Juggling Dynamite

“A system that works powerfully in one direction can work just as powerfully in the other.”

–Micheal Pettis, When do we decide that Europe must restructure much of its debt?

In late 2010 the global recovery out of the 2009 recession peaked and rolled over once more. Massive debts and aging demographics in the developed world, signaled demand would be weak for years and the world was awash in too much supply of everything except common sense. The debt boom that hocked future growth for present consumption as borrowing costs fell from 1980, in 2008, began a long and necessary payback period–equal and opposite in the other direction.  This chart shows the 30 year rise in rates from 1950 to 1982 as the baby boomers moved through peak household formation years, and the reciprocal phase as rates fell with inflation thereafter–so far, 24 years and counting.  Now fully retraced, rates have reached the zero bound, with only one way to go– up–eventually.  In a slow growth world with more debt than ever before, rising rates will prove an impossible weight.

Not liking the necessary price deflation and slower growth now earned, central banks and politicians of the world have repeatedly flooded the banking system with excess (unnecessary) liquidity and ‘get out of jail free’ cards for the global banking cartel.

All of which has only helped to slow world demand further for longer, even while some asset markets have continued to rise on self-destructive financial leverage.

Today historically relevant valuation measures warn of a hideous opportunity set for capital held in assets inanely decoupled from the macroeconomic and corporate earnings trends on which they depend. The price risk, as charted here, is truly garish.  Meaning, the coming opportunity for disciplined investors with a rule set, liquid capital and little leverage today, has rarely been as spectacular.

chart source:  zerohedge.com

Finally got around to watching this documentary on the weekend. I think everyone should. Complex issues but worthy of reflection. My take is that at this time of unprecedented technological surveillance ability, we need to carefully review where we wish lines of privacy to be maintained. It also seems clear that after years of evolving toward massive centralized conglomerates of all kinds–mega-corps and mega-governments–we must now focus on decentralizing too big to govern and move back toward smaller, more local, more manageable, more individually accountable entities that serve individuals and our communities rather than a handful of untouchable elites.

CITIZENFOUR is the never before seen, utterly riveting first-person look at how director Laura Poitras and journalist Glenn Greenwald first met with whistleblower Edward Snowden in Hong Kong where he gave them documents showing widespread abuses of power by the National Security Administration. It is an unprecedented fly-on-the-wall account of one of the most groundbreaking moments in recent history. Here is a direct video link.

Janet Yellen tried to sound confident yesterday that the US economy was strengthening and that the Fed would be able to exit crisis mode, and begin edging policy rates back up from (6 long years) near-zero within the next 6 months.  But then she also presupposed that the central bank will be achieving its target inflation rate of 2%…and there is no evidence of that so far.  At all.

The consumer-price index, which measures what Americans pay for everything from shirts to haircuts, fell a seasonally adjusted 0.7% in January from December, the Labor Department said Thursday. From a year earlier, prices declined 0.1%. It was the first year-over-year decrease since October 2009. See: Gas drop drives US into deflation territory.

In fact when we consider the spillover effects from a rising US dollar (which is importing deflation from other export-desperate countries) and the deflationary impacts of falling commodities that are feeding into lower prices for many goods, on top of older folks buying less and debt levels stifling the masses, it’s pretty hard to see the inflation cavalry riding to the rescue any time soon here.  Today’s price pressures are looking positively anemic.

Good for struggling consumers to get a price break on goods and services…but bad for companies planning on growth…so bad for employment…and bad for individuals, corporations and governments (not just Greece) who are trying to repay loans on stagnant and falling incomes… so bad for banks who have lent obscene amounts. And positively horrifying for central banks who have helped to lead the world into this deflationary trap and find themselves for the first time ever, facing a global recession with no interest rate room to ‘stimulate’ growth and no credibility left.  The history books are unlikely to look kindly on their ‘genius’.