Wednesday, July 27, 2016

"Central Bankers Are Killing Capitalism"
"Productivity is not only around zero in most developed countries but falling into negative territory. Market forces are no longer driving investment decisions on the allocation of resources – driven out by governments using central bankers as their conduit for extending credit .. Central banks do their master’s bidding and governments tell them ‘stop recession at any price’. .. They can control asset prices by printing money but can they control the economy? ‘No’. So what we have now is a world in which the Have-nots are rising in number and, thanks to the workings of central banks, see the Haves still seemingly enjoying themselves on the back of rising asset prices. It is no wonder that politics are moving fast to the extremes. The politicians and the central bankers are serving each other but not the common purpose. In such an environment you must expect ‘Brexit’ to win, Trump to succeed .. Capitalism is now being blamed for something that they are not party to. This is etatism and the central bankers are the trade unions of this debacle. No wonder that Trump is determined to get rid of the Fed. Just as in 1979, politicians realised that they had to turn on the unions, so today the central banks with their endless printing of money need to be stopped, or capitalism will be blamed for consequences not of their making."
- Hedge Fund Manager Crispin Odey
LINK HERE to the article

1 comment:

Anonymous said...

Maybe Negative Yields Are a Sign of Prosperity
July 27, 2016 6:00 AM EDT
Tyler Cowen

Just when it seemed that negative yields could not spread any further, they did. Corporate bonds paying negative interest rates now account for about $512 billion of market value, bringing the world close to a total of nearly $10 trillion in securities with yields below zero. Most are government securities.

Negative Interest Rates

There are numerous explanations for this strange and unexpected state of affairs. Some see it as evidence of impending economic doom. Others attribute it to central bank over-reliance on huge bond purchases intended to stimulate economies, and to sluggish growth rates mirrored in bond returns.

I’d like to suggest a more positive alternative perspective. It suggests that negative yields could be around for a long time, but also gives new guidance on what might cause them to disappear.

Start with the long historical view. On average, yields on Treasuries have been falling since 1926 (!), due largely to their safety and liquidity. They've almost become a form of money, offering liquidity and safety comparable to cash. So it shouldn't come as a complete surprise if longer-term U.S. government securities and some corporate bonds recently have followed a similar path because that would just represent an extension of the historical trend.

In this view, very low or negative yields need not reflect major cause for concern. The many years of falling yields include periods of both rising and falling economic growth, so higher global growth in the future may not reverse the trend. In fact, higher growth and greater wealth could raise rather than lower the demand for insurance and liquidity, and thus lower yields.

Perhaps the most overlooked point is that the supply of negative-yielding securities is not so large relative to total global wealth. A recent Credit Suisse estimate suggested that global wealth could reach $369 trillion by 2019, reflecting growth rates of perhaps 7 percent a year. Such numbers are typically inexact, because who can measure the value of all the land in China and the buildings in Uzbekistan? Nonetheless, this number is truly large and it has been growing rapidly. By comparison, the negative-yield securities seem like not such a big deal.

Maybe it’s time we started thinking of negative securities as the equivalent of fire or earthquake insurance for that wealth. If there is truly $300 trillion in global wealth, is it so crazy to think that investors would pay a premium to buy $10 trillion dollars’ worth of insurance?

Keep in mind that if you buy securities at a yield of negative 1 percent a year, and equities are yielding 4 percent on average, your insurance cost on the safer securities is roughly 5 percent of the upfront investment. So on $10 trillion of safe securities, that is an insurance premium of roughly $500 billion -- a relatively small chunk of the $300 or $400 trillion of total global wealth. In percentage terms it is cheaper than the homeowner’s insurance many of us pay for every day.

reminds me of the cds debacle when bad credits married swaps to long debt for positive carry until everything blew up.