Saturday, March 21, 2015

Momentum May Be Waning Again!

Momentum, Are We On The Way Down?
Momentum may be waning again as it appears we are currently witnessing a falling off of economic activity. This is not the first time during a so called economic "recovery" that after we celebrate we find we have failed to achieve escape velocity. An article from early 2013 explored the concept of momentum and how economic growth is based on an ever growing trend of year over year increased production. Below we revisit some of the key points as to why we are losing the momentum game.

The drop from 5% GDP growth only a few quarters ago to what is now seen as under a half a percent growth in the current quarter is an indication all is not well. Many factors come into play as to how successful the launch of a recovery is. The amount as well as the kind of stimulus are both components that mix together and combine with the cause and severity of the recession to be crafted into an economic solution to promote growth. Sadly, those in charge have forgotten the quality of growth matters and it must be based on a sustainable foundation, this means allocating money and resources in a way they will contribute to the economy for many years and result in long-term dividends that add to our ability to compete. It is blatantly clear the crux of current central bank policies have been geared to "extend and pretend" and ignore the necessary structural changes that need to be made.

For years the wisdom of our current path has been questioned as the interest of Wall street and the too big to fail have been placed in front of those of Main Street. The recent downgrading of future growth has been ignored by many even while it has been repeatedly pointed out that due to QE much of the economic landscape was beginning to look like something out of  "Alice And The Looking Glass." A bizarre and unrecognizable land has developed, a land distorted and papered over by ream after ream of paper. This paper has been rolling off the printing presses of central banks all across the world for seven years in an attempt to mask reality. Peter Schiff says, printing money is to the economy what taking drugs is to a drug addict. In the short term it makes the economy feel good, but in the long run it is much worse off.

Again, it must be cautioned that what was once the "long run" or "distant future" may be getting much closer. We must remember the influx of monetary stimulus from QE and massive government deficit spending has moved consumption forward creating the illusion of more pent up demand than exist or can be substantiated. This results in an elevated baseline for comparing year on year growth, in short we have to move forward faster next year just to keep growing. For example, if we manufacture and sell twelve million automobiles this year up from ten million because of low interest rates and easy money, we now must sell  the same number for the economy not to contract.

The whole concept of economic growth is based on an ever growing trend of year over year increased production. At times we see a sector rotation such as computer sales increase when clothing falls, but overall we seek numbers that reflect an upward and onward slope. History shows that such trends falter when they become overdone and unsustainable. Economist often talk of headwinds and tailwinds, much of what has been done in recent years has acted as a "artificial tailwind" but this is not a normal state and cannot be sustained. We have recently seen currencies coming under attack because of the policies of low interest and easy money from central banks as well as a drop in oil prices from overproduction at the same time as the GDP forecast is quietly downgraded.
So again we must ask the question, what happens after the momentum ends? What happens after QE can no longer increase demand. After most or all of this easy money has flowed into the investment "of the day," what happens when it begins to flow out? Much of this recovery has been constructed on the unstable base of false demand. It seems that we always think that we will see "it coming," we always think we will have ample time to react if it becomes apparent the markets are about to crash but the speed at which events can occur is often a surprise. One thing remains certain and that is it is pure folly to base any economic recovery on selling automobiles to people who must take out a sub-prime loan in order to complete the purchase.

Thursday, March 19, 2015

Low Interest Rates And Unintended Consequences

In a recent article written by bond king Bill Gross titled "Going To the Dogs" Gross describes some of the current economic conditions we face. He refers to the wave of currency devaluations that have taken place across the world and points out almost all of them were promoted by policy rates that went negative. This means the short-term rates banks lend at and pay small savers have been skewed. Currently, he sees little in the way of the historic "good old fashioned" positive rates that at least offered something in return to those putting away money for their future. This also means we have downgraded risk as a factor when lending as we search for higher yields, history shows this tends to be a bad strategy.  His thoughts strongly dovetail with my concerns as to how these low rates distort and cause massive misallocation of resources throughout the economy.

