Tag: news

by Keith Weiner

An interesting article on MarketWatch today caught my attention. The subhead is the money quote, “Back in April every economist in a survey thought yields would rise. Guess what they did next.”

Every? The article refers to 67 economists polled by Bloomberg, all of whom would seem to believe in the quantity theory of money. This means they believe a rising money supply causes rising prices. That means they think the bond market expects inflation. Which means they expect the interest rate to rise, because investors will somehow demand more.

It didn’t happen because every assumption in that chain is false.

Many people also expect interest rates to rise after the Fed’s bond buying program—quantitative easing—ends. Let’s take a look at the yield on the 10-year US Treasury bond from 1981 through today. This graph is courtesy of Yahoo Finance, though I have labeled it as carefully as I could for the three rounds of QE so far.

By zooming out to capture the entire time period of the bull market in bonds—i.e. the period of the falling interest rate—we can put QE in perspective.

The 10-year US Treasury bond now yields 2.21%. For reference, the 10-year German bund is 0.87% and the 10-year Japanese government bond is 0.48%.

It’s obvious from the chart, that QE is not the cause of today’s interest rate near 2%.

MarketWatch implicitly acknowledges that the conventional theory is 100% wrong. I have published an alternative, The Theory of Interest and Prices in a Paper Currency. It’s a long read in seven parts, but I have tried to keep it accessible to the layman.

Spoiler alert: I think interest rates will keep falling to zero, though of course there can be corrections.

The interest rate is pathological. It’s like an object that gets too close to a black hole. Once it falls below the event horizon, then a crash into the singularity of zero is inevitable.

 

You are cordially invited to The Gold Standard: Both Good and Necessary, in New York on Nov 1. There hasn’t been a real recovery from the crisis of 2008, and there won’t be until we return to the use of gold as money. Please come to this event to hear Andy Bernstein present the moral case for capitalism, and Keith Weiner present the case for the gold standard as the monetary system of capitalism.

via Zero Hedge http://ift.tt/1293rd9 Gold Standard Institute

Just when you thought it was safe to BTF-Ebola-Is-Fixed-Dip… ABC7 Chicago reports, two unrelated passengers (one child – vomiting, no fever; one adult – nausea, diarrhea, no fever) originating from Liberia became ill en route to O’Hare International Airport. The two patients are being monitored in isolation at The University of Chicago Medical Center and Rush University Medical Center but based on the latest reports and risk exposures (from the Chicago Ebola Resource Network), the CDC has determined not to test them for Ebola… (perhaps they are waiting for Ron Klain to start work tomorrow to give them the go-ahead).

“City and hospital officials are working closely with the CDC to continue monitoring,” officials noted.

 

Ambulances wait at Rush University Medical Center

 

Full Statement:

 

h/t @SamJCharles

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

Submitted by Dmitry Orlov via Club Orlov blog,

A year and a half I wrote an essay on how the US chooses to view Russia, titled The Image of the Enemy. I was living in Russia at the time, and, after observing the American anti-Russian rhetoric and the Russian reaction to it, I made some observations that seemed important at the time. It turns out that I managed to spot an important trend, but given the quick pace of developments since then, these observations are now woefully out of date, and so here is an update.

At that time the stakes weren't very high yet. There was much noise around a fellow named Magnitsky, a corporate lawyer-crook who got caught and died in pretrial custody. He had been holding items for some bigger Western crooks, who were, of course, never apprehended. The Americans chose to treat this as a human rights violation and responded with the so-called “Magnitsky Act” which sanctioned certain Russian individuals who were labeled as human rights violators. Russian legislators responded with the “Dima Yakovlev Bill,” named after a Russian orphan adopted by Americans who killed him by leaving him in a locked car for nine hours. This bill banned American orphan-killing fiends from adopting any more Russian orphans. It all amounted to a silly bit of melodrama.

But what a difference a year and a half has made! Ukraine, which was at that time collapsing at about the same steady pace as it had been ever since its independence two decades ago, is now truly a defunct state, with its economy in free-fall, one region gone and two more in open rebellion, much of the country terrorized by oligarch-funded death squads, and some American-anointed puppets nominally in charge but quaking in their boots about what's coming next. Syria and Iraq, which were then at a low simmer, have since erupted into full-blown war, with large parts of both now under the control of the Islamic Caliphate, which was formed with help from the US, was armed with US-made weapons via the Iraqis. Post-Qaddafi Libya seems to be working on establishing an Islamic Caliphate of its own. Against this backdrop of profound foreign US foreign policy failure, the US recently saw it fit to accuse Russia of having troops “on NATO's doorstep,” as if this had nothing to do with the fact that NATO has expanded east, all the way to Russia's borders. Unsurprisingly, US–Russia relations have now reached a point where the Russians saw it fit to issue a stern warning: further Western attempts at blackmailing them may result in a nuclear confrontation.

The American behavior throughout this succession of defeats has been remarkably consistent, with the constant element being their flat refusal to deal with reality in any way, shape or form. Just as before, in Syria the Americans are ever looking for moderate, pro-Western Islamists, who want to do what the Americans want (topple the government of Bashar al Assad) but will stop short of going on to destroy all the infidel invaders they can get their hands on. The fact that such moderate, pro-Western Islamists do not seem to exist does not affect American strategy in the region in any way.

