Tuesday, July 19, 2016

Scrounging Through The Dumpster,
In Search Of Yield
"The only wrinkle in an otherwise spectacularly hostile investment environment is that speculators appear to be so possessed by collapsing global interest rates that the immediacy of a market loss may be deferred until this fresh round of yield-seeking exhausts itself. As one observer told Bloomberg last week, 'they’re out there scrounging through the dumpster looking for yield.' .. My impression is that investors are overestimating the capacity for Fed easing to avert every market loss, recession, or credit default cycle .. The fact that low interest rate environments have typically been associated with low growth .. From the standpoint of the real economy, quantitative easing has no measurable economic impact.
The global financial crisis ended the moment the Financial Accounting Standards Board abandoned mark-to-market accounting requirements for bank balance sheets in March 2009,
and the trajectory of GDP and employment since then has been essentially no different than what could have been predicted from lagged values of wholly non-monetary variables (a fact that can be demonstrated by comparing constrained and unconstrained vector autoregressions).
The main effect of QE has been breathtaking distortion in the financial markets,
as the Fed has replaced interest-bearing bonds with trillions of dollars in zero-interest currency and bank reserves that must be held by someone at every moment in time. These hot potatoes created such discomfort that investors abandoned any consideration of risk-premiums or potential capital losses, in a desperate speculative reach-for-yield."
- John Hussman
LINK HERE to the essay

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