Current Policies Carry Unintended Consequences
Gross states, "The universe of negative yielding notes and bonds in Euroland now total almost $2 trillion. Not even "thin gruel" is being offered to our modern day Oliver Twist investors. You have to pay to come to the dinner table and then sit there staring at an empty plate." He goes on to say, "The possibility of negative interest rates was rarely if ever contemplated in academia prior to 2014. No textbook or central bank research paper even mentioned it, although fees for safe haven "storage" have long been in existence at Swiss banks. Ben Bernanke in his famous 2002 paper titled "Deflation: making sure "IT" doesn't happen here", mentions helicopters dropping money from the sky, but nowhere was there a hint of negative yields once a central bank reached the zero bound."

The fact that such policies have unintended consequences is not lost on Gross who in his article highlights the following. A more serious concern, however, might be that low-interest rates globally destroy financial business models that are critical to the functioning of modern day economies. Pension funds and insurance companies are perhaps the most important examples of financial sectors that are threatened by low to negative interest rates. To make things worse he says, Negative/zero bound interest rates may exacerbate, instead of stimulate low growth rates in all of these instances, by raising savings and deferring consumption.

It seems the households of savers suffering from low/or even negative yields are being forced to address their inability to save enough money to pay for education, healthcare, and retirement obligations. Many of the most financially responsible people are hunkering down and saving more while many non-savers have gone on a "spendathon" and reacted by taking on more debt. Americans owed nearly $12 trillion overall in 2014, an increase of 3.3 percent over 2013. Declines in some debts, including a decline in credit card debts since 2011 is in no small part attributed to numerous defaults and  not from being repaid. These facts are more proof that we cannot depend on many of the statistics being bantered about by the media, government, or those with an agenda because they are outright fraudulent, flawed, or mask the real picture.

In between the lines of all of this information, good and bad, it is hard to find the truth. When we peel back the facade we find real unemployment is still at high levels and personal debt at unsustainable levels. This is a large part of the collapse in global demand and U.S. consumers no longer being able to support their historical consumption habits. If all this does not seem all that new it is because the trend 10 years ago of Americans using their homes as ATM machines has merely been replaced by low-interest rates and the Federal Reserve fueling questionable loans. The growth in subprime auto loans is a glaring confirmation of this and the main reason for surging sales in the auto sector. This effort to offset the dwindling buying power of the public sector by encouraging them to take on more debt by easing terms and artificially low-interest rates will not end well.

 Footnote; As always your comments are encouraged. I have written many other articles concerning bonds, debt, currencies, where value comes from, and inflation. You will find these in the archive. Below are two other articles that might be of interest.

Saturday, March 14, 2015

Volatility Unleashed!

Markets Could Be Shuttered Without Notice!
It appears volatility may be about to be unleashed by the soaring dollar and the markets could be getting ready for a wild ride. Ben Bernanke made a statement last week that I thought should have received a lot of attention. A MarketWatch story on Mar 2, 2015 4:07 p.m. details how the former Fed Chairman said Presidents should have the power to declare economic emergencies along the lines to declare war. “I am sure it is not politically possible, but it would be worth thinking about,” Bernanke said.

While the Fed retains the authority it needs to respond to another financial crisis Bernanke said these crisis “tend to have a certain chaotic element to them,” that no one can predict. He made these remarks during a panel discussion sponsored by The Hutchins Center on Fiscal and Monetary Policy. He went on to say "in light of this, it might make sense to give “the president some ability to declare emergencies or take extraordinary actions and not put that all on the Fed,” Bernanke said “The constitution gives the president significant flexibility to respond to military situations, in part because they are chaotic," he noted. The article then went on to point out how shortly after the collapse of Lehman Brothers in the fall of 2008, the Bush White House went to Congress and asked for authority to purchase troubled assets from financial institutions.

