HERE A NICE SATIRE ON NEOLIBERAL
CAPITALIST CHAOS
In other words: the “rationalist logic” of an irrational
chaotic system
Most investors today have no idea what is happening in the
bond market today and have exposed themselves to incredible amounts of risk.
Because a global crisis in the government bond market has never occurred in our
lifetime – advisors, financial planners and big banks continue the tradition of
telling their clients that bonds are safer than stocks. As a result, investors
remain heavily invested in the bond market and are therefore smack dab in the middle
of the riskiest investment they’ll ever see.
….
Submitted by Keith Decker of IceCap Asset Management
Don’t Look Back in Anger
ENGLAND (Knebworth Park, 1996) – Owning the front of the
stage, Liam Gallagher closed his eyes and liked what he saw. Thousands of
screaming, pushing and kicking fans positioning themselves for the what would be THE
concert of the year.
For Liam, it was
total chaos and he loved it.
Everything in the world is connected – political, social,
economic, fiscal, monetary and financial markets are all intricately linked.
Yet, what’s extremely interesting today is that for the first time in our lifetime, they are all converging toward
extreme levels simultaneously. And once you see it, be prepared for a champagne
supernova smile to wrap around your face and all your troubles to be half
the world away.
Chaos or Harmony
To really grasp the enormity of the chaos around the world
today, spend a few minutes on our Chart 1.
As we’re an investment management firm, we ultimately focus
on the net effect of the chaos on financial markets. We must remain objective and remove any political or social bias and
simply accept the current environment as it is – anything less would be a
failure on our part as fiduciary investment manager. After all, that’s the ultimate bottom line for all of
our clients.
As we dive into the chaos you’ll begin to see and understand
why you cannot rely upon your past experience and worse still the past wisdom
of the big bank investment machines.
But first, most know that IceCap is fully expecting a crisis
in the government bond market and it will have ripple effects around and within
the world. As we inch ever closer to the crisis tipping point, we continue to
see more and more evidence to support our view.
The other critical point to understand – and this precisely
why the world has been jammed into this peculiar position - the majority cannot see and distinguish
between the problems and the symptoms.
Our Chart 2, clearly
shows the difference between the problem and the symptom. It’s rather to
easy to see that the problems in the world today isn’t low growth, high debt
and a rise of anti-establishment political parties. Instead, these are the
symptoms of perceived corruption with the established political system and the
horrible stimulus plans of deficits, zero/negative interest rates and money
printing.
Ironically, today the main problem is that governments and
central banks will not admit that they are the problem. Solve this
and everything else will fix itself.
Yet as we hear more governments drone on about the need for the
wealthy to pay their fair share in taxes and for companies to create jobs, as
well as central bankers congratulate themselves for creating the wackiest
interest rate environment this side of Mars, the odds of them admitting they
are the problem are lower than England winning the next World Cup.
Understanding the difference between the problem and the
symptom will now allow you to refocus and see why we have chaos that is clearly
coming together to provide clarity and harmony.
Yet, in spite of all the financial wizardry the industry
still suffers from the inability to distinguish the difference between
perception and reality.
Perception is that the
world’s central bankers are super heroes who can influence the economy, jobs,
inflation and markets at their whim.
Reality shows that Janet
Yellen, Mark Carney, Haruhiko Kuroda, and yes, even the Italian maestro Mario
Draghi are just plain, ordinary people with apparently no super powers at all.
In fact, every time this fantastic four spun their money magic – it made things
worse.
Perception is that professional economists are able
to see into the future and predict with uncanny accuracy exactly how, when and
where economies will move.
Reality shows that professional economists have
predicted 0 of the last 7 recessions in the United States. Yes, collectively
they have never, ever correctly forecast a bad time for anyone (source: Ned
Davis Research).
Yet reality shows that professional economists have
predicted 0 of the last 7 recessions in the United States. Yes, collectively
they have never, ever correctly forecast a bad time for anyone (source: Ned
Davis Research).
So, the next time your investment advisor and big bank proclaim
that their economists are forecasting a recovery and no recession, know that
this couldn’t be any further from the truth.
And finally, perception shows traders on Wall Street,
Bay Street and the City as being immortal, brainiacs who can create profits by
merely rubbing two keyboards together.
Yet, reality shows that 85% of traders on Wall Street
have only been working in the industry since 2000 or earlier. In other words, the
majority of traders have never seen a rising interest rate environment. And in
fact, nearly 66% of traders have spent their entire career in a 0% and negative
interest rate environment.
So, the next time your investment advisor and big bank proclaim
their mutual fund managers and traders have years of experience in all markets,
know that this couldn’t be any further from the truth.
Now that we know the difference between the problems and its
symptoms, as well as understand the investment industry’s blindness between
perception and reality, let’s sort
through the world’s chaos.
In the end, you too will see how the chaos is driving markets
and capital towards a “harmonious state”.
And when the government sector has a crisis, it is reflected
in the GOVERNMENT BOND MARKET.
To put this government bond market crisis into perspective, we
offer our Chart 4 (next page) which shows a relative comparison to recent
crises from the private sector.
* * *
To really understand how serious of a problem this is, just
know that a mere 1% rise in long-term interest rates, will create losses of
approximately $2 Trillion for bond investors. The fun really starts when
long-term yields increase by 3%, and then 6% and then 10%. This is the point
when certain government bonds simply stop trading altogether, and losses pile
up at 50%-75%.
For those of you shaking your heads in disagreement, we
kindly suggest you research your history of long-term interest rates.
However, when long-term rates go
higher – it is an explosive move. Long-term rates ratchet up VERY quickly
making the sudden loss instant, while exponentially increasing the funding cost
of the borrower.
Most investors today have no idea what is happening in the
bond market today and have exposed themselves to incredible amounts of risk.
And more importantly, because a global crisis in the
government bond market has never occurred in our lifetime – advisors, financial
planners and big banks continue the tradition of telling their clients that
bonds are safer than stocks.
As a result, the most conservative investors in the word
remain heavily invested in the bond market and are therefore smack dab in the
middle of the riskiest investment they’ll ever see.
Chaotic indeed.
…
[ NICE SATIRE ]
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