When you reduce interest rates
to save the banks stimulate consumer spending, it doesn’t work if lower levels of welfare, lower salaries and higher unemployment go with it. It doesn’t even work if you steal taxpayers’ money to save the banks buy up the shit paper dumb banks bought practise quantitative easing to stimulate output, because cynical globalist companies (a) borrow cheaply to install robots (b) then fire more staff and (c) borrow cheaply to pay shareholder dividends, while the banks return to their idiotic big bonus, high risk and insane gearing/liquidity practices.
However, because you reduced interest rates, savers, institutions and the retired have no returns on their money, and thus look elsewhere. Wherever they look – for example in property – asset bubbles expand. They become busts waiting to happen. Return chasers also move into corporate and sovereign bonds, thus fuelling the process by which non-banking sector borrowing is at crazy levels – like in China, for example, where corporate debt alone is now bigger than the country’s gdp.
Both bonds and property are now being viewed by “professionals” with a jaundiced eye, so now the returns-strapped, normally lowish risk investors are looking for other investment opportunities…like oil, for example, where the pbc price is openly manipulated upwards by the producers. That too will bust; already, in fact, people are losing uncomfortable amounts of money in the commodities market, which hasn’t been a level playing field for some time, involves unpredictable bets (if crops for instance), and is sometimes capped by central banks – for example, gold. The forex sector too is full of people who don’t know what they’re doing being advised by other people not doing what they know. When the dollar slides on an alleged grand jury issuance of subpoenas about a June 2016 meeting President Trump’s son and his son-in-law held with a Russian lawyer, the serendipity factor is way too big for most hearts.
In such times, the best hedge used to be the Vix – a measure of uncertainty in the markets. Gambling that uncertainty must rise, lots of money went into bullish Vix bets in the last year. In fact, the Vix has fallen further….so almost everyone got caned.
Despite the fact that it was kicking structural demand issues down the road, creating future problems down the road and, um, not working on the road, the monetarists persevered with One More Heave as a strategy, until the Fed abruptly decided last year (2016) that everything was solved, hunky-dory and about to explode into growth. Other central banks have also tapered QE and raised rates. The explosion is currently at the damp fart stage and showing no signs of further eruption. Tapering has therefore been slowed a little, and/or reversed via mechanisms most of us don’t even know about.
It shows the level of desperation among the alchemists that one quarter’s 0.6% eurozone growth rate was hailed as an event on the scale of Krakatoa. The ever-europhile FT hailed this breakthrough as “the highest recorded since the debt crisis”. The debt crisis was in 2011, and the actual rise in activity was 0.1% – ie, one thousandth of the total. France, the pink’un claimed, “is enjoying a hiring boom”….which doesn’t really fit with record unemployment levels, record welfare payments, and continuing retail failures right across the county.
But even among the televisual business media as a whole recently, doubts as to whether the monetarists have the faintest notion about the price of fish are beginning to get broadcast. In fact, the majority of guests on CNBC, Bloomberg and even CNN are starting to admit that recovery signs are patchy, and most mainstream investments way over-bought. The most obvious examples are the stock market and oil.
I’m going to watch gold and the Vix casually during August, and then take a stab at some serious punts in September. I think they will both rise, but I’m also considering some bear notes in stocks and commodities. That’s my lonely opinion and I am “unqualified” to advise, so whether you take it as advice is your decision, not my responsibility etc etc etc.
The one thing I can say with some degree of certainty is that the implosion is now some 14 years overdue, any confidence out there is either feigned or flawed, and it won’t get any better until monetarism gets the credit it deserves for screwing everything up.