Tag: fed

$SPX 666: 15 years later, did the devil win?

by Economoralist in ChiefIn the News / Timely CommentaryLeave a Comment on $SPX 666: 15 years later, did the devil win?

We’re not saying Neel Kashkari (current president of the Minneapolis Fed, and former assistant secretary of the Treasury under Hank Paulson) is the devil incarnate or anything like that. But he did play a key role during a devil of a time for the American economy and markets (overseeing TARP in late 2008) – and looking back 15 years to the day – one can’t help but wonder exactly whose hand might have been at work when the post-GFC S&P index finally bottomed at the infamous number of 666 on March 6th, 2009.

Why pick on Neel? Not because it’s all his fault. But because we found a number of quotes from him over the years, talking about his experiences from that time in retrospect (and we credit him for his honesty) that seem to really capture the essence of why we believe the actions taken in 2008-2009 (and then again when we doubled down on them in 2020) have led to the society & culture we have today. Neel (and perhaps you would agree) might have looked at those actions as a “necessary evil” at the time – but we emphasize the “evil” nonetheless (even if the human perpetrators didn’t intend it that way) in a way that has only become more apparent over time.

Neel might have just been an innocent bystander or well-intentioned enabler at best (we won’t bother pondering over the worst) but when you look at the way American values & behaviors have changed over the 15+ years since #QE first began in 2008 (and for all the nominal “growth” in “value” the “markets” have experienced since SPX 666) you can’t help but notice a correlation. The Devil’s work? (or at least the Devil’s market?) We’ll let you decide.

“This is not the time to worry about moral hazard or whether people are incentivized not to work.”

“if our biggest complaint is that some workers and small businesses got help when they didn’t really need it, that would be a wonderful outcome for our country.”

“In 2008, there was great anger across the country because banks had taken risks and Main Street bore the consequences.”

“Americans were angry at the thought of their “irresponsible” neighbors getting a bailout.”

Neel Kashkari

https://www.minneapolisfed.org/article/2020/op-ed-what-the-2008-rescue-package-can-teach-us-about-todays-relief-bill

it’s very likely that we’d have to turn to the taxpayers to bail the banks out again, and I don’t think most Americans think that’s acceptable.

It’s in their financial interest and in their shareholders’ interest to grow as large as possible, and unfortunately, the risks are then borne by society.

Neel Kashkari

https://www.npr.org/2016/02/18/467112859/he-led-the-financial-bailout-but-says-banks-are-still-too-big-to-fail

“The shareholders got bailed out. The boards of directors got bailed out. Management got bailed out. So from their perspective, there was no crisis

Neel Kashkari

https://finance.yahoo.com/news/fed-apos-kashkari-wall-street-172000046.html

“I think the legacy of the financial crisis is the extreme polarization that we are experiencing every day.”

“we violated core American beliefs. We have beliefs in our country that have been passed down from generation to generation. A belief in free markets. If you take a risk you get the upside but you get the downside. That’s been with us for a couple of hundred years and we violated that in ’08. And when you violate the core beliefs of a society I think it leads to great anger.

Neel Kashkari
The man in charge of TARP: "I’m proud of the actions that we took"

Whatever you think of Neel, again, it wasn’t all his fault. And we’re not trying to pin the blame on him. We’re not even trying to pin the blame on any human being who lives above ground here on Earth – though we might question the temples at which some of these enablers do their dirty work (and perhaps also their worship?)

Yes, we’re suggesting bigger (and darker) forces at work.

Some even made light of the situation:

“Yes, wouldn’t that be ironic? One hell of a terrible market bottoms at the sign of the Devil. Maybe the apocalypticists are right!”

Alan Brochstein, CFA

https://seekingalpha.com/article/124821-in-this-devil-of-a-market-could-666-be-the-bottom

While others take a more subtle swipe at some of the parties involved, while avoiding calling them out directly for their “evil” deeds:

“Gains since 666 have been driven in large part by the Fed’s forays into bonds.”