These comments have garnered little of the media coverage they deserve. At issue is the idea or concept that we should allow a President, even one who is not an economist or lacks a strong economic background, to take complete and immediate control of the mechanisms governing our free market system. With the transfer of control would come massive unintended consequences, I find this both unthinkable and scary. The fact that a former Federal Reserve Chairman would even make such a statement should send shivers of fear down the spine of people across the globe. This would defy all past historic precedents and laws by transferring the total economy and our economic freedom into the hands of one person. In a world so interlaced with international financial ties the impact is difficult fathom. This should make us wonder what exactly Bernanke knows that we don't, it should also highlight just how fragile the foundation of our economic system really is. 

The reason I think this should have received far more attention is that it screams massive risk still exist. After seven years the "System Is Not Ready!" and cannot adjust to what lies ahead. It is incredibly naive and pure folly to think that during a crisis a band-aid applied from Washington by any President is the solution or even a makeshift stopgap to economic carnage. Back in January of 2013 I wrote an article that received a great deal of attention, the bulk of it is reprinted below, the importance of the message it contains should not be lost.

Saturday, January 26, 2013               
                                             FLASH CRASH on Steroids!
Most investors think that even if things go downhill fast they will be smart enough to get out of the markets. After the debacle in 2008 where they saw the market do nasty and violent swings they learned a few things, this time they figure they will make the right moves before it is to late. But what if it hits like the flash crash on steroids? We know that can't happen because circuit breakers have been put in place to arrest panic style moves, but imagine a market that falls, trade is halted, and the market simply does not reopen for days, or even weeks.

For a long time I have been trying to develop a scenario for a market "super crash" and a reasonable map that would arrive at such a situation. To say I'm negative about this economy is a gross understatement. I saw the last housing bubble coming and predicted the crash in my book Advancing Time. We have never recovered from the Great Recession. By printing money, imploding interest rates, and exploding the Federal Governments deficit we have only delayed the "big one".

I recently came upon these two quotes on macroeconomic stabilization and crisis. First, from Macresilience;
"As Minsky has documented, the history of macroeconomic interventions post-WW2 has been the history of prevention of even the smallest snap-backs that are inherent to the process of creative destruction. The result is our current financial system which is as taut as it can be, in a state of fragility where any snap-back will be catastrophic."
And next from Nassim Taleb (author of The Black Swan);
"Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite."
These quotes suggest an analogy with ideas about forest management when natural fires are suppressed. If random fires do not periodically clear away forest underbrush, we see a build-up of flammable material sufficient to power a massive conflagration. I certainly think an equivalent truth applies to financial markets. The longer it has been since a painful collapse, the greater the willingness to pile on leverage and complexity, such that the next crisis becomes unmanageably awful. The "Too Big To Fail" and other policies implemented since 2008 have laid the groundwork for "The Big One", or what we will someday look back on as the mother of all sell-offs. My studies in micro-economics, and observations in the current real-estate market, both as a owner and hands on landlord allows me to predict, we ain't seen nothing yet!

Even after two years I stand by this scenario. Financial instruments, intangible paper, and promises are the warehouse or vault where America stores close to 71% of household wealth. All those involved in these huge financial markets  should be aware that at any time a danger exist the music might suddenly stop. Whether it be the result of a massive cyber-attack, war, or a major natural disaster it is foolish and a bit silly to think as a really bad scenario plays out the markets would continue to function as normal and without a hitch. Expect that all promises made or implied will be reworked in favor of those in power or left unfulfilled.

Sunday, March 8, 2015

Rand Paul Ignored By The Media, Again

I'm Still Here!
SEPTEMBER 21 UPDATE; Little has changed since I wrote the article below and something in the news today again has been hardly mentioned.   A story in USA Today reports that Sen. Rand Paul of Kentucky has won the presidential straw poll at the Mackinac Republican Leadership Conference taking place on Mackinac Island, Mich. Paul received 22% support in the poll of more than 2,200 conference attendees, according to the poll conducted by the Lansing political newsletter MIRS and The Detroit News. Businesswoman Carly Fiorina, buoyed from the momentum of what was seen as a strong debate performance finished second. Now on with the original article.

