Juggling Dynamite

Independent and ethical journalism is a critical support of democracy and a free and open society. Serious issues are examined in this segment amid the frivolity (and some profanity as always)…

The newspaper industry is suffering. That’s bad news for journalists — both real and fictional. Here is a direct video link.

Integrity and truth are subverted when self-interested promotion and sales puff are allowed to present as independent ‘academic studies’, ‘journalism’ and ‘advice’.  We will continue to pay heavily until we reestablish more demanding professional standards and a higher duty of care that does not allow sales growth to be the defining goal at all costs.

For the last 20 years, financial policymakers the world over have been educated, dominated and directed by the profit-extracting-finance sector while it managed to download risks and costs on to governments and taxpayers everywhere.  We are all paying the price for this now, in a global mess of historical proportions: crushing debt levels, woefully under-priced financial risks, under-funded social promises, fragile institutions, zero and negative yielding options for savers. Just as in the 1920s, whole generations of people will be left with lasting damage from this era.

Today the Bank of England cut its overnight rate to a new crisis low of .25% (having been at .5% since March 2009) and increased its monthly bond buying program (QE); reminding yet again, that the same misguided ‘add even more debt and stir’ ideas which have already imploded the global economy, remain the only idea of central banks everywhere.

This cartoon on Twitter today, reminds about how inequitable and lenient the treatment of financial criminals relative to other offenders has been during this dark period.  Indeed, jail time of any kind remains still nearly unheard of for the directing executives of financial crimes–especially at the largest, most politically protected firms.

But the point prompts an even larger discussion about central bank directors (financial academics who are also largely ex and future-employees of the largest financial firms) who have counseled and prodded the world down a self-destructive path over the past 20 years.  Surely they owe we, the people, who have been relying on their expertise, a fiduciary duty to put our best interests ahead of their own career advancement and corporate sponsors? What will be the punishment for this massive failure of fiduciary obligation that has caused so much lasting harm to so many? This is a question that will be answered in the weeks and months ahead, as asset bubbles continue to burst and funding and capital deficits are revealed once more for as far as the eye can see.

As shown in this chart since 2006 of the Dow 30 Index(navy) and the Transport Index (black), the QE ramp (2013-2016), just like the subprime debt ramp (2005-2008) before it, wasted trillions of good money after bad in trying to maintain unsustainable borrowing and consumption habits.  This most recent episode is rolling over, just as the last did in 2007-09, and the time before that in 2001-02.  In the process, we, the people and our economy, have been left financially and socially weakened.  How will present leaders and advisors be held accountable?

Billowing risks in the global financial system are front and center once more as the world economy turns down and banks remain under-capitilized and recklessly levered. Same players, same factors, same crisis, redux.   In the UK at least, some are pointing to “Brexit” as a scapegoat.  In fact these macro conditions have been building to a breaking point over the past many years.  See UK heading for financial crisis on grander scale than 2008, with ‘Bank of England asleep at the wheel’, new study:

The Bank of England’s annual stress tests of the UK’s banks, designed to ensure Britain’s lenders will not be at the heart of another destructive financial crisis, have been branded “worse than useless”, by a new report.

Kevin Dowd, professor of finance and economics at Durham University, argues in a paper published today by the Adam Smith Institute that the Bank’s tests, which model various adverse economic scenarios each year such as a major fall in UK house prices or a Chinese property crash, have a series of “fatal flaws” and that the central bank is “asleep at the wheel”.

“The purpose of the stress-testing programme should be to highlight the vulnerability of our banking system and the need to rebuild it. Instead, it has achieved the exact opposite, portraying a weak banking system as strong”.

Professor Dowd warns that the eurozone banking system is on the precipice of another crisis, which will also engulf the UK’s major lenders.

“Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than 2007-08” he said.

US real GDP growth in the first six months of 2016 averaged just 1% annualized and inflation (CPI) was up only 1.1% from a year ago, nowhere near the 2% that the Federal Reserve targets.  The peak of economic expansion is now well behind us for this cycle with the rate of growth slowing since 2014.  At the same time, markets entered this downturn at some of the highest asset valuations in history.

This is a toxic combination for invested capital.  This chart courtesy of Doug Short, reminds of stock market outcomes (market price declines) that have followed GDP downturns since 1929.   Each time that equity valuations have entered the downturn more than 20% above their mean, market prices have returned -36 to -89% from peak to trough.  Today 76% above the mean, equity valuations are worse than the peak of 1929 and second only to the all time fleeting 2001 tech top.  Sober days lie ahead for those unaware, or in denial.