“Will we suffer a catastrophic return to the devil’s number? That depends on the exit from QE.”

@johnauthers

Hint: We never exited.

https://www.ft.com/content/3cb7838e-a547-11e3-8988-00144feab7de

We have a slightly less subtle view:

It’s been quite a run since the March 2009 low of $SPX 666.

Feel like you’ve been running with the bulls? 🐂

Or maybe with someone else? 😈

The “#value” of your portfolio might depend on your #values.

#runningwiththedevil #moralhazard #Fed #QE #ZIRP

Coincidence? We think not.

And for what it’s worth, the results are pretty clear:

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It’s ALWAYS about the economy, stupid.

by Economoralist in ChiefOriginal ContentLeave a Comment on It’s ALWAYS about the economy, stupid.

As James Carville said back in 1992 to help Bill Clinton (D) prevail over George H.W. Bush (R) in what now, looking back, seems like a downright quaint presidential election during much simpler times – “it’s the economy, stupid”.

That part still hasn’t changed much. What may have changed since then is how much more faith people seem to be putting in (D)s and (R)s to help shape their destiny, solve all their problems, and determine their ability to lead a more fulfilling life going forward. It’s as if everyone’s looking for a deity (or a scapegoat), and few can think of more than two places where they might find it.

We’re going to keep this simple (well, sorta).

For all the horrors taking place in Minneapolis this week, the shamefully unfortunate circumstances in NYC’s Central Park, the role of “Jack vs. Zuck” in determining who should be allowed to say what, and of course our ongoing response to COVID-19 (and the renewed symbolism of the “face mask”), it’s clear that we all have a tendency to get caught up (and probably too easily) in the emotion-driven “political” themes of the moment that pit one against another, diametrically. Whether it’s black vs. white, rich vs. poor, male vs. female, cisgender vs. transgender – you name it, it’s cool to pick a side. At least, it seems comforting. Once you know which side you’re on, you then know which side to blame, which then makes it easier to let your anger out because you have somewhere you can direct it. And letting your anger out feels good, because lord knows there’s plenty to be angry about these days.

The problem? Painting the world in such simple colors is ultimately a recipe for mass misunderstanding, and a world plagued by mass misunderstanding is much more likely to focus on all the wrong problems – or at least, be distracted from the ones that might actually matter most if we could solve them.

Is “mass misunderstanding” just an unfortunate by-product of an inherently complex world clashing with the inevitable limitations of human nature, or is it a conscious policy and a deliberate attempt to mislead and misdirect? We’re not sure, but Fed Chairman Jay Powell seemed to offer an inadvertent perspective (by accident?) during his briefing earlier this morning that at least has to get you thinking: Why all the misunderstanding? Because you have better things to do…

To diminish nothing of the very real scourges of racism, sexism, and other “isms” that affect some of us more than others (as we once talked about here), it seems there’s at least a remotely legitimate chance that some people might be trying to keep you from focusing too much on at least one particularly universal scourge (or at the very least they don’t seem to mind if your mind wanders a bit), and it’s the one scourge that at least indirectly touches and influences almost all of the others, whether we realize it or not. That, of course, would be any such scourge that denies or prevents the concept of “value” itself being related to the things you actually value.

Or, in other words – who’s in charge of the “value” of the very dollars you get paid in for your work (love or hate what you do), that you use to buy things (whether you need them or not), that you use to sell things (whether you wanted to or not), that you use in any transactions that help you pursue your own hopes and dreams (whatever they may be), and that you probably use to calculate your very own personal “net worth”, however high or low? Hint: It’s not you, it’s not your parents, it’s not your employer, it’s not your employer’s CEO, it’s probably not your “rich” neighbor, it’s probably not even just a specific race or gender (apparent correlations aside), and it’s usually not even your President (though some presidents end up having a little more influence than others). Nor is it even the God you might pray to, even if your God is Plutus or Mammon. Nope, it’s even simpler than that.

