Money For Nothing

Puerto Rico Defaults On Bonds: Return Does Not Come Without Risk

"Many American investors bought Puerto Rican bonds over the past five years as we all searched desperately for yield in the face of the Federal Reserve pushing interest rates down to historic lows. Normally, investors understand that higher yields come with greater risks. However, during the past six years of extraordinary interventions by the Fed into all sorts of financial markets, many investors may have decided that those higher yield investments weren’t really all that risky. Puerto Rico’s problems may serve as a much-needed wake up call to investors. As rates rise, capital will move back toward safety and the risk premium demanded of higher risk projects is likely to increase." Continue reading →

Continue ReadingPuerto Rico Defaults On Bonds: Return Does Not Come Without Risk

John Hussman: Reversing the Speculative Effect of QE Overnight

"Last week, without taking any care to reduce the size of its balance sheet, the Federal Reserve instantly changed the monetary environment to one that is observationally equivalent to the one that prevailed in 2009. By raising interest rates artificially (through interest payments on reserves and reverse repurchases) and applying those payments to everything but currency in circulation, the Fed has neutralized the misguided speculative prop it created through 6 years of policy distortion, and it did so in one fell swoop. From the standpoint of investors, the overall effect is just as if the Fed had suddenly reversed every dollar of quantitative easing since 2009 ($1.7 trillion)." Continue reading →

Continue ReadingJohn Hussman: Reversing the Speculative Effect of QE Overnight

Bill Gross: Central bank ‘casinos’ to run out of luck

"Investors should cut risk heading into 2016 as central banks trying to pump up their respective economies make losing bets, bond guru Bill Gross says. Institutions like the Federal Reserve and the European Central Bank are like 'casinos' that create money instead of chips 'they'll never have to redeem,' said Gross, founder of bond giant Pimco who now runs the $1.4 billion Janus Global Unconstrained Fund. Furthering the gambling analogy, he said central bankers are using a familiar ploy — doubling down on losing bets until they break even. 'How long can this keep going on? Well, theoretically as long as there are financial assets (including stocks) to buy,' Gross said." Continue reading →

Continue ReadingBill Gross: Central bank ‘casinos’ to run out of luck

Desperate Finland Set To Unleash Helicopter Money Drop To All Citizens

"With Citi's chief economist proclaiming 'only helicopter money can save the world now,' and the Bank of England pre-empting paradropping money concerns, it appears that Australia's largest investment bank's forecast that money-drops were 12-18 months away was too conservative. Over the last few months, in a prime example of currency failure and euro-defenders' narratives, Finland has been sliding deeper into depression. As The Telegraph reports, this is a deeper and more protracted slump than the post-Soviet crash of the early 1990s, or the Great Depression of the 1930s. And so, having tried it all, Finnish authorities are giving every citizen a tax-free payout of around $900 each month!" Continue reading →

Continue ReadingDesperate Finland Set To Unleash Helicopter Money Drop To All Citizens

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 →

Continue ReadingJohn Hussman: Psychological Whiplash

Yellen Says Negative Rates On The Table “If Outlook Worsened”

"As the market now diligently calculates the suddenly surging odds of a December rate hike, here's Yellen with a preview of what will happen once the rate hike cycle is aborted, just as it was aborted in Japan in August of 2000 when the BOJ also decided to send a signal how much stronger the economy is by hiking 25 bps, only to cut 7 months later and to proceed to monetize not only all net Japanese debt issuance a decade later, but to hold half of all equity ETFs. The good news: YELLEN SAYS SHE DOESN'T SEE NEED FOR NEGATIVE RATES NOW; YELLEN SAYS FED SEES ECONOMY ON STEADY PATH OF IMPROVEMENT; Because when have the Fed's forecasts before ever been wrong." Continue reading →

Continue ReadingYellen Says Negative Rates On The Table “If Outlook Worsened”

Chinese Brokers Now Selling Margin Loan-Backed Securities

"Now, the PBoC will look to supercharge efforts to re-engineer a stock market bubble via leverage by pushing brokerages to issue ABS backed by margin loans. If brokerages simply offload the margin loan risk to investors and use the proceeds to fund still more margin lending which can also be turned into still more ABS, and so on, then the effect will be to pile leverage on top of leverage. What happens in the event the underlying stocks become completely illiquid (i.e. Beijing decides to suspend trading on three quarters of the market again)? The punchline: the senior tranche (which accounts for CNY475 million of the total CNY500 million deal) is rated AAA." Continue reading →

Continue ReadingChinese Brokers Now Selling Margin Loan-Backed Securities

Bank of Canada Admits Recession, The Solution: More Bubbles

"What made the Canadian recession easy to spot was the Canadian yield curve inverted out to three years following a surprise rate cut by the Bank of Canada on January 21. It remains to be seen if the US follows. The US contracted in the first quarter, but the second quarter rebound was a bit stronger than I expected. I awarded Canada the 'Blue Ribbon' for the first yield curve inversion of any major country following the great financial crisis. I smell an 'Operation Twist' type move by the Canadian central bank to rectify this horrific 'recession-signaling' condition. If so, the sweet spot for banks and hedge funds to front-run the trade appears to be 5Y or 7Y notes. Some banks may already be in on it." Continue reading →

Continue ReadingBank of Canada Admits Recession, The Solution: More Bubbles

European Car Sales Jump As ECB Stimulus Takes Effect

"European car-sales growth accelerated to the fastest pace in 5 1/2 years in June. The jump was the biggest since a 16 percent surge in December 2009, when governments in the region offered incentives on trade-ins of older cars to help the industry recover from the global recession. The economy of the 19 countries using the euro is in its longest stretch of growth since the 2008 worldwide credit crunch, while unemployment in the U.K. is at close to a seven-year low. The European Central Bank’s monetary stimulus measures have helped economic revival in most euro-zone countries, partly offsetting the effects of the Greek sovereign-debt crisis." Continue reading →

Continue ReadingEuropean Car Sales Jump As ECB Stimulus Takes Effect

Living with Venezuela’s high inflation

"As the world watches the Greek debt crisis unfold, the economy of a country in another corner of the planet is also struggling, and some experts are even trying to draw similarities. Venezuela has the world's highest inflation, leaving many facing shortages and soaring prices. While the government of president Nicolas Maduro says this is the result of an 'economic war by capitalists and the United States against the country's socialist revolution', critics say the high inflation rate is simply showing the government's economic incompetence. The BBC's Daniel Pardo explains how inflation affects what Venezuelans buy every day, like the popular snack called Arepa." Continue reading →

Continue ReadingLiving with Venezuela’s high inflation