By Bill Bonner, Chairman, Bonner & Partners:
The US stock market is “hideously expensive,” says value investor James Montier at Boston-based investment firm GMO.
He’s not wrong about that. But we have a feeling it’s going to be even more hideous before this story reaches its end. When it is so hideous that to look upon it sends us running to a public toilet and retching, that is when it will be most loved by everyone.
This is the story of human hubris (a classic in Greek drama), wherein man oversteps his boundaries and brings down upon himself the fury of wrathful gods. Yellen, Draghi, Kuroda, Carney, Zhou – the protagonists think they are “wiser than God.” They think they know that people would be better off spending their money rather than saving it… that prices should be rising not falling… and that, by propping up the price of financial assets with credit easing, they will cause real growth and real prosperity.
A Central Bank “Near-Bubble”
“This is the first central bank sponsored near-bubble,” says Montier. He calls it a “near bubble.” We don’t know if he anticipates another bigger, huger, gigantesque double bubble full of trouble.
But we do.
That’s what we’ll have when we get to the climax of this story. But not right away. We’ll have to wait for another crisis to spook the Fed into a new round of reckless and asinine activity. Then… hold on to your hats!
In the meantime, around the world financial authorities are using the same duct tape and wads of cheesecloth to keep the crowds quiet. Interest rates are suppressed. Stock and bond prices are distorted. And the world’s economy is perverted with trillions of dollars, yen, euro, pounds and renminbi – all created out of thin air.
Households, corporations and governments have too much debt. The sensible thing is to pay down that debt… not take on more of the stuff. This paying down of debt was the “crisis” that erupted in 2008. But the feds interrupted the process. They have been fighting man and nature ever since. And all over the world, they are getting the same results.
Good Work, Abe
From Japan – the Oedipus Rex of this show – comes news that the recession is “worse than first reported.” From the Financial Times:
The recession that struck Japan after a tax increase in April was deeper than first reported, the government said yesterday, casting doubt over its efforts to boost growth in the run-up to a general election.
Between July and September, the GDP of Japan fell 1.9%.
“The bankruptcy of ‘Abenomics’ is clear to everyone’s eyes,” said Tetsuro Fukuyama, a policy chief for the opposition party. “Abenomics has brought about excessive yen weakening and bad inflation, hurt households and stalled consumption.”
Good work, Abe.
The critic might have added that whether you call it Abenomics, Yellenomics or Draghinomics, the “nomics” are the same.
So is the monumental conceit behind them: Finance ministers and central bankers claim they know what is wrong with the economy… and what to do about it. Because an economy is the aggregated choices of consumers, businesses and investors, what the authorities are really doing is undermining the desires and decisions of millions of people – rich and poor.
That they do so in the name of prosperity – which they can neither properly define nor measure – is comic as well as tragic. But they keep at it… And everywhere, they get about the same results. From another Financial Times article:
Wages have flat-lined in the developed world as workers fail to benefit from the uneven global economic recovery.
Average real pay in developed economies rose 0.1% in 2012 and 0.2% last year, according to the International Labour Organisation’s biennial report on global wages. Workers in several rich economies, including Italy, Japan and Britain were earning less than in 2007.
Let’s see… The feds transfer trillions of dollars in unearned wealth to the rich. They try to drive up consumer prices for the middle and lower classes. Economic growth slows. Earnings stall. And debt levels shoot higher and higher. We think we know how this story ends. By Bill Bonner, Chairman, Bonner & Partners.
Even the Treasury Department is worried about junk debt as a threat to the financial system, now that it’s bigger and crappier than it was just prior to the Financial Crisis, thanks to the Fed’s policies. And among those who’ll get to eat the losses: unsuspecting retail investors. Read…. Treasury Warns Congress (and Investors): This Financial Creature Could Sink the System