NOVEMBER 2015: MONTHLY MARKET COMMENTARY (Subscription Plan II)
QE FOR THE PEOPLE - Current Market Volatility is a part of thre "Echo Boom"
WHAT ARE THE CENTRAL BANKERS' OPTIONS?
When a country consumes more than it produces for a sustained period of time, its Fiscal & Monetary choices will steadily decline.
We would argue slowly at first, then faster. Similar to US credit growth it is also exponential growth!
Because of this we believe the Federal Reserve and other developed economies’ central banks will soon be forced to roll out, or unleash in a coordinated fashion, a number of new major policy initiatives to stem a potential global economic crisis.
In previous reports I have laid out that easy credit, quantitative easing and ZIRP has brought demand forward. More importantly, excess credit has fostered a massive global oversupply. Quantitative Easing is no longer bringing demand forward and in fact is now working against this by reducing Pricing Power and unleashing powerful global deflationary pressures. It is achieving the opposite of its original intended goals.
Moral Hazard and Unintended consequences have distorted the normal business cycle.
The capitalist system relies on the normal business cycle to keep it vibrant of functioning. Like trees in the forest, old trees must die to give way for new trees. When dead trees are not allowed to fall and thereby open up the sun’s rays to new seedlings, a forest would die. Through rot and decay, nature takes care of this.
When ‘well intentioned’ public policies don’t allow zombie and obsolete business to die, new businesses are not allowed to grow.
Today, through mistaken public policy we have “financialized” the economy to the point where it is killing growth due to lack of investment. Corporations are now incented into games of financial engineering, stock buybacks via cheap money and the avoidance of entrepreneurial risk. It is a natural consequence of sustained cheap money based on “unsound money”.
Inevitably, consumer “get less for more”, instead of “more for less” which a functioning capitalist system will deliver.
“We now get less for more versus more for less!”
Since Q1 2007 central bank assets have grown by 206%. Meanwhile real Global GDP has been flat for the fourth straight year.