Tuesday, January 19, 2016


A Bad Start To A New Year

It would be hard for a year to start any worse than 2016 has...things haven't been this bad outside of a recession.

Sentiment hasn't been this despondent in a long time (even Aug/Sept wasn't this palpably negative) but any bounce will not be particularly impressive and in a lot of ways that is the main problem as the upside just isn't compelling enough to make a major stand...as Western central banks attempted to mollify sentiment with dovish rhetoric but to no avail.

Multiples and earnings math suggest any bounce will be a shallow one.

Over the last 5 years the various Fed interventions into the capital markets has facilitated dumb luck trading into "genius" status, and no clue analysis into "spot on brilliant" prognostications. The real issue at hand is many believed their own press, and the current state of egg on their face would make any thinking person blush. As bad as that sounds – it gets worse.

With the markets currently in turmoil and resembling the antithesis of what was touted by the so-called "smart crowd," as a recovery for so long, this is going to have a far more negative effect on the populace at large than previous iterations of crisis have.

Investors that understood the fragility of this house-of-cards left long ago.  !!!!!

Decades of accumulated market distortions appear to be on the brink of a great unwind, most of which can be blamed on expansionary monetary policies.

The banking crisis of 2008 was just a prelude, rather than the crisis itself. Thinking folks will blame the Fed for a complete policy failure. The reality is, that by implementing conventional policies on the recommendation of group-thinking macroeconomists, the central banks have dug a hole too deep to escape.

Central bankers are now beginning to suspect that conventional monetary policy is not all it's cracked up to be.

In fact monetary policy at this point has no viable policy options that are capable of boosting economic activity when and if such support be needed. In fact, the options available to the central bank, at this stage, are likely to be a net negative.

The extremely high level of debt suggests that the debt is skewed to unproductive and counterproductive uses.

Every where you look you see absurdities and inconsistencies, instabilities perilously pyramided up, which will at some point come rapidly cascading down.

Central bank policies are not without consequences. Price distortions flourish to the extent they appear normal.  Nevertheless, upon second glance, apparent incongruities greet us everywhere we look.

The sad fact is an honest day's work has been debased to where it's no longer rewarded with an honest day's pay.  At the same time the positive effects of productive labor, diligent savings, and prudent spending now take a lifetime – or more – to fully manifest.

Conversely, the negative effects of borrowing gobs of money and taking abundant risks can masquerade as shrewd business acumen for extended bubble periods.

Even when deflated by the government's own flawed "inflation" measurements, real median household income is back to where it was 20 years ago already. This is definitely not a sign of economic progress. In fact, this datum is testament to how much capital has been malinvested and hence wasted due to Fed policy-inspired serial credit and asset bubbles.

During an economic boom, particularly a boom puffed up with the Fed's cheap credit, madmen get rich. They borrow money at an artificial discount and place big bets on rising asset prices.

They don't care they are placing those bets within a dangerous seismic zone. The rewards are too great. Eventually asset bubbles always exhaust themselves. Price movements reverse. They stop inflating. They start deflating.

Subsequently, as the bubble exhales, the risk taking beneficiaries of the expansion are exposed. !!!!!

The Bulls haven't even started selling yet,no panic here, especially relative to August's collapse...

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