Seeking Alpha

Deep In The Heart Of Texas

by: Mark J. Grant

I am in Dallas, presently, for a meeting. I grew up in Kansas City, so it's not like I am a total, "what the heck are you doin' here, you yellow-bellied Yankee." Anyone coming to Texas should make note, by the way, that apparently, the General Assembly has outlawed the letter "G" at the end of some words.

It is "Welp, I's goin' fishin'" and "Your phone is ringin', meathead'" and "The catfish 'er jumpin' this time of year." All of these things said, of course, by men with belt buckles big enough to tie a horse up to or by women with hair so big that it resembles the tumbleweed rolling across the Texas plains. Heck, coming through the Dallas airport yesterday I saw women with combs that were bigger than most rakes.

Then, of course, there is "honey." It is not pronounced like you might think though, no sir, It is "Honeeeeeee." Yesterday, at lunch, the waitress said, "Howdy, Honeeeee, let me rustle up some grub for you and brang you some wangs." I got chicken wings, never got any of those "wangs" though, whatever the heck they might be.

Then, of course, if you give the wrong answer it is, "That dawg can't hunt." If you insult their intelligence it is, "This ain't my first rodeo." They also have a word here, "cattywampus" and I am not even going to try to figure that one out. The one thing I do know, though, is that there is one Texas phrase that will get you through any trouble, any trouble at all. This is "Bless her heart."

Well, now that I have explained all this to you, "sure 'nuff," we'll get on to other matters, before you get all "tuckered out." I will now do a "whole 'nuther thang."

The Financial Times puts it this way, "U.S. stocks hit their sixth consecutive closing high on Thursday for the first time in more than 20 years, fuelled by signs of economic strength and renewed optimism over tax cuts." This is what I call a partial, meaning that it is true, as far as it goes, but it doesn't go far enough. The essential ingredient, that almost no one talks about, at all, as if it wasn't happening, is the massive amount of new money that is continuously shoveled out of the vaults of the world's central banks.

You might almost think it is some kind of conspiracy, some kind of damp-down or cover up. We all know that the central banks, with the exception of the Fed, for the moment, are printing money. Bloomberg estimates the size of the world's central bank assets now at $21.5 trillion, a bigger economy than the United States or China. Yet, the world's biggest monetary creation in history is never pointed at as the reason for anything. It must be that if the man behind the curtain is not discussed then no one will pay any attention to what he is doing. Maybe some sort of global propaganda machine is at work?

The whole purpose of propaganda is to make the obvious seem obscure, or offensive.

-Stefan Molyneux

On Wall Street, we are always looking for the "ending." You would think that we are masochists of some kind, "When will it end and how bad will it be?" I suppose it plays well in the media to discuss these sorts of things but I find no appeal in manufactured drama and calls of this sort never prove to be true, in any event.

The Great Depression of 1929 was certainly painful. Our last debacle in 2008/2009 was also painful. Yet, after all of this, and everything in-between, the United States, and the rest of the world, is still chugging along, one step at a time.

What is clearly different, now, in my estimation, is that the Democracies of the world have ceded power to the world's central banks. The people that run these institutions are now in control, in my opinion, of the financial markets of the world. I think that the "economic strength," to which the Financial Times alludes, is almost totally caused by the influx of capital as the stuff goes to work, in various markets, and buoys the global valuations of everything.

In my mind it is bonds yields held down, or heading lower, and equities up and the compression of all risk assets to the sovereign benchmarks. This is the paradigm that I think holds and it will not change, in any meaningful manner, until the central banks, in total, stop printing money and take a different tact.

There is no "normal" here, as all of the monetary creation has never been done before. You can't have "normal" without a history and, since none exists, a return to "normal," a phrase perpetually bandied about by the Fed, is a statement without meaning.

Of course, given the way the political system works, even if the central banks stopped minting and equities declined and yields went up meaningfully and risk assets widened, the central banks would reassess and be "back in," in my estimation. "Saving the world," is not in Mr. Draghi's purview alone. It takes the lot of them to move the needle.

When considered in a rational and realistic fashion, instead of considered in a "partial" manner, I believe I can answer the questions for you. They are, as previously stated, "When will it end and how bad will it be?" The answers are that it won't be ending anytime soon and that, since money can be printed at will, the central banks won't allow anything too bad to happen.

All of the answers, big and small, rest upon the creation of money. That is what you watch. That is what you should pay attention to. That is what will determine where both bonds and equities are heading.

It's the money, honeeeee!!!