It would not be difficult to image during the middle of a political story a journalist refer to an "unnamed Senator from Kentucky" in order to avoid using the name that seems to be forgotten or at the least stick in the throats of anyone covering those interested in Republican politics. A recent poll from Iowa making its way around the Sunday morning talk shows has elevated Scott Walker to the front of pack. To hear some commentators it would seem it is all over before it begins and even solid well respected party favorites like Jeb Bush haven't been given much of a prayer because they are said to lack that certain "je ne se qua" that seems to be a must have in politics today.

The french phrase je ne sais quoi as you know denotes a elusive quality or attribute that is difficult to describe or express literally the term means "I do not know what". It is often used when referring to that special intangible quality that makes something or someone distinctive or attractive. The bobbing heads of the media who are often in a rush to put someone like Herman Cane who was a former "flash in the pan" presidential candidate during the last Presidential election in the position of front runner have labored hard to forget how Paul received the most votes at CPAC. Not a moment was spent pondering how odd it is that this conservative group would shower praise upon a man who has many friends on the far side of the political spectrum among liberals and students.

It seems everyone and everything is a story except Rand Paul. The subject known as 2016 is boiling over with speculation and laced with intrigue. The media even made a big deal of  Mitt Romney dropping from the coming race after stirring people up by only weeks ago talking about dipping his toe in the water.  They often make certain to open the tent door and encouraged another heavy weight, New Jersey Governor, Chris Christie to stuff his suitcase full of snacks for the road and head out to dance with potential backers. Yes be clear, all this glorious news coverage is an excellent way to clarify and tell America exactly what to think.

At the same time media is going about the task of forming our opinions they can help us avoid the long and bothersome task of holding an election by thinning and shaping the field as they see fit. Republicans are faced with a massive group that holds high aspirations and many of those interested in entering are busy edging their way forward and upping their game by elbowing other candidates off the stage and out of the spotlight. If it would garner attention some of these clowns might even go so far as to set themselves on fire. Nothing is as sad as watching this group of wannabees marching in their one person parades. If you think that I'm being harsh using the term clowns remember even fellas like Rick Perry who took a very hard fall from grace four years ago has joined this group.

While Rand Paul is not expected to rise to the top any time soon his base is solid in a field where many love affairs are fleeting one night stands. I'm somewhat surprised that Paul has not at least been put before the public and crucified for having a less then memorable first name. What kind of name is Rand anyway? We need candidates with "gooder" names like Barack or Mitt because that is what makes a politician solid. To some in the media the only saving grace the name Rand Paul brings to the table is that his whole name can be easily chanted in a rhythm that exudes confidence. In modern day politics this is a bonus that cannot be quantified and must not be underestimated.

In all seriousness after with only the limited face-time I have spent Rand Paul I was left with the feeling he is rock solid. Paul's conservative financial ideas mixed with less government moves him in the direction of being a strong supporter of personal freedom. When sprinkled with a less confining social mantra this becomes something many voters seek. Many political pundits see his non-fiscal views as the primary reason Paul is constantly pushed off the stage and shown so little respect within the Republican party and by the media. I for one along with many financially conservative voters have cringed and been put off by a Republican party locked away in a small tent busy spouting restrictive social mores. Bringing together people from different factions is no easy task, but Paul is one of the few candidates I have found capable of achieving this.

On one of the Sunday morning talk shows I heard Rand Paul referred to as a "high trust candidate" this trait should not be considered unimportant. The way Paul is treated by the mainstream media should viewed as an overt effort by them to dilute, undermine, and lessen both his message and the viability of Rand Paul as a candidate. The crux of this article is to spotlight the fact that Rand Paul continues to be ignored by the media and how they fail to highlight either his strengths or weaknesses. Bottom-line is that no matter how much he is ignored the media should not expect Rand Paul to slowly and quietly ride into the night. The message he brings forth has substance and efforts to paint him with silly colors or just paint him out of the picture have failed before and will fail again. We are still early in this game, but if Paul decides to push hard I expect he will become a major factor as the game moves forward.

