The Economy

El-Erian is a serious guy, and he's not a dummy. And I personally like him, because he's not a complete idiot the way some of the "experts" are.

But the "policy mistake" second guessing stuff misses the point.

They are like monkeys being told to set the world record for dribbling a football. They have no ability to do the nonsense they purport to do. All they can do is price fix the cost of money to create distortions. Then they chase their tails dealing with the consequences of the distortions they created while never taking any blame (or anyone even getting fired).

The "policy mistake" goes back to them existing in the first place as a price-fixing czar rather than hundreds of millions of people engaging in voluntarily exchange deciding the cost of money (which is the most important price there is).

In terms of what we are dealing with now, the "maestro" nonsense when Alan Greenspan got treated like a genius (hewas just stealing growth from the future to juice things in the present, leaving the consequences to be dealt with through credit crises / busts later on) was a starting point. Everything they have done since then has been to avoid dealing with the consequences by mispricing money too cheap to spur more debt in exponentially larger sums.

What they did with the trillions of dollars of asset purchases after the financial crisis should be considered criminal, but people are so clueless about it that they got away with something that should have been considered radical and un-American (they pick winners and losers, and have 1) made the rich richer, while punishing people who can't gamble on risk assets, and 2) have put an anchor on the country by robbing savers (saving is what spurs GOOD investment) to reward debtors that piss away money). The "policy mistake" everyone should be focused on isn't something that happened 4 years ago, or last month. It was the half-assed fly-by-the-seat-of-their pants schemes they have been creating to avoid the payback we are going to get regardless (and they have made it worse and worse) for the last 15 years.

 

BTW. ... hidden, of course, is that they revised down the numbers they put out in May and June to get the headlines. 5 of the last 6 reports have been revised downward (election-year politics with "data"?) It's just plain dishonesty that nobody can do anything about.

And looking at the jobs report itself, the divergence between the household survey (what people are reporting about their situatins) as opposed to the establishment survey where they go to employers, is still pretty big. The household survey showed +67K jobs, +352K unemployed. It paints a picture I keep posting about being central to the presidential election. There is a bigger and bigger underclass in this country that can't afford to meet their expenses, and they are looking for work. ... second and third jobs. Except it looks more and more like those jobs aren't there.

 

The Japanese carry trade is unwinding. It's been going on for a while, but started to pick up steam last week.

The monkey behavior on this one has been epic and I have been watching it for more than a year. ... everyone was borrowing yen cheaply and using it to gamble. ... you have had hedge funds here driving up U.S. tech stocks like Nvidia.

It's literally a strategy that is like picking up pennies in front of a steam roller.

The yen has been under attack for a while, but nobody has paid attention. ... Well, some have, but nobody cared. Until they do care. The Bank of Japan has been forced to intervene on -- but never acknowledging it -- several times, and now they have hiked rates (not much, but Japan has had negative rates for so long that any positive rate is shocking) and they have actually started to unwind their quantitative easing.

Without them juicing things. ... you get a small taste of the artificiality of what central banks around the world have created to blow asset price bubbles ("inflation," but not in the price of spaghetti-o's, instead in the price of risk assets, which has the effect of making rich people richer on paper).

 

This affects people in the U.S. more than you realize. The yen carry trade (and to a smaller extent the yuan) has been epic. You could borrow in Yen really cheap, and then use the money to gamble. ... and the amount of that behavior has likely been crazy.

It's a big part of what has driven stock prices in the U.S. during the run of the last 2 years or so. It has created an enormous amount of leverage that has been used to send the prices of a the 7 or 8 biggest stocks in the U.S. soaring (all the AI hype, etc.), which in turn has driven up the index prices here -- those stocks are a massive percentage of the indexes now.

This isn't a small thing.

Now central banks will furiously try to figure out how to stop the bleeding and keep the bubbles inflating. ... the problem is, this is not 2017 anymore. They are backed against a wall. The debt levels globally passed a threshhold and they are all dealing with consumer price inflation that has disaffected the masses. So I am curious about what kinds of Soviet-style interventions they try next and how the monkeys in the capital markets react.

 

There are some serious margin calls going on right now -- hedge funds in the United States. I can't overstate how much borrowing in yen there has been. I was doing it for a while (but not gambling with the money) to hedge the price of gold I own. I wanted to own the gold in yen terms instead of dollar terms. ... I got the F out 2 months ago, though, and it looks like it all peaked about 2 to 3 weeks ago.

Yen-dollar is up more than 3 percent overnight. This is what central banks have created. Currencies should never move that much, that quickly. Although I don't really understand why people are boggled when it happens, when everyone piles into one side of a boat, shouldn't you worry about it tipping over?

Currency moves like this create global instability. But the people put in charge of price-fixing the "economies" around the world create that instability. Blame the U.S. Federal Reserve and the Bank of Japan if this goes on for a while. Nobody cares while the artificiality is creating monetary-induced bubbles in risk assetsand sending U.S. tech stocks to multi-trillion dollar valuations. When things unwind, though, it's "How did that happen?"