“In complex, nonlinear systems it is inevitable that at some time, two or more failures — perhaps trivial, individually — will interact in a way no designer could have anticipated and no operator can understand” ~ Charles Perow – IIMag
The Fed, the CBO, and the Council of Economic Advisers has never in history forecast a recession. – Bloomberg guest
Mind you, the U.S. has averaged a recession every 7 years. Why again do they keep getting more and more power to allocate capital and plan the economy?
Fed perplexed by bubbles ~ Chicago Fed
Paraphrasing the summary on page 4:
‘We don’t know how to define bubbles; we don’t know what causes them to grow or burst; we don’t know if they’re good or bad’ ~ Chicago Fed
How to define a bubble:
Bubbles can be identified through through power laws combined with credit growth that exceeds income growth.
For example, in a certain market, growth in debt issuance exceeds revenues by a large multiple. This market is Treasury bonds vs Tax Revenue.
Why bubbles exist:
Bubbles exist because of the behavioral bias “herding.” They are exaggerated in size and scope by credit; thus, central banks, by holding rates artificially below the natural rate of interest, combined with government subsidies (another form of credit), perpetuate bubbles. Then, they use the bust to justify their existence.
Why bubbles are bad:
Bubbles are ‘good’ short term, bad long term, and a net negative because they misallocate capital and the ever growing booms and bust make it impossible to plan long term.
Fed’s Williams: QE3 asset buying may be expanded to include other assets ~ Oanda – out of control
Deterioration in the Quality of Foreign Bonds Issued in the United States, 1920-1930 ~ NBER
- 1920s Housing Bubble: The average size of loans on family dwellings rose 23% from 1920-24 to 1925-29, preceding the spate of mortgage defaults
- Government bond defaults that were issued in the 1920s swept LATAM, then Europe, in the early 30s. ~ twitter
- In 1933, the German National Socialist party came into power; they reduced then suspended payments on dollar bonds ~ NBER (pdf)
Takeaways: peaks in government bond issuance later led to spikes in defaults; total loans issued rose even as unsound loans increased, later leads
In Bernanke’s view, a credit/housing bubble in the Roaring 20s was not a factor in the Great Depression, nor was a trade war, FDR’s wage and price controls, or jacking tax rates up to 60%+. It was all a yellow rock’s fault.
Masters of Money: Friedrich Hayek, BBC Two, preview ~ Telegraph
Study Quantifies Baseball Announcer Bias, see where your team ranks ~ sportsbusinessdaily
Chanos – Enron case study ~ santangel’s review
Headshot Science: Faces Too Close Perceived As Less Attractive, Trustworthy, And Competent ~ ferenstein
How to Minimize Behavioral Biases When Making Decisions – HBR
Roberto Benelli, IMF: a shift of USD 100B shift in China’s FX reserves to $EEM bonds would push US yields up 12bps, reduce EEM yields 48bps
Metaformin 1958 Diabetes Pill May Be New Cancer Drug ~ Bloomberg not said, shown to increase lifespan in healthy mice
Summary of anti-aging research ~ dandascalescu
John Mauldin and Jim Rickards discuss the Looming Debt Crisis ~ RT
“Seven of the nation’s ten richest counties are located in the Washington metropolitan area” ~ economist
well, you’re probably mistaken if you think you Washington will extract trillions from the rest of the country, then give it all back.,
Dalio Fears Social Unrest That Led to Hitler’s Rise ~ CNBC
Both Dalio and Thiel made a point the “liquidationists,” like myself, often fail to properly weight – extreme, emotional social reactions to economic and political crises
These reactions are so severe that Dalio, citing the recent class warfare levied against the rich, supports the Fed’s actions even though he’s seemingly aware these policies will lead to another crisis.
Thiel, a libertarian, backs Palantir, who helps enable the government to establish a surveillance state, citing theft of liberties post 9/11
“A leaked memo from Germany’s finance ministry previously called the IMF the “Inflation Maximizing Fund”” ~ Telegraph
Europe may get a new country; Catalanoia looking to secede from Spain ~ SF Gate
Japan has had eight QEs; Leading economists met with PBOC advised cutting reserve/loan deposit ratios; French Debt Trouble/Riots Coming
Japan Corporate Bond Bond Risk Nears Year-High ~ Businessweek
Australian dollar and Capital Flows ~ FT Alphaville – R&R suggest capital inflows are prone to rapid reversals $AUDUSD
“Assets” in Australia’s big four banks doubled from 2005-2010 – Australian Financial Stability Board data
Australia plans to cut debt issuance 40% in the year ending June 30 2013 while aiming for a surplus.
Ahmadinejad: Iran’s Economy Certainly Better Than The US, EU
South Sea Tension is not just Japan and China, but also Japan and Russia; Japan and South Korea; and a plethora of others ~ China Times
China’s Baoshan Iron & Steel is to suspend production at a steel plant” ~ @SigmaSquawk
Meanwhile, 5 year plan calls for building more steel plants
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