Bubblicious

When the stock and bond market crash comes, and the politicians say “nobody could have seen this coming”, at least Lance Roberts and Jeremy Grantham will be able to say “we did!” And, actually, they are not the only ones.

Frauds

A few chickens are coming home to roost. Wirecard, long fingered as a fraud, is now beyond saving. FT’s Alphaville has an article asking which will be the next shoe to fall, but somehow can’t come up with an obvious candidate.

Danielle Martino-Booth

Chris Irons has interviewed Danielle di-Martino Booth. She is not some kind of fringe conspiracist of the sort (arguably) that Chris often invites onto his podcast. She spent nine years as an advisor to Richard Fisher at the Fed Reserve Bank of Dallas. She is not J Powell, but she is not Peter Schiff. The interview is wide-ranging, but she says that:

• the Fed has massively exacerbated inequality (even though Powell denies it),
• the dollar will probably lose its status as a reserve currency, and this will provoke a “hot war” with China,
• even the Fed admits, in private, that it rigs the inflation measure in order to justify its primary mandate of inflating asset markets,
• that UBI in America is coming, and the unlimited funds that the CARES Act gives to an incoming president will lead to some extraordinary inflationary actions once Biden is elected.

As a Brit, I have no dog in this race, but with the exception of the technocrats that David Beckworth interviews, everyone I follow seems to have the same view about the Fed.

Variant Perception

I saw Jesse Felder retweet a couple of their charts. Worth a look:

(This one comes with a warning: the definition of ‘excess’ changed in March: see comments)

To read the comments (very recommended), follow Variant Perception on Twitter.

Trader Vic (Up Close & Personal with Trader Vic (guest: Victor Sperandeo) - Market Huddle Ep.86)

I listened to Up Close & Personal with Trader Vic (guest: Victor Sperandeo) - Market Huddle Ep.86. The interviewee is full of interesting anecdotes. He was very good about the importance of the Fed paying interest on reserves (which killed the inflation which QE2 would have otherwise generated) and the reason that gold has done so much better than silver recently. The reason is that gold bullion is treated as a Tier 1 asset by the BIS, so banks can hold it without requiring any capital. (Explained in more detail here.) What was quite interesting was that he explained this in terms of the interest on excess reserves crushing the velocity of money, by which he essentially meant the willingness of banks to convert reserves (risk-free assets) to actual loans to finance real consumption and capital formation (risky assets). As he said, why use up precious capital to make loans at very low rates when you get free money from the Fed in essentially unlimited quantities (because you can increase deposits, or at least borrow, at a cheaper rate, probably, I guess). He was very good about some earlier crises, including the role that James Baker played in the 1987 crash, which he lived through. He attributed this to politicians saying things the market implications of which they did not understand. In this case Baker was trying to make Germany reduce its interest rate, which it would not, so Baker said that he would bring down the dollar unilaterally, which Vic claims caused lots of foreign holders of all US assets including stocks to liquidate them, precipitating the crash.

I’d never heard of the guy before, but he’s obviously a very successful trader, and has written a number of interesting-looking books.

I was doing other things as this interview took place, so I should probably listen to it again. One thing Vic said, which sounded so wise, was that he never took a position unless both the technical signals and the fundamentals were with him. There are traders who claim that fundamentals don’t matter. There are traders who think that technical analysis is about as useful as astrology. The fact that both seem to co-exist and make enough profits to stop themselves going extinct suggests that there is something in both approaches.

Vic has has known some giants of finance, including George Soros, who he credits with having the deepest understaning of the nexus between economics and forex rates of all.