Similarly, in Ukraine, the fact that the heavy American investment in “freedom and democracy,” or “open society,” or what have you, has produced a government dominated by fascists and a civil war is, according to the Americans, just some Russian propaganda. Parading under the banner of Hitler's Ukrainian SS division and anointing Nazi collaborators as national heroes is just not convincing enough for them. What do these Nazis have to do to prove that they are Nazis, build some ovens and roast some Jews? Just massacring people by setting fire to a building, as they did in Odessa, or shooting unarmed civilians in the back and tossing them into mass graves, as they did in Donetsk, doesn't seem to work. The fact that many people have refused to be ruled by Nazi thugs and have successfully resisted them has caused the Americans to label them as “pro-Russian separatists.” This, in turn, was used to blame the troubles in Ukraine on Russia, and to impose sanctions on Russia. The sanctions would be reviewed if Russia were to withdraw its troops from Ukraine. Trouble is, there are no Russian troops in Ukraine.

Note that this sort of behavior is nothing new. The Americans invaded Afghanistan because the Taleban would not relinquish Osama Bin Laden (who was a CIA operative) unless Americans produced evidence implicating him in 9/11—which did not exist. Americans invaded Iraq because Saddam Hussein would not relinquish his weapons of mass destruction—which did not exist. They invaded Libya because Muammar Qaddafi would not relinquish official positions—which he did not hold. They were ready to invade Syria because Bashar al Assad had used chemical weapons against his own people—which he did not do. And now they imposed sanctions on Russia because Russia had destabilized and invaded Ukraine—which it did not do either. (The US did that.)

The sanctions against Russia have an additional sort of unreality to them, because they “boomerang” and hurt the West while giving the Russian government the impetus to do what it wanted to do all along. The sanctions infringed on the rights of a number of Russian businessmen and officials, who promptly yanked their money out of Western banks, pulled their children out of Western schools and universities, and did everything else they could to demonstrate that they are good patriotic Russians, not American lackeys. The sanctions affected a number of Russian energy companies, cutting them off from Western sources of technology and financing, but this will primarily hurt the earnings of Western energy companies while helping their Chinese competitors. There were even some threats to cut Russia off from the SWIFT system, which would have made it quite difficult to transfer funds between Russia and the West, but what these threats did instead was to give Russia the impetus to introduce its own RUSSWIFT system, which will include even Iran, neutralizing future American efforts at imposing financial restrictions.

The sanctions were meant to cause economic damage, but Western efforts at inflicting short-term economic damage on Russia are failing. Coupled with a significant drop in the price of oil, all of this was supposed to hurt Russia fiscally, but since the sanctions caused the Ruble to drop in tandem, the net result on Russia's state finances is a wash. Oil prices are lower, but then, thanks in part to the sanctions, so is the Ruble, and since oil revenues are still largely in dollars, this means that Russia's tax receipts are at roughly the same level at before. And since Russian oil companies earn dollars abroad but spend rubles domestically, their production budgets remain unaffected.

The Russians also responded by imposing some counter-sanctions, and to take some quick steps to neutralize the effect of the sanctions on them. Russia banned the import of produce from the European Union—to the horror of farmers there. Especially hurt were those EU members who are especially anti-Russian: the Baltic states, which swiftly lost a large fraction of their GDP, along with Poland. An exception is being made for Serbia, which refused to join in the sanctions. Here, the message is simple: friendships that have lasted many centuries matter; what the Americans want is not what the Americans get; and the EU is a mere piece of paper. Thus, the counter-sanctions are driving wedges between the US and the EU, and, within the EU, between Eastern Europe (which the sanctions are hurting the most) and Western Europe, and, most importantly, they drive home the simple message that the US is not Europe's friend.

There is something else going on that is going to become more significant in the long run: Russia has taken the hint and is turning away from the West and toward the East. It is parlaying its open defiance of American attempts at world domination into trade relationships throughout the world, much of which is sick and tired of paying tribute to Washington. Russia is playing a key role in putting together an international banking system that circumvents the US dollar and the US Federal Reserve. In these efforts, over half the world's territory and population is squarely on Russia's side and cheering loudly. Thus, the effort to isolate Russia has produced the opposite of the intended result: it is isolating the West from the rest of the world instead.

In other ways, the sanctions are actually being helpful. The import ban on foodstuffs from EU is a positive boon to domestic agriculture while driving home a politically important point: don't take food from the hands of those who bite you. Russia is already one of the world's largest grain exporters, and there is no reason why it can't become entirely self-sufficient in food. The impetus to rearm in the face of NATO encroachment on Russian borders (there are now US troops stationed in Estonia, just a short drive from Russia's second-largest city, St. Petersburg) is providing some needed stimulus for industrial redevelopment. This round of military spending is being planned a bit more intelligently than in the Soviet days, with eventual civilian conversion being part of the plan from the very outset. Thus, along with the world's best jet fighters, Russia is likely to start building civilian aircraft for export and competing with Airbus and Boeing.

