequences of keeping money too easy for too long – i.e. suppressing interest rates and monetizing deficits. Unfortunately, policies that were intended to “smooth out” the economic cycle have only resulted in bigger booms and busts.

Source

Someone’s going to be left holding the bag. Try not to let it be you.

via Zero Hedge http://ift.tt/1e4EhdC Tyler Durden

To the algo that bought TWTR at $71.92 2 hours ago, and 34% higher – 01000110 01010101 01000011 01001011 01011001 01001111 01010101 00100001

 

 

For the 4th time in its brief existence, the social media must-have stock has entered a bear market (greater than 20% correction from a high).

 

However, the plunge from the after-hours peak (at $71.92) this time is the largest peak-to-trough drop (to $53.82 for now) since the IPO at 25%…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1fTa5q3 Tyler Durden

If you repeat a lie often enough, and if you only speak with confidence and in a calm, cool collected voice, the people will believed you – propaganda 101. Also, if you repeat enough times that the US economy – that $17 trillion juggernaut 0 which as recently as December was fabled to have entered the escape velocity phase and thus was safe from the adverse side effects of the Fed’s taper, has hit a brick wall because of snow in the winter, then maybe the people will believe that too. Of course, there are the facts, and as always happens, the facts are diametrically opposed to the propaganda.

Presenting Exhibit A: a scatterplot chart showing the December-February nonfarm payroll growth vs the snow extent anomaly over the same period collated from the Rutgers Global Snow Lab. The correlation between the two data sets… drumroll: -10%. In fact, over the entire historical record, there are only three instances when heavy snow coincided with job losses, less than when there was light snowfall. In other words, there is virtually no correlation between the amount of heavy snowfall and concurrent jobs gains, and in reality, there is a modest inverse correlation.

So perhaps next year, when strong jobs report coincide with heavy snowfall, the propaganda will at least have modest empirical evidence on its side.

Alas, for now, the propaganda is just that…

Source: @not_jim_cramer

via Zero Hedge http://ift.tt/1avcdoN Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

As you may know, I’m an avid reader. I devour especially historical accounts of any kind, because I consider lessons of history to be invaluable. As the Latin proverb says: Historia magistra vitae est—history is life’s teacher.

One of my all-time favorite books is a novel by James Clavell, Tai-pan. It’s the second book in his series of six novels known as The Asian Saga—a fictional account of historical facts.

Tai-Pan tells the story of Western, and especially British, traders at the time of the Opium Wars with China. The story starts right after the British have defeated the Chinese Empire in the First Opium War and claimed a barren island in the Pearl River delta as a British possession—Hong Kong.

Tai-Pan is actually a Cantonese term that literally means “big shot”, and was reserved strictly for top foreign businessmen and traders operating in the Chinese realm.

In the story, right after the ceremonial claim of Hong Kong, the eponymous Tai-Pan, a Scottish merchant Dirk Struan, who dominates the trade in tea, silk, and opium, receives letters and dispatches from his son Culum who has just arrived to the Orient from Scotland:

“Finally he broke the seal on his banker’s letter. He read it and exploded with rage.

 

“What is it?” Culum asked, frightened.

 

“Just an old pain. Nothing. It’s nothing.” Struan pretended to read the next dispatch while raging inwardly over the contents of the letter. Good sweet Christ!

 

“We regret to inform you that, inadvertently and momentarily, credit was overextended and there was a run on the bank, started by malicious rivals. Therefore we can no longer keep our doors open. The board of directors has advised we can pay sixpence on the pound. I have the honor to be, sir, your most obedient servant…”

 

And we hold close to a million sterling of their paper. Twenty-five thousand sterling for a million, and our debts close to a million pounds. We’re bankrupt.

 

Great God, I warned Robb not to put all the money in one bank. Na with all the speculating that was going on in England, na when a bank could issue paper in any amount that it liked.”

Chillingly familiar, right?

A million pounds was an ENORMOUS amount of money in the 1840s. And here the biggest merchant in the Orient fell into the same trap as many people do today. He failed to recognize the risks and diversify accordingly.

