Monday, March 24, 2014


At this point it's pretty clear that a softening of world growth (notably driven by a slowdown in Emerging Markets, particularly China where PMI's have been coming down precipitously as last night number confirmed) will prompt Central Banks in the developed world to in some cases reverse course, and in others to increase their money printing mode (elegantly denominated QE).

The Fed has already abandoned previous targets of unemployment and now has referred to "qualitative" targets (read: there is no specific formula), and despite their continued tightening will sooner rather than later reverse course due to the contagion effect from lower growth abroad (there is a tendency in the US to forget that their economy is global, particularly their large corporations have a significant source of revenue outside the country). All the GDP growth targets have been off even with massive amounts of printing during the last 5 years (how good an investment is to incur in additional debt of around 7% of GDP per year in order to obtain 2% growth?). Higher interest rates and a stronger dollar constitute a magnificent cocktail that is likely to stall what has already been an anemic growth rate (does it a take a Phd to realize their problem is structural and therefore contingent measures will only postpone a structural change?).

In Europe the economy is growing. But the devil is in the detail: 0.4% growth? After throwing under the rug all their increased debt into their banking system balancesheet. Great formula for success, notice how anti austerity movements are on the rise, people are demanding implicitly higher social spending, and therefore it isn't impossible to assume that in order to ramp their economy to something a bit more decent they will too be forced into money printing. The Euro appreciating shouldn't be a matter to be proud, as their competitiveness is getting clobbered. Their problems are structural too (namely to have a union of very different economies and political systems under one umbrella, their desire to keep the boat afloat will likely have the peripheral countries dragging the economy for a very prolonged period of time, or outright breaking the union)

And Japan, 20 years of stagnation where supposedly Abe will now break by......printing more money. Human nature at it's best, no further comment.

As mentioned in previous articles that I have been writing since 2010, money printing doesn't work, hasn't worked, and will not work. Yes, it will buy time and avoid (maybe) another blow to financial markets. But it won't create real sustainable growth, instead it will leave a massive tab for future (present?) generations.

Quite frankly to assume that the Fed will engage in tightening next year is a very lame joke, with an ever increased fiscal deficit, anemic growth, enormous underemployment rate, asset bubbling driven economy, dysfunctional political class (president included), over indebted middle class, to name a few. Rate hikes will not only kill the recovery, but make sure to tank the economy for a very long period of time.

So let's not get fooled by talking heads words, QE-MANIA is here to stay.

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