But this is only the beginning. The Russians seem to have finally realized to what extent the playing field has been slanted against them. They have been forced to play by Washington's rules in two key ways: by bending to Washington's will in order to keep their credit ratings high with the three key Western credit rating agencies, in order to secure access to Western credit; and by playing by the Western rule-book when issuing credit of their own, thus keeping domestic interest rates artificially high. The result was that US companies were able to finance their operations more cheaply, artificially making them more competitive. But now, as Russia works quickly to get out from under the US dollar, shifting trade to bilateral currency arrangements (backed by some amount of gold should trade imbalances develop) it is also looking for ways to turn the printing press to its advantage. To date, the dictat handed down from Washington has been: “We can print money all we like, but you can't, or we will destroy you.” But this threat is ringing increasingly hollow, and Russia will no longer be using its dollar revenues to buy up US debt. One proposal currently on the table is to make it impossible to pay for Russian oil exports with anything other than rubles, by establishing two oil brokerages, one in St. Petersburg, the other, seven time zones away, in Vladivostok. Foreign oil buyers would then have to earn their petro-rubles the honest way—through bilateral trade—or, if they can't make enough stuff that the Russians want to import, they could pay for oil with gold (while supplies last). Or the Russians could simply print rubles, and, to make sure such printing does not cause domestic inflation, they could export some inflation by playing with the oil spigot and the oil export tariffs. And if the likes of George Soros decides to attack the ruble in an effort to devalue it, Russia could defend its currency simply by printing fewer rubles for a while—no need to stockpile dollar reserves.

So far, this all seems like typical economic warfare: the Americans want to get everything they want by printing money while bombing into submission or sanctioning anyone who disobeys them, while the rest of the world attempts to resist them. But early in 2014 the situation changed. There was a US-instigated coup in Kiev, and instead of rolling over and playing dead like they were supposed to, the Russians mounted a fast and brilliantly successful campaign to regain Crimea, then successfully checkmated the junta in Kiev, preventing it from consolidating control over the remaining former Ukrainian territory by letting volunteers, weapons, equipment and humanitarian aid enter—and hundreds of thousands of refugees exit—through the strictly notional Russian-Ukrainian border, all the while avoiding direct military confrontation with NATO. Seeing all of this happening on the nightly news has awakened the Russian population from its political slumber, making it sit up and pay attention, and sending Putin's approval rating through the roof.

The “optics” of all this, as they like to say at the White House, are rather ominous. We are coming up on the 70th anniversary of victory in World War II—a momentous occasion for Russians, who pride themselves on defeating Hitler almost single-handedly. At the same time, the US (Russia's self-appointed arch-enemy) has taken this opportunity to reawaken and feed the monster of Nazism right on Russia's border (inside Russia's borders, some Russians/Ukrainians would say). This, in turn, makes the Russians remember Russia's unique historical mission is among the nations of the world: it is to thwart all other nations' attempts at world domination, be it Napoleonic France or Hitleresque Germany or Obamaniac America. Every century or so some nation forgets its history lessons and attacks Russia. The result is always the same: lots of corpse-studded snowdrifts, and then Russian cavalry galloping into Paris, or Russian tanks rolling into Berlin. Who knows how it will end this time around? Perhaps it will involve polite, well-armed men in green uniforms without insignia patrolling the streets of Brussels and Washington, DC. Only time will tell.

You'd think that Obama has already overplayed his hand, and should behave accordingly. His popularity at home is roughly the inverse of Putin's, which is to say, Obama is still more popular than Ebola, but not by much. He can't get anything at all done, no matter how pointless or futile, and his efforts to date, at home and abroad, have been pretty much a disaster. So what does this social worker turned national mascot decide to do? Well, the way the Russians see it, he has decided to declare war on Russia! In case you missed it, look up his speech before the UN General Assembly. It's up on the White House web site. He placed Russia directly between Ebola and ISIS among the three topmost threats facing the world. Through Russian eyes his speech reads as a declaration of war.

It's a new, mixed-mode sort of war. It's not a total war to the death, although the US is being rather incautious by the old Cold War standards in avoiding a nuclear confrontation. It's an information war—based on lies and unjust vilification; it's a financial and economic war—using sanctions; it's a political war—featuring violent overthrow of elected governments and support for hostile regimes on Russia's borders; and it's a military war—using ineffectual but nevertheless insulting moves such as stationing a handful of US troops in Estonia. And the goals of this war are clear: it is to undermine Russia economically, destroy it politically, dismember it geographically, and turn it into a pliant vassal state that furnishes natural resources to the West practically free of charge (with a few hand-outs to a handful of Russian oligarchs and criminal thugs who play ball). But it doesn't look like any of that is going to happen because, you see, a lot of Russians actually get all that, and will choose leaders who will not win any popularity contests in the West but who will lead them to victory.

Given the realization that the US and Russia are, like it or not, in a state of war, no matter how opaque or muddled, people in Russia are trying to understand why this is and what it means. Obviously, the US has seen Russia as the enemy since about the time of the Revolution of 1917, if not earlier. For example, it is known that after the end of World War II America's military planners were thinking of launching a nuclear strike against the USSR, and the only thing that held them back was the fact that they didn't have enough bombs, meaning that Russia would have taken over all of Europe before the effects of the nuclear strikes could have deterred them from doing so (Russia had no nuclear weapons at the time, but lots of conventional forces right in the heart of Europe).

