Essays

John Hussman: Psychological Whiplash

"Investors who refused to take the speculative bait may have been the first casualties of the Fed’s policies. But now, it is investors who remain fully invested in obscenely overvalued equities and junk credit that have become the unwitting dupes in this game. If the Fed cannot force people to abandon saving behavior with zero interest rates, some members of the FOMC have openly talked about driving interest rates to negative rates to 'stimulate' spending. This is not economics, it is megalomaniacal sociopathy. Centuries of economic history warn that this speculative episode, too, will end in a collapse." Continue reading →

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Oligarchies Masquerading as Democracies

"The creation of the Federal Reserve System in 1913 was the re-establishment of the oligarchs' lender of last resort. That meant that the federal debt would become the foundation of the entire economy: debt purchased by the central bank to balloon the monetary base. To pay off the debt would create mass deflation and depression. The oligarchs now have immunity. Congress will not order an independent audit of the FED. The model is the Bank of England. It has been the chief insurance agency of the Anglo-American oligarchy ever since 1694. The 'Glorious Revolution' of 1688/89 was in fact the symbolic triumph of the oligarchs over the king." Continue reading →

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Central Banks and Our Dysfunctional Gold Markets

"First, it remains unclear whether or not much of the gold that is being sold as shares and in certificates actually exists. Second, paper gold can theoretically be printed into infinity just like regular currency — although private-sector paper-gold sellers have considerably less leeway in this regard than central banks. Third, new electronic gold pricing — replacing, as of this past February, the traditional five-bank phone-call of the London Gold Fix in place since 1919 — has not necessarily proved a more trustworthy model. Fourth, there looms the specter of the central bank, particularly in the form of volume trading discounts that commodity exchanges offer them." Continue reading →

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How to offshore your credit card with China’s Unionpay

"China created Unionpay 13 years ago to serve as its own interbank for payments. The unique benefit of Unionpay is that is controlled by the People’s Bank of China and has no relation to the western banking system. In fact, the Russian government is using the system while they build their own payment system to get away from western systems. One Russian billionaire commented that he got a Unionpay-backed card to protect himself after US sanctions were imposed on Russia. You can get a Unionpay card by opening a bank account in Mainland China. Interestingly enough, wealthy Chinese are even using Unionpay for capital flight out of Mainland China." Continue reading →

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The One Lesson to Learn Before a Market Crash

"The media incorrectly suggests that the collapse of the market in 2008 began with the Lehman bankruptcy on September 15. The fact is that the market fully recovered to even higher levels the following week as the government banned short selling of financial stocks (much like China is doing more broadly at present). Weeks later, in a wicked case of 'sell the news,' the actual collapse started literally 15 seconds after the TARP bailout was passed by Congress. Investors want to tie market outcomes to very specific events or catalysts. But history suggests a different lesson: once extreme valuations are joined by a shift toward risk-aversion among investors, the specific events become irrelevant." Continue reading →

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Money Will Be Digital — But Will It Be Free?

"What a strange world we now live in. Total surveillance of every citizen’s transactions, without any basis or suspicion, is not just normal but presented as a virtue, a form of patriotism. Using cash or wishing to retain your financial privacy is inherently suspect, a radical position, soon to be a crime. Using cash or wishing to retain your financial privacy is inherently suspect, a radical position, soon to be a crime. A future where all payments are trackable is terrifying, but a world with centralized control over transactions would be even worse. Digital currency with centralized control means the eradication of property as a right." Continue reading →

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The $4 Trillion Money Printing Press

"One pandemic, two great depressions, 11 major wars, and 44 recessions. Four U.S. presidents were assassinated while in office. Hundreds of thousands of businesses went bankrupt; tens of millions of Americans lost their jobs. Did the U.S. government respond to many of these events with countermeasures? Of course. But never once had the U.S. government resorted to such extreme abuses of its money-printing power as it did in 2008-10. Now, all that tradition of leadership and discipline was abandoned — all for the sake of perpetuating America’s addiction to spending, borrowing, and speculative bubbles." Continue reading →

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John Hussman: All Their Eggs in Janet’s Basket

"Investors whose strategy is to follow the Fed – in the belief that stocks will advance as long as the Fed does not raise interest rates – are free to place all their eggs in Janet’s basket. On the other hand, for investors whose strategy is historically informed by factors that have reliably distinguished market advances from collapses over a century of history, our suggestion is to consider a stronger defense. Our greatest successes have been when our investment outlook was aligned with valuations and market internals, and our greatest disappointments have been when it was not. Both factors are unfavorable at present, and our outlook is aligned accordingly." Continue reading →

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Bill Bonner: There Is No Security in Bonds Right Now

"Debt is always and everywhere a worry and a threat. It must be repaid. The more of it there is outstanding, the more cause for worry. Who won’t be able to pay? And if he doesn’t pay, will his creditors still be solvent? What if the currency goes down? What if inflation goes up? Debt raises questions… and makes the financial system fragile. As the quantity of debt increases, in other words, the quality should go the opposite direction. It doesn’t make sense for the amount of debt to increase as the price of it increases, too. It is contrary to the most basic law of supply and demand. And yet, yesterday, the price of debt went up… even as the supply of debt worldwide reaches epochal levels." Continue reading →

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When Zero’s Too High: Time preference versus central bankers

"Central banking has taken interest rate reduction to its absurd conclusion. If observers thought the ECB had run out of room by holding its deposit rate at zero, Mario Draghi proved he is creative, cutting the ECB’s deposit rate to minus 0.10 percent, making it the first major central bank to institute a negative rate. Can a central-bank edict force present goods to no longer have a premium over future goods? Armed with high-powered math and models dancing in their heads, modern central bankers believe they are only limited by their imaginations. More than half a decade of zero interest rates has not lifted anyone from poverty or created any jobs—it has simply caused more malinvestment." Continue reading →

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