'In fact, when people ask me which industry receives the most subsidies from governments in the developed world, I tell them it's not agriculture or aerospace, it's the financial sector via money for nothing from central banks that can print at will through a few keystrokes.
Bankers don't like to talk about this dirty little secret. They prefer the mirage that they're real tough capitalists who are innovators and take risks. They do take risks, mostly with other people's money, but when things go wrong, they socialize the losses (as we saw in 2008).
But even on Wall Street, traditional jobs are already being disrupted by technology, and the emergence of artificial intelligence
will drastically reorder the role of most humans in finance, according to former Goldman Sachs Group Inc. Chief Technology Officer Michael Dubno.'
- Leo Kolivakis,
America's Dangerous Dual Economy? October 24, 2017
' "..Earlier this month I travelled to Washington for an International Monetary Fund and World Bank meeting. There was a cheery mood in the air, just as there was in 2006… But now, just as before, those BIS dissidents are muttering in the wings. At the IMF gala, Borio (still at the BIS) told me that the pesky matter of debt has not disappeared. On the contrary, since the 2008 credit crisis, it has risen sharply: the level of global debt to gross domestic product is now 40% — yes, 40% — higher than it was in 2008. The world has responded to a crisis caused by excess leverage by piling on more, not less, debt.” - Gillian Tett.''It has become increasingly apparent that central bankers recognize their predicament and have chosen not to risk piercing Bubbles. I suspect Draghi, Yellen and Kuroda (and others) fear the consequences of a destabilizing jump in global bond yields. I too fear the amount of leverage and range of distortions that have accumulated over the past nine years. The inescapable adjustment after such a prolonged boom will be quite difficult. Yet the analysis gets back to the “First Law of Holes:” Must Stop Digging. At this late (historic) Bubble stage, systemic risk is piling up exponentially.
..
October 22 – Wall Street Journal (Christopher Whittall): “Investors hungry for returns are piling back into securities once tarnished by the financial crisis. Complex structured investments developed a bad reputation during the credit crunch. Ten years later, investors seeking yield are overcoming their skepticism and buying into securities that rely on financial engineering to juice returns. Volumes of CLOs, or collateralized loan obligations, hit a record $247 billion in the first nine months of the year… Fueled by a wave of refinancings and nearly $100 billion in new deals, that far outpaces their recent full-year high of $151 billion in 2014 and the precrisis peak of $136 billion in 2006. The CLO boom is the latest sign of the ferocious hunt for yield permeating markets. Stellar performance over the past year has made CLOs increasingly hard to ignore for investors like insurance companies and pension funds.”
October 20 – Financial Times (Gillian Tett): “A decade ago, whenever I chatted to anyone at Switzerland’s Bank for International Settlements, I felt like I was hobnobbing with dissidents. The reason? Back then, most western central bankers and finance ministers were convinced that the global economy was in good shape: inflation was low, growth was steady, corporate and consumer optimism was high. In fact, the data seemed so benign that economists had labelled the first decade of the 21st century the ‘great moderation’. Not the BIS. Starting in 2003, officials at… institution, which aims to ‘promote global monetary and financial stability through international co-operation’, started to warn that the world economy was plagued by excessive levels of debt. This made the system dangerously distorted; so went the off-the-record murmurs from men such as William White… and Claudio Borio... Most central bankers dismissed these warnings — some even tried to silence the BIS… Earlier this month I travelled to Washington for an International Monetary Fund and World Bank meeting. There was a cheery mood in the air, just as there was in 2006… But now, just as before, those BIS dissidents are muttering in the wings. At the IMF gala, Borio (still at the BIS) told me that the pesky matter of debt has not disappeared. On the contrary, since the 2008 credit crisis, it has risen sharply: the level of global debt to gross domestic product is now 40% — yes, 40% — higher than it was in 2008. The world has responded to a crisis caused by excess leverage by piling on more, not less, debt.”
There are aspects of the current global Bubble that are reminiscent of pre-2008 crisis – though the amount of debt these days is larger, price distortions greater and misperceptions more perilous. Then: “Washington will not allow a housing bust.” Now: Global central bankers will not allow market dislocation. Unprecedented market distortions – including Trillions of mispriced “AAA” debt securities – back in 2008 look pee-wee when compared to today’s fiasco in perceived money-like instruments (fixed-income as well as equities)
At the same time, today’s “tech” party is more 1999 – just so much more expansive. Loose “money” coupled with government/central bank backstops have nurtured another epic sector mania – replete with more dangerous regional economic and housing Bubbles. Today’s EM backdrop has uncomfortable characteristics reminiscent of 1996, with the current “hot money” onslaught compounding already acute financial, economic, social and geopolitical fragilities from Asia to Eastern Europe to Latin America.
And there are elements of fixed-income excess that recall all the way back to 1993. The proliferation of leveraged derivatives strategies cultivates latent fragility. Meanwhile, the scope of flows into fixed-income ETFs at this late stage of the cycle is astonishing – yet, as they say, “par for the course.” It’s consistent with the flood of funds into passive U.S. equities indices and the emerging markets; the near-panic buying of European and U.S. corporate debt – the tsunami of “money” inundating virtually all risk assets via the ballooning ETF complex.
What most sets today’s Granddaddy of All Bubbles apart? Historic excess and distortion throughout the securities and derivatives markets – and asset markets more generally – on an unprecedented synchronized, systemic global scale. It’s become myriad powerful booms all packed into one killer Bubble unlike the world has ever experienced. History will not be kind to central banker fixation on arbitrary 2% annual CPI targets. Nasdaq inflated 2.2% in Friday’s session – the Nasdaq100 2.9%!'
- Doug Noland,
Must Stop Digging, October 28, 2017
Context'..China, once supported by strong household savings, is on a debt binge..''..the U.S. equity market .. exceeding even the levels observed in 1929 and 2000..''..this long Credit cycle going back to the conclusion of WW II .. the “granddaddy of Bubbles”..''..six structural factors .. to prepare for global deflation.'