But why has war been declared now, and why was it declared by this social worker turned national misleader? Some keen observers mentioned his slogan “the audacity of hope,” and ventured to guess that this sort of “audaciousness” (which in Russian sounds a lot like “folly”) might be a key part of his character which makes him want to be the leader of the universe, like Napoleon or Hitler. Others looked up the campaign gibberish from his first presidential election (which got silly young Americans so fired up) and discovered that he had nice things to say about various cold warriors. Do you think Obama might perhaps be a scholar of history and a shrewd geopolitician in his own right? (That question usually gets a laugh, because most people know that he is just a chucklehead and repeats whatever his advisers tell him to say.) Hugo Chavez once called him “a hostage in the White House,” and he wasn't too far off. So, why are his advisers so eager to go to war with Russia, right now, this year?

Is it because the US is collapsing more rapidly than most people can imagine? This line of reasoning goes like this: the American scheme of world domination through military aggression and unlimited money-printing is failing before our eyes. The public has no interest in any more “boots on the ground,” bombing campaigns do nothing to reign in militants that Americans themselves helped organize and equip, dollar hegemony is slipping away with each passing day, and the Federal Reserve is fresh out of magic bullets and faces a choice between crashing the stock market and crashing the bond market. In order to stop, or at least forestall this downward slide into financial/economic/political oblivion, the US must move quickly to undermine every competing economy in the world through whatever means it has left at its disposal, be it a bombing campaign, a revolution or a pandemic (although this last one can be a bit hard to keep under control). Russia is an obvious target, because it is the only country in the world that has had the gumption to actually show international leadership in confronting the US and wrestling it down; therefore, Russia must be punished first, to keep the others in line.

I don't disagree with this line of reasoning, but I do want to add something to it.

First, the American offensive against Russia, along with most of the rest of the world, is about things Americans like to call “facts on the ground,” and these take time to create. The world wasn't made in a day, and it can't be destroyed in a day (unless you use nuclear weapons, but then there is no winning strategy for anyone, the US included). But the entire financial house of cards can be destroyed rather quickly, and here Russia can achieve a lot while risking little. Financially, Russia's position is so solid that even the three Western credit ratings agencies don't have the gall to downgrade Russia's rating, sanctions notwithstanding. This is a country that is aggressively paying down its foreign debt, is running a record-high budget surplus, has a positive balance of payments, is piling up physical gold reserves, and not a month goes by that it doesn't sign a major international trade deal (that circumvents the US dollar). In comparison, the US is a dead man walking: unless it can continue rolling over trillions of dollars in short-term debt every month at record-low interest rates, it won't be able to pay the interest on its debt or its bills. Good-bye, welfare state, hello riots. Good-bye military contractors and federal law enforcement, hello mayhem and open borders. Now, changing “facts on the ground” requires physical actions, whereas causing a financial stampede to the exits just requires somebody to yell “Boo!” loudly and frighteningly enough.

Second, it must be understood that at this point the American ruling elite is almost entirely senile. The older ones seem actually senile in the medical sense. Take Leon Panetta, the former Defense Secretary: he's been out flogging his new book, and he is still blaming Syria's Bashar al Assad for gassing his own people! By now everybody else knows that that was a false flag attack, carried out by some clueless Syrian rebels with Saudi help, to be used as an excuse for the US to bomb Syria—you know, the old “weapons of mass destruction” nonsense again. (By the way, this kind of mindless, repetitive insistence on a fake rationale seems like a sure sign of senility.) That plan didn't work because Putin and Lavrov intervened and quickly convinced Assad to give up his useless chemical weapons stockpile. The Americans were livid. So, everybody knows this story—except Panetta. You see, once an American official starts lying, he just doesn't know how to stop. The story always starts with a lie, and, as facts emerge that contradict the initial story, they are simply ignored.

So much for the senile old guard, but what about their replacements? Well, the poster boy for the young ones is Hunter Biden, the VP's son, who went on a hookers-and-blow tour of Ukraine last summer and inadvertently landed a seat on the board of directors of Ukraine's largest natural gas company (which doesn't have much gas left). He just got outed for being a coke fiend. In addition to the many pre-anointed ones, like the VP's son, there are also many barns full of eagerly bleating Ivy League graduates who have been groomed for jobs in high places. These are Prof. Deresiewicz's “Excellent Sheep.”

There just isn't much that such people, young or old, can be made to respond to. International embarrassment, military defeat, humanitarian catastrophe—all these things just bounce off them and stick to you for bringing them up and being overly negative about their rose-colored view of themselves. The only hit they can actually feel is a hit to the pocketbook.

Which brings us all the way back to my first point: “Boo!”

via Zero Hedge http://ift.tt/1x72yei Tyler Durden

Exchange Traded Funds are becoming an important market for hedge funds as BofAML notes, they have shifted their profiles from shorting single stocks to more actively using ETFs as a hedge. On aggregate, BofAML reports that hedge funds owned $36.9bn worth of ETFs at the beginning of 3Q 2014, up notably from $33.8bn in the previous quarter, and these are the top 25 by market value.