He was obviously aware of the threats, but didn’t act when he had the time and opportunity to do so.

The world is not that different today.

Just last week we talked about how HSBC in the UK is restricting its customers’ access to their own money. As revolting as it seems, this is what banks with capital shortfalls and liquidity crunches do.

Another thing from Europe which has gone completely unnoticed was a hearing in the European Parliament on banking, during which the new German board member of the European Central Bank, Sabine Lautenschlaeger said that it should be possible to wind down failing eurozone banks over a weekend “before markets open in Japan on Monday.”

The threats and warning signs are there for everyone to see even today.

The question is, will you have the foresight to act and mitigate your risks beforehand, or will you end up regretting your inaction, just like the Tai-Pan?

via Zero Hedge http://ift.tt/1istUoE Tyler Durden

"Markets were over-priced coming into 2014," warns Sam Zell (noting that he does not believe in the Fed's wealth effect perspective on market-growth helping buying and selling decisions in the real economy), but while he sees a benign outlook for residential real estate, among his biggest concerns are "half-assed" Obamacare's "deleterious effect on the USA" and its "need to be radically changed." Supportive of Carl Icahn and his 'capitalist activism', Zell adds rather frankly that he believes Tom Perkins was correct about the "the 1%… for political convenience," and reminds Bloomberg TV's Betty Liu that "the politics of envy, the politics of class warfare are what has separated America from many parts of the rest of the world," until now.

 

On Activisim:

ZELL: Well, the answer is I think activism is very right and very important in a capitalistic system.

 

LIU: Just quickly though, Sam, do we have that photo up of Carl Icahn – Carl Icahn on the cover of Time magazine? You and I talked about your relationship. You’ve dealt – you’ve been on opposite sides with Carl before. Master of the universe now. He’s made this comeback at this age, Sam. What do you think about this?

 

ZELL: Well I don’t think the word comeback is an accurate description. Carl is a force. Carl has been right. Carl has been right and committed to being right. If I had a hat, I would take it off to him. And I think America is dramatically better off for people like Carl.

On Obamacare:

LIU: In Washington, the Congressional Budget Office released some startling new numbers about the president’s healthcare plan that’s sure to fuel more of this partisan wrangling in Washington, including this nugget, that in two years Obamacare is going to affect workers by prompting them to put in less hours in order to keep their federally subsidized healthcare benefits, costing an equivalent of about 2 million jobs according to the CBO.

 

Well Sam Zell stays with us throughout the hour, someone who is very involved in both local and national politics. And Sam, what do you make of this number, 2 million jobs?

 

ZELL: Well, I think the issue is not 2 million jobs. I think the issue is what is the contribution to the GDP of – or lack of contribution of 2 million people not working. We both know lots of people who have kept their jobs because they couldn’t afford to lose their healthcare. Now they can access healthcare from exchanges, and all of a sudden keeping a job isn’t as relevant as it was before.

 

LIU: But Sam, is that a small price to pay as a country for giving everybody healthcare?

 

ZELL: I think the best comment of all goes to Nancy Pelosi. We have to pass this bill to find out what’s in it. This is only the latest example of hundreds and hundreds of mistakes that were made in the preparation of this bill.

 

LIU: But do you think it should be repealed?

 

ZELL: I think that the current form of Obamacare I think is deleterious to our country and needs to be radically changed. The word repeal, I don’t know what that word means. I think healthcare is an important issue. I think the question is how do you go about it. We went about this half-assed.

 

LIU: But it – well, but however, the cat’s out of the bag and we have to figure out what to do now with the consequences. One of the things though that – that – that seems to be observed now in Washington as we’re – as we’re working through healthcare is that maybe, according to someone like Walter Isaacson who we had on this program, maybe the fever is breaking in Washington Maybe this may be a year where the two sides come together. Do you feel that way at all, Sam?