It’s a single, private, central bank.

Wondering who determines the value of your life savings if you saved it in dollars? Them. Wondering who ultimately determines how much a given “need or want” – whether it a be a house, a car, a vacation (especially one you took out a loan for) – or a donation to your favorite cause – or the very food on your table – could be worth relative to your life’s work and the values you stand for? Yup, them too. Now, we’re not here to debate whether their intentions are nefarious or not (we’ll leave that to the genuine conspiracy theorists whose theories we have no way of proving or disproving on this blog). We’re just here to call attention to the fact that they are, well, central. And if something is central and you haven’t been invited to have a seat at the table (not unlike that whole “Jack vs. Zuck” thing?) that means you don’t have a say either way.

There’s an old quote attributed to Mayer Amschel Rothschild (that, admittedly, no one seems to know for sure if he actually said or not)…

“Permit me to issue and control the money of a nation, and I care not who makes its laws”

Maybe good ol’ Mayer Amschel (or at least whoever quoted him) was just trying to make a point? You know, just a little 18th-century snark?

In any case, it doesn’t seem like we’ve learned much since then. And it doesn’t sound like our friend Jay Powell is particularly interested in seeing us start now.

All the while, arguments like #DemocratsTheEnemyWithin vs. #RepublicansAreDestroyingAmerica keep getting more attention than things like #debt vs. #savings, #SoundMoney vs. #UBI, and other things that actually matter.

It’s ALWAYS about the economy, stupid. Especially when you realize that most of the things we fight over have to do with our ability, as individuals, to live out our values – whatever they are, and however we got them.

Or are you happy to keep sitting at the kids’ table arguing over your favorite colors while the “grownups” at the central table decide what you get to eat for dinner? (if you get to eat at all…)

Another possibility: We need more tables?


***Disclaimer***
We have quoted “Tweets” from select “Twitter Users” in this story because we thought the views & opinions expressed by those “Twitter Users” were relevant to the topics being discussed in this story. These “Twitter Users” have no affiliation with the Economorals blog, and we make no assumptions about any particular political, religious, or other affiliations of any kind that may or may not be held by any of the “Twitter Users” quoted, nor the specific validity or credibility of what they say. Again, we just thought a few “Twitter Users” had some genuinely interesting words & ideas to share in the context of this story’s main themes, and since they’ve already shared those words & ideas in the public domain, we wanted to share them again here too. Because if there’s one “market” we can all hopefully agree on, it’s the “marketplace of ideas”.

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When even the Fed is warning on asset prices (or when the rules just keep on changin’)

by Economoralist in ChiefIn the NewsLeave a Comment on When even the Fed is warning on asset prices (or when the rules just keep on changin’)

Bloomberg Law: Fed Warns of Significant Hit to Asset Prices If Crisis Grows

https://news.bloomberglaw.com/banking-law/fed-warns-of-significant-hit-to-asset-prices-if-pandemic-grows

When even the Fed is warning of a “significant hit to asset prices”, is that a sign we should be worried? Or are they just warming us up for even more #QE? (in which case, you might want to re-think who should be doing the worrying…)

An excerpt from Bloomberg Law’s coverage of the Fed’s recent statement which, at face value, sounds awfully logical:

“Asset prices remain vulnerable to significant price declines should the pandemic take an unexpected course, the economic fallout prove more adverse, or financial system strains reemerge,” the Fed said in the report. It cited commercial real estate as being particularly susceptible to falling valuations because “prices were high relative to fundamentals before the pandemic,” and there have been severe disruptions in the hospitality and retail industries.

In the old days, “asset prices remain vulnerable to significant price declines” would mean #savers get rewarded (by waiting, prudently, to buy low and re-establish equilibrium in markets at more appropriate valuations) while #debtors take the hit – and perhaps deservedly so, because “prices were high relative to fundamentals before the pandemic”.