Notably, hedge funds bought Agricultural business (MOO) along with Emerging Markets (EEM, VWO), while selling gold (GDX and GLD) and Italy index (EWI).

 

Our universe consists of 758 ETFs listed in the US with market caps of at least $100mn as of June 30, 2014.

Source: BofAML

via Zero Hedge http://ift.tt/1285Nc5 Tyler Durden

Submitted by Sean Corrigan via The Cobden Center blog,

The Economist Discovers The Entrepreneur

In its latest edition, in a piece entitled ‘Monetary policy: Tight, loose, irrelevant’, the ineffably dire Ekonomista considers the work of three members of the Sloan School of Management who conducted a study of the factors which – according to their rendering of the testimony of the 60-odd years of data which they analysed in their paper, “The behaviour of aggregate corporate investment” – have historically exerted the most influence on the propensity for American businesses to ‘invest’.

The article itself starts by deploying that unfailingly patronising, ‘it’s economics 101′ cliché by which we should really have long ago learned to expect some weary truism will soon be rehashed as fresh journalistic wisdom.

It may be only partly an exaggeration to say that the weekly then adopts a breathless, teen-hysterical approach to a set of results which, with all due respect to the worthies who compiled them, should have been instantly apparent to anyone devoting a moment’s thought to the issue (and if that’s too big a task for the average Ekonomista writer, perhaps they could pause to ask one of those grubby-sleeved artisans who actually RUNS a business what it is exactly that they get up to, down there at the coalface of international capitalism). Far from being a Statement of the Bleedin’ Obvious, our fearless expositors of the Fourth Estate instead seem to regard what appears to be a tediously positivist exercise in data mining as some combination of the elucidation of the nature of the genetic code and the first exposition of the uncertainty principle. This in itself is a telling indictment of the mindset at work.

For can you even imagine what it was that our trio of geniuses ‘discovered’? Only that firms tend to invest more eagerly if they are profitable and if those profits (or their prospect) are being suitably rewarded with a rising share price – i.e. if their actions are contributing to capital formation, realised or expected, and hence to the credible promise of a maintained, increased, lengthened or accelerated schedule of income flows – that latter condition being one which also means the firms concerned can issue equity on advantageous terms, where necessary, in the furtherance of their aims.

[As an aside, do you remember when we used to ISSUE equity for purposes other than as a panic measure to keep the business afloat after some megalomaniac CEO disaster of over-leverage or as part of a soak-the-patsies cash-out for the latest batch of serial shell-gamers and their start-up sponsors?]

Shock, horror! Our pioneering profs then go on to share the revelation that firms have even been known to invest WHEN INTEREST RATES ARE RISING; i.e., when the specific real rate facing each firm (rather than the fairly meaningless, economy-wide aggregate rate observable in the capital market with which it is here being conflated) is therefore NOT estimated to constitute any impediment to the future attainment (or preservation) of profit. Whatever happened to the central bank mantra of the ‘wealth effect’ and its dogma about ‘channels’ of monetary transmission? How could those boorish mechanicals in industry not know they are only to invest when their pecuniary paramounts signal they should, by lowering official interest rates or hoovering up oodles of government securities?

At this point we might stop to insist that the supercilious, wielders of the ‘Eco 101’ trope at the Ekonomista note that these firms’ own heightened appetite for a presumably finite pool of loanable funds should firmly be expected to nudge interest rates higher precisely in order to bring forth the necessary extra supply thereof, just as a similar shift in demand would do in any other well-functioning market (DOH!), so please could they take the time in future to ponder the workings of cause and effect before they dare to condescend to us.

They might also reflect upon the fact that when the banking system functions to supplement such hard-won funds with its own, purely ethereal emissions of unsaved credit – thereby keeping them too cheap for too long and so removing the intrinsically self-regulating and helpfully selective effect which their increasing scarcity would otherwise have had on proposedschemes of investment – they pervert, if not utterly vitiate, a most fundamental market process. Having a pronounced tendency to bring about a profound disco-ordination in the system to the point of precluding a holistic ordering of ends and means as well as of disrupting the timetable on which the one may be transformed into the other, we Austrians recognize this as theprimary cause of that needless and wasteful phenomenon which is the business cycle. It is therefore decidedly not a cause for perplexity that investment, quote: ‘…expands and contracts far more dramatically than the economy as a whole’ as the Ekonomista wonderingly remarks

Nigh on unbelievable as it may appear to the policy-obsessed, mainstream journos who reviewed the academics’ work, all of this further implies that the past two centuries-odd of absolutely unprecedented and near-universal material progress did NOT take place simply because the central banks and their precursors courageously and unswervingly spent the whole interval doing ‘whatever it took’ to progressively lower interest rates to (and in some cases, through) zero! Somewhere along the line, one supposes that the marvels of entrepreneurship must have intruded, as well as what Deidre McCloskey famously refers to as an upsurge in ‘bourgeois dignity’ – i.e., the ever greater social estimation which came to be accorded to such agents of wholesale advance. This truly must shake the pillars of the temple of the cult of top-down, macro-economic command of which the Ekonomista is the house journal.