Footnote; If you think this is endorsement of Rand Paul over many of the other candidates thinking about a run for the top office in America, you are right. Matter of fact I will gladly donate office space for his campaign if and when the need arises.

Shrinking Labor Pool Is A Cause For Concern!

The Labor Pool Is Growing Less Popular
Why is the labor pool shrinking at the same time the population continues to grow? Cultural change is sweeping across America and it appears less people really want to work. You can blame it on a lack of compelling opportunities  or a variety of different reasons, but this may be a signal the chickens are coming home to roost and the cost could be massive. As people leave the work force even for a short time many of them find it hard to get excited about the idea of reentering. The arena known as the work place is to many workers a time consuming and unpleasant mix of unfulfilling  task. A Shrinking Labor Pool represents a dramatic shift in our values with huge and possibly ugly implications for society at large.

Over the last two decades we have created an environment where the shame of not working has been greatly diminished. Two comments that I have heard on more than one occasion from people who did not work both startled and stuck with me. The first is "I'm just to busy to work" this seems to be a way to justify their lifestyle. This could be taken to imply those working have far less important things to occupy their time. The second is the terminology often used by those living on money doled out by the government is in reference as to when they will receive their "benefits." It seems "I get paid" followed by when the transfer will be made is the most common way. Oddly, this could be interpreted as to mean that they work or did something to earn the money.

I have also found those who are bone idle often feel little remorse and sometimes even a bit of pride in their ability to sidestep the obligations related to working. Reporting to a job tends not to be as much fun for the average worker as we might think, that is why they call it work and not a 'holiday'.  In fact many people hate and despise their job. For many people what they see as the death of the 'American dream' has added to their malaise. As they lose hope of ever really getting ahead or amounting to much they often find it is easier to accept their fate then to fight it. Why toil exerting a great effort in a society where an almost cavalier "Tom Sawyer" type attitude has developed and people swell with pride in tricking someone into painting their fence or carrying their share of the load? We would be wise to remember this will have a cost, there is no such thing as a free lunch.

As people exit the work force it is not uncommon for them to quickly use up what little or any savings they might have. This leaves them in a position to become a burden to society when even a slight financial misfortune is placed upon them. Those living on the edge of society live with only a small buffer and can find themselves stepping over the line. As they become more marginal people find a dramatic increase in the incentive to become involved in criminal activity or start down the path of running  up debts they can never repay and eventual bankruptcy. Activities such as these pose a cost and burden that tends to wear society down by attrition. This will further strain Social Security, SNAP, SSI, Medicaid, and a plethora of other programs that comprise a safety net under the nations poor. As wealth is transferred from those employed to those who are not we find that taxes must be increased on a proportionally smaller tax base.

The erosion of both skills and the work ethic has indeed left employers scrambling to man their ships. This helps explain a large number of job openings in certain sectors of the economy, but you cannot put a square peg into a round hole. Simply providing expensive job training to those with little desire to work and have no work ethic is not an answer and does not spur employers to pay someone more to do a poor job. The bottom-line is small business in particular is harmed and societies options slowly vanish as the labor pool evaporates. This trend has the potential to spur inflation because with as competence and skills vanish it will soon becomes outrageously expensive to have any service preformed that cannot be done by a large concern using a cookie cutter format.

To many people a life devoid of work has many benefits. They have more time to smell the roses and hang with family and friends as well as pursuing other interests even if it means they just while away the hours.  Modern society does not lack for providing distractions and diversions on a 24-7 time table. When you couple this with a almost generous array of income options from a government and society driven to reduce poverty finding a way to financially muddle along is not overly challenging. Many people, particularly the Millennials, have discovered how surprisingly little they really need to get by or even enjoy life when their basic needs are provided and even seem to take pride in this new found status.

  Footnote;  I applaud the shift away from a lifestyle based on materialism, but that should not be confused with the need of an individual to take personal responsibility and shoulder their part of life's burdens. Below are two other articles related to the subject of our so called "social safety-net." Thanks for reading and comments are encouraged.