In the new (or at least recent) normal, “asset prices remain vulnerable to significant price declines” would simply be cover-speak for ::printing more money to ensure asset prices don’t decline:: which would mean #savers get duped (by waiting, apparently foolishly, for their savings to be devalued) while #debtors get rescued and rewarded for their irresponsible behavior of having driven up prices to be “high relative to fundamentals” in the first place.

What will the very latest version of “normal” turn out to be?

Can someone just tell us what the rules will be once and for all?

Or is it time to walk away and find another game to play altogether?

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When debt is always the solution, what is the final solution?

by Economoralist in ChiefIn the NewsLeave a Comment on When debt is always the solution, what is the final solution?

The quotes below speak for themselves – and will make you want to read the full story for one man’s relevant perspective; an engaging piece by Rana Foroohar for Financial Times, after “lunching” with investment strategist & research firm founder Kiril Sokoloff…

Financial Times: Kiril Sokoloff: ‘There will have to be massive debt relief’

https://www.ft.com/content/b8639ab6-8936-11ea-9dcb-fe6871f4145a

“Recently, he has been trying to make the financial elite see the dangers of seeking to solve the problems of debt with more debt.”

“Then as now, he says, “central bankers were pushing on a string”, trying in vain to whip up a real economic recovery with monetary policy.“

“…a debt-phobic Midwestern child of immigrants who never understood why more people (not to mention companies) didn’t save for a rainy day.”

“…we collected money from a lot of poor devils and gave it over to the four winds.”

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Bad things happen. How we respond makes all the difference.

by Economoralist in ChiefTimely CommentaryLeave a Comment on Bad things happen. How we respond makes all the difference.

Pandemics, natural disasters, wars, recessions, depressions… sometimes we can’t easily control those things. Sometimes we have no choice but to simply let them run their course. Sometimes we wouldn’t really want to interfere with their course even if we thought we could.

When it comes to the economy, though, there’s always a choice. In this case, as Bloomberg’s Ben Steverman writes, the choice (or at least the outcome of those choices) is simple – more inequality, or less inequality.

The decisions we make that lead to one outcome or another, even if indirectly, have much to do with the things we value in the first place, or at least, the things those making the decisions happen to value. Are your values aligned with theirs?

Bloomberg: The Pandemic Will Reduce Inequality—or Make It Worse

https://www.bloomberg.com/news/features/2020-04-29/how-will-the-coronavirus-pandemic-affect-inequality

“The Black Death took a highly stratified medieval society and turned it upside down. With 75 million dead, Europe’s wealthy landowners couldn’t find enough people to tend their fields. When peasants—the essential workers of the day—demanded higher pay, the elites of the 14th century fought back with punitive laws, forced labor, and taxes. Even so, wages for the lowliest workers soared. In rural England, they doubled.”

“For now, the most obvious guide to what comes next isn’t the Black Death, which precipitated the demise of European feudalism, but the Great Recession, which had more or less the opposite effect. In the aftermath of the 2008 financial crisis, inequality soared to heights not seen since the early part of the last century. At first, elites feared that much of their wealth would be wiped out in a globally synchronized market crash, à la 1929. But central banks pumped out trillions of dollars as monetary stimulus, markets recovered, and what followed may have been the best decade in history for the superwealthy.”

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Survival of the unfit?

by Economoralist in ChiefIn the NewsLeave a Comment on Survival of the unfit?

There are enough jokes to go around on what businesses are considered “essential” in this age of coronavirus. In this case, sure, we can only think of one thing people are scrambling to get their hands on more than sanitizer or chicken – and that’s a boarding pass for their next Carinival cruise…

At least we know the Fed has our back.

WSJ: How Fed Intervention Saved Carnival

https://www.wsj.com/articles/how-fed-intervention-saved-carnival-11587920400

“The previously unreported tale of Carnival’s rescue shows how effective the Fed has been in turning the debt spigot back on for large corporations. Carnival may still founder if tourists shun cruises over the long term, and its new debt carries a far heftier price tag than previous offerings. But the immediate survival of the company, which employs about 150,000 people, is no longer in question.”

