Every Bubble Eventually Finds its Pin

The transfer of wealth from workers and savers to governments and big banks continued this week with Swiss-like precision.  The process is both mechanical and subtle.  Here in the USA the automated elegance of this ongoing operation receives little attention.

NFL football.  EBT card acceptance at Del Taco.  Adam Schiff’s impeachment extravaganza.  You name it.  Bread and circuses like these – and many others – offer the American populace countless opportunities for chasing the wild goose.

All the while, and with little fanfare, debts pile up like deadwood in Sequoia National Forest.  These debts, both public and private, stand little chance of ever being honestly repaid.  According to the IMF, global debt –  both public and private – has reached an all-time high of $188 trillion.  That comes to about 230 percent of world output.

Certainly, some of the private debt will be defaulted on during the next credit crisis and depression.  But when it comes to the public debt, governments do everything they can to prevent an outright default.  Central banks crank up the printing press and attempt to inflate it away. Continue reading

Posted in MN Gordon, Stock Market | Tagged , , , , | 7 Comments

The Fed’s Answer to the Ghastly Monster of its Creation

The launch angle of the U.S. stock market over the past decade has been steep and relentless.  The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent.  New highs continue to be reached practically every day.

Over this stretch, many investors have been conditioned to believe the stock market only goes up.  That blindly pumping money into an S&P 500 ETF is the key to investment riches.  In good time, this conditioning will be recalibrated with a rude awakening.  You can count on it.

In the interim, the bull market may continue a bit longer…or it may not.  But, to be clear, after a 370 percent run-up, buying the S&P 500 represents a speculation on price.  A gamble that the launch angle furthers its steep trajectory.  Here’s why…

Over the past decade, the U.S. economy, as measured by nominal gross domestic product (GDP), has increased about 50 percent.  This plots a GDP launch angle that is underwhelming when compared to the S&P 500.  Corporate earnings have fallen far short of share prices. Continue reading

Posted in MN Gordon, Politics | Tagged , , , , | 14 Comments

Japan’s Yield Curve Control Regime is Coming to America

Earlier this month, Bank of Japan (BOJ) Governor Haruhiko Kuroda commented that Japan’s central planners are considering a 50-year government bond issue as a long-term means of putting a floor under super-long interest rates.  How this floor would be placed is extremely suspect; we’ll have more on this in a moment.  But first, the dual benefits – according to Japan’s central planners…

One, the 50-year government bond would allow the government to lock in cheap long-term funding.  Two, it would give yield-starved investors higher returns.  Cheap funding.  Higher yield.  What’s not to like?

Kuroda, if you didn’t know, is a certifiable madman.  Following a cheap credit induced bubble and subsequent bust of Japan’s property and stock market in the late-1980s, Kuroda and his cohorts at the BOJ have tried anything and everything to re-inflate asset prices.  After nearly three decades they’re still at it.

There’s not a deranged monetary policy idea the BOJ hasn’t pioneered in the name of saving the nation from itself. Continue reading

Posted in Government Debt, MN Gordon | Tagged , , , , | 1 Comment

Is the Fed Secretly Bailing Out a Major Bank?

The promise of something for nothing is always an enticing proposition.  Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance?  So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?

Thus, smart fellows get after it; pursuing financial innovation with unyielding devotion.  The underlying philosophy, as we understand it, is that if risk is spread thin enough it magically disappears.  In other words, the solution to pollution is dilution.

With this objective, new financial products are fabricated into existence.  The risk free reward of several extra basis points are then packaged up into debt instruments and sold off to pension funds and institutional investors.  The search for yield demands it.

Yet as an economic expansion progresses, especially one that has been extended and distorted with the Fed’s cheap credit, these derived financial securities are polluted with more and more toxic waste.  Spreading the risk ultimately pollutes the entire pool of liquidity. Continue reading

Posted in Economy, MN Gordon | Tagged , , , , | 4 Comments