Aldous Huxley brilliantly reminded us, quite some time ago, that the main lesson of history is that we, the “homo not so sapiens” species, never learn from it. Being a touch deterministic, and consequently agnostic about the real chances of single-handedly steering clear of a pervasive human mistake, I plan nonetheless to give it a fresh try once again.
Frankly, this last Central Bank coordinated intervention has confused me somewhat. Surprisingly enough, because it’s hardly the first time Central Bankers cost me serious money. I was indeed, well prepared for that (I had previously made it, in the downdraft preceding their intervention), so I have no real damage to report. But the downside to the confusion is not just two great trades (my stock market shorts/my credit spread widener) gone down the drain, for a meager profit (I am still positioned in both trades with a reduced profile). The real harm is allowing for the situation to affect my self-confidence and, furthermore, cloud my view of the actual financial landscape. That could easily cost me big.
In my last post, I allowed for defeat, with that “mea culpa” Latin wording repeated twice -in bold characters. I tried to remain focused on what really counts: overwhelming debt levels. Reading it once again, I stand by every word in it. But now, being critical of my own work, I think it is hardly worth the typing (never mind the reading) if it just serves the purpose of reminding everybody of our precarious debt situation. Even underlining Central Bank stealth PKO techniques, as I did, is all but evident now when looking back.
The good news is that Barron’s now dares label the US stock market as a “Bullard market”. Conspirationists like me, repeatedly bashed in the past, have somehow stolen the spotlight now -a strikingly fast transition! In a brief concession to my ego, I will take pride in the fact that just after the Bullard October 2014 low, I outspokenly described him as “the most inconsistent central banker in the world”, suggesting he was actually the head cheerleader for manipulation techniques. I was afraid to be denied future entrance in the US at the time! If Barron’s now nods to manipulation, the assertion must be as close to stating the obvious as one can ever get.
And, once the PKO (price-keeping operation) situation, and the Bullard rigging, are an accepted fact of life, it is easier to note that debt is, notoriously, the other elephant in the financial room. Unnervingly, we have no alternative options to keep living and investing in this environment, so it’s best to concentrate on getting the next elephant (Bullard and/or debt) moves right, beforehand. The timing of prospective events adds value, whilst market rigging and debt have become too self-explanatory to be further discussed to some avail.
The real added value comes when finding a path forward that enables us to survive the hurricane season that is constantly being delayed by the financial climate change perpetrated by Central Banks. We do not have a nature driven financial climate anymore. The Fed and its acolytes plan and implement the financial weather daily. So prospective weather patterns have to allow for plenty of behavioral science -in order to be meaningfully accurate. Finding that hurricane safe path implies having some homework to do. I feel compelled to sum up the most relevant lessons of recent history. And learn from them.
1.- Gradually, during the Greenspan tenure at the Fed, the developed world changed the economic model from a savings and investment, productivity growth enhanced, business model, to an easy money, consumption and credit-driven growth. Neoclassics, Keynesians, and Friedmanites converged to point at the monetary mistakes during the great depression as the sole reason for what happened then. The real economy was not at fault, it was just a question of insufficient monetary stimulus, they said.
They then set up wonderful econometric models, fostered Central Bank independence (from parliaments, not from banks and the elites), bought themselves some helicopters and printing presses, and firmly believed that Keynesian fiscal and monetary policies, well used, would make the business cycle something of the distant past. Econometric models would allow them to preview the future value of the main variables of the economic machine, and thus target the adequate stimulus for them in order to stabilize the economies along their, saddle-like, self-sustaining path to eternal prosperity (in earth as it is in heaven; Amen).
Well, it didn’t work as expected. By now most of the Keynesian and Neoclassical economists are belatedly admitting that the experiment was a failure. They are, however, still sustaining that excess money and credit at least did no harm. “Excusatio non-petita accusatio manifesta”. No further comment on that. University is where paradigmatic changes in scientific perception take place. We ought to welcome this gradual change of status of the economic doctrine. In due time, this increasingly-felt shift will become mainstream. More printing will be met with increased contempt and incredulity by financial pundits. Continue reading