Sacrificing Civility For Instability

(MENAFN- ValueWalk)

This past week saw the release of the FOMC Minutes. Nothing new to report here, just the typical Fed speak and jargon we have come to expect month in and month out. The usual expectation of inflation picking up in the years ahead, the usual talk of balance sheet reduction and of course what would the minutes be without some doubletalk such as these quotes, 'Most Fed officials see inflation rising in the next couple of years and some are concerned by weak inflation.' So, which is it dear Fed, are we really concerned about inflation picking up? Or are we concerned by inflation weakening? It is this double speak that we truly can't stand and its why we do not take anything the Fed says seriously. We would rather rely on our own empirical research to determine economic and investment possibilities.

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We know full well the power of the central banks and they have used that power to the nth degree over the last decade. Their QE policies have robbed savers of trillions in interest, to the benefit of the levered all powerful wall street tycoons. Yes, asset prices have recovered, yes markets have remained stable, yes inflation is benign, but who has truly benefitted?

So, what are the real costs of all this NIRP and QE? We seem to think that one of the major costs is integrity, the other major cost is civility. On the integrity front, we know that the financialization of our economies has laid the foundation for complacency, or what many have come to know as the BTFD mentality (Buy the Fc$king Dip). The good ole folk lore known as, 'the Fed has your back, no worries, we are in control mentality.' Hey, it's worked, we will give them that, but we know the cost. The real cost is yet to be borne and we know full well, that which goes up, must come down and this market will not defy that law, no matter what the Fed and the central banks do. They would have to print indefinitely to overwhelm the market. However, the cost of that comes with a singularity, that point in which there is no turning back. That point where the outcome and inevitability meet a fate that was truly unavoidable given the direction the central banks decided to go some 9 years ago. Maybe we are at that point already, we saw a stat this week showing how $12 in new debt only raised GDP by $4 meaning it takes 4x as much debt to create $1 in GDP growth, considering the United States current fiscal position, we hardly think this mechanism can last much longer. Remember the US has a debt ceiling coming on September 29th, so we know this has been somewhat of a charade every year, but you never know what can happen. So, when we speak of the loss of integrity, we mean, nobody trusts any indicators and they are merely have pushed all their chips in on the hope that the central banks continue their plundering ways.

Now on the civility side, we can see week in and week out how polarized our society is becoming. Hey, we aren't going to get political, it's not our job. Rather we will undoubtedly speak of the sheer ignorance of the people out there. Call it Alt Left, call it Alt Right, whatever side you're on, the fact of the matter is, EVERYONE is entitled to an opinion and nobody has the right to offend, stop or bar someone from expressing that opinion especially when they are acting in a legal and peaceful manner. The constitution provides the very framework for our republic, not our democracy, our republic. We are disgusted at the ongoing lack of civility people have toward one another, we truly think people have generally lost any semblance of commonsense. Now we have a call to action to remove statues of our history? Remove confederate icons because people are offended? Is it us or do people in all honesty think you can erase history by hiding images? We are a proud nation and with that comes the grueling fact that history is sometimes and most often forged from the pain and suffering of others. History is filled with undeniable inhuman acts, but it's also built on the courageous heroics of a very few. Unfortunately, there is no peace without war, we know it's hard to believe and we too can't believe mankind hasn't learned its lesson yet, but it is what it is. America was built like all empires, it was fought for. Unlike most empires, we recognize and respect even the losing sides of our history, we didn't just eliminate their very existence. The civil war was a major part of our history, there is no denying that fact. Removing statues will not replace the fact that Robert E. Lee was an excellent military mind and general, whom was asked to lead the Union forces, but opted to stay true to his Virginia and fight. His fight was aimed at securing the rights of the states, and not necessarily in defense of slavery, but the hooligans calling for removal of statues are too stupid to study history. So, we are disgusted and just this week we had this headline:

ESPN pulls announcer Robert Lee from Virginia game because of his name (link to NY Times article )

Really what the hell have we lost our minds? Then there was this also:

Baltimore mayor Catherine Pugh orders the removal of Confederate statues citing 'in the best interest of my city.' (NY Times link ) Well, perhaps resources would be better spent cleaning up your city from the gangs and violence, Mrs. Mayor don't you think?

Collectively we need to think with a clear conscious and realize that we are all Americans and we want nothing more than to live our lives in a peaceful manner and that the laws are there to protect our rights, not to project our personal opinions on others. Don't let the media forge your mind, do your own cognitive research and expand your mind the way you want, not how others want.

Sorry, back to the financial side of things, but we just couldn't let what's transpiring go without at the very least making you the reader aware of our viewpoint.

Mario Draghi was out this week praising the central banks QE programs stating that 'they have made the global economies more resilient.' That is an interesting word choice, resilient, which means capable of withstanding shock without PERMANENT DEFORMATION or RUPTURE. What Draghi is really saying is that we are no longer just massaging markets, but rather we are the market. It's a mantra we have been stating for quite some time and its truly the only rationalization for this linear risk on up move in assets. We like to call the central banks (Non-Zero Sum) players, because essentially, they pay nothing for credit and accumulate real private assets. We also consider them counterfeiters, because for all intents and purposes, it's the most accurate description of QE and their programs. We believe this chart sums up our evidence well:

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