Fool Part 2; No Rational Basis

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Since some markets seem to be waiting on either longer lingering in ZIRP (US) or renewed and heavier QE (Japan, Europe) it is worth examining exactly what they are anticipating. Obviously, that desire doesn’t extend into the real economy since the downward fluctuation in 2015 pretty much dissolves and absolves any direct monetarism correlation. What is left is a high perversion; untethered from any upward economic degree, these markets are betting on purely financial effects. As noted last week in fairly cataloging “inflation”, the New Greater Fool, that isn’t a sound premise, either.

Since QE isn’t truly easing (and is only “quantitative” in the sense central banks pick a number out of model’s “central tendency”) at least as far as one can observe “money printing”, then then what is left is truly just vague transformations that central planners simply hope work, on net after “market” reactions and adjustments, in their favor. Ben Bernanke, as noted last week, admitted as much in his November 2010 op-ed explaining QE2:

Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits.

That is and has been true of QE here in the US as well as the European versions (QE launched back in March may be technically different, but the LTRO’s from early 2012, for example, were the same concept carried out only through an alternate path). But that only goes so far, as the key word in Bernanke’s sentence is “broad.” The US has fared only marginally better than Europe in economic terms, to which Bernanke and his follow monetarists attribute “better monetary policy.” He returned to this theme last week within his book tour PR campaign:

It is instructive to compare recent U.S. economic performance with that of Europe, a major industrialized economy of similar size. There are many differences between the U.S. and Europe, but a critical one is that Europe’s economic orthodoxy has until recently largely blocked the use of monetary or fiscal policy to aid recovery. Economic philosophy, not feasibility, is the constraint: Greece might have limited options, but Germany and several other countries don’t. And the European Central Bank has broader monetary powers than the Fed does.

Continue reading

“With Interest Rates This Low, There Are Bound to Be Accidents…”

Submitted by William Bonner, Chairman – Bonner & Partners

The World of Money Has Become a Joke

RHODES, Greece – We have been writing about radical ways to reduce your living costs. Our monthly budget was $500. We were just fantasizing about it. But judging from all the feedback we’ve received, many Diary readers have done it!

Interestingly, many of those who reported living on little money report that it was the happiest time of their lives! Right now, your editor is spending considerably more than $500 a month.

He is sitting on the balcony of his cabin on the luxurious Crystal Serenity cruise ship, overlooking the harbor at Rhodes. (Cruise ships aren’t usually our thing. But we were invited on board to speak at the second annual Money Week “Cruise for Investors.”)

ephesus_16Arriving at Ephesus …

Photo via ephesusgrouptours.com

To our right is where one of the Seven Wonders of the World, the Colossus of Rhodes, once stood – a huge bronze statue of the titan god of the sun, Helios.

The people of Rhodes built it to celebrate their victory over the ruler of Cyprus, Antigonus the One-Eyed, one of Alexander the Great’s former generals.

The Colossus stood for 54 years, before an earthquake toppled it in 226 B.C. Four centuries later, an Arab force, under the Muslim caliph Muawiyah I, captured Rhodes… had the toppled statue disassembled… and sold the bronze to a Jewish merchant.

It was said that there was so much bronze it had to be loaded on 900 camels. Continue reading

DeutscheBank full of holes

Submitted by Beppe Grillo  – The Beppe Grillo Blog

buchideutshe.jpg“Two days ago, Deutsche Bank, a bank with assets worth more than Italy’s GDP, has declared the need to adjust the results for the third quarter of 2015 to reflect losses of almost 6 billion euro.

70 thousand billion in derivatives
Details of the reasons for these losses are not yet available but it is well known that the bank has an anomalous concentration of derivatives in its portfolio: 75 thousand billion dollars (about 65 thousand billion euro!), equivalent to 20 times Germany’s GDP. It seems that Deutsche Bank has really not learned much from the 2008 crisis, even though America’s Securities Exchange Commission (SEC) in May of this year, penalised its structured finance dating back to the time of Lehman Brothers, with a fine of 55 million dollars.

And yet Deutsche Bank passed the European Banking Authority’s stress tests without any particular censuring. However, the US stress tests carried out by the Federal Reserve before the summer, definitely found the German bank to have done badly and classed it among those that would not survive another financial crisis.
So perhaps those that said the European stress tests put too much emphasis on the spread of the yield of government bonds among the various member countries, were not wrong. It’s a phenomenon that has become dangerously familiar to us, to such an extent that now, very few are aiming to tackle the root causes of the problems.

MPS and Deutsche Bank
Even with us, derivatives continue to wreak havoc on the commercial banks (example: MPS) and on the coffers of the State. But let’s take things one at a time, starting with the commercial banks and then the public sector. MPS has recently concluded a transaction with Nomura after having concluded another one last year with Deutsche Bank to put an end to the episode involving Alexandria and Santorini derivatives. Regardless of the details of the transaction, it’s difficult not to connect these losses with the “Monti Bonds” and the various capital increases that pulverized the share values and impoverished the small-scale shareholders to the extent of billions of euro, as well as destroying the country’s third largest bank. We know that the government has pulled out of the game; it has already implemented (in an excess of virtue!) the new European regulations regarding bank bail-ins that will come into force next year and thanks to which losses will be offloaded directly onto the poor current-account holders, as well as others, including the minority shareholders.
We know that the Milan Prosecutors Office has started a number of indictments on this issue and it is also investigating matters arising form the time of Alessandro Profumo and Fabrizio Viola, but we know that even for the Italian Securities and Exchange Commission (CONSOB) and the Bank of Italy, up until now, everything has been basically OK. As usual, accounting issues come to the notice of “Supervisory bodies“ when the prosecutors decide to take action. It’s a shame that bodies like the Bank of Italy and CONSOB exist to prevent mismanagement and not to pretend to intervene when the prosecutors arrive. Continue reading

