As 2014 came to an end I like many of you probably felt a brief sigh of relief that maybe, just maybe, we could move into 2015 with a little more sanity shoved back into the financial markets. Now with QE as a know certain (at least for this moment) that indeed the spigot to the fire-hose has been shut off albeit there is still the “reinvestment” sprinkler system still at play. We might possibly get back to a little bit of sanity within the capital markets.
I watched a great many pundits take to both the financial air-wave cameras, as well as radio and print with fervent breath to make more or less a blanket statement that all the so-called “doom crew” (this is what you are now branded if you dare make a cogent case against fairy-tales and pixie-dust) were proven to be, without a doubt – totally wrong.
Added to this near foamed mouthed expression of glee was the added generalized diatribe, “When will these people just admit they were wrong and go away?!” Every time I heard or read a statement reminiscent of this I burst out into laughter. Until I read Hugh Hendry’s Eclectica Fund’s “Letter to Investors.” Here is where I went from laughter – to outright stupefaction.
Before I go any further let me make this point clear: I am, and have been a fan of Mr. Hendry’s investing prowess, his willingness to point out in public whether an Emperor is clothed or not, and more. However, I have also made my opinion clear about my uneasiness when he originally turned his investing thesis onto its head and became by his own words “a Bull.”
Although I understood the thesis I believed (and still do) that there is an inherent danger when this view is accepted and codified based on this market. So strongly do I feel about this I suggest we turn the danger scale up more towards perilous. Or, in simple terms – the danger knob has just been turned to 11 in my view after reading his latest letter.
The opening paragraph was nearly all one had to read as to know both the direction and the stance that seems now fully embraced by more than just Mr. Hendry – but everyone currently on this Keynesian fueled bandwagon. To wit:
“There are times when an investor has no choice but to behave as though he believes in things that don’t necessarily exist. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully. The good news is that mankind clearly has the ability to suspend rational judgment long and often.”
You can read the whole letter (and suggest you do) as reported by ZeroHedge™: Hugh Hendry Embraces Central Planning Matrix “I am taking the Blue Pills Now.
Here’s the whole issue with this piling onto this bandwagon. For those not familiar I’ve stated many times, “Beware when everyone’s on the bandwagon – except the band!” Well that’s just what we have here. We have a beautifully paint by numbers Keynesian manufactured bandwagon more, and more are piling onto. The problem? There is no band! And that band is known as: A true, free market capitalist actualized economy to pull it.
So why do I take such umbridge with what seems like just one more in a long list of recent converts to the whole Central Bankers now control everything meme? Well, it’s precisely due to what I read in that letter.
It’s in the way one is “giving in” as to repel what we might call “truth.” (for lack of a better descriptor) And bend, morph, strain, or eulogize why all reasonable arguments don’t make money today. Or, why real economic principles no longer matter.
In my view, this is nothing more than an overly dressed version of Chuck Prince’s now infamous remark while CEO of CitiGroup™ “As long as the music is playing, you’ve got to get up and dance.” Anyone remember how that number ended? Oh yeah, he stated that line right before all hell broke loose with the entire financial system crashing. That’s right, maybe you remember that also? I know I do.
Again here’s the danger put another way. If we are now to think, invest, build businesses, plot economic development opportunities et al based on this: What this means is we should not only embrace the Keynes – but should embrace the Krugman.
Yes, as in Paul Krugman and all his economic theories and policies. For if this is now only an economy based on Central Bankers that means ipso facto we no longer need business leaders, financial planners, or for that matter politicians, investment advisers, or the Ivy league schools to teach them.
Just wait till a Central Banker decides what will be done. Have your embargoed copy of the meetings minutes loaded into your swiftest HFT algo-reader, wait for your decided nanosecond of choice (as to not draw the ire of the regulatory agencies) and hit the execute button. Who needs “smarts” when it’s all this easy!
Never worry about debt or deficits again. If printing money as to buy or monetize the debt (which you were told would never happen, Silly you to believe) seems as if the accumulated balance sheet figure “is too damn high.” Just do as Mr. Krugman suggests and make a trillion dollar coin and put it in a vault. Debt crisis solved. Sheer genius right? Sounds like madness I know, but that’s exactly what a Nobel Prize winning economist not only suggests but recommends. All with a straight face.
