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Why central banks cannot really Manage Anything

January 14, 2019

Why central banks cannot really Manage Anything

QUESTION: Marty you recently said that “the entire problem of lowering interest rates to ‘stimulate’ the economy demonstrates that central banks cannot really manage anything.” Is this statement really true?

BG

ANSWER: Absolutely. There is a basic presumption in all human activity that somehow we possess the power to do anything be it end Global Warming or managing the economy. Yet neither has ever been accomplished. We assume that we MUST do something even if there is nothing we can actually do to reverse the trend. It is like what I just wrote about the Plunge Protection Team. Do you realize that every empire, nation, and city-state at some point realizes the end is near, yet they cannot prevent their own demise any more than we can prevent our own death.

“The Rediscovery of the Business Cycle – is a sign of the times. Not much more than a decade ago, in what now seems a more innocent age, the ‘New Economics’ had become orthodoxy. Its basic tenet, repeated in similar words in speech after speech, in article after article, was described by one of its leaders as ‘the conviction that business cycles were not inevitable, that government policy could and should keep the economy close to a path of steady real growth at a constant target rate of unemployment.’

Former Fed Chairman Paul Volcker in his Rediscovery of the Business Cycle clearly stated the theory of managing the economy with Keynesian tools failed. When he tried sending interest rates cascading higher into 1981, he really altered the economy forever. There was a capo on interest rates known as the Usury Laws. On April 1st, 1980, the Depository Institutions Deregulation and Monetary Control Act of 1980 became effective.

…click on the above link to read the rest of the article…

Why You Should Expect the Unexpected

October 20, 2018

Why You Should Expect the Unexpected

End of the Road

The confluence of factors that influence market prices are vast and variable.  One moment patterns and relationships are so pronounced you can set a cornerstone by them.  The next moment they vanish like smoke in the wind. One thing that makes trading stocks so confounding is that the buy and sell points appear so obvious in hindsight.  When examining a stock’s price chart over a multi-year duration the wave movements appear to be almost predictable.

 

The fascinating obviousness of hindsight – it is now perfectly clear when one should have bought AMZN. Unfortunately it wasn’t quite as clear in real time. [PT]

Trend lines matching interim highs and lows, and bounded price movements within this range, display what, in retrospect, are the precise moments to buy and sell. In practice, the stock market dishes out hefty doses of humility with impartial judgment. What’s more, being right does not always translate to success.  Sometimes it is more costly to be right at the wrong time than wrong at the right time.

One fallacy that has gained popularity over the last decade is the zealot belief that the Fed disappears risk from markets.  That by expanding and moderating the money supply by just the right amount, and at just the right time, markets can grow within a pleasant setting of near nonexistent volatility.  Some even trust that when there is a major stock market crash, the Fed, having the courage to act, will soften the landing and quickly put things back upon a path of righteous growth.

Believers in the all-powerful controls of the Fed have a 30 year track record they can point to with conviction.  Over this period, the Fed has put a lamp unto the feet and a light unto the path of the stock and bond market.

…click on the above link to read the rest of the article…

The Genie’s Out of the Bottle: Eight Defining Trends Are Reversing

April 11, 2018

The Genie’s Out of the Bottle: Eight Defining Trends Are Reversing

Though the Powers That Be will attempt to placate or suppress the Revolt of the Powerless, the genies of political disunity and social disorder cannot be put back in the bottle.

The saying “the worm has turned” refers to the moment when the downtrodden have finally had enough, and turn on their powerful oppressors.The worms have finally turned against the privileged elites — who have benefited so greatly from globalization, corruption, central bank stimulus and the profiteering of state-enforced cartels. It doesn’t matter as much as the punditry assumes whether they are turning Left or Right; the important thing is that the powerless have finally started challenging their privileged overlords.

Though the Powers That Be will attempt to placate or suppress the Revolt of the Powerless, the genies of political disunity and social disorder cannot be put back in the bottle. It took a generation of rising inequality, corruption and the erosion of opportunity to create a society of the protected (the haves) and the unprotected (the have-nots), and rubber-stamping more regulations and distributing Universal Basic Income (UBI) will not rebalance a system that is irrevocably out of balance.

But the rise of resistance, as yet nascent, is only half the story: economic trends andcycles are turning as well, and even if the worms remain passively underground, these reversals will disrupt the status quo. The dominant narrative–the rightness, goodness and sustainability of endless growth of consumption and debt–will unravel, and the internal contradictions of this New Gilded Age (widening wealth/income/power inequality) will finally burst through the thin façade of stability that’s been patched together over the past nine years of “recovery.”

Eight Key Trends/Cycles Are Turning

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Climate Change has Nothing to do with the Sun?

December 9, 2017

Climate Change has Nothing to do with the Sun?

COMMENT: You are wrong. This chart proves you are wrong and it is mankind that is creating global warming. The sun activity has been declining for 35 years and the temperature is rising. That proves you are wrong.

