Central banking, Economics, History, Inflation, Policy, Politics

About that imminent banking crisis… don’t hold your breath. We get inflation instead.

A subtle understanding of economic change comes from a knowledge of history and large affairs, not from statistics or their processing alone…

Arthur Burns[1]

Those of us who spend time analysing financial markets have been anticipating an impending banking crisis for years now. A number of Global Systemically Important Banks (GSIBs) as well as many lesser banks have been struggling under an increasing burden of bad debts and deteriorating credit quality in their balance sheets. Deutsche Bank, probably the worst offender, has been on death watch since 2016. But as years went by and doubts about the bank’s solvency multiplied and compounded, no banking crisis materialized.

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Asset management, Central banking, Commodity price, Economics, Inflation, Monetary reform, Policy, Risk management, Trend following

Inflation: we passed a phase transition

In April 2012, economist Robert Wenzel[1] was invited to speak at the Federal Reserve Bank of New York. On the occasion, he told the central bankers thatvast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out.”[2]

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Economics, Energy crisis, Inflation, Market research, Market trends, Oil market, Policy, Risk management, Stock market, Trend following

Perfect storm gathering: the three converging disruptions

In the near future, we are likely to experience severe consequences of three converging disruptions:

  1. Stock market crash
  2. Oil price shock
  3. Inflation

Since the last recession we’ve enjoyed the longest ever period of economic expansion with low interest rates, low inflation and subdued commodity prices. But this all could be coming to an end.

Bursting of the “everything bubble”

Throughout the west, unprecedented government and central bank stimulus programs helped inflate the current “everything bubble.” This is not a new phenomenon; monetary expansion always creates asset bubbles. The one thing we know is that without exception, asset bubbles ultimately burst. The examples are many and some of them made a mark in the collective conscious of entire generations, from the 1630s Tulip Mania to the 1990s dot-com bubble. Continue reading

Asset management, Central banking, Economics, Inflation, Market trends, Stock market, Trading, Trend following

The one force moving stock prices and what it tells us about the future

Back when I traded stocks in late 1990s, I got a gnawing suspicion that beyond the nonstop noise of the news flow, there was some force pushing the rising tide, but I couldn’t discern what it was. By today I think I worked it out. The most surprising thing about it is that it’s been so hard to work out.

Stocks are principally driven by money supply

The first time I encountered an explicitly formulated hypothesis that justified my suspicions was years later while I researched for my book, “Grand Deception.” The hypothesis, relating to Russian stocks, was articulated by Bill Browder, CEO of Hermitage Capital Management in his 2006 HedgeWeek interview: Continue reading

Central banking, History, Inflation, Monetary reform

On the other side of the financial repression dam: epic inflation

Inflation is with us – and in time it will flood the economy. Regardless of how powerful and prosperous a nation may appear in its peak, no empire ever was able to exempt itself from the elemental laws of economics any more than we can exempt ourselves of the laws of gravity.

Warren Buffett warned that for a debtor nation, inflation was the economic equivalent of the hydrogen bomb. Runaway inflations tend to emerge when an economy’s debt burden becomes unsustainable, usually as a consequence of too much government spending and too much war. Today, nearly all categories of debt in the U.S. economy are breaking records: government, corporate as well as household and student debt. Worse, the levels of delinquency have been rising and credit standards have been deteriorating over the recent months, particularly for corporate debt. Continue reading

Asset management, Central banking, Economics, Inflation, Market research, Market trends, Policy

US jobs: everything is awesome! Is it? Let’s take another look.

A few years back in an interview with Wall Street Journal’s “Heard on the Street” program , Elliott Management’s Paul Singer said that his greatest worry was the rise of inflation that could appear suddenly. He suggested that this could come about with small changes in perception of inflation risk. Specifically, “The first whiffs of either commodity inflation or wage inflation,” said Singer, “may cause a self-reinforcing set of market events … which may include a sharp fall in bond prices, … fall in stock prices, rapid increase in commodities…

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Asset management, Economics, Inflation, Market research, Market trends, Policy, Stock market

Parabolic markets may signify onset of high inflation

Asset price inflation might signal debasement of the currency and acceleration of commodity price inflation

This time it may well be different… For several years now, numerous high-profile commentators and analysts have been forecasting an imminent stock market correction, or indeed a crash, evoking the events of 1929, 1987, 2000 or 2008. Of course, many are now predicting it is sure to happen in 2018. If not, perhaps in 2019 or maybe 2020? Who knows… But so far, not many analysts – if any, apart from yours truly – have considered the possibility that this rally might extend even higher from today’s dizzying heights. In an October 2016 post I suggested that this is exactly what was ahead. Continue reading

Central banking, Economics, Inflation, Monetary reform, Social development, Uncategorized

Inflation: lessons from the last empire’s collapse

So far, the dreams of 1,000-year empires and stable world domination have eluded the ruling elites throughout history and across the globe. Empires arise, sustain themselves for a century or two and then rapidly decay and collapse. The collapse may appear relatively fast and obvious in hindsight, but in reality it spans decades, may appear as a series of temporary crises and only become obvious very late into the slow-motion train wreck. Continue reading

Central banking, Commodity price, Economics, Inflation, Policy, Uncategorized

Greenspan: Fed balance sheet is a tinderbox of explosive inflation looking for a spark!

In June 2011 Carmen Reinhart wrote a paper for the IMF titled “Financial Repression Redux.” She suggested that the current policy of financial repression could ultimately lead to high levels of inflation. Today, five years later it seems like she couldn’t have gotten it more wrong. In spite of the unprecedented monetary expansion, monetization of public debt and swelling central bank balance sheets, deflation seems entrenched. So why worry about inflation at all? In short, because deflation could actually give rise to inflation. Continue reading

Central banking, Commodity price, Economics, Inflation, Market trends, Monetary reform, Stock market

Stock markets might not crash. Investors might still lose big.

Our future is being shaped by an unprecedented monetary experiment run by our central bank mandarins, but a happy ending is a mathematical impossibility. The economic imbalances that resulted in the last, 2008 financial crisis are now much worse and we are facing two possible routes of their resolution. One is a full-blown deflationary depression that could see asset prices drop by 50% or more. The other is a strong and sustained decline in the US Dollar (and other major currencies) with an accelerating commodity price inflation that might span a full decade.

Central banks’ overt commitment to supporting asset prices at all costs suggests that the second scenario may be more probable. In this case, a major stock-market crash could be averted; instead, we could see a significant and sustained rise in equity markets, as was the case most recently during the Zimbabwean and Venezuelan inflations, as well as the Argentinian, Brazilian, Israeli and German inflations before that. Below is the chart showing the appreciation of Israel All Share index during the country’s inflationary crisis in the 1980s: Continue reading