Juggling Dynamite

Frontline’s intimate portrait of one of the 20th century’s greatest leaders.
Here is a direct video link.

This morning we have bedlam as the algo computers troll global markets with millions of rapidly flashing lures hoping for bites on a belief trend one way or the other. Snapchat has nothing on high frequency trading: more than 95% of HFT orders self-destruct in milliseconds.

On the one hand, today’s US consumer sentiment (lagging indicator) and jobs report came in stronger than the consensus forecast, moving the unemployment rate (lagging indicator) down to 7% and making the case for the Fed to taper their bond buying sooner (Dec or Jan meeting) than later (ie., March). This is reflected so far this morning in a stronger US dollar and flat Canadian dollar and precious metals (all of which are down heavily over past several weeks).

On the other hand we learned that US personal income fell in November missing estimates for gains and in line with weak holiday sales (and surging inventories in yesterday’s GDP revision) and consumer spending of late which has been afforded only by drawing down the already anemic savings rate from just 5.2% to an even less 4.8%. Which underlines how under-funded and under-saved consumers actually are today and why consumption-led western economies will continue to struggle with lower than targeted growth. This suggests taper may be off for a while longer still, at least a thesis reflected in rebounding stock and bond prices (at least so far today).

This is what happens when finance and policy makers have become preoccupied with levered wagering in capital markets rather than investing in the businesses, innovation, people and infrastructure of the real economy. At the end of the day, it doesn’t matter a wit whether the US Fed cuts back 10 billion on its 85 billion a month bond buying starting in December, January, March or next summer. Demand continues to be weak, and asset prices continue to be unreasonably high and therefore unable to attract sober investors but only the same old pool of highly levered speculators.

Round and round prices go like water swirling ’round the top of a drain, circling, circling, but nevertheless destined to be sucked down the hole.

There is a belief system widely espoused today that the financial crisis of 2008 is behind us and the reckless and unethical policies, leverage and practices that caused the crisis, are no more. Nothing could be further from the truth. Unfortunately a reversion to old habits is the predictable outcome when people are saved from paying–legally and financially–for their destructive choices. This is Taleb’s “Antifragile” thesis personified, and it is the reason that our financial system will not recover until actors are finally left to their just desserts. I have no doubt that the financial crisis is alive and well and that the next wave will bring greater pain and less forgiveness for those who have made bad decisions to date.

Former Citigroup (C) forex trader Chris Arnade details why Wall Street has a hard time being ethical. It’s his view from working on Wall Street for 20 years (he left in 2012 to pursue writing and photography):

“What surprised me and ulitmately drove me off of Wall Street [was] I expected after the financial crisis, we would all sort of look at each other and say ‘this philosophy of unregulated free markets, it didn’t work’…I had expected many people on Wall Street would say ‘hey, let’s rethink what we’re doing,’ and actually the opposite happened…people doubled down in their philosophy…not only that…they managed to blame everybody but themselves.” Here is a direct video link.