"I am sick and tired of war. Its glory is all moonshine. It is only those who have never fired a shot nor heard the shrieks and groans of the wounded who cry aloud for blood, more vengeance, more desolation. Some say that war is all glory, but I tell you, boys, it is all hell."
-- William Tecumseh Sherman (1879)
Tuesday, July 31, 2012
Friday, July 20, 2012
rigged markets
Markets are so rigged by policymakers that I have no meaningful insights to offer. I am simply stunned that our policymakers seem so one-dimensional, so short-termist, and so utterly bereft of courage or ideas. It now seems obvious that in response to the financial crisis that has been with us for five years and counting, we are being told to double up on these same policy decisions [that have failed]. The crisis was caused by central bankers mispricing the cost of capital, which forced a misallocation of capital, driven by debt/leverage, which was ultimately exposed as a hideous asset bubble which then collapsed, destroying the lives and livelihoods of tens of millions of relatively innocent people.
If you listen to the [policymakers in the US and Europe], it seems that the only solution they can offer up is to yet again misprice the cost of capital, in the hope that, yet again, through increased leverage/debt, we are yet again greedy enough to misallocate capital, which in turn will lead to yet another round of asset bubbles. Such asset bubbles are meant to delude us into believing that we are now "richer." When —- as they do by definition —- these bubbles burst, those who have been suckered in will realize that their "wealth" is instead an illusion, which in turn will be replaced by default risk...
When looking for where the bubbles may be, realize this: in this current cycle, where central bank balance sheets are at the core, the bubble is everywhere — in stocks, in bonds, in growth expectation, in credit spreads, in currencies, in commodity prices, in most real asset prices — you name it! This is why I think that this current bubble, if it is allowed to fester and develop into 2013, will have such widespread consequences when it bursts that it will make 2008 feel, relatively speaking, like a bull market... When this bubble bursts, I don’t think there is an easy way out. Who will be the bailout provider?
The longer we have to wait for the final resolution to the global financial crisis, the bigger and more devastating the final leg lower will be.
-- Bob Janjuah, Nomura Investments (February 20, 2012)
If you listen to the [policymakers in the US and Europe], it seems that the only solution they can offer up is to yet again misprice the cost of capital, in the hope that, yet again, through increased leverage/debt, we are yet again greedy enough to misallocate capital, which in turn will lead to yet another round of asset bubbles. Such asset bubbles are meant to delude us into believing that we are now "richer." When —- as they do by definition —- these bubbles burst, those who have been suckered in will realize that their "wealth" is instead an illusion, which in turn will be replaced by default risk...
When looking for where the bubbles may be, realize this: in this current cycle, where central bank balance sheets are at the core, the bubble is everywhere — in stocks, in bonds, in growth expectation, in credit spreads, in currencies, in commodity prices, in most real asset prices — you name it! This is why I think that this current bubble, if it is allowed to fester and develop into 2013, will have such widespread consequences when it bursts that it will make 2008 feel, relatively speaking, like a bull market... When this bubble bursts, I don’t think there is an easy way out. Who will be the bailout provider?
The longer we have to wait for the final resolution to the global financial crisis, the bigger and more devastating the final leg lower will be.
-- Bob Janjuah, Nomura Investments (February 20, 2012)
Thursday, July 19, 2012
economists' numbers
Economists are not stupid. Especially those who win Nobel Prizes. They test well. They go to good schools. They can usually do higher math. Math is important to modern economics. It makes it look like science. So, if you review almost any PhD thesis in economics over the last 20 years, you are bound to find numbers. Lots of numbers. You’ll also find symbols. Greek symbols. And symbols from the mathematician’s trade. These symbols mean something. So do the numbers. And you can use these meanings to tease out even more confections. Complex. Sophisticated. Precise. Impressive. And generally not worth a damn.
We say that after long observation. It is the result of careful reflection and reckless intuition. The observation has occurred over the last dozen years or so. Despite all their numbers, formulas and Nobel prizes, America’s leading economists, including the lead dog economist himself, Ben Bernanke, were apparently unable to see something so obvious that even we spotted it: the collapse of housing and the blow up of the credit market. Not that they are dumb. They are just following a different career path.
A genuine economist keeps his eyes open. He reads the paper. He reads books. He studies history. He talks to taxi drivers and businessmen. He tries to understand what has gone on in the past... and what might be going on today. He has no illusions about it. The future will never be like the past. But there will be similarities. And those similarities can be studied. He has little appreciation for numbers. He knows they can’t be trusted. They are like whores and lobbyists — they will do their work for whomever pays them. He is especially wary of precise numbers. The greater the precision, the greater the lie.
With their vision obscured by all their precise numbers and enhanced calculations, most economists could not see the crisis coming. On the evidence, their numbers are not very useful. But now they bring them out again... this time to solve the problem they never saw coming.
-- Bill Bonner, The Daily Reckoning (July 19, 2012)
We say that after long observation. It is the result of careful reflection and reckless intuition. The observation has occurred over the last dozen years or so. Despite all their numbers, formulas and Nobel prizes, America’s leading economists, including the lead dog economist himself, Ben Bernanke, were apparently unable to see something so obvious that even we spotted it: the collapse of housing and the blow up of the credit market. Not that they are dumb. They are just following a different career path.
A genuine economist keeps his eyes open. He reads the paper. He reads books. He studies history. He talks to taxi drivers and businessmen. He tries to understand what has gone on in the past... and what might be going on today. He has no illusions about it. The future will never be like the past. But there will be similarities. And those similarities can be studied. He has little appreciation for numbers. He knows they can’t be trusted. They are like whores and lobbyists — they will do their work for whomever pays them. He is especially wary of precise numbers. The greater the precision, the greater the lie.
With their vision obscured by all their precise numbers and enhanced calculations, most economists could not see the crisis coming. On the evidence, their numbers are not very useful. But now they bring them out again... this time to solve the problem they never saw coming.
-- Bill Bonner, The Daily Reckoning (July 19, 2012)
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