Friday 26 July 2013

Denniger has a case of Moon Madness

It would appear that eminent online writer Karl Denniger - aka 'ticker guy', is suffering from a rather severe case of 'Moon Madness'. Anyone now touting 'QE for the long term' will be banned, nor will any talk that the Fed can (temporarily) solve economic instability, be tolerated



With the full moon of July'22 now starting to fade, it was somewhat disappointing to see Mr D' go off on another of his little tirades this afternoon. Indeed, the last few days have seen some rather strange posts, and something is clearly 'building' in the background.


Lets get one thing clear from the start though...

Denniger remains one of the best out there in terms of macro-economics, and is unquestionably one of the top online econ'/finance writers. However, the post from Thursday July'25 is not entirely offering the most positive outlook for his long term viewership..or personal 'stability'.

Second, the issues raised here about QE/money printing remain ones that are still baffling many, when really, they are so simple. It is arguably a case of 'smart people' trying to make a simple concept/process, look complicated, if only to make themselves seem more grandiose.


First, go read the latest tirade @ Dividing by Zero

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There are three main issues to address...


Issue'1 – no more talk of "QE Forevah!"

Well, I can understand that. There is a time and place for nazi-level censorship, and its his site after all. Good luck with that style of moderation for the longer term! I'm sure it'll work out just fine.


As for QE itself.. the notion that the Fed 'have to stop' is of course incorrect, and a wilful delusion.

There is absolutely no reason the Fed have to do anything. Indeed, that is the beauty of it. The Fed can do anything they want*. They have a very loose mandate from the US Govt' for 'low inflation/high employment', and are allowed to basically do whatever they wish to achieve such goals.

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*one thing to look for in the next few years - not least at the next major multi-month equity down cycle, is the Fed officially supporting the US equity markets, as the JCB (and some other central banks) are already doing. It would be a very natural step for the next Fed chair-person to eventually initiate an official program to 'invest in America' by buying outright Stocks and ETFs, in addition to the usual T-bonds/MBS.
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The Federal Reserve system sure isn't going anywhere, despite periodic postings from those in the doomer community that it will 'all end..real..real soon'.

Why would the Fed EVER want the game to stop anyway? Did they just spend the last four years doing their utmost, only to just...walk away when the next crisis hits? The Fed has managed – via printing just a few trillion, to almost single handedly keep everything from imploding since the 2008 financial crisis.


Issue'2 - 'You cannot divide by zero. '

Sure you can...when you''re the one in control of the money supply. There are NO rules, and that is precisely why the proclaimers of imminent financial doom have been wrong since the 2009 equity lows.

The US Federal Reserve continues to print (currently, a relatively low $85bn a month) – as they still deem necessary/appropriate, to support the US capital markets. Indeed,  most world markets since 2009 have soared to new historic highs.

Sure, house prices are still pretty low in many places - relative to the 2007/8 highs, but most asset classes are higher now than ever before..and its almost entirely due to the Fed. Considering we're only talking about a few trillion, I've no doubt the Fed is actually surprised at how well things have turned out - at least from a 'confidence' point of view.


Issue'3 - 'That which arithmetic says is impossible will always be impossible '

Yes, of course there is a mathematical limit, just about everyone agrees on that point anyway, the real issue is surely more about 'When'...not if.

Anyone using even simple math would know the 'end-date' could be many years..if not DECADES away. The notion that everything is going to 'blow up' in the near term, is simply wishful thinking on the part of the doomer bears.


What about Japan?

Japan is in a far worse financial situation than the USA, and yet they've been doing QE for roughly twenty years, and Japan is still ticking along just fine. The Japanese capital markets do get rattled at times, but generally, for the average Japanese citizen..everything is currently 'kinda okay'. Certainly, any talk of 'Japan doom' is mere bearish hysteria.

With the USA in a far better position (demographically speaking) with a regular influx of (admittedly, mostly poor/illegal) immigrants, the can kicking will easily last far longer than Japan, perhaps many times longer.

If the demographic basket case that is Japan can manage 20 years of money-printing/can-kicking, why won't the USA manage twice that amount, or how about a somewhat rounded half century?


Still under-estimating the Fed

There is another FOMC meeting next Tue/Wednesday. There is again the incessant taper-talk in the media, but does it matter for the longer term outlook? Even if the Fed slightly reduce QE this year, you can be sure they will increase it again if the US markets become persistently weak.

There is no reason why the Fed can't play the game of 'end QE'..and 'start QE' for years...many...many years. Far more than anyone out there is dare suggesting right now.

It is that very point that most are still ignoring, and that is why the 'QE forever' posters are indeed entirely justified to remind everyone that the game is far from over. Indeed, Japan is the finest example that the current four years of Fed money-printing is more likely just the beginning phase, rather than the end-game.

One thing seems pretty likely, the Bernanke - along with all the Fed regional governor's are surely finding the incessant QE discussions/commentary very amusing.

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Goodnight from London
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ps. no matter how many posts Denniger does on the Blackberry smart phones, I'm still not going to buy one!