Je dis que rien ne m’épouvante, je dis, hélas! que je réponds de moi; mais j’ai beau faire la vaillante, au fond du coeur, je meurs d’effroi! Seule en ce lieu sauvage, toute seule j’ai peur, mais j’ai tort d’avoir peur; vous me donnerez du courage, vous me protégerez, Seigneur!
I found the lyrics of Micaela’s song, in Bizet’s “Carmen”, particularly appropiate today. Micaela has always been my darling in the aforementioned opera. Maybe it’s just that “je ne suis que faiblesse” with French women (and no, no mails please, I’m not looking for an affair at Ashley Madison’s). The “You tube” video I have linked is, in my view, the top (or near top) soprano performance, for that particular aria. There are no live images in the video I found, but the quality of the singing (not to forget the aria itself) is superlative. I think Mireia Freni, Montserrat Caballé, or Anna Netrebko, can’t beat it -at least for this particular aria.
And now, let’s get down to business. Not before precluding some readers getting lost in translation. Micaela, in plain English, “… for all my pretense of daring, deep in my heart I’m full of fear! In this wild place, so lonely, all alone, I’m afraid. But I’m wrong being afraid …” As FDR famously stated, the only thing we have to fear, is fear itself. We should be brave and get rid of this monetary orgy ASAP. Time will put things in perspective. Inaction is a lot worse.
We are all afraid aren’t we? This is a big mess we are all in, and we know we are going to have a hard time navigating our way out of it. Deep under, whether we admit it or not (depending on your degree of Keynesianism, or self interest in preserving our job and status), we all know the monetary Princetonian-Keynesian experiment hasn’t worked. We have digged ourselves ever deeper into the proverbial hole. Mises was right all along: the only way out of an orgy of credit and easy money is taking the bitter medicine. More credit and easier money was never going to do the job.
By now, an increasing number of top strategists concede that only QE 4ever can reliquify markets again. POMO desks need urgent air support. With financial napalm. The next two charts by Societé make it very clear.
The minute we ran out of fresh daily printed USD, the reserve currency began to regain some previously lost ground (over the previous three QE’s) in forex markets. That pressured the Asian currencies, and all others with an explicit or implicit peg to the USD. Their CB issuers were forced to intervene in order to preserve their forex stability. Global reserves began their downward run with two results: an obvious reserve crunch and global liquidity reduction, as outlined above…
And a less evident direct pressure on financial prices. After all, according to the 2015 GPI report from the OMFIF, it happens to be that investments held by 400 public institutions in 162 countries add up to a value of more than 40% of global GDP. CB’s, step by step, are beginning to own the financial market. The equity portion of their portfolio is higher every day. How on earth are they going to allow it to fall? In Ken Follett’s wording, public institutional buying, together with buy backs, are the late “pillars of financial prices” (helped an assisted by nirping and printing by CBs). CBs have it best. They print money, and then go buy financial assets. Very convenient indeed. Continue reading