ETF Products and Incompetent Fed

Last year (2019), before there was any news of "COVID-19" some large real estate funds in the UK has to stop withdraws.  Most of this was continued spillover going back to Britain's Exit from the EU which has been a slow train wreck for the commercial property market now for years.  These halts on withdraws started a conversation about the elephant in the room: ETF's in the US that hold long dated corporate debt of all kinds yet advertise themselves as "liquid".  Well so much for that.  Not only is advertising "liquid" totally misleading and should be illegal outright. Many found out that in reality these products should not be in existence at all. Yet they are and now the Fed is endorsing these misleading funds that should be banned.

ETF products are as the acronym states: Exchange Traded Funds.  Now, why on earth would the SEC have ever allowed, especially after the lessons learned during the last financial crises in the Money Market Industry (where those idiots managing money market accounts were buying long dated securities that became illiquid during the "crises") ETF's that hold long dated securities to advertise themselves as "liquid"?  The Money Markets had to be bailed out even though the Money Market Industry was SPECIFICALLY NOT INSURED and was clearly stated as so.  But then WTF?  Every Tom, Dick and Harry back then could get a quick banking license so they could put the US Taxpayer and the Fed on the hook for their survival... I could go on about that BS but you all know that history.

Here today we have an entire "industry" run by the largest "grey" banking organizations in the US, uninsured, speculating, monoliths. They are uninsured custodians to Trillions of Dollars.  They create ETF products, many of which "invest" or buy long dated debt with short term money given tho them by "investors" who want access to markets they have no business being into in the first place. These criminals, I mean grey monoliths, claim (and pay lots of money to PR organizations that promote them) to show, they "provide liquidity" to an industry that previously was not traded on exchanges at all. Yea, well when the market is expanding / rising and money is flowing in they rake in huge profits and grow their ETF's exponentially. Then when people want to "sell" these supposedly "liquid" Funds during a market correction, they cry "liquidity crises" and run to the Fed.  WTF?  And the Fed has been all to accommodating for OVER 10 YEARS NOW to these idiots.  The Fed IS the entire credit market now.  I don't give a damn if they are buying fractions or just a billion here and there, it adds up to tens of billions of "created" dollars chasing otherwise illiquid "assets" where the money simply flows to the only "liquid" place left in the ENTIRE UNIVERSE of our supposedly capitalistic "markets", the stock market.  Buying ETF products by the Fed is a crime against the American People, Period.  They are buying these "products" with money given them by the Criminal Assh)L@ running the Treasury right now and the dweebs who shut down the country and created the bill that allocated the money in the first place.  But that is another topic of discussion.

How these ETF products can continue to perpetuate in the market is beyond belief.  They should be frozen to new investors and be wound down immediately then closed and no "fund" or "money market" or any other "product" should every be allowed to exist that advertises itself as liquid when everybody in the damn universe knows this is not the case.  In addition, the Fed needs to stop buying indiscriminately any and all credit products in the name of "providing liquidity" again!  The Market is a Market and "liquidity" has been stressed for some time now DUE TO THE FED's distorting crises based policies that have continued for over 10 years that CREATED an environment that so encouraged leverage that without a complete and total "reset" of the entire financial system, we are in serious trouble of the likes that humanity has never seen.

Central Banks Perpetual Crises Mindset

I ran across this article today: http://www.bloomberg.com/news/articles/2016-08-21/inside-the-global-hunt-for-a-better-way-to-measure-the-economy

It is interesting that over just the last 30 days or so there is a "buzz" around the financial community about the validity and usefulness of GDP in measuring output and of course this is another way for those who believe the Central Banks desperately need to "normalize" interest rates to get their point across.

Aside of the special interest's motivations, three of my potential thesis are being reflected in this trend, 1) I believe all measures of GDP need to be drastically revamped as traditional measures of collecting the data are vastly outdated and 2) employment numbers and productivity need drastic new looks as the dramatic declines in labor participation in the US are not consistent with consumer purchasing power / stats and 3) Economist need to broaden their measures of productivity in the new economy of Uber's and Air BnB's of the world and understand that productivity is no longer a measure of just "producers" productivity, but that now, all assets in the economy, need to be factored in.  People are renting their houses, cars, labor etc. in disruptive ways never before done and till now not accurately measured in data that are influencing the central banks policies.  These are all tied together.

