1) ... Liberalism became the paradigm and age of investing through the intervention of the world central banks. Liberalism is defined as freedom from the state and commenced with John Calvin as Doug Phillips writes John Calvin (was) the man most responsible for our American system of liberty based on Republican principles of representative government.
It was Founding Father and the second President of the United States, John Adams, who described Calvin as "a vast genius," a man of "singular eloquence, vast erudition, and polished taste, [who] embraced the cause of Reformation," adding: "Let not Geneva be forgotten or despised. Religious liberty owes it much respect."
Calvin, a humble scholar and convert to Reformation Christianity from Noyon, France, is best known for his influence on the city of Geneva. It was there that his careful articulation of Christian theology as applied to familial, civil, and ecclesiastical authority modeled many of the principles of liberty later embraced by our own Founders, including anti-statism, the belief in transcendent principles of law as the foundation of an ethical legal system, free market economics, decentralized authority, an educated citizenry as a safeguard against tyranny, and republican representative government which was accountable to the people and a higher law.
Quantitative Easing, fathered by Ben Bernanke, started the final phase of liberalism as a paradigm and age of investing, which featured the investor as the centerpiece of economic action whose investment choice was underwritten by currency carry trade and debt trade investing, and which also featured the client of government whose dependency was underwritten by SNAP Food Stamps, Public Housing, Section 8 Vouchers, SSI/SSD payments and other transfer payments such as TANF.
What began with QE1, was finalized by Global ZIRP of the world central banks, consisting of what amounted to money printing operations of LTRO 1 and 2 and OMT, as well as Abenomics which rewarded risk-on investing and powered up Liberalism's three dynamos of economic activity: corporatism, creditism and globalism.
The government policies of democratic nation states, and the credit schemes of the world central banks and the speculative leveraged investment community, set the investor free, yes liberated the investor, to pursue investment choice, and experience a moral hazard based prosperity based upon his risk appetite.
With the exception of clients of government, such as those in Greece who experience what the Economist Magazine describes as a culture of pork and patronage, and those living in the US in public housing on transfer payments, the entire world's population was set free in 2008 as investors.
2) Peak liberalism came in on Thursday, March 6, 2014, World Stocks, VT, and Nation Investment, EFA, popped to new highs on a rally in the Euro Yen Carry Trade and Margin Credit, while Aggregate Credit, AGG, traded lower as Junk Bonds, JNK, topped out and traded lower, and as the Interest Rate on the US Ten Year Note, ^TNX, traded higher to 2.79%, forcing US Government Bonds, GOVT, lower, commencing a see saw destruction of credit investments and equity investments, establishing liberalism's peak investment experience.
Currency traders took the Euro, FXE, higher to close at 137.03, and the Yen, FXY, lower to close at 94.47, driving the Euro Yen Currency Carry, EUR/JPY, to close higher at a new rally high of 142.64 driving the Eurozone Stocks, EZU, European Financials, EUFN, and moving Global Financials, IXG, including Regional Banks, KRE, as well as the Too Big To Fail Banks, RWW, roaring back to new rally highs. The US Dollar, $USD, UUP, closed lower at 79.73.
Nations outside of the Eurozone trading higher included, Switzerland, EWL, UK Small Caps, EWUS, the UK, EWU, Sweden, EWD, Denmark, EDEN, and Norway, NORW, all rose to new rally highs. The Nikkei, NKY, traded higher. Australia, EWA, KROO, blasted higher, and New Zealand, ENZL, rose parabolically higher to a new rally high, as Major World Currencies, DBV, rose to a new rally high.
World Small Nation Investment, SCZ, were led higher by India Small Caps, SMIN, India, INP, being led higher by India Earnings. China Small Caps, ECNS, and China, YAO, were led higher by China Financials, CHIX. Brazil, EWZ, and Brazil Small Caps, EWZS, were led higher by Brazil Financials, BRAF. Indonesia, IDX, Indonesia, IDXJ, Argentina, ARGT, Thailand, THD, the Phillippines, EPHE, South Africa, EWZ, Egypt, EGPT, and Israel, EIS, traded higher. All rising on a rising Emerging Market Currency Carry Trade, seen in CEW:FXY, trading higher, as Emerging Market Currencies, CEW, rose to a new rally high, which drove the Emerging Market Financials, EMFN, and the Emerging Markets, EEM, higher.
Investors driving Transportation Stocks, XTN, in particular, Airlines, Railroads, and Trucking Stocks, has been truly spectacular, as these have been in greater demand than Small Cap Pure Value Stocks, RZV, or Small Cap Pure Growth Stocks, RZG.