Remarkably, the Ekonomista’s piece is also daringly heterodox in inferring that, given this highly singular insensitivity to market interest rates, we might therefore return more assuredly to the long-forsaken path of growth if Mario Draghi and his ilk were to treat themselves to a long, contemplative sojourn, taking the waters at one of Europe’s idyllic (German) spa townsinstead of constantly hogging the limelight by dreaming up (and occasionally implementing) ever more involved, Cunning Plans directed towards driving people to act in ways in which they would otherwise not choose to do, but in which Mario and Co. conceitedly deem that they should.

Rather, the hacks have the temerity to assert – and here, Keynes be spared! – it might do much more for the investment climate if the Big Government to which they so routinely and so obsequiously defer were to pause awhile in its unrelenting programme to destroy all private capital, to suppress all economic initiative, and to restrict the disposition of income to thecentralized mandates of its minions and not to trust them to the delocalized vagaries of the market – all crimes which it more readily may perpetrate under the camouflage provided by the central banks’ mindless and increasingly counter-productive, asset-bubble inflationism.

***

Having reached this pass, might we dare to push the deduction one step closer to its logical conclusion and suggest that the only reason we continue today to suffer a malaise which the self-exculpatory elite (of whom none is more representative than the staff of the Ekonomista itself) loves to refer to as ‘secular stagnation’ is because its own toxic brew of patent nostrums is making the unfortunate patient upon whom it inflicts them even more sick? That, pace Obama the Great, The One True Indispensable Chief of the NWO, the three principal threats we currently face are not Ebola, but QE-bola – a largely ineradicable pandemic of destruction far more virulent than even that dreadful fever; not the locally disruptive Islamic State but the globally detrimental Interventionist State – the perpetrator of a similarly backward and repressive ideology which the IMF imamate seeks to impose on us all; and definitely not the Kremlin’s alleged (though highly disputable) revanchism being played out on Europe’s ‘fringe’ but the Kafkaesque reality of stifling and undeniable regulationism at work throughout its length and breadth?

We might end by reminding the would-be wearer of the One Ring, as He lurks warily, watching the opinion polls from His lair in the White House, that in being so active in propagating each one of these genuinely existential threats to our common well-being, He (capitalization ironically intended) will not so much ‘help light the world’ – as He nauseatingly claimed in His purple-drenched, sophomore’s set-piece at the UN recently – as help extinguish what little light there still remains to us poor, downtrodden masses.

*  *  *

The offending article:

Monetary policy – Tight, loose, irrelevant: Interest rates do not seem to affect investment as economists assume

IT IS Economics 101. If central bankers want to spur economic activity, they cut interest rates. If they want to dampen it, they raise them. The assumption is that, as it becomes cheaper or more expensive for businesses and households to borrow, they will adjust their spending accordingly. But for businesses in America, at least, a new study* suggests that the accepted wisdom on monetary policy is broadly (but not entirely) wrong.

Using data stretching back to 1952, the paper concludes that market interest rates, which central banks aim to influence when they set their policy rates, play some role in how much firms invest, but not much. Other factors—most notably how profitable a firm is and how well its shares do—are far more important (see chart). A government that wants to pep up the economy, says S.P. Kothari of the Sloan School of Management, one of the authors, would have more luck with other measures, such as lower taxes or less onerous regulation.

Establishing what drives business investment is difficult, not. These shifts were particularly manic in the late 1950s (both up and down), mid-1960s (up), and 2000s (down, up, then down again). Overall, investment has been in slight decline since the early 1980s.

Having sifted through decades of data, however, the authors conclude that neither volatility in the financial markets nor credit-default swaps, a measure of corporate credit risk that tends to influence the rates firms pay, has much impact. In fact, investment often rises when interest rates go up and volatility increases.

Investment grows most quickly, though, in response to a surge in profits and drops with bad news. These ups and downs suggest shifts in investment go too far and are often ill-timed. At any rate, they do little good: big cuts can substantially boost profits, but only briefly; big increases in investment slightly decrease profits.

Companies, Mr Kothari says, tend to dwell too much on recent experience when deciding how much to invest and too little on how changing circumstances may affect future returns. This is particularly true in difficult times. Appealing opportunities may exist, and they may be all the more attractive because of low interest rates. That should matter—but the data suggest it does not.

* “The behaviour of aggregate corporate investment”, S.P. Kothari, Jonathan Lewellen, Jerold Warner

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

By now, 6 years after America’s grand experiment in recreating Soviet-style central planning started, it should be clear to all except that subset of Homo Sapiens also known as “economists”, that the Fed’s QE is not helping the economy. In fact, it is merely boosting wealth inequality, leading to asset price (hyper)inflation, middle class devastation, and its inevitable outcome is yet another asset bubble can which will need to be kicked eventually leading to even greater economic misery, greater inequality, more conflict, and increasingly: outright warfare. In fact the two final outcomes of more QE are becoming increasingly clear: broad hyperinflation a la the Bernanke chopper to offset ever steeper episodes of deflation (as one monetizing nations exports its deflation to all the other nations), which implies a failure in the reserve currency, and rising social conflict, which culminates in a French revolution-type social revolt when the poor finally roll out the guillotines.