This is the first article I have seen mentioning, albeit not convincingly or with any detail, some of the factors I believe need to be addressed.   So I thought I would share :-)

My latest theory is a little less tangible.  It has to do with what happens when Economist / Central Bankers themselves become victims of a kind of a perpetual lack of ability to understand they to can be influenced by "behavior patterns" and "psychological factors" so often measured by Economist on consumer behavior and their "behavior patterns" can lead to irrational decision making.  I believe they were so spooked by the global financial crises / credit freeze in 2008/9 they can no longer see clearly.  No matter what happens in the economy, they can find 2-3 "global" trends that continue to drive their thinking in a perpetual crises mindset. They simply no longer see clearly.  They have completely lost faith in the "free market" model.  They think more and more like the Chinese, where understanding of market fundamentals is translated by central planners to direct intervention in an attempt to "create" these fundamentals through "force" vs understanding that all economic theory comes from human behavior and that this behavior creates economies that in turn create observable market forces that become that theory one can study and write about.  There is no way to reverse this and force it to happen without allowing markets to determine a given outcome and or understanding markets will be severely disrupted if one attempts to do so.

To ignore economic fundamentals and market forces is leading us to the point where the destructiveness of Central Bank policies are parallel to the kind of problems that happen during traditional bubble psychology, where all "investors" act irrationally until the entire thing collapses.  In summary, the global mind think of Central Banks / Traditional Economic theorists is stuck in crises mode and their actions are leading the entire global financial system to a huge cliff.  It's time for them to look in the mirror and understand where they are headed before it's to late.

Just a small thought, and to think Market Psychology and Consumer Behavior are my two least favorite areas in Economics :-)

Do the Central Banks want Inflation? Maybe Brazil can bottle it up and sell it to them!!

A hilarious article on Marketwatch  quotes some Wells Fargo “senior economist” named Bill Adams saying, “Brazil’s expansionary monetary and fiscal policy in the aftermath of the global recession caused it to lose policy credibility, and that’s why Brazil has high interest rates and high inflation today”.  The article also notes:

“As the financial crisis rippled through global financial markets, the Central Bank of Brazil slashed its benchmark short-term SELIC rate from 13.75 in December 2008 to 8.75 by July 2009. Lower rates produced a surge in wage growth, which pushed prices higher. But as wage growth has slowed, prices have continued to rise, compounded by the depreciation of the real.

The Central Bank of Brazil said Thursday that it expects inflation to hit 7.9% in 2015, while it expects economic growth to contract by 0.5%.” 

Besides the fact that this typical economist simply fails to fill in the reality on the ground in Brazil, where for over a decade their economy enjoyed growth and praise as one of the pillars and models of growth for the 21^st century, absorbed huge amounts of investment from outside investors,  was a key member of the so called BRIC countries that experienced a boom in growth partially thanks to the global commodity price surge (indirectly from the Chinese pumped up government orchestrated “growth” model) along with billions in controversial stimulus spending after the credit crises related to preparing for the 2014 World Cup, which essentially completes the "dream scenario" talked about by economist, he is a complete Hypocrite!!

The shallow tone of the article and shallower coverage of reality on the ground in Brazil can only cause one to be cynical about these so called economists views when at the same time Brazil is being criticized for their monetary policies EVERY “developed” economy in the world has their central banks printing trillions of “dollars” while doing everything in their power to keep interest rates at virtually zero without loosing credibility!?!  Yet when Brazil attempts the SAME policies, they are quoted as “loosing credibility”?    Yea, global imperialism is still alive and well and if you don’t have a “reserve currency” you are still F%&#@d in the world of global capitalism.

Krugman Offers No Solutions. Same ol' Same ol'

The following article makes me angry on so many fronts; I don’t even know where to begin:

The article can be found and starts here: 

On Thursday, the European Central Bank announced a series of new steps it was taking in an effort to boost Europe’s economy. There was a whiff of desperation about the announcement, which was reassuring. Europe, which is doing worse than it did in the 1930s, is clearly in the grip of a deflationary vortex, and it’s good to know that the central bank understands that. But its epiphany may have come too late. It’s far from clear that the measures now on the table will be strong enough to reverse the downward spiral.

And there but for the grace of Bernanke go we. Things in the United States are far from O.K., but we seem (at least for now) to have steered clear of the kind of trap facing Europe. Why? One answer is that the Federal Reserve started doing the right thing years ago, buying trillions of dollars’ worth of bonds in order to avoid the situation its European counterpart now faces.

