Juggling Dynamite

Danielle was a guest with Jim Goddard on Talk Digital Network, talking about recent developments in the world economy and markets.   You can listen to an audio clip of the segment here.

Less oversight and capital requirements increase short term bank leverage and profits at the cost of longer term financial stability and taxpayer underwriting.

2006: This CEO says it’s safe to deregulate his big bank.
2008: He’s proven wrong when his bank gets $1.4B taxpayer bailout.
2017: He’s back lobbying Congress to deregulate again.
This week: A bunch of Senators side with him over taxpayers by voting for the #BankLobbyistAct. pic.twitter.com/UmcYLgf2DZ

— Elizabeth Warren (@SenWarren) March 8, 2018

Also see Reversal of Wall Street regulations risks another financial crisis:

“It is grossly irresponsible at this late very stage of the business cycle, to add legislative deregulation of the biggest banks in the country to widespread regulatory agency deregulation and non-enforcement,” [Better Markets President, Dennis] Kelleher said. “Unleashing the biggest banks is just asking for another horrific crash.”

The bills proponents, which include 13 Democrats, argue that the Dodd-Frank rules went too far and became overly cumbersome for all but the biggest Wall Street banks. Their strong financial performance, Kelleher says, suggests otherwise.

“Every single argument for deregulation has been objectively rebutted by rising if not historic bank revenues, profits, bonuses and lending,” he said.

The mainstream response to falling interest rates over the past decade has been to increase stock weightings in the hopes that capital gains and dividends will support more income than guaranteed deposits can provide. But at the most extreme security valuation levels in history this approach is designed to be financially devastating, especially to those who are at or within 10-12 years of retirement.

As patiently explained and factually demonstrated by John Hussman this month in The Arithmetic of Risk  a conventional portfolio of passive assets (60% stocks, 30% bonds, and 10% cash) has never been more full of risk and bereft of return prospects, than at any time in history.  Not in 1929, not in 2000, not ever before.

As shown in his chart below, from current levels nominal expected returns for a 60/40 portfolio over the next 12 years are less than .5% a year (black line)–before any fees or inflation.

Portfolios holding more than 60% stocks today, face even lower return prospects–fully negative over the same time period.

For those trying to withdraw annual income targets while their savings are earning zero and negative returns, the capital evaporation rate is likely to be highly distressing.

The only pragmatic, rational approach in today’s high risk circumstances, is to steer clear of return-free risk now so that we are ready and able to buy investment assets worth owning again once prices have come back down to the higher yielding, lower risk range.

Facing facts and adjusting financial plans accordingly are a necessary part of our financial sustainability today and for the future.