PL

REPLY: First of all, the chart you rely on starts in 1880. The historical record is millions of years. Over 35,000 scientists have signed a letter stating Global Warming is fake. If I charted the Dow Jones for just the post-2009 period, I could conclude that the stock market only rises and never crashes. There is absolutely no empirical evidence whatsoever that proves Global Warming is caused by mankind when there have been warming periods and ice ages long before fossil fuels. It is one thing to say that our use of fossil fuels have “accelerated” the trend and something entirely different to argue that we have caused the trend.

The ice core sample proves there is about a 300 years cycle between the maximum and minimum energy output of the sun. Looking at just 140 years of data does not prove anything. I am glad you trust the government so much that they argue this so they can tax it. Like cigarettes, if they are 100% bad, then outlaw them. Never! Why do that when they can tax them?

If you want to argue the sun has nothing to do with this issue, then provide a study that goes back beyond 1880. If I am wrong, then perhaps all those who think they are the cause of the planet turning warm should walk to work, use no heat or air conditioning, purchase no clothes and make your own from sheep without consuming energy, or just commit suicide to stop breathing since you put out CO2 which you demonize as the planet killer.

…click on the above link to read the rest of the article…

The Big Reversal: Inflation and Higher Interest Rates Are Coming Our Way

November 6, 2017

The Big Reversal: Inflation and Higher Interest Rates Are Coming Our Way

This interaction will spark a runaway feedback loop that will smack asset valuations back to pre-bubble, pre-pyramid scheme levels.

According to the conventional economic forecast, interest rates will stay near-zero essentially forever due to slow growth. And since growth is slow, inflation will also remain neutral.

This forecast is little more than an extension of the trends of the past 30+ years: a secular decline in interest rates and official inflation, which remains around 2% or less. (As many of us have pointed out for years, the real rate of inflation is much higher–in the neighborhood of 7% annually for those exposed to real-world costs.)

The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016)

Inflation Isn’t Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs (May 25, 2017)

About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service (October 11, 2017)

Be Careful What You Wish For: Inflation Is Much Higher Than Advertised (October 5, 2017)

Apparently unbeknownst to conventional economists, trends eventually reverse or give way to new trends. As a general rule, whatever fundamentals are pushing the trend decay or slide into diminishing returns, and new dynamics arise that power a new trend.

I’ve often referred to the S-Curve as one model of how trends emerge, strengthen, top out, weaken and then fade. Trends often change suddenly, as in the phase-shift model, in which the status quo appears stable until hidden instabilities cause the entire “permanent and forever” status quo to collapse in a heap.

The Bank for International Settlements (BIS) recently issued a report claiming that Demographics will reverse three multi-decade global trends. Here’s a precis of the case for a globally aging populace and a shrinking workforce to reverse the downward trends in inflation and interest rates: New Study Says Aging Populations Will Drive Higher Interest Rates (Bloomberg)

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China To Dictate Energy Growth In Coming Years

September 17, 2017

China To Dictate Energy Growth In Coming Years

Oil

Natural gas, renewables expected to grow significantly

The EIA released this year’s International Energy Outlook today, outlining expected trends in energy through 2040.

The International Energy Outlook predicts that total world energy consumption will grow by 28 percent between 2015 and 2040, primarily driven by non-OECD countries. Non-OECD Asia will account for 60 percent of all energy consumption growth in the period. Significant growth is expected in natural gas and renewables consumption, with increases also seen in oil and nuclear power.

(Click to enlarge)

Source: EIA

OPEC will continue to fuel most demand growth

The IEO projects that oil and other liquids will remain the primary world energy source, with consumption growing by 18 percent in upcoming years. Like most other sectors, the growth in oil consumption will be driven by non-OECD countries, as OECD demand is projected to be roughly constant in upcoming years. The EIA expects OPEC to provide most of the increase in oil supply, with only small increases coming from non-OPEC nations.

(Click to enlarge)

Source: EIA

(Click to enlarge)

Source: EIA

Natural gas consumption will increase 43 percent thanks to China

Natural gas consumption is expected to increase by 43 percent through 2040, driven by increases in China. Increasing demand for low carbon intensity, reliable power will drive significant expansion natural gas in electricity generation.

(Click to enlarge)

Source: EIA

Near the end of the projection, natural gas is also expected to see significant growth as a transportation fuel. According to the EIA, new rules on marine fuels and the growing spread between oil and natural gas prices are projected to lead to a greater use of LNG as a maritime fuel towards the end of the projection.

…click on the above link to read the rest of the article…

Uncertainty and the Humility of Forecasting an Unknowable Future

April 5, 2017

Uncertainty and the Humility of Forecasting an Unknowable Future

While we’re being reassured that all these grandiose promises are resting on trends that are as reliably predictable as the tides, the next easily predictable crisis will very likely reveal the trends are speculative bubbles that will predictably burst in a devastating reversion.