To even begin to compare the US actions to the European Central Bank’s recent actions is archaic and insane to the least, and ignorant and arrogant to the most.  Europe until very recently essentially did not have a true “central bank” in the way one would understand what a “central bank” is.  Each nation in the Euro Currency block has / had its own central bank, taxing policies, economic policies etc. The European Central bank had almost no direct power to even purchase bonds issued by member countries let alone dictate the finances of each member country.  This “one currency, many nations” structure made Europe a completely different animal from the US where the central bank oversees the entire economy of a very large nation and has full autonomy to set policies and manipulate every aspect of monitory authority without any consent from the US government.  NOTHING like this existed in Europe.  In addition, Europe had a handful of countries that NEVER should have been converted to the Euro in the first phase of Euroization of the member countries.  Their governments were completely reckless, their citizens knew full well their economies were no where near on par with the nations that should have been included in the Core and they acted recklessly as their governments.  It all looked fine for a while, but like any economic anomaly such as pegging a currency, the flawed structure was doomed to fail, credit crises or not, until the Euro countries actually established a strong central bank able to act with autonomy and discretion irrespective of the desires of member governments.

You can argue, and I would, that the Fed should have done even more. But Fed officials have faced fierce attacks all the way. Pundits, politicians and plutocrats have accused them, over and over again, of “debasing” the dollar, and warned that soaring inflation is just around the corner. The predicted surge in inflation has never arrived, but despite being wrong year after year, hardly any of the critics have admitted being wrong or even changed their tune. And the question I’ve been trying to answer is why. What is it that makes a powerful faction in our body politic — call it the deflation caucus — demand tight money even in a depressed, low-inflation economy?

Krugman is completely ignoring the true underlying inflation in the US over the past 35 years.  The CPI number calculations have undergone revisions a couple times in the last 30 years that have dramatically altered the outcome.  Using pre 1980 data, inflation is and has been running near 10% for most of the first 15 years of this century, not withstanding a dip during the credit crises. 

Even using data as calculated in 1990 reveals over 6% inflation over the same period.

Anyone who lives in the US knows that the average paycheck adjusted for even the “official” CPI numbers reveals a paltry $200 annual (yes annual) increase in income since 1980!!  This where all you have to do is go to the US Dept of Labor Statistics and see what the earnings of 1980 are worth in 2013 dollars.   You need $294.18 to match the buying power of $100 in 1980.  What does that tell you about the value of a dollar over this time?  What difference does it make that you now make $47,000 when your parents made $16,354 in 1980?  It has the same purchasing power!  And this is BEFORE we know the true results of the Trillions in dollars printed over the last 5 years. Note: the 1980 number came AFTER the serious spiraling of inflation of the 1970’s.  So what is Krugman trying to say about inflation?  That it is a “political issue” whether or not all this money printing is going to have any longer term affect?  Really?  What about China?  The US may have used somewhere near $14 Trillion to bail out the “financial system” during the crises and gone on to print a few Trillion Dollars but China has outshined all nations combined printing a whopping $15 Trillion!!

One thing is clear: Like so much else these days, monetary policy has become very much a partisan issue. It’s not just that talk of dollar debasement comes pretty much exclusively from the right of the political spectrum; inflation paranoia has, to a remarkable extent, become a matter of conservative political correctness, so that even economists who should know better have joined in the chorus. So we can focus the question further: Why do people on the right hate monetary expansion, even when it’s desperately needed?

One answer is the power of truthiness — Stephen Colbert’s justly famed term for things that aren’t true, but feel true to some people. “The Fed is printing money, printing money leads to inflation, and inflation is always a bad thing” is a triply untrue statement, but it feels true to a lot of people. And, yes, a tendency to prefer truthiness to more complicated truth is and pretty much always has been associated with political conservatism, and this tendency is especially strong in an era when leading politicians get their monetary theory from Ayn Rand novels.

Another answer is class interest. Inflation helps debtors and hurts creditors, deflation does the reverse. And the wealthy are much more likely than workers and the poor to be creditors, to have money in the bank and bonds in their portfolio rather than mortgages and credit-card balances outstanding. Back in the Gilded Age, the elite mobilized en masse to defeat William Jennings Bryan, who threatened to take the United States off the gold standard; campaign spending as a percentage of G.D.P. was far higher in 1896 than in any presidential election before or since. Are the wealthy similarly mobilized against easy-money policies today?

