Dysfunctional markets and democracies

There are so many similarities with the late 1920s and today that it is eerie.
Back then there was popular discontent with the status quo and trade wars were looming. Stocks today are almost as expensive (using the price-earnings ratio as a gauge) as they were on the eve of the 1929 crash.


What's more, the Fed (as they did prior the 1929 stock market crash) also raised the Fed fund rates into a lacklustre economy.

But what is unusual about the financial markets today is that we see government bond prices and stock prices moving downwards in tandem, in other words, capital outflows from both bond and equities. Typically, when investors sell bonds (say due to an improvement in the economic outlook) capital tends to rotate into risk assets, equities which provide potentially higher dividends in good times.

However, this inverse relationship between bond and equity price no longer holds water and this could be telling investors/traders something. In short, today's financial markets have become somewhat dysfunctional.
When asset prices fall together (bonds, equities) this could be a withdrawal symptom of hyper-inflationary quantitative easing (QE) policy of the central bank unwinding. Asset prices today are not determined by equilibrium fair market price instead, they have become a function of the central bank's liquidity.
But when the central banks withdraws monetary stimulus, in other words, moves towards interest rate normalisation policy and winds back QE the market becomes unstable.

So a period of dysfunctional markets and democracies lies ahead.
Indeed, the trickle up wealth effect of abusive monetary policy has facilitated unprecedented wealth distribution from the middle to the top of the food chain and that is slowly killing the golden goose-household consumption.
Zero nothing economic growth, peak debt and lacklustre consumption have become the new norm. So retailers are struggling to break-even, cutting cost and closing down brick and mortar stores. The proliferation of ghost shopping malls

Malls to become ghost towns, Jim Cramer says - cnbc.com


Malls are likely to become "ghost towns" as more consumers shift to online alternatives, CNBC's Jim Cramer said on Friday. On Friday, J.C. Penny told investors that ...

and empty commercial real estate with late reminder payment mail piling up on the doorstep is again appearing on the high street. The list of retailers filing for bankruptcy in 2017 is a red flag for investors/traders.

From a risk-of-bankruptcy standpoint, the retail business ...


American Apparel is among a clutch of retail chains to have already given up the ghost and filed for bankruptcy protection. Move over, oil and gas. Retail is set to ...

So if households are struggling to make ends meet in the new gig economy that means retail sales are declining too. If retail inventory is rising that also means that manufacturers' order books are also in decline.
German manufacturing order dropped 7.4% in January.

Meanwhile, the revolving doors between government and the major commercial banks ensure that the elites continue to syphon off their undeserving wealth for doing absolutely nothing.
George Osborne, former UK chancellor, cocaine user

George Osborne off his face on cocaine again?


Remember him in the Commons? Away with the fairies! Check his performance out here. Listen to his tone and look at his eyes. This guy the next PM off his tits on ...

and history graduate (let's face it the finest intellects don't read history at university) is earning £650,000 a year for working one day a week at the world’s largest investment manager.

But we live in a something for nothing culture and the higher up the food chain you are the bigger that something is.
So the dimwit western policy makers (mainly history graduates from elite universities) have now come up with what they believe to be a brilliant solution to this dying economy (better known as a “weak economic recovery”) scrap benefits and pay everyone a universal basic income (UBI).
Hooray for UBI! What a socialist utopia, it must have been dreamt up in a pot smoking session.

Here is a sobering thought. If everyone consumes and nobody produces we all starve. This something for nothing culture at both extreme ends of the food chain is likely to collapse the western system and it is probably why we have reached peak debt (peak madness, peak agro) today.

Speaking about those who produce the food, the farmers how are they feeling these days? Are the farmers rattled by the trickle up wealth effect policies of the government and the extend and pretend debt that is bleeding their nation dry?

As we can see in Greece unsustainabledebt, followed by harsh austerity is a catalyst for massive civil unrest.

Anyone who believes that we are not currently in a crisis is living in denial.
Markets become dysfunctional in a crisis, the price mechanism breaksdown and so too do democracies.
Frankly, the electorate is so irate with the status quo that if given a chance they would probably vote in a street hooker as a leader (even if it were just as a protest vote).
We are seeing this play out in Europe with Brexit and the rise of other anti-EU parties which is challenging Europe's post-WWII order.
But breaking up the EU is akin to demolishing the house because the lights don't work.
The electorate is voting to knock down the political foundations that provided Europe with peace and prosperity for decades. The sensible thing to do would be to reform the EU inside the European Parliament. But in a crisis not only do markets fail so also do democracies, after all, that is how Hitler and Mussolini came to power.