Juggling Dynamite

Larry articulates a good summary of the forces of deflation and slow growth at work in the world today.

Former U.S. Treasury Secretary Lawrence Summers talks about economic growth and financial markets in the U.S. and China, and Democratic presidential candidate Hillary Clinton. Here is a direct video link.

Further to his comment 2 minutes in that there is a glut of savings and a dearth of investment in the economy today, I would suggest there is good reason for this. In a world awash in excess capacity, supply and “liquidity” (thanks to the credit and QE bubbles), there is very little incentive to invest and every incentive to pile cash to the side and wait. And this is precisely what rational money has been doing over the past 5 years. Those with the least discipline who have been deploying capital with wild abandon, have been doing so with increasing leverage and financial risk. This has magnified asset over-valuations and made the entire financial webbing of the economy weaker and more vulnerable. Which gives patient capital even more reason to stand clear and watch with interest for what is now set up to be a spectacular investment opportunity ahead.  But only for those who can maintain sobriety and liquidity now.

Every day desperate migrants are packed into rubber rafts and overloaded fishing boats in Libya and sent toward the Italian coast. They spend hours or days hoping to be rescued before they sink. It is a dangerous gamble and the odds are getting worse.  Here is a direct video link.

Remember in the spring of 2007 when credit and stock markets were priced for perfection, volatility was at record lows, complacency at record highs, and the consensus felt confident good times would continue?

Benefit Street Partners President Richard Byrne discusses bond and credit market risks being today higher than the bubble peak in 2007. Here is a direct video link.

Important to note: repeatedly borrowing money in order to be able to make the payments on the funds you have previously borrowed, has been the strategy of many high yield companies (especially in energy) this cycle, as interest rates moved lower. It is also otherwise known as a Ponzi scheme.

Actually as shown here, (courtesy of NotJimCramer.com) at 13.9%, bearish sentiment is  lower today than the fast-asleep-before-the-Great-Financial-Crisis lows in 2007.  Amazing how short the human memory can be.