Bang, You’re Dead

Submitted by James Howard Kunstler  –  www.kunstler.com

Apropos of the recent Roseburg, Oregon, school massacre that left nine dead, President Obama said, “we’re going to have to come together and stop these things from happening.” That’s an understandable sentiment, and the president has to say something, after all. But within the context of how life is lived in this country these days, we’re not going to stop these things from happening.

And what is that context? A nation physically arranged on-the-ground to produce maximum loneliness, arranged economically to produce maximum anxiety, and disposed socially to produce maximum alienation. Really, everything in the once vaunted American way of life slouches in the direction of depression, rage, violence, and death.

This begs the question about guns. I believe it should be harder to buy guns. I believe certain weapons-of-war, such as assault rifles, should not be sold in the civilian market. But I also believe that the evolution of our Deep State — the collusion of a corrupt corporate oligarchy with an overbearing police and surveillance apparatus — is such a threat to liberty and decency that the public needs to be armed in defense of it. The Deep State needs to worry about the citizens it is fucking with. Continue reading

The New Greater Fool

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Most people would look at a 40-month deviation as being rationally altering, maybe even something so permanent. The Fed, on the other hand, along with economists, have convinced themselves that somehow three and a half years is but a temporary detour. And so monetary policy and the recovery outlook itself are supposed to somehow straddle that inconvenience while still emitting the smallest plausible specks of credibility for “markets.”

We start with several suppositions that in an academic setting are perfectly reasonable and complimentary: the Fed can “print money”; money printing amounts to “more money chasing fewer goods”; “more money chasing fewer goods” means rising prices; rising prices mean workers ask for wage increases; wage increases are inflation; inflation is a recovery and fully functioning economic growth period. Not only is the 2% inflation target indicative of that on the upside, it is also suggesting that the Fed can, by turning off or fine-tuning the “money printing”, stop inflation at or around their 2% threshold should it have been all so workable.

But none of that actually takes place, especially the money printing part. In fact, all of that is a fairy tale that the “market” simply believes can be the case if the Fed is ever so challenged. As long as the Fed holds out such credulity that if it was forced to do so itcould, the “market” should do the Fed’s work in a manner consistent with the 2% inflation target. It really does hinge upon that and nothing else.

That is why Janet Yellen is so absolutely sure (well, she says it but her renditions have become much less harmonic over time) that long run inflation expectations are anchored at 2%. When she makes that claim what she is saying is that she still thinks the market believes the Fed holds the “money printing” power unchecked by resolve. Like the illusory great Wizard of Oz, she could display the outlines of such fury but only if she really, really has to.

That is, essentially, where we are at in October 2015. The FOMC still thinks that the market still thinks that inflation is but a threatened reaction away. The market has begun to rethink the entirety of the process. After all, it started with quantitative easing itself, especially how the actual program is faithful to neither of those words. By simple count of colloquial convention, the Fed was forced, by the panic in 2008-09 and its related Great Recession, to, for once, actually prove its monetary mettle; and the Fed rose to that occasion with great “money printing” at least of bank “reserves.” Continue reading

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• The Golden Age Of Central Banks Is At An End – Time To Tax And Spend? (Guardian) 
• QE Causes Deflation, Not Inflation (Josh Brown) 
• Western Economies Still Too Weak To Handle Fed Rate Rise, Says China (Guardian) 
• The World Still Needs A Way To Stop Hot Money Scalding Us All (Guardian) 
• Glencore Shares Halted Pending Statement On Proposed Asset Sales (Bloomberg) 
• Commodity Contagion Sparks Second Credit Crisis As Investors Panic (Telegraph)
• Japan Inc. Sounds Alarm On Consumer Spending (Reuters) 
• World Cannot Spend Its Way Out Of A Slump, Warns OECD Chief (Telegraph) 
• Growing Government Debt Will Test Euro-Zone Solidarity (Paul) 
• EU Bank Chief ‘Could Recall Volkswagen Loans’ (BBC) 
• UK Government Emissions Tester Paid £80 Million By Car Firms (Telegraph) 
• Volkswagen’s Home City Enveloped In Fear, Anger And Disbelief (FT) 
• The Russians Are Fleeing London’s Stock Market (Bloomberg) 
• Soaring London House Prices Sucking Cash Out Of Economy (Guardian) 
• Australia Housing Bust Now The Greatest Recession Risk (SMH) 
• Don’t Let The Nobel Prize Fool You. Economics Is Not A Science (Joris Luyendijk) 
• The Tragic Ending To Obama’s Bay Of Pigs: CIA Hands Over Syria To Russia (ZH) 
• EU Must Stop ‘Racist Criteria’ In Refugee Relocation – Greece (Reuters) 

Read more here: Debt Rattle October 11 2015 – TheAutomaticEarth.com