 

ZELL: I don’t know what he’s been smoking because nothing I read suggests that. They made a couple of deals on a couple of simple things, but talk to me about immigration. Talk to me about healthcare. Talk to me about foreign policy. There’s so many issues where there’s just this extraordinary disparity between the parties and very little interest in compromise.

On Markets:

LIU: I want to bring back Sam Zell, who’s been standing by. Sam, you think the – you thought the markets were overpriced, right, going into 2014.

 

ZELL: I did.
 
LIU: Why’d you think that?
 
ZELL: Well I think the economic activity did not correlate to the price of the stock market. Stock market was up 25 or – I don’t remember how much it was up last year.
 
LIU: Like 30 percent.
 
ZELL: Thirty percent. I (inaudible) companies. We didn’t see any – any Kumbaya happening. So from our perspective it’s a function of too much liquidity.
 
LIU: So do you feel that this is pretty healthy then to see this – to see this kind of decline?
 
ZELL: I don’t think declines are ever healthy, but balance is what keeps us in place. And when we get out of balance like subprime loans or whatever, it’s pretty disastrous. So the market has to keep balancing back and forth as consecutive (ph) currents are relevant. And I think the market in 2014 is a lot more likely to reflect what happened in 2014 than whether or not it was up or down in January.
 
LIU: But does it make you nervous at all, Sam? I know not much makes you nervous at all, but – but seeing how volatile these markets have been over the last few weeks, does it make you more nervous that Americans are going to look at this and pull back and perhaps they may not be buying as much anymore? They may not be selling as – as many houses or buying as many houses.
 
ZELL: The market went up 30 percent last year. Did the American people buy everything in sight? No. So what’s the relevance now? I don’t think the market has a dramatic impact on buying and selling decisions unless it’s such a prolonged period like we had in ‘08 and ‘09 that it really dampens everything.

On Inequality, Government Complexity, and Persecution of the 1%:

LIU: Let me ask you about Tom Perkins because you are part of the 1 percent. You are clearly part of the 1 percent. Tom Perkins came out with this – with this letter where he defended the 1 percent and he said, look, we are being persecuted the same as the – as the Nazis were persecuting the Jews. And he was just lambasted and he came on our network and defended it. How did you feel when you read that letter and when you heard his comments?
 
ZELL: I guess my feeling is that he’s right. The 1 percent are being pummeled because it’s politically convenien
t to do so. The problem is that the world and this country should not talk about envy of the 1 percent. It should talk about emulating the 1 percent. The 1 percent work harder. The 1 percent are much bigger factors in all forms of our society.
 
LIU: But Sam, tell that – tell that to the person who’s on minimum wage who’s living below the poverty line that they should try to emulate the 1 percent. How are they going to get there?
 
ZELL: The stories are rampant of people who started with a candy store and took it from there. There are lots of people who have the ambition and have the motivation and have succeed. Lots of people have come from nowhere and become part of the 1 percent.
 
LIU: But do you feel because you’re rich that you’re being persecuted?
 
ZELL: The word persecution is not the right word.
 
LIU: Okay. You’re being picked on.
 
ZELL: I think that the politics of envy, the politics of class warfare are what has separated America from many parts of the rest of the world. And we have benefited dramatically from not having class warfare, from not having envy. William Jennings Bryan in 1896 was the first person to run publicly in the United States on a platform of class warfare. He lost. And wisdom at the time said this is not America, and I think it still is not America.
 
LIU: Do you think though that there needs to be some help though or that – that there needs to be policy changes or something needs to be done about the growing income – income inequality, the growing gap? Do you think there needs to be something done with that?
 
ZELL: I think that that is a function of policies and I think that overall the policies that we passed for the last 50 years, whether it be unfunded Social Security or other issues, have all contributed to this disparity. And we need to fix our government. We don’t need 17,000 new pages of federal regulations in the last five years. So I think all of those things contribute to this disparity. And the more complicated our government makes our world, the more the 1 percent can afford to hire somebody to figure it out and the other guy can’t. But if you simplify government, neither one of them require (ph). And therefore the disparity slows down.

via Zero Hedge http://ift.tt/1kemLMf Tyler Durden