Yield Bearing Stocks, DTN, traded to a new rally high, being led so by debt trade investing in Leveraged Buyouts, PSP, European Small Caps, DFE, Global Telecom, IST, Water Resources, FIW, Global Real Estate, DRW, and Chinese Real Estate, TAO.
3) ... The world is at the inflection point between liberalism and authoritarianism; it is about to pivot from the paradigm and age of freedom into that of diktat, as the monetary policies of the world central banks have crossed the boundary of sound monetary policy and have money good investments bad and because of the failure of democratic nation states such as the Ukraine.
International Financing Review posts Eurozone banks' sovereign exposure hits new high The world is at peak equity market capitalism, peak national sovereignty, and peak banking sovereignty, as the seigniorage, that is the moneyness, that is the fiat money consisting of Aggregate Credit, AGG, together with Major World Currencies, DBV, and Emerging Market Currencies, CEW, of the Milton Friedman Free to Choose floating currency regime has failed.
While posts Stefan Isaacs posts Arguments in favour of high yield, clearly, s stock values, nation investment, and bank investment, as well as Junk bonds, JNK, International Treasury Bonds, BWX, and International Corporate Bonds, PICB, have risen to their maximum potential on massive currency carry trade investing and debt trade investing. The dynamos of creditism, corporatism, and globalism are now winding down economic systems such as crony capitalism, European socialism, Greek socialism, Russian communism, and clientelism.
Inflationism has come to an end as the Distressed Investments, similar to those which were taken in by the US Fed under QE1, and traded by the Fidelity Mutual Fund, FAGIX, are trading lower in value.
Thus the world has attained peak economic expansion and peak global growth. The liberal Economist's View posts Four Components of AD Relative to the Business Cycle Peak. As exports have expanded to their maximum, US Infrastructure Stocks, PKB, seen in this Finviz Screener will be trading lower; their chart shows the terminal lollipop hanging man candlestick pattern.
Excessive easy money led to the death of fiat money, defined as Aggregate Credit, AGG, Major World Currencies, DBV, and Emerging Market Currencies, on October 23, 2013, when bond vigilantes called the Benchmark Interest Rate, ^TNX, higher from 2.48; and is about to cause the death of fiat wealth, that is World Stocks, VT, Nation investment, EFA, and Global Financials, IXG. Money manager capitalism is about to cause a Minsky Moment, that is a global credit bust and world wide financial system breakdown.
With the dual extinction event of the death of fiat money and the death of fiat wealth, the world will pass from the paradigm and age of liberalism into that of authoritarianism, and the world will enter the final phase of the Business Cycle, that being Kondratieff Winter.
Destructionism is the new normal. Deflation is already underway in the Eurozone as Eurostat reports in PDF document Industrial producer prices down by 0.3% in euro area. Disinvestment out of currency carry trades, and out debt trades, deleveraging factors for economic recession and economic deflation, which will be marked by falling economic metrics such as falling Industrial Producer Prices, falling ISM, and falling GDP. Furthermore deflation will be the order of the day as Reuters reports US factory orders, shipments fall in January. And as Reuters reports US service sector growth at slowest since Feb 2010 - ISM survey reveals.
Under authoritarianism, the singular dynamo of regionalism is already powering up regional economic fascism, as the beast regime rises in regional sovereignty authority replacing that of democratic nation states, in response to ever increasing waves of national, banking, and corporate insolvency, as well as investors deleveraging out currency carry trade investments and debt trade investments.
Deutsche Welle posts Italy's sovereign debt explodes as economy shrinks in 2013 Italy's public debt hit a new high in 2013, soaring to a level not seen since the country's statisticians began taking records. The debt exploded as Europe's third-largest economy remained locked in recession. Reuters reports Italy 2013 fiscal deficit hits EU 3 pct limit for second year running, GDP falls 1.9 pct. Bloomberg reports EU says italy faces a major challenge in reducing debt
The beast regime's power establishes policies of regional economic governance, and schemes of totalitarian collectivism, which enforces debt servitude producing austerity for all, in each of the world's ten regions to establish regional security, stability and sustainability.
Regional leaders, working in public private partnerships, provide the seigniorage of diktat money, as they coin mandates, which direct the factors of production, establish fiscal spending, and oversee banking, commerce and trade, as the debt serf working in debt servitude becomes the centerpiece of economic action.
Under authoritarianism the only prevailing forms of economic resource are diktat and the possession of gold bullion.
4) ... A sound investment strategy.
As a whole, a Finviz basket of inverse market ETFS, rose; these include STPP, HDGE, XVZ, JGBS, GLD, EUO, YCS, SAGG, JGBS, and HDGI; these could be used as a basis for short selling. Yet I recommend that one buy and take possession of gold bullion.