The above is also largely clear to most, except the abovementioned economists and members of the Fed of course. So it is for their benefit that we present what two people who actually work successfully in the markets for a living, something that nobody in the Marriner Eccles can say, have to say about QE. We can only hope someone in the US money printing department reads it, but we doubt it.

First, here is David Einhorn, who spoke at the annual, and amusingly misnamed, hedge fund gala known as the Robin Hood Investor Conference, talking about Fed policy:

“I think they’re behind the curve in terms of helping the economy. It’s like too much of a good thing. They’re actually, I think, slowing down the economy, even though they don’t realize that they’re doing that,” he said.

Spot on. And the following is even more accurate:

When interest rates increase, the economy would ultimately benefit, he said.

 

“I don’t really concern myself that much with the exit (of quantitative easing) because first of all, if they did raise rates I think it might be bad for Wall Street, but I think it would be good for the real economy and everyday, normal people out in the world, and, ultimately, you’d have faster GDP that would come from that,” he said. “So, yeah, there would be a little hiccup in the market, but I think that would be a good thing to have happen.”

Sadly, as both Williams and Bullard confirmed last week, the only thing the Fed cares about is the market. The economy is low on the Fed’s list of priorities.

And speaking of the market, as a follow up from the same conference, here is another billionaire who has made his name in the market: Carl Icahn, on the topic of the market:

The Fed is really holding the market up…. The Fed turned this market around here because it let it be known that the Fed funds rate isn’t going to be raised in March. I am concerned about the high yield market, I think that’s in a major bubble, but nobody knows when it’s gonna burst…

Good luck Fed with the whole “exit” thing.

via Zero Hedge http://ift.tt/10kKGCR Tyler Durden

Submitted by Michael Snyder of The Economic Collapse blog,

Barack Obama and the Federal Reserve are lying to you.  The "economic recovery" that we all keep hearing about is mostly just a mirage.  The percentage of Americans that are employed has barely budged since the depths of the last recession, the labor force participation rate is at a 36 year low, the overall rate of homeownership is the lowest that it has been in nearly 20 years and approximately 49 percent of all Americans are financially dependent on the government at this point.  In a recent article, I shared 12 charts that clearly demonstrate the permanent damage that has been done to our economy over the last decade.  The response to that article was very strong.  Many people were quite upset to learn that they were not being told the truth by our politicians and by the mainstream media.  Sadly, the vast majority of Americans still have absolutely no idea what is being done to our economy.  For those out there that still believe that we are doing "just fine", here are 19 more facts about the messed up state of the U.S. economy…

#1 After accounting for inflation, median household income in the United States is 8 percent lower than it was when the last recession started in 2007.

#2 The number of part-time workers in America has increased by 54 percent since the last recession began in December 2007.  Meanwhile, the number of full-time jobs has dropped by more than a million over that same time period.

#3 More than 7 million Americans that are currently working part-time jobs would actually like to have full-time jobs.

#4 The jobs gained during this "recovery" pay an average of 23 percent less than the jobs that were lost during the last recession.

#5 The number of unemployed workers that have completely given up looking for work is twice as high now as it was when the last recession began in December 2007.

#6 When the last recession began, about 17 percent of all unemployed workers had been out of work for six months or longer.  Today, that number sits at just above 34 percent.

#7 Due to a lack of decent jobs, half of all college graduates are still relying on their parents financially when they are two years out of school.

#8 According to a new method of calculating poverty devised by the U.S. Census Bureau, the state of California currently has a poverty rate of 23.4 percent.

#9 According to the New York Times, the "typical American household" is now worth 36 percent less than it was worth a decade ago.

#10 In 2007, the average household in the top 5 percent had 16.5 times as much wealth as the average household overall.  But now the average household in the top 5 percent has 24 times as much wealth as the average household overall.

#11 In an absolutely stunning development, the rate of small business ownership in the United States has plunged to an all-time low.

#12 Subprime loans now make up 31 percent of all auto loans in America.  Didn't that end up really badly when the housing industry tried the same thing?

#13 The average cost of producing a barrel of shale oil in the United States is approximately 85 dollars.  Now that the price of oil is starting to slip under that number, the "shale boom" in America could turn into a bust very rapidly.

#14 On a purchasing power basis, China now actually has a larger economy than the United States does.

#15 It is hard to believe, but there are 49 million people that are dealing with food insecurity in America today.

#16 There are six banks in the United States that pretty much everyone agrees fit into the "too big to fail" category.  Five of them have more than 40 trillion dollars of exposure to derivatives.

#17 The 113 top earning employees at the Federal Reserve headquarters in Washington D.C. make an average of $246,506 a year.  It turns out that ruining the U.S. economy is a very lucrative profession.

#18 We are told that the federal deficit is under control, but the truth is that the U.S. national debt increased by more than a trillion dollars during fiscal year 2014.

#19 An astounding 40 million dollars has been spent just on vacations for Barack Obama and his family.  Perhaps he figures that if we are going down as a nation anyway, he might as well enjoy the ride.

If our economy truly was "recovering", there would be lots of good paying middle class jobs available.