What’s not laughable any longer is if this truly is the view, and belief, of the world monetary system today – it brings a thinking person to tears that this, is now also viewed as “Well – why not?”
The real reason why this “why not” viewpoint is destined for even more than tears is that other economies sooner or later will not accept it. And when that breaking point happens tears will be the easy part of the crying.
China, Russia, India, along with a host of other nations are not going to allow one set of Central Banks, or bankers the ability to create havoc and political unrest within their economies without throwing their own sticks into the mud.
These nations are not going to sit back idly while other Central Bankers such as Mario Draghi hems and haws about whether he’s got a bazooka or he’s pushing on a string. Currently everyone from Germany to the whole EU zone is wondering just what a “Full Monty” currently means. Many are thinking it’s more like a wet noodle, rather than bazooka or string.
Forget Greece, forget Spain, forget all the rest that now seem to be teetering on some form of existential collapse. Try also to forget about all those coinciding, commingled trades of “diversified” portfolios. Many of which are today’s pathetically low yield seeking trades fueled with currency trades, spreads, or swaps that just the mere blip on a screen in the wrong market and spreads go from narrow to “canyon” in nano seconds.
On a side note. Has it been lost on anyone that the oil crush, the Greece turbulence, the sudden realization the money issues in China are becoming more apparent by the day, and a whole lot more began happening near to the day QE ended hence a mere 60-ish days ago? Funny how a world based on sound fundamentals and economic principles would do that is it not? Unless…. (I know you know that answer without me saying it.)
Another argument to consider. Just what happens when a country (pick your poison for it literally could be anyone) decides to put into action in a coordinated way, (i.e., Picks that just right moment when they know real pain can be inflicted) and decides to echo a Donald Trump inspired move against the Central bankers or creditors.
For those who may not remember, back in the 80’s or so when Mr. Trump was having real issues and in danger of losing everything he implemented a strategy based on an insight to bring the bankers onto his terms when he coined the phrase (I’m paraphrasing) “When you owe the bank a million dollars and can’t pay – You’ve got a problem. When you owe the bank $100 million dollars and can’t pay – the bank’s got a problem.”
It truly was an insightful as well illustrative way to view particular issues when needing to deal with what may seem at the time as unresolvable debt issues. And, I believe only a fool would think other nations as well as governing bodies that feel they’re on the wrong end of any particular Central Bankers stick – aren’t.
Again the issue at hand and why I feel so strongly about this whole topic is this: The more people who buy into the “well I’ve got to be along – to get a long.” are helping fuel the fire for the most over-used covering of one’s arse mantras “We know this will all end badly.”
The problem is inherent in the knowing “that it will end badly” and yet turning a blind eye and making money anyway. For that’s what a good Wall Street aficionado does after all, right? I mean, who cares about arguing about real economics or fundamentals. Who cares – I’m up 8%!! As if that’s all that now matters.
For if that’s all that matters why don’t we embrace crony capitalism, embrace stagnant wages, embrace the 99% vs the 1% as that’s the best it’ll ever be. Who cares, as long as we’re getting ours. So be it if the Central Banks and their interventionist policies are causing havoc within our social structure where over 90 million Americans are without work. And we’ll care even less if it’s doing similar within other economies. “There’s still time – Let’s dance!”
This is what people like myself, David Stockman, Stephen Roache, Peter Schiff, Mark Faber and others warn about. This type of “buying into” the Central Bankers omnipotence does more than just mask their manipulation.
It gives themselves as well as others some form of cover for longer and, for all the wrong reasons. This also goes for both the political as well other entities as too not take up the causes of problems – and address them.
Address them where the possibility of resuming a more true, capitalistic based monetary system that embraces free markets, and helps foster true diversified growth within not only the capital structures but, by making or forcing other issues such as real free trade and other needed fixes and changes. Not this disgusting bloated behemoth of an adulterated Central Bank infused market taking place currently. This beast is now getting downright scarier. (If that is even possible)
For if there is one thing I’m more certain going into 2015 than I was in 2014 it is this…
The more people I believe “know better” yet, embrace the proverbial “Blue Pill” as a way to just go along to get along while now embracing (if not convinced) they can ride this tiger, I believe not only will find that this surely will “end badly,” but for many of these once insightful players that danced into this Central Bank rave party it will end far from bad – and more like tragic.
But hey, that’s what happens when you take pills then turn things up to 11 right?
© 2015 Mark St.Cyr