Trepidation Nation

This week, while you were busy working, Jamie Dimon, CEO of JP Morgan Chase, took time out from rubbing elbows with fellow movers and shakers at the World Economic Forum in Davos, Switzerland, to share his trepidations:

“The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yield and stuff like that…  I think it’s very hard for central banks to forever make up for bad policy elsewhere, that puts them in a trap.  We’re a little bit in that trap today with rates so low around the world.”

Jamie Dimon having nightmares in his money bunker [PT]

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Fiat Currency Rankings – From Bad to Worse

Today, as we step into the New Year, we reach down to turn over a new leaf.  We want to make a fresh start.  We want to leave 2019’s bugaboos behind. But, alas, lying beneath the fallen leaf, like rotting food waste, is last year’s fake money.  We can’t escape it.  But we refuse to believe in its permanence.

This is what “monetary stability in the Fed-administered fiat money regime looks like: in the year the Fed was established it took $3.80 to buy what $100 buy today – provided the government’s CPI data are actually a valid gauge of the dollar’s purchasing power. [PT]

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Addicted to Spending

There are many falsehoods being perpetuated these days when it comes to money, financial markets, and the economy. But when you cut the chaff, three related facts remain: Uncle Sam needs your money. He needs a lot of your money. And he needs it bad!

The inescapable logic of tax & spend: empty vault… empty pockets… gimme more! [PT]

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The Bubble Machine

The launch angle of the U.S. stock market over the past decade has been steep and relentless. The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent. New highs continue to be reached practically every day.

S&P 500 weekly, since the low of 2009. A party of roaring 20s proportion in terms of duration, extent and end point valuations (a post-war inflation episode triggered a devastating bear market from November 1919 to August 1921, in which the DJIA fell from ~120 to ~64 points. It then rose until early September 1929, topping at ~380 points. By the time it peaked, Wall Street had created all sorts of new-fangled instruments such as the then highly popular investment trusts, everybody was speculating on margin and the equivalent of today’s FANGs such as RCA (“Radio”) traded at previously unheard of multiples – as did the rest of the market. Numerous sharp corrections along the way had eradicated the perception of risk in investors’ minds. We have discussed the parallels between the two eras before, and in the meantime another parallel can be discerned in the charts. In late 1928 the market suffered a sharp sell-off in the normally seasonally strong period, very similar to what occurred in 2018. It was the biggest correction of the entire bull market, but the market swiftly rallied again and by February 1929 it made new highs. It then proceeded to build a chart formation known as “three peaks and a domed house”. The three peaks of 2019 are not a perfect replica of the basic schematic of the formation, but the timing is in line with it (they are supposed to be established within 6-10 months). George Lindsay’s original schematic is very detailed, it is therefore unlikely that the pattern will repeat perfectly every time. The so-called domed house can take up to 7 months to form, but we would focus on the shape rather than the precise duration. Whether the formation does indeed form remains to be seen. It is definitely something worth keeping an eye on. [PT]

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Monetary Lunacy, Nipponese Version

Earlier this month, Bank of Japan (BOJ) Governor Haruhiko Kuroda commented that Japan’s central planners are considering a 50-year government bond issue as a long-term means of putting a floor under super-long interest rates.  How this floor would be placed is extremely suspect; we will have more on this in a moment.  But first, the dual benefits – according to Japan’s central planners…

Kuroda-san: the man with a plan, or rather, a plethora of plans (過剰な計画). [PT]

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Prettifying Toxic Waste

The promise of something for nothing is always an enticing proposition. Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance?  So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?

The yield-chasing hamster wheel… [PT]

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Wildfire Surge

The hillsides are always brown in the land of fruits and nuts come autumn.  After baking away all summer long in the hot sun, the dense sage and chaparral covering the coastal hillsides and canyons are dry and toasty. Though, before conditions get better, they must first get worse.

California is ablaze again… as every year.  [PT]

Photo credit: Noah Berger / AP

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