Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

No Happy Ending For Investors In Central Bank Fairy Tale

Recommended Posts

http://www.bloomberg.com/news/2014-10-14/no-happy-ending-for-investors-in-central-bank-fairy-tale.html

You know it’s a special moment in the financial markets when analysts ditch the jargon and reach for artistic references.

Ed Yardeni cited “The Wizard of Oz.” International Monetary Fund Managing Director Christine Lagarde went with both “Alice in Wonderland” and Harry Potter. Stephen King -- the HSBC Holdings Plc chief economist, not the author -- trolled the fantasy aisle.

Their message for investors: Even after the MSCI World Index’s lurch to its lowest since February, sentiment risks souring for a while longer. The reason is that just as global growth is weakening again, central bankers who sustained much of the expansion are running out of ammunition.

“Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth,” said Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “Even the wizards are admitting that their powers to do so are limited.”

To King, markets spent most of this year caught up in a fairy tale that policy makers were on top of things.

In the rosy scenario, the Federal Reserve would next year cool U.S. growth with tighter monetary policy and the European Central Bank would revive expansion with quantitative easing. Everyone would win.

‘Something Wrong’

“Like most fairy tales it can’t be true in reality,” King told a conference in Washington last week. “There’s something wrong with it.”

Because it's just bu11sh1t? Is that's what's wrong with it?

Share this post


Link to post
Share on other sites

Spinning a real-world warning from the film “The Big Lebowski,” Alberto Gallo of Royal Bank of Scotland Group Plc tells investors “you’re entering a world of pain.”

For goodness sake there's RBS the bankrupt bank giving investment advice again - and talking about investors entering "a world of pain". Tell us news not history.

Apart from the bankers most people associated with RBS and the UK banks haven't left that world for years now - and that includes every taxpayer in the UK.

Share this post


Link to post
Share on other sites

David Stockman: How central bank financial repression has sown the seeds of industrial deflation.

...central bank financial repression has made capital inordinately cheap and has thereby caused fantastic over-investment in the EM [Emerging Market] world. The current disastrous overcapacity in China’s steel industry is a case in point. Between the year 2000 and 2010 its steel industrial grew from 150 million tons of annual capacity to 750 million tons—a rate of heavy industry growth never before witnessed anywhere. The flood of cheap money from the Peoples’ Printing Press of China in response to the Great Recession only stimulated a further round of even more fantastic capacity growth.

The 300 million tons or 40% gain since 2010 is a striking measure of the current global derangement. China’s steel capacity expansion in just the last four years exceeds the combined capacity of the entire steel industry of Europe and North America combined. Yet China’s sustainable domestic need is arguably less than 500 million tons per year—once its spree of constructing empty apartment buildings, unpopulated cities, redundant highways and bridges, and unneeded industrial capacity comes to an end—as it surely must and will. Even the comrades in Beijing are signaling a resignation to that unavoidable outcome.

Already, the inevitable collapse is becoming visible. Prices are plunging, inventories are soaring, and profits in the steel industry have virtually disappeared. As detailed in the attached story from Bloomberg, the inexorably consequence will be a flood of cheap exports on the world market.

Indeed, the real problem is that once that immense capacity was brought into being, it was not going to go quietly into the night. China’s true excess capacity now amounts to upwards of 50% of steel production in the rest of the world. Consequently, when China’s domestic consumption is sharply curtailed as the world’s greatest historical building boom winds down, the flow of excess plate and sheet and rebar and structural products into the world steel markets will have a relentless shocking impact. Prices and profits will be crushed everywhere; and protectionist policies not seen since the 1930s are likely to be kindled.

And steel is just the most advanced case. A huge wave of industrial deflation is virtually guaranteed in the food chain of materials extraction, production and fabrication. Today’s Bloomberg story on China’s growing steel industry crisis notes that “China steel now as cheap as cabbage.” Perhaps that is a foretaste of things to come!

In any event, the stunning collapse of steel prices and the soaring inventories of iron ore in China are a reminder that cheap capital artificially provisioned by central banks can lead to an enormous boom of malinvestment. But ultimately the laws of economics will out and a relentless deflationary correction ensues.

http://wallstreetexaminer.com/2014/10/how-central-bank-finanical-repression-has-sown-bubble-liquidation-and-industrial-deflation/

Share this post


Link to post
Share on other sites

David Stockman: How central bank financial repression has sown the seeds of industrial deflation.

Has it ever been posited that this massive steel over-production might be deliberate, in order to cause the collapse of the industry in Europe and North America, thus allowing China to monopolize it? Who knows what those central planners are really planning.

Share this post


Link to post
Share on other sites
“Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth,” said Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “Even the wizards are admitting that their powers to do so are limited.”

In the rosy scenario, the Federal Reserve would next year cool U.S. growth with tighter monetary policy and the European Central Bank would revive expansion with quantitative easing. Everyone would win. “Like most fairy tales it can’t be true in reality,” King told a conference in Washington last week. “There’s something wrong with it.”

Spinning a real-world warning from the film “The Big Lebowski,” Alberto Gallo of Royal Bank of Scotland Group Plc tells investors “you’re entering a world of pain.”

Too many houses around here, go to investors. 3 out of 5*, at around the quarter million pounds - £350K mark.

3 out of 5 of houses which glimmer of making a nice family home, my family and close friends have been attracted to, I would take a guess at.. I'm not sure about the more misery stock. Always sadness to see them come back to rental market... disovering buyer was an investor.

[Attracted to, but overvalued, often needing loads of expensive work at even that price to update, just the purchase leaving them stretched ant have little life with money to spend, + risk of future mortgage interest rate rises. And this vs duel income reasonable incomes, but employment insecurities into a downturn.]

Investors need to enter that world of pain. Tighter money, becoming scarce, HPC. Complacent clowns outbidding others by x2-x3. Short them out, all the longs in the market, and bring them back to reality some of them have not been in for decades.

You could show them the future, Ghost of the Future, for the market, and they would still buy now at painfully expensive prices, or refuse to sell for 'less than it is worth'.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   206 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.