Is Krugman serious when he quotes Stephen Colbert, a comedian, then waste 3 paragraphs telling us all the concerns about the recent policies of Central banks from China to Europe, policies that have taken humankind into completely uncharted territory with respect to Central Bank policy and experimentation to counter the largest credit crises in history which was preceded and followed by the largest expansion of debt in history at EVERY level of the economy and continues to expand under near forced direction by central banks today where they are saying “buy debt and issue debt and if you will not we will do both”, is nothing but a political / class issue? Does he even understand inflation?  Saying the “wealthy” are only to be hurt by inflation because they have “bonds in their portfolio” rather than “credit-card balances and mortgages”?  Does he even understand that the “wealthy” own real property that tends to keep up with inflation not the mortgaged and credit-card poor.  In fact, by pure definition, if the “poor” wages rise relative to their mortgage at fixed rates and credit cards capped interest, they would actually be better off as long as they don’t loose their jobs!!  What is he trying to say here?  In one paragraph he is trying to say the rich are not complaining so why should we worry?  Are the wealthy not the ONLY class of people that have benefited from the huge injection of cash which has allowed companies to refinance and issue debt to buy back their stocks and increase dividends with almost free money driving the stock markets higher and higher in the process?  The wealthy are the ones who have seen their bond portfolios increase in value year after year as interest rates fell to zero and are kept there under central bank policies.  The distortions in managing “risk” at every level are so outlandish today in the markets that this distortion is now being called “the new normal” on Wall Street!  Complacency is ripe, risk is high, volatility at historic lows, and everyone is chasing yields pushing rates down on essentially bankrupt nations like Spain, with 20% unemployment below that of the US!  High yield debt almost does not exist as spreads of low grade bonds of all kinds’ trade at premiums to US Treasuries at levels not seen since 2006, at the height of the credit bubble.  I could go on.  So all Krugman has to say is the debate is a political and class debate and not to worry, all central banks should follow the US lead, irrespective of the dynamics on the ground and just print money, buy bonds, support risk taking, force banks to lend, lend, lend….

As far as I know, we don’t have rigorous evidence to that effect. There are certainly a lot of wealthy investors in the debasing-the-dollar crowd, but we don’t know for sure how representative they are — and you could argue that big investors should like the Fed’s expansionary policies, which have been very good for the stock market. But the wealthy may not trust that connection, in part because the inflationary ’70s were very bad for stocks. And we do know that the very wealthy are much more likely than the general public to consider budget deficits our biggest problem, even though fiscal austerity is probably bad for profits. So perceived class interest is probably also a key motivation for the deflation caucus.

Is Krugman serious here?  Comparing today’s Fed’s expansionary policies to the 1970’s?  Does he even have the capability to differentiate the 1970’s oil price driven global inflation surge which came on the heals of the end of the US productivity surge of the 1950-60’s, the tail end of a protracted pointless and expensive war, and the end of US industry’s life cycle of post war investment in production which started the long decline of industrial production?  Does he really get away with comparing this era to today?  Fiscal Austerity?  Does he even comprehend the level of recklessness of the budgets of ALL nations who command the “hard currencies” of the world today and how this is going to radically alter the shape of global finance in the future?

A side note: Europe’s wealthy aren’t as wealthy or influential as their American counterparts, but creditor interests are nonetheless even more powerful than they are here because creditor nations, Germany in particular, have ended up dictating policy for the whole of Europe.

Is he serious here?  Europe’s wealthy may not be on the front page of Bloomberg every day, but they hold their wealth in “productive capacity” and “hard assets” accumulated over a very long time, not just in “paper” i.e.; stocks that have ever risen to unrealistic heights catapulting them to the stratosphere and making them de-facto mouthpiece of the American multinational and reminding people that our nation’s economic structure far more resembles the same 1896 he quotes in this article, with the robber barons, oligopolistic structure of industry and bought out government then some 21^st century successful economic system?  To make a statement like this is completely ignorant, arrogant and ethnocentric as one could make!!

And the important thing to understand is that the dominance of creditor interests on both sides of the Atlantic, supported by false but viscerally appealing economic doctrines, has had tragic consequences. Our economies have been dragged down by the woes of debtors, who have been forced to slash spending. To avoid a deep, prolonged slump, we needed policies to offset this drag. What we got instead was an obsession with the evils of budget deficits and paranoia over inflation — and a slump that has gone on and on.

Once again, even his final statement is hogwash to no end.  He suggest NO structural remedies for what we all know was a “crises” predicated on a never before seen debt bubble facilitated by ever creative “products” designed to off load risk that became the core of the irresponsible lending mantra.  All of these “products” were created and traded in casino fashion, were completely unregulated, dragged in the participation of every financial institution including taxpayer insured banks, were built on the back of every possible category of debt imaginable (and some unimaginable creations).  Yet he suggests that the role of central banks is to somehow “counter” this?  All the central banks on the planet did not have enough firepower to counter the crises. This is blatantly obvious.  They have had to print Trillions of Dollars, everywhere, to make a dent in the disaster.  Yet people like Krugman have NOTHING to offer to cure this complete collapse and failure of the “free market system” other than to say, just print more money so the party can go on!  What a complete looser!