If the essence of modern eurodollar money is bank balance sheet capacity, then we need not wonder what has gone wrong or why. The very heart of this global currency system no longer beats so healthy and strong. Global banks shrink rather than expand at a breakneck pace, their desire to do the latter restrained by the incapacity of the system to manage what’s left. In very general terms, it is really simple; banks that can’t make money in this money aren’t going to make their balance sheet capacity available to others. Since the system is incestuous in this crucial respect, it becomes merely self-reinforcing.
Why? Did Iran violate the terms of the agreement? Almost no one argues that – not the UN nuclear inspectors, not our NATO allies, not even Trump’s national security team. Iran shipped all its 20 percent enriched uranium out of the country, shut down most of its centrifuges, and allowed intrusive inspections of all nuclear facilities. Even before the deal, 17 U.S. intelligence agencies said they could find no evidence of an Iranian nuclear bomb program. Indeed, if Iran wanted a bomb, Iran would have had a bomb. She remains a non-nuclear-weapons state for a simple reason: Iran’s vital national interests dictate that she remain so.
It's an incomplete sentence," Hussman wrote in a recent blog post. "Unfortunately, the convenience of investing-by-slogan, rather than carefully thinking about finance and examining evidence, is currently leading investors into what is likely to be one of the worst disasters in the history of the U.S. stock market." Hussman calculates that stock valuations are stretched 175% above their historic norms, and predicts the S&P 500 will see negative total returns over the next 10 to 12 years. Along the way, the benchmark index will experience an interim loss of more than 60%, he estimates.
Then there are the big weapons programs. As the Project on Government Oversight has shown, the Lockheed Martin F-35 combat aircraft — supposedly a state-of-the-art plane for the twenty-first century — has had so many cost and performance issues that it may never be fully ready for combat. That, however, hasn’t stopped the Pentagon from planning to spend $1.4 trillion to build and maintain more than 2,400 of these defective planes during the lifetime of the program.
So just how much have PE firms paid themselves in special dividends extracted from their portfolio companies? $4.76 billion in the third quarter, bringing the year-to-date total to $15.3 billion. So the year-total for 2017 is going to be a doozie. In all of 2016, this sort of activity – “recapitalization,” as it’s called euphemistically – amounted to $15.7 billion, up from $10.5 billion in 2015, according to LCD, of S&P Global Market Intelligence. LCD’s chart shows the quarterly totals.
Steve goes on to predict another no-see-em unknown unknown – the bubble that is “the size and amount of bets against volatility.” He and others reckon the amount of money shorting vol through various approaches and instruments is ultimately going to spell trouble in line with 1987 and subsequent crashes.
As with many other sectors, in large-cap financials there was little excitement, no alpha -- just slightly higher loss rates on loan portfolios that are growing high single-digits YOY. Yet equity valuations are up mid-double digits over the same period. The explanation for this remarkable divergence between stock prices and the underlying performance of public companies lies with the Federal Open Market Committee. Low interest rates and the extraordinary expansion of the Fed's balance sheet have driven asset prices up by several orders of magnitude above the level of economic growth, as shown in Chart 1 below.
The current Bank of Japan’s balance sheet has now again crossed that fabled 100% of GDP and it is getting close to owning 45% of outstanding government bonds. There is no end in sight with the BOJ buying $60 billion a month of government debt. At this current pace, the modern BOJ will by 2019 be the proud owner of 60% of the local bond market. There is no longer a market price for a Japanese Government Bond, it is an asset whose price is set by the BOJ. The key difference between today and the 1930s is that Japan now has an open capital account, therefore the only untethered market price is the currency. The Yen’s continued devaluation will be deep and comprehensive, while Japanese equities will continue to rise, adjusting to the currency loss.
China has taken “baby steps” toward cutting leverage as lending from banks slows, but progress has been uneven as borrowing by households and the government has risen, according to S&P Global Ratings.
For the most part, “fake news” is a fake concept designed by the corporate news media to discredit those who challenge the official U.S. hegemonic narrative. The typical MSM fake news accusation starts with some egregious fictionalization and then morphs over to the real targets: the subversives, those who would dispute foundational elements of the official history or its recent approved updates.