Monday, August 24, 2015

The Entirely Unexpected Crumbling of the Ponzi Empire continued

"Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew,
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four―
And the Gods of the Copybook Headings limped up to explain it once more."
"As it will be in the future, it was at the birth of Man―
There are only four things certain since Social Progress began:―
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire."

From 'The Gods of the Copybook Headings' by Rudyard Kipling

And so it has come to this. Kipling had it pegged over a century ago. After all that zero-interest rate manipulation of the world economy to maintain the 'recovery' for the last 7 years, this is the direction of CCC ie. junk -rated corporate paper yields – that's the cost of money for corporations deemed most at risk of default; now 16%. Twelve months ago it was 5% and things were looking rosy according to official statistics; Janet Yellen gave her coy assurances, recovery was on track although rates wouldn't be lifted until the time was ripe.  And now the market has decided the wizards have maybe just lost control although the Irving Fishers and Joe Hockeys are johnny-on- the- spot to soothe the fearful.
They claim(ed) that all the conditions for prosperity are in place and there is nothing to worry about.  

"The stock market has reached a permanently high plateau." Irving Fisher, 1929

But there really is something to worry about and it's not the sharemarket so much as the bond market.  Since bank account returns were/are zero or less in some cases (you are CHARGED to keep your money in the bank), all bonds, especially junk was very much in demand amongst savers seeking some kind of a yield.  They hedged risk by buying into ETFs (exchange traded funds) in which they didn't need to fear just one corporate bankrupcy; the ETF owned a BUNDLE of this stuff, and you could trade in and out of your ETFs very easily. Unfortunately there is very little liquidity in the underlying bonds which have to be added or subtracted to the inventory of your fund according to investors cashing in or out. And of course as ever-reduced corporate circumstances are super-charged by fear, yields must rise as sales or purchases of existing bonds compete with new issues. Thus a 7% hit per annum reflecting on the total capital value over several years is a fast trip to poverty for your 411k or whatever you call the saved assets that will see you through your old age. And if you think you don't own this crap, your super fund probably does or barely better- rated, seeing as they are competing with each other to headline great quarterly results.

And none should forget the 2008 debacle where ratings agencies lost most of their credibility, having been paid for their efforts by the borrowers themselves and inexplicably failed to downgrade that debt even when the companies were technically insolvent and it was too late. Once again the taxpayer manned-up to ensure the stability of the global financial system and the silver-tongued wizards mostly hung onto their jobs; most famously amongst or regarding mortgage providers. And so there was one more heading for the British schoolboy's copybook; Dutch Tulip Madness, Mississippi Bubble, South Sea Bubble, Crash of '29, Hitler's Defeat in the East, End of Empire, Savings and Loan Disaster, and then U.S. Housing Crash. A page or two follows each, sometimes only a paragraph will suffice.

Exacerbating the whole affair is the chart of world sharemarkets, vaguely the inverse of junk bond yields. That means many more corporations are coming onto the list of notable downgrades. Even gold-standard industrial shares like Caterpillar was down 25% before the latest swoon.  (Luckily for Burnie we no longer depend on them.)   At some stage CAT will certainly be joined by loss-making speculative marvels like Netflix and with the decline of the real market leaders faith will die and yeah, this be the beginning of the end times when all shall be lost, for there is nowhere for interest rates to go but up where the real market leads and no-one is fit or crazy enough to borrow the banker's free (to them only) monies beyond the walking dead who have nothing left to lose but their credit ratings.
It is only now that the West has actually begun noticing; disaster has been the lot of the BRICS, Cypress, Greece and finally China which puts the whole mess suddenly on our own doorstep. And for Greece the rest of Euroland is throwing new money down the rathole each time a payment comes due. 'To give them time'; but it isn't the Greeks who are being saved, it is the biggest banks in Europe who had noticed an anomaly in bond yields over the EC average, ie. Greek debt paid higher yields on all that free money and they are loaded up the wazoo. When the smoke clears all those derivative contracts that protected big bondholders will be humongous new debt, owed by bankrupt counterparties.

The ancient Greeks had their own headings; and knew that hubris is inevitably followed by nemesis and nothing much can be done about it other than bitch and write tragic (unfunny) plays about people who fall into holes of their own making. But with the intellectual backing of the best and brightest at the US Federal Reserve, its associated institutions and the economic grunt of all Euroland behind modern Greece maybe it was going to be different this time, and prosperity would come to stay on their little, used-up peninsula.  Had not the world's bankers graduated from fraudulent coin- clipping and banknote printing to fool-proof high- speed computer- algorithm- hedged 50 -fold capital leveraging honestly designated as debt (which all currency is acknowledged to be these days) rather than something (anything?) more substantial? And by generating so much money and charging so many smart bankers with flinging it out there while it has some value could the whole world not enjoy the pleasures of exponential growth and consumption brought forward? Why not the folks in Saloniki?   Like they had done in Dublin (there's a missed heading there) and they want to in Burnie and Irishtown (Tasmania) at any cost when pigs shall fly.  But that won't crimp anybodies' election campaign, and the bankers didn't get to put the money out there, their trading divisions were pleased to get it instead and wrote those same derivative contracts knowing the EC would never let a member down.

Prognostication is such a gas. 'The seven headed beast shall arise from the sea,' 'how art the mighty fallen!'  But to make it stick there has to be a sweetener that people can apply to themselves; 'the meek raised up,' the other infidels or iniquitous confounded, the chosen people attain to the land of Israel, North Dakota or some hellhole relatively better than Damascus or Los Angeles.   So there is a slough of books out there about the coming religious come economic catastrophe which really gives me pause. If all those morons foresee disaster maybe I should hedge for the same old by sticking with the one sure-fire recipe for the ignorant which we all are at our core.  There is just too much information out there and the worst category (that never made the Dick Chaney taxonomy ) is the 'unknowns thought to be knowns.'

The formula is so simple.   In love, business or investing always target the unloved.   Your chances are better if only because your entry level risk and outlay is relatively very low and you have little to lose but your self-respect.

And the trouble with Biblical Prophecy and the like is that it is only obvious in retrospect, which is not much use. 'The sea shall deliver up its dead' could mean the resurrection of  all us munchkins for another bite of the cherry or just stinky global warming-delivered gigantic methane farts from icy muck on the freezing bottoms of the deepest oceans that will tip the planet into a human-free Venusian hell-world.  There is quite a discrepancy here so these things would be good to know. The cold war soviets were involved in all manner of think-tank operations, psi-war and metaphysical research that would keep them ahead of the west, and of course the CIA had to match them wherever and however insane. They also decided to analyze the bible as if it were an actual piece of secret code to be broken and perhaps thereby discover something concrete to work with.   Many thousands of hours of supercomputer calculations with billions of iterations generated a lot of English phrases but most were as cryptic as the original book. The only one that was truly close to having spoken to us in our time was “Bobby, don't go to Dallas.”

That's probably my joke, but nothing is certain these days.

And for a really good analysis of the share market and where its heading try this link.  Remember there is a limit on the depths of disdain and the contempt that may yet be visited upon the unloved; it is absolute rejection and ultimately total disinterest.  It is  there the foundations of great fortunes shall be built, but never exempt fraud, faith, theft and nepotism.

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