Friday, March 6, 2015

Jobs Are Not All Created Equal

Not All Jobs Are Created Equal
It is a fact that not all jobs are created equal, they vary in pay, hours worked, responsibility, how hard someone works, and much much more. Often job numbers and statistics fail to make this clear and reflect a poor picture of the true employment landscape. A big discrepancy exist between government and private sector jobs and the same might be said about union and non-union jobs.  In all reality creating jobs in a mature market should be required to pass a certain "taste" test. This is something many politicians and those in Washington often fail to grasp.

It should be pointed out that while America is creating jobs it has come at a huge cost. By this I'm referring to the massive government deficit which is the fuel driving our still rather weak growth. Just as important as the number of jobs created is whether these are the right kind of jobs and their quality. We need jobs that will last. When a job falling outside the description of government worker, fails to make economic sense, it becomes a form of working welfare and the taxpayer is left picking up the tab. Many of the jobs created because of easy money combined with artificially low interest rates that move consumption forward also fall into this category. We as a country and as a society pay dearly for each unsustainable job created through government incentives and partnerships, because of their nature many of these jobs should by all rights be called temporary.

A great weakness in government generated jobs is after a huge outlay to set up, or put them into action, they often do not create or contribute to production. If these jobs are not asked to continually justify their cost they tend to merely become another burdensome cost to society. The feeble efforts to think through and link a job to a sustainable economic base that creates a needed product and generates real value is a major flaw in most government aided ventures. An enterprise must be profitable to qualify as sustainable. Once started government sponsored ventures are often slow to react or adjust to economic reality, this can be seen in the Postal Service and its inability to drop Saturday delivery.

Two examples of government over involvement come to mind from the city in which I live, the first I will call Kitty Hawk. In Fort Wayne, Indiana years ago the city aggressively backed a bond and the loan to build a massive hanger at the airport for an air-freight company named Kitty Hawk. The city lured the company to the area because it promised a slew of new jobs where they located their hub, the company is now bankrupt and the jobs are gone. The taxpayers of Fort Wayne are now paying for an empty hanger that they are trying to lease at a "aggressively" low price. This hurts those private investors and property owners that lease building space as they are now forced to compete against their own government to which they are forced to pay taxes.

An example that I have used before in other writings is the mind boggling, and hard to defend venture known as Citilink. This is Fort Wayne's pathetically under used money losing bus system. Every day buses running their predetermined routes crisscross the landscape of the city completely empty, it is more uncommon to see a rider then not. Funded by Federal monies as well as local real-estate taxes, most people give little thought to this economic failure. One could site that the poor or those without transportation need this service, but the cost of this inefficient system is huge. Burning through fuel and polluting the air as they transport only a few riders, it is hard to argue that they make the city green or that the jobs are economically sustainable.

It has become a common practice across America and much of the world for governments to actively compete for companies that offer the prize of coming into their area and creating a number of good paying jobs. Often governments hurt local businesses when they invite a company like Amazon into their community by offering tax incentives to construct a distribution center. This can be a dagger into the hearts of existing businesses. Anything that gives one company an unfair advantage over another tends to lessen the ability of the other to remain competitive, this can result in the destruction of real jobs. Solyndra, the solar panel company that received a $535 million government-backed loan then went belly-up should be placed in the dictionary as the definition of what happens when politicians and bureaucrats play businessman with taxpayer money.

The recent calls coming from Washington to increase pay and benefits in an effort to help take spending and the economy to a higher level fail to consider that for much of America's small businesses the numbers simply do not work. Again, we find small  business once the backbone of this country is under attack from the unintended consequences of the many laws and mandates passed in recent years. Inspections, a plethora of permits, licenses, taxes, insurance requirements, and regulations make it almost impossible for a small business to open, compete, and operate legally. Big government has become toxic for small business. Only by taking the foot of government off the throat of small business and letting them breathe will we again begin to see real sustainable non-subsidized  jobs form and grow.