5) ... In the news
Julie Hyland of WSWS reports Germany's Angela Merkel feted by the UK to little effect. The German chancellor allotted just six hours to her visit, stopping off on the way back to Berlin from Israel, where she had spent two days with her entire cabinet.
Jason Ditz of Antiwar reports Kerry to AIPAC: America Won't Fail Israel
Jason Ditz of Antiwar reports Palestinians see AIPAC Speech as end to peace talks
Bloomberg reports Philippine Index to monitor the risk of property bubble. The Philippine central bank is set to introduce a residential property-price index in the first half of the year as it intensifies monitoring of asset-bubble risks, Deputy Governor Diwa Guinigundo said. The index initially will cover Manila and nearby provinces using data including building permits and wholesale prices of construction materials of new housing units from 2006 to 2012, Guinigundo, 59, said in an interview in his office in Manila late yesterday.
Bloomberg reports Oaktree's Marks urges caution as money flows Into junk loans. The head of the world's largest distressed debt fund is emphasizing the need for making careful choices as loan funds inundated with unprecedented cash enable junk-rated companies to borrow at cheaper rates. "When things are rollicking and the market is permitting low-quality issuers to issue debt, that's when you need a lot of caution," Howard Marks, the founder and chairman of Oaktree Capital Group LLC, said in a telephone interview. "You have to apply a lot of discernment."
Mother Earth News asks Is Roundup the cause of 'gluten intolerance'? and Peak Prosperity posts
Illusion of Prosperity posts Employment growth is slowing again. Employment growth has been slowing in a fairly predictable way since December of 2012. Contrary to popular expert financial opinion, this downtrend cannot be blamed on this winter's weather. It's been going on for more than a year. I firmly believe that we are in the late stages of this business cycle and I'm fairly comfortable with my recession by October of 2014 prediction.
Macronomy writes Credit the thin red line. The Thin Red Line became an English language figure of speech for any thinly spread military unit holding firm against attack. The phrase has also taken on the metaphorical meaning of the barrier which the relatively limited armed forces of a country present to potential attackers. You must therefore be already wondering where we are going with our chosen analogy. Colin Campbell, 1st Baron Clyde, the commanding officer of the "Thin Red Line" had such a low opinion of the Russian cavalry that he did not bother to form four lines but two lines, although military convention dictated that the line should be four deep.
When ones look at the growing sense of "impunity", in both the equity space with the S&P breaking records after records and in the credit space with the Markit CDX North American Investment Grade Index touching the lowest intraday point of 61.6 basis point, the lowest level since the 1st of November 2007, we are left wondering in this replay of "Balaclava" if investors are not too "complacent" by not bothering to protect their portfolio, preferring, like Colin Campbell, to hold two lines of defense, rather than the conventional four (volatility being currently very cheap).
Credit wise, we reminded ourselves that dealers' books have shrunk from $256 billion in 2007 to $56 billion today. So, when and not if, the market turns, mind the gap because, as goes one of our favorite quote which we have used repeatedly:
"Liquidity is a backward-looking yardstick. If anything, its an indicator of potential risk, because in liquid markets traders forego trying to determine an assets underlying worth - they trust, instead, on their supposed ability to exit." - Roger Lowenstein, author of When Genius Failed: The Rise and Fall of Long-Term Capital Management. - "Corzine Forgot Lessons of Long-Term Capital"
So dwindling dealers' books and rising bond offerings might make DCM bankers put on a huge smile but if the market turns, everybody will cry, much more than in 2008.
For us "The Thin Red Line" is how thinly liquid credit markets are today relative to 2007. Valuations wise in segments of the technology space are akin, we think to 1999, and credit markets looks more eerily familiar to 2007. We could indeed be looking at 1999+2007 for both equities and credit.
In this week's conversation, we wanted to convey our thoughts and some of the "Red Flags" we have seen as of late, not justifying the on-going complacency when it comes to assessing the replay of "Balaclava". We are not too sure the "Scots" (USA and Europe) can hold the line this time around versus Russia but we digress slightly.
More and more, investors are not getting compensated for the credit risk they expose themselves to in the High Yield space. For instance, a recent example of the complacency we think is illustrated by the new HeidelbergCement 2019 new issue in Euro, offering 2.40% of yield, for an annual coupon of 2.25%. It isn't much being paid out for a BB+ 5 year bond when you think that the Iboxx Euro Corporate All benchmark index commonly used in investment grade mutual funds is offering a yield of 2.12% for a modified duration of around 4.5 years.
Another illustration of this 1999 feeling comes from the recent surge in China's Tencent Holdings Ltd, as displayed by Bloomberg's Chart of the Day. (The chart of Tencent Holdings TCEHY shows a likely market top was attained the week ending March 7, 2014)