“Elliott’s owner, Paul Singer, and others have warned that this success story comes at a cost. The Fed could be setting the U.S. economy up for a harder fall down the road, they contend, by flooding markets with cash and spurring investors to prop up firms that may not be fit to survive.”

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Would you bother to play if you knew the game was rigged?

by Economoralist in ChiefIn the NewsLeave a Comment on Would you bother to play if you knew the game was rigged?

To be fair, we don’t know what the balance sheet of mom & pop Quality Electric Co. in Birmingham, Alabama might have looked like in this particular case either – but we’re guessing it couldn’t have been any worse than, say, what was about to happen to Millennium Management and ExodusPoint Capital Management. Unfortunately, in this “race to the bottom, er, bailout” we’ll probably never know for sure how the “little guys” might have fared against the “big guys” head to head, because according to BNN Bloomberg someone stepped in to pick the winners and losers before anyone even had a chance to get to the finish line…

BNN Bloomberg: Resentment grows on Main Street over bailout winners and losers

https://www.bnnbloomberg.ca/resentment-grows-on-main-street-over-bailout-winners-and-losers-1.1426347

“…waiting for approval of her US$40,000 small-business loan last week when the government’s first-come-first-served lending program ran out of cash.“

“Smaller companies like us are probably just going to be washed under the rug”

Meanwhile….

“Some billion-dollar hedge funds, too, have benefited from quick Fed action. A number of them, including Millennium Management and ExodusPoint Capital Management…”

“The basis trade was in a position to tank… The Fed responded, limiting losses. Both Millennium and ExodusPoint declined to comment.”

So…

“…if one of the lessons of 2008 is to help Main Street as well as Wall Street, the lesson seems to be only partly learned. Americans live in two separate and unequal worlds, and the bailouts reflect this.”

“I really have no faith,” Shultz said. “I have no faith in the system. In this government. In this leadership.”

Well…

Not much new here, really. We wrote about a similar game two years ago… in case this one sounds familiar.

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Prudent and responsible investing? No longer tolerated.

by Economoralist in ChiefIn the NewsLeave a Comment on Prudent and responsible investing? No longer tolerated.

Enough said. By Scott Minerd, the Chief Investment Officer of Guggenheim Partners. In reference to the Fed’s latest round of QE, bond-buying, everything-buying, really.

Scott Minerd on Twitter: The #Fed has made it clear that it will not tolerate prudent and responsible investing.

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Fiscal irresponsibility: If no one notices the problem, is it really a problem?

by Economoralist in ChiefTimely CommentaryLeave a Comment on Fiscal irresponsibility: If no one notices the problem, is it really a problem?

It’s a legitimate question, at this point. Time will tell if the math ultimately gives out, or if the “dismal science” of economics can continue to live up to its name in defying expectations.

Maybe it’s just another example of economic moral relativity?

If you strive to live in a world where individual responsibility is a virtue, then we might just have a problem here, folks.

If not, then who are we to judge? Only history will be able to do that.

American Institute for Economic Research: A Fate Worse than Hyperinflation

A Fate Worse than Hyperinflation
https://www.aier.org/article/a-fate-worse-than-hyperinflation/

“…easy money generates risk free profits for banks and growing federal deficits. Worst of all, the public is unaware.”

“The political system has developed a formula over the last decade that has only pushed in the direction of further fiscal irresponsibility. Fiscal expansion is not followed by higher taxes or a period of fiscal constraint. It is supported by a central bank that has become increasingly effective at hiding the detrimental effects of this policy. “

“The pain that will accompany a shift toward responsible behavior, whether adopted voluntarily or involuntarily in the case of a day of reckoning, is only increasing.”

“A lack of awareness of the dangers faced in this game by both the public and by politicians leaves the audience of public opinion in a collective yawn in response to discussion of fiscal responsibility.”

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