Certainty and uncertainty come in a variety of flavors. “Certainty” seems rather definite, but lurking beneath certainty is the more scientifically verifiable notion of probability: the probability of outcomes can be high enough to qualify as certain and low enough to qualify as unlikely.

We can’t know with perfect certainty that our neighbor hasn’t invented a death-ray and may decide to test it on us due to that simmering feud over his dog Fluffy’s antics on our yard.

But we can make an assessment of the probability of this occurring, and conclude the probability is low with a high degree of certainty.

This assessment should change, of course, if we hear strange noises in his shop and notice shrubs in his back yard are now charred in peculiarly symmetric circles–and we learn he previously worked at a national lab on high-energy weapons but was dismissed for pursuing crazy ideas about developing handheld death-ray devices, i.e. phasers. (Star Trek fans, please raise a cheer.)

This brings us to a critical distinction between low-probability events, i.e. known unknowns a.k.a. highly unlikely “long-tail” events, and unknown unknowns, a.k.a. “black swans” made famous by author Nassim Taleb.

What is a known unknown? Death qualifies as a known unknown: we know with a high degree of certainty that the vast majority of living things eventually die (even cancer cells die once their host dies)–but the timing of their individual natural death is inherently uncertain, due to the great number of inputs, variables and causal factors intrinsic to life.

…click on the above link to read the rest of the article…

A Landscape of Dreams

October 8, 2015

A Landscape of Dreams

Maybe it’s just the psychology of selective attention, but tolerably often when I want to go into more detail about a point made in a previous essay here, stories relevant to that point in one way or another start popping up on the news. That’s been true even during this blog’s forays into narrative fiction, so it should be no surprise that it’s happened again—even though, in this case, the point in question may not be obvious to most readers yet.

One of the core themes of the Retrotopia narrative I’ve been developing here over the last month or so is the yawning gap between the abstract notion of progress that we all have in our heads and the rather less pleasant realities to which this notion has been assigned. The imaginary Atlantic Republic, the home of the narrative’s viewpoint character, is a place where progress as we know it has continued in exactly the same direction it’s been going for the last half century or so. That’s why it’s a place where income is concentrated in ever fewer hands, leaving most of the population to struggle for survival via poorly paid part-time jobs or no jobs at all; a place where infrastructure has been allowed to fall into ruin, while investment gets focused instead on a handful of high-tech services such as the metanet (my hypothetical 2065 “improvement” of today’s internet); a place where people make do with shoddy, wretchedly unpleasant consumer goods because that’s what a handful of big corporations want to sell them and there are no other alternatives, and so on.

…click on the above link to read the rest of the article…

 

Right or Wrong – The Dark Side of Human Nature

January 19, 2015

Right or Wrong – The Dark Side of Human Nature

I greatly appreciate the confidence saying I am never wrong. But on an individual level,NOBODY can possibly be right all the time. This is why I try to emphasize that the numbers are the numbers and that all we can do is watch how everything unfolds. I have no personal vision of the future and what I fear I would not say publicly anyway for that is just opinion. All I can do is say this is what has happened in the past and express what the computer says – not ME. The markets are the only infallible guide if you just listen.  Like the year-end closing for the Swiss. A closing above the 9700 level simply stated the 2011 low should hold. Had we closed below that, then new lows were possible. The number define the forecast – NOT my opinion. Most people forecast on what they “think” will happen. I do not play that game. My OPINION is no better than anyone else’s.

The key to analysis and trading is you must define where you are right and where you are wrong. The key here is long-term verses short-term. One thing I observed is that trying to predict the closing of whatever tomorrow will be infinitely much more difficult than predicting years in advance. The trend is in motion. Like the Swiss Peg, yes you can fight against the trend, but the trend will always win. So where the Dow closes tomorrow really means nothing to the long-term. That is just what we call noise. There are countless variables that will determine the closing of the Dow on a daily basis. But the trend determines the course of where you are headed. It is the difference between the daily weather and the 4 seasons.

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oftwominds-Charles Hugh Smith: In Uncharted Waters

October 21, 2014

ftwominds-Charles Hugh Smith: In Uncharted Waters.

What I see as extremes that must necessarily end badly, others see as mere extensions of recently successful policies and trends.


A long-time reader recently chastised me for using too many maybe’s in my forecasts. The criticism is valid, as “on the other hand” slips all too easily from qualifying a position to rinsing it of meaning.


That said, given that we’re in uncharted waters, maybe’s become prudent and certainty becomes extremely dangerous. I have long held that the financial policy extremes that are now considered normal are unprecedented in the modern era: extremes in debt, leverage, risk, complexity and willful obfuscation of these extremes.

 
Consider the extent to which sky-high asset valuations and present-day “prosperity” depend on extremes of leverage: autos purchased with no money down, homes purchased with 3.5% down payments and FHA loans, stocks bought on margin, stock buybacks funded by loans, student loans issued with zero collateral, and so on–an inverted pyramid of “prosperity” resting precariously on a tiny base of actual collateral.
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Olduvai IV: Courage
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Olduvai II: Exodus
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