Monday, April 25, 2016

Central Bank Policies Are Causing Financial, Economic & Political Distortions & Extremism
"I continue to have little doubt that the current market cycle will be completed by a 40-55% market collapse, with near-zero total returns for the S&P 500 on a 10-12 year horizon. Meanwhile, however, we have to accept that central banks have wreaked havoc on the ability of the financial markets to usefully allocate capital toward productive ends. Relevant warning signs that would normally prevent misallocation and malinvestment have been repeatedly disabled .. There’s a story of an American golfer playing a Scottish course, and having hit the ball perfectly, a massive gust of wind carries the ball wildly off-course. The golfer complains 'Did you see that wind take my ball?' The caddy looks at him, unfazed, 'Aye, now you’ve got to play the wind too then, don’t you?' We feel the same about central bank distortions .. My friend Albert Edwards at Societe General notes the increase in political extremism, including the extreme right-wing Alternative for Germany party, and observes that much of this shift can be linked to economic policies that focus on nothing but debt expansion and financial-market distortion. 'Quick-fix monetary QE nonsense has made virtually no difference to the economic recoveries other than to inflate asset prices, make the rich richer, inequality worse and make Joe and Joanna Sixpack want to scream in rage. They are doing so by rejecting the establishment political parties and candidates at almost every electoral turn and seeking out more extreme alternatives at both ends of the political spectrum. I have not one scintilla of doubt that these central bankers will destroy the enfeebled world economy with their clumsy interventions, and that political chaos will be the ugly result.' ..  I have to agree. This wouldn’t be the first time in history, nor even in the past century, that inept economic policy, class divisions, and growing nationalism led humanity to choose leaders that seduced them to abandon the better angels of their nature. The same trend is apparent in our own political process. Speaking as someone who values human rights and diversity, some elements strike me as more offensive than others, but the current environment is bathed in the language of “enemy,” of division, of coercion, and of simplistic solutions. It also largely ignores the Federal Reserve’s role in creating the bubbles and crashes that still weigh on the economy, and now threaten a third act."
- John Hussman
LINK HERE to the essay

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