As Central Banks move to reduce their QE-created balance sheet assets, the ‘monetary tightening’ is a headwind for today’s heavily levered global economy, stocks and corporate debt.
Hoisington Investment Management’s Lacy Hunt and CNBC’s Rick Santelli discuss monetary tightening in an extremely over-leveraged economy. Here is a direct video link.
Santelli Exchange: The secular downtrend in Treasury bond yields from CNBC.
“If we are talking the long term bond yields, central banks have very little influence. Long yields over time are determined by inflationary expectations. Something that’s know as the Fisher equation and the reason that long yields are low not only in the United States, but around the world, is because the inflation rate is very depressed… The action of the world’s central banks, in my opinion, are actually serving to lower, not raise, inflationary expectations. The Federal Reserve has tightened four times. The rate of growth in the money supply is decelerating very substantially. Bank loans have moderated even more substantially than the rate of growth in the money supply. The velocity of money is falling. So to summarize, what I would say is when you have an extremely over-leveraged economy such as we do today, a little bit of monetary tightening goes a long way.
…The ability of central banks to influence the long term rates by acting on the short term rates in very very limited, and in fact it’s often contradictory. For example, when the Fed was expanding their balance sheet under QE1 and QE2, a lot of folks called that money printing and said it would be inflationary and the bond yields actually rose because the bond market is so sensitive to the rate of inflation. When the Federal Reserve allowed the balance sheet to contract very slightly between QE1 and QE2 and then again between QE2 and QE3, money supply growth came off, the economy decelerated, and bond yields declined…”
I continue to marvel at how many intelligent, educated people are completely missing or underestimating the energy and transportation revolution underway today.
For consumers, the changes offer meaningfully lower operating expenses and increased productivity along with less pollution and improved health benefits. For businesses and investors there are incredible opportunities but also enormous downside risks for those committed to status quo thinking, products and services. This creative disruption is massive and happening much faster than most people realize. For a good review and discussion see: Inside Tesla–And What’s really disrupting the auto industry:
Some companies are moving quickly and innovating within the automotive industry, but others are stuck in the past. In March, for instance, I criticized GM for spending $17 billion on wasteful stock buybacks and, in my opinion, not pivoting quickly enough to electric. (Buybacks, we believe, are a major cause of harm to the U.S. economy).
…Within a year or two we could have EVs that are cheaper to buy than the median new car in America. And they will be 90% cheaper to fuel on a charge, on a per mile basis, and 90% less to maintain. So essentially the operating cost and the marginal costs are next to nothing.
In other words, the economically rational choice to make will to be to buy an electric vehicle.
So within two or three years, the mass market could go toward electric vehicles because they’re believed to be superior products—they’re cheaper to buy and to maintain and to fuel than the ICE car.
Great suffering and waste has been inflicted by the runaway finance sector the past two decades. The compounding costs continue to bankrupt nations and still the bankers are back on top, enriching themselves at the expense of everything else. The evidence is obvious but never more clear than the fact that the fiduciary duty rule, that would require financial advisors to put the best interests of their clients ahead of their sales targets, has been sidelined once more.
Wolves have been aided and abetted by governments to keep devouring the sheep. Democrat and Conservative governments, same result: Bad guys still winning…9 years later and counting. See Financial crash anniversary recalls the risk of corporate greed:
As the evidence shows, including the FDIC’s most recent quarterly data, banking revenue and income are at or near all-time highs and loan activity is strong and steadily increasing as well.
The unavoidable conclusion, then, is that the industry’s deregulatory push is really about getting the bankers’ bonuses back to pre-crisis levels. That explains why the deregulatory focus is on weakening the capital, liquidity and derivatives rules along with the ban on proprietary trading (the Volcker Rule).
Those rules rein in the banks’ highest risk and most dangerous activities, which also happen to be the most lucrative activities that lead to the biggest bonuses.
With revenue, profitability and lending all up, there simply is no merits-based case to be made for deregulation. Equally important, the anniversary of the collapse of Lehman Brothers and the events that triggered the 2008 financial crisis should remind everyone of the dangers to a country forgetful of its past.
The age of batteries is just getting started. In the latest episode of our animated series, Sooner Than You Think, Bloomberg’s Tom Randall does the math on when solar plus batteries might start wiping fossil fuels off the grid. Here is a direct video link.
Also see Lithium-Ion Battery Inventor introduces new technology for fast-charging, noncombustible batteries:
A team of engineers led by 94-year-old John Goodenough, professor in the Cockrell School of Engineering at The University of Texas at Austin and co-inventor of the lithium-ion battery, has developed the first all-solid-state battery cells that could lead to safer, faster-charging, longer-lasting rechargeable batteries for handheld mobile devices, electric cars and stationary energy storage.
Aiding and abetting environmental damage is not partisan, individuals, institutions and governments on the right and left have been remiss in making necessary behavior, consumption and policy changes. At the same time, allowing vested corporate interests to purchase political protection for their harm-inflicting businesses while using the profits gained to limit and confuse public understanding on the issues, is criminal and a threat to democracy, health and personal security everywhere. Following the money here is easy.
A documentary special reveals how climate change science has been under systematic attack; the multi-million dollar campaign allowed a climate change denier to be elected president. Here is a direct video link.
TRNN SPECIAL: Trump, The Koch Brothers and Their War on Climate Science from The Real News Network on Vimeo.