Wednesday, March 4, 2015

"Buy The Dip" mentality explodes!

Are We In The Eye Of A Storm?
Could it be we are in an economic cyclone and all is calm because we have entered the eye of the storm? America seems to be on a "economic" sugar high with the President busy taking a victory lap as he throws out phrases about how more needs to be done to console those still suffering. While pondering the current economic climate it occurred to me that we might be in the eye of a massive slow moving storm. The eye is the calm we find in the center of the storm. The most recognizable feature found within a hurricane is the eye. They are found at the center and are between 20-50km in diameter. The eye is the focus of the hurricane, the point about which the rest of the storm rotates. It should be noted that skies are often clear above the eye and winds are relatively light. It is actually the calmest section of any hurricane.

Many investors have been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years. This means it should not be a huge surprise the rest of the population has been carried along taking as fact the positive spin that things are getting better. The question thinking people must ask is, have these actions really worked or merely masked over major flaws and problems? For month after month unspectacular economic numbers have been spun and laundered to confirm we have finally rounded the corner and a strong recovery exist. Still some among us dare to doubt all is well and think the light at the end of the tunnel is a train boring down on us at full speed. I continue to see a major flaw in this so called "recovery" in that by not demanding the right kind of growth and simply by throwing money at problems we have only delayed and added to festering issues that face us in the future.

Recent numbers show that the GDP is again slowing, this has been ignored or discounted by the markets. The hard core truth is that capitalism is all about creative destruction. It is not about subverting the economies of the entire world to propping up terminally insolvent institutions. Only by destroying and replacing weak or obsolete systems with stronger and better systems does capitalism retain its vitality. Transferring debt from households and consumers to the national debt and the public where some economist claim it is less relevant and does not need to be paid off is not an answer. This shift in obligations and artificially low interest rates is an effort to free up consumers with little long-term spending power to go on a consumption rampage and pull demand forward. 
Modern Monetary Theory often referred to as MMT by its many believers is to remove much of the risk ahead and guarantee that we will always be able to muddle forward. This is a economic theory that turns to newly acquired tools like derivatives and currency swaps that are suppose to allow us to print and  manipulate away problems. This has created an "almost surreal" feeling of indifference towards reality in an effort to lessening the importance of debt. This is not a sustainable solution, it is encouraging waste, misallocation of resources, and it creates false markets in the hope that just by producing more goods we can correct our economic ills. This and massive government deficit spending continue to disguise deeper structural problems and hide weaknesses. Valid concerns exist as to just how strong the financial system and the economy it supports really are.

It is important to remember that when trends form or take hold they are not always steady or controlled, many times they progress in fits and starts. The recent flow of money out of the yen and euro and other currency moves should be viewed as a signal of instability across the globe. It is not uncommon to pull back or "back-fill" after a big move. Nothing has been resolved as to the long-term impact of transferring debt to governments that already are overburdened by future promises that they will be unable to keep. Still many people have been fooled into thinking that by kicking the can down the road we can continue to muddle along. Beware that an event might take place at any time that resolves this mess in an unfavorable way or creates an unforeseen twist with dire consequences.

I have seen and heard far too many comments by those bullish on higher equity prices and ever higher markets basing their strategy on a policy of  "don't fight the Fed" and "buy the dips." While this has worked since 2009 it is no guarantee that it will continue to produce results in the future. Remember that governments make big moves every now and then, and sometimes these occur during the middle of the night. Caution to those who believe CNBC, Bloomberg, the WSJ, or any other of the other propaganda media outlets that seek to extend the status quo.  They see their role in this play as to keep their government patrons and Wall Street advertisers happy, while keeping the masses misinformed, sedated, and reassured.  Extend and pretend is the flavor of the day and in doing so they find it best not to properly analyze the facts or seek the truth. The explosion of the "buy the dip" mentality is proof of the folly they promote. This mantra will prove very costly when a real correction does occur.