Author Archives: Pater Tenebrarum

     

 

 

A Litany of Failures

It was widely expected that the BoJ would announce something this week after it promised to perform a comprehensive review of its monetary policy. It certainly did deliver a major tweak to its inflationary program, but its implications were seemingly not entirely clear to everybody (probably not even to the BoJ).

 

b-bojcurrency-a-20160131-870x641This picture was taken back when the BoJ first introduced NIRP, but it has the appropriate horror movie atmosphere. Kuroda’s press conferences with these nifty little placards remind us a bit of school. As an aside, the term “quality” evidently got there by mistake. One cannot improve a money’s quality by increasing its quantity and enforcing negative rates (these are a particularly dangerous abomination).

Photo credit: Yuya Shino / Reuters

 

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John Hussman on Recent Developments

We always look forward to John Hussman’s weekly missive on the markets. Some people say that he is a “permabear”, but we don’t think that is a fair characterization. He is rightly wary of the stock market’s historically extremely high valuation and the loose monetary policy driving the surge in asset prices.

 

1-spx-vs-nyse-ad-lineThe S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but strengthened noticeably thereafter. The a/d line is just one of many examples. A major reason for this was that market participants reassessed the likely future path of the Fed’s monetary policy – click to enlarge.

 

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The Economy and the Stock Market

As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth.

 

factoryWhat’s left of the Brooklyn Domino Sugar Refinery.

Photo credit: Paul Raphaelson

 

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The Gloves are Coming Off

First a little bit of recent history. Readers are probably aware that some questions about the occasionally malfunctioning Deep State android… no, wait, we’ll start again. Questions have recently been raised about the health of presidential candidate Hillary Clinton by various “alt-right” tinfoil hat-wearing conspiracy theorists, such as this one.

 

hillary_boogeyman_cartoon1The monsters are normally hiding under Hillary’s bed, but lately they have come out into the open and are getting way too many you-tube hits.

 

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Head Fake Theory Confirmed?

This is a brief update on our last overview of economic data. Although we briefly discussed employment as well, the overview was as usual mainly focused on manufacturing, which is the largest sector of the economy by gross output.

 

historical-photos-pt9-pepsi-factory-baltimore-1956-aPepsi factory in Baltimore, 1956

Photo via pinterest.com

 

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Pleas for More Deficit Spending

We continue with our Jackson Hole post mortem – including remarks that were made by economists and monetary bureaucrats shortly before and after the pow-wow and seem to be connected to the discussions there.

 

103000777-central_bankers1..1910x1000Assembled central planners (we’re not sure if this picture was taken at the conference, but most of the people in it were there).

Photo credit: Getty Images

 

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Modern Economics –  It’s All About Central Planning

We are hereby delivering a somewhat belated comment on the meeting of monetary central planners and their courtier economists at Jackson Hole. Luckily timing is not really an issue in this context.

 

central bank HQs 2Central bank headquarters: the Fed’s Eccles building, the ECB’s hideously expensive new tower in Frankfurt, and the BOJ’s Tokyo HQ (judging from the people in the foreground, it may be a source of noxious fumes).

 

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The Long Awaited Correction is Underway

The gathering of central planners at Jackson Hole was widely expected to bring some clarity regarding the Fed’s policy intentions. This is of course a ridiculous assumption, since these people have not the foggiest idea what they are doing or what they are going to do next. Like all central planners, they are forever groping in the dark.

 

U.S. Federal Reserve Chair Janet Yellen (L) congratulates Stanley Fischer as he is sworn in a vice chairman at the U.S. central bank in WashingtonHi there! Stanley Fischer finds chief central planner Janet Yellen deep in the bowels of the Eccles building. In Jackson Hole, they played “good cop, bad cop”.

Photo credit: Federal Reserve / Reuters

 

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Is Clinton’s Lead Over Trump as Large as Advertised?

Once upon a time, political polls tended to be pretty accurate (there were occasional exceptions to this rule, but they were few and far between). Recently there have been a few notable misses though. One that comes to mind is the Brexit referendum. Shortly before the vote, polls indicated the outcome would be a very close one, while betting markets were indicating a solid win of the “remain” vote. The actual result was around 52:48 in favor of  “leave”, so this was quite a big miss.

 

trump-and-hillary-exlarge-169Polarizing candidates – one of whom has already managed to confound election forecasters in the nomination race.

Image via cnn.com

 

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Distortions and Crazy Ideas

We have come across a few articles recently that discuss some of the strategies investors are using or contemplating to use as a result of the market distortions caused by current central bank policies. Readers have no doubt noticed that numerous inter-market correlations seem to have been suspended lately, and that many things are happening that superficially seem to make little sense (e.g. falling junk bond yields while defaults are surging; the yen rising since the BoJ adopted negative rates; stocks rising amid a persistent decline in earnings growth; bonds, gold and stocks moving in unison, etc., etc.).

 

puzzled-man-scratching-headUnknown veteran trader experiences another WTF moment.

Photo credit: Everett Collection

 

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When Will the Helicopter Take Off?

The quarterly meeting of the Incrementum Fund’s advisory board was held on July 19. A pdf transcript of the discussion can be downloaded via the link below. We were once again joined by special guest Brent Johnson, the CEO of Santiago Capital.

 

Helicopter_money_05.20.2016_largeThe new obsession of liquidity junkies around the globe: helicopter money! This should cement the “TINA” rationalizations for buying hopelessly overvalued stocks and bonds, right?

Cartoon by Bob Rich

 

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Insanity Rules

Bond markets are certainly displaying a lot of enthusiasm at the moment – and it doesn’t matter which bonds one looks at, as the famous “hunt for yield” continues to obliterate interest returns across the board like a steamroller. Corporate and government debt have been soaring for years, but investor appetite for such debt has evidently grown even more.

 

Perfect-InvestmentThe perfect investment for modern times: interest-free risk!

Illuustration by Howard McWilliam

 

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