But that is not the case at all.

I know so many people in their prime working years that spend day after day searching for a job.  Most of them never seem to get anywhere.  It isn't because they don't have anything to offer.  It is just that the labor market is absolutely saturated with qualified job seekers.

For example, USA Today recently shared the story of 42-year-old Alex Gomez…

"I've had to seriously downgrade my living situation," said Alex Gomez, a 42-year-old with a master's degree in entrepreneurship. Gomez lost his last full-time job in 2009 and has been looking for work since a short-term contract position ended in 2012.

 

Gomez's home was foreclosed on, so the Tampa resident lives with three roommates in a college neighborhood. He drained his 401(k) trying to save his house, and he has around $150,000 in student loans. His mother is tapping her 401(k) to pay his rent. Gomez subsists on that and about $200 a month in food stamps.

 

"I have been applying and looking for pretty much anything at this stage," he said. Although he's looking for work in engineering or data management, "I applied to a supermarket as a deli clerk because I used to be a deli clerk as a teenager," he said. He was told he was overqualified and turned down.

Does Alex Gomez have gifts and abilities to share with our society?

Of course he does.

So why can't he find a job?

It is because we have a broken economy.

We are in the midst of a long-term economic decline and the system simply does not work properly anymore.

And thanks to decades of very foolish decisions, this is only the start of our problems.

Things are only going to get worse from here.

via Zero Hedge http://ift.tt/1s5dYuL Tyler Durden

By: Brad Thomas at http://ift.tt/146186R

As mentioned in my writing on the Singapore dollar, the most dangerous thing in finance is the “thing” that never moves. This stability creates an illusion of control around which many positions are built, the greater the perceived stability the greater the positions, and the more other assumptions and forecasts are made.

The stability (or lack of volatility) in the Renminbi has been the one of the foundations that has made so many other variables more forecastable. No one can imagine the Renminbi being a highly volatile currency, let alone coming remotely close to repeating what happened during the Asian Tiger crisis of 1997! If this foundation of stability suddenly disappears then there will be a great increase in uncertainty and volatility in many markets across the globe.

I don’t know exactly how a breakdown in the Renminbi will play out. However, it is a sure bet that all those markets that prospered over the last 15 years or so on the back of a China will do badly. Where things become shady is the collateral damage to other markets that have had nothing to do with the Chinese economic miracle.

I think a reasonable bearish position on the Renminbi will be a great way to hedge out the uncertainty of outcomes with respect to how the Chinese economic miracle “unwinds”.

For a long time I have been highly skeptical on the Chinese “economic miracle”. Every contrarian bone in my body has been telling me that there is something not quite right with China’s meteoric rise from an economy that was seemingly insignificant some 15 years ago to the economic powerhouse that we are led to believe it is today.

The Chinese economy has risen to prominence too quickly too soon. What has been the driver of this rise? Why did commodity prices explode skywards in 2002 having gone nowhere for the previous 30 years? I find it hard to believe that commodities became scarcer all of a sudden!

The CRB Commodity Index (the CCI)

Well, no one has been able to give me a straight down the line answer – at least one that an ordinary average trader like myself could understand. That is until I came across the following discussion with Mark Hart. Hart came to prominence together with Kyle Bass after shorting the “sub-prime thing” in 2007.

Hart’s discussion on China starts at about the 55 minute mark. Note what Hart says about how he is applying his view on China (via options on the Renminbi). The interview was conducted in September but note that he has been “bearish” on China at least since 2011!

For more on the issues facing China you might like to read the writings of Gordon Chang and Michael Pettis. I think both present very objective views on China. I am not going to pretend to offer anything more than what these gentlemen offer with respect to the view on China.

Hart talks about buying “puts” on the Renminbi. What makes the trade so attractive is the extreme low level of volatility. Below is an index of implied volatility for 12 months to expiry at the money (ATM) calls on the USD/CNY.

So we can buy calls on the USD/Renminbi for about 2.5% volatility. For comparison purposes – implied volatility on the AUD/USD is about 10%!

Hart talks about buying the CNY 7 strike call on the USD/Renminbi. To give you an idea of the leverage offered on a 12-month option at the CNY 7 strike – about $1,100 will get you a notional position of $1,000,000! To achieve a payoff of 10x all the USD/CNY would have to close at is 7.07, and at 7.15 a 20x payoff is achieved!

One can now appreciate what Mark Hart is on about – the gearing offered by options on the Renminbi is huge because volatility is grossly underpriced.

Is it so crazy to think that the Renminbi can get to a “tick or two” above 7 within 12 months?

Well, let’s not forget what happened to currencies in the past. Note what happened to the Mexican Peso during the “Tequila” crisis:

…the Thai baht during the Asian Tiger crisis:

…or to the Russian Ruble during the LTCM crisis:

Currencies can move and they move significantly when they have been sailing in calm waters for extended periods of time – just like the Chinese Renminbi now. Position for the unexpected. It is why Hart and Bass made so much money during the Subprime crisis.

– Brad

 

“Never think that lack of variability is stability. Don’t confuse lack of volatility with stability, ever.” – Nassim Nicholas Taleb

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