Guest Post by David Stockman via Stealthflation
How Central Bank Financial Repression Has Sown Bubble Liquidation and Industrial Deflation
Nearly two decades of central bank financial repression have created huge distortions and imbalances in the world economy. Now they are coming home to roost as the impossibility of ZIRP forever dawns on even our mad money printers. Having created yet another round of ebullient financial bubbles, they are now getting palpably nervous.
Even the lady with the perpetual tan and unfailing call for “moar” monetary and fiscal stimulus, IMF head Christine Lagarde, said something sensible over the weekend:
“There is too little economic risk-taking, and too much financial risk-taking.”
Guest Post by David Stockman by Way of Stealthflation
Alert From Chongqing: Foxconn Strike Is An Epochal Inflection Point
Foxconn workers are striking again—this time in Chongqing. But you have to look at the map to see why this is an event of extraordinary significance. In a word, these strikes mean that the rice paddies of China have been nearly drained of cheap, docile labor.
So the strikes in Chongqing are of potentially epochal significance. It was the two-decades-long flow of quasi-slave labor into the export factories of east China that enabled the major global central banks to go on a money printing rampage like the world has never before seen. Yet during that same period the induction of several hundred million peasants into the world’s factory system caused worldwide prices of consumer goods to fall, even as the money printers were enabling an orgy of credit-fueled spending by American and European households.
Aside from some hilarious observations about Chinese Politburo members’ jet black hair helmeted mojo, Ben Hunt of Salient lays out an interesting view of policy making and the global macro. He ends with this bit on gold…
“As for my third point – the implications of monetary policy divergence on gold – I’m always reticent to write about gold because it incites such passion (and I don’t just mean the gold bug camp … poke pretty much any academically-trained economist and you will unleash a furious anti-gold tirade). To be clear, I believe that the meaning of gold today is NOT as a store of value but as an insurance policy against central banks losing control. With market faith in the Narrative of Central Bank Omnipotence at an asymptotic top, the price of that insurance policy – call it $1,200/oz – is as low as it’s going to go. And now with a schism in the High Church of Bernanke, monetary policy divergence, and growing pressures on the tectonic plates of exchange rates we have catalysts for both a generic and geographically specific central bank loss of control. Now I understand that gold means different things to different people, and to the degree that gold trades as a commodity or a dollar-denominated store of value it can trade cheaper as the dollar advances. I get that. But I don’t think that’s been the principal meaning of gold for the past 5+ years, and if you think as I do that this is the beginning of the end for the Golden Age of the Central Banker (or at least the end of the beginning), gold is pretty interesting here.”
Thanks to PJ for sending me this link.
NFTRH+ is really nothing more than an effort to formalize a less important aspect of the entire NFTRH service, which is macro market management through a 25-35 page weekly report and in-week updates, along with individual equity highlights when I feel a good risk/reward setup and/or like what I see on a chart.
Before NFTRH+ and before the current crop of ‘Buy China! Buy Emerging’ callers emerged, there was the NFTRH highlight so many weeks ago in an ETF update showing what looked like an Inverted H&S bottoming pattern. It’s target by the way and FYI, is 40. I already took my profit on the vehicle I used (TDF), but the FXI target is alive and well; and it’s closing in.
Here’s the updated chart, untouched from that update.
With reference to an earlier public post showing the EEM breakout today, you may recall that I use EMF for Emerging Market investment and TDF for China/Asia. Both are managed by Marc Mobius of Templeton.
So is that what went on? Markets will be back to positive tomorrow? Well a positive for the gold bugs is that the precious metals did not try to do any popping on Ukraine hype. They are busy fulfilling downside objectives and it is best they get that done sooner rather than later.
But the interest rate fundamentals must be married with the technicals. They are interesting today.
In other news, I guess the question of why Europe and Emerging are strong is answered by the ECB and China stimulus hype going around. I swear, without hype we would not have a financial market. It’s what makes the (financial) world go round.
Guest Post by Doug Noland
[admin note] And just like that, comments are turned off again. There was a format issue messing with the look of the site that I could not get around.
 Still not thrilled about Doug’s focus on Ukraine, but that’s what the internet is, readily accessible ideas and opinions. If you agree with them all, including mine, something’s wrong. Noland taught me a lot over a decade ago.
Putin takes Crimea, China devalues and Yellen has a shaky debut.
Last week I posited that “Ukraine and China pose clear and present dangers to global financial markets.” At least for the week, Russian troops stayed put on their side of the Russia/Ukraine border. And while the West ratcheted up sanctions against Russia, at this point leaders on both sides of this crisis appear keen to avoid actions with real economic impact. At the same time, Putin’s chilling speech Monday supported my view of a darkening geopolitical backdrop – a potential inflection point of historical significance.
Guest Post by Doug Noland
[edit: Biiwii.com does not agree with the ‘Ukraine as macro economic fundamental’ reasoning in this post, but we post guest articles based on the quality of the messenger, not any individual post’s premise.]
Ukraine and China pose clear and present danger to global markets.
March 13 – Financial Times (Miles Johnson): “In the ‘Truman Show’, the late nineties Hollywood film, the eponymous character lives a seemingly charmed world, snuggled comfortably into an American suburbia of white picket fences and crisply cut lawns. But gradually Truman starts to notice something is not quite right. He is actually trapped inside a film set controlled by hidden directors, and discovers to his horror that he is the unknowing star of the world’s most popular reality TV show. The question some of the world’s biggest hedge funds are starting to ask is whether overly placid investors will also wake up to discover they are living in a ‘Truman Show market’ – where central bankers’ ultra loose monetary policy has manufactured a fake reality that is bound to end. For Seth Klarman, the manager of the $27bn hedge fund the Baupost Group who recently coined the analogy in a letter to clients, investors have been lulled into a false sense of security that is creating an ever greater risk of a sharp correction. ‘All the Trumans – the economists, fund managers, traders, market pundits – know at some level that the environment in which they operate is not what it seems on the surface,’ Mr Klarman wrote. ‘But the zeitgeist is so so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end.”
Guest Post by Michael Ashton
The last month or two has provided a wonderful illustration of why a diversified commodity index is a better investment than an investment in any given commodity. Since mid-February, April Lean Hogs has rallied 23%. Since late January, May Wheat is up 23%. March Coffee is up 80%. Gold is up 9%. But Crude Oil is 6% off its highs. Copper is 12% off its highs (8% since Thursday). April Nat Gas was up 42% from November through late February, but has lost 10% since then.
Ha ha ha… people bought last year because of China’s insatiable demand and the price of gold dropped. Now people get hysterical about a demand drop in China (as if gold is subject to the same macro economic issues as copper) and boink, it pops.
It still says here that you should immediately tune out anyone going on about Indian Wedding season, Central Bank buying and selling, mine supply and most of all… China’s gold demand.
Gold will be driven by investment demand and specifically investment demand that comes in the face of a loss of confidence in the way that money and interest are manipulated in the effort to promote certain economic signals and agendas.