I have several recent items rolling around in my head. I don’t believe any of these is worthy of a post on its own, yet they are clogging my mind from focusing on much else. As I have done in the past when I have come to such a situation, they all come to you as one.
Us or Them
According to Ambrose Evans-Pritchard, This is a global stock market rout worth celebrating: Cheap oil is a tax cut for consumers, a healthy haircut for sovereign wealth funds, and a shot in the arm for the world economy.
He suggests that the real economy is doing reasonably well:
World growth has been drearily stable for years, shuffling along at 3.4pc in 2012, 3.3pc in 2013, and 3.4pc in 2014, and 3.1pc in 2015. The International Monetary Fund expects 3.4pc this year.
The latest "GDPNow" tracker from the Atlanta Federal Reserve suggests that US growth is running at 2.5pc in the first quarter, smack in line with a typical late-cycle expansion in a mature economy.
I will take him at his word, and not interject personal opinion in this. After all, if the Fed didn’t think the economy was doing reasonably well, why all the jabber-jabber regarding a rate hike over the last year or more, ultimately culminating with a 0.25% increase?
The Fed’s actions have only done damage to the markets:
The MSCI index of world equities has fallen almost 20pc since its all-time high in May of 2015, implying a $14 trillion loss of paper wealth.
Saudi Arabia's net holdings of overseas securities fell by $23bn in the single month of December. Fitch Ratings expects Abu Dhabi to drain its fund (ADIA) by $27bn this year. The Norwegians began dipping into their $820bn fund in October.
A clutch of distressed sellers are having to liquidate stocks, bonds, and property for month after month on a grand scale.
So, us it us or them? Will the Fed continue to (attempt to) slowly move rates toward something approaching normal, or will they go back and provide liquidity to the markets?
Shave and a Haircut…
Working through my Ambrose to-do list...German 'bail-in' plan for government bonds risks blowing up the euro:
A new German plan to impose "haircuts" on holders of eurozone sovereign debt risks igniting an unstoppable European bond crisis and could force Italy and Spain to restore their own currencies, a top adviser to the German government has warned.
“It is the fastest way to break up the eurozone,” said Professor Peter Bofinger, one of the five "Wise Men" on the German Council of Economic Advisers.
Under the scheme, bondholders would suffer losses in any future sovereign debt crisis before there can be any rescue by the eurozone bail-out fund (ESM).
"A speculative attack could come very fast.”
As bondholders know that many governments are bankrupt except for central bank backing, I suspect a speculative attack would come immediately.
…the new plan empowers private investors to act as judge and jury on the solvency of states. "We can't allow a regime where markets are masters of governments,” [Bofinger] said.
Markets will win. They have been winning the war from time immemorial. This has been especially visible in the last eight years. It is obvious to all – even the most die-hard Keynesian central planner – that central planning of money, like central planning everywhere, is a failure.
And if the Euro isn’t Enough Reason to Tear Europe Apart
Turkey apparently isn’t playing nice when it comes to dealing with the refugee crisis:
One thing, though, that [António Rocha of the Portuguese coast guard] and his shipmates haven't yet seen is a boat being turned back by the Turkish coast guard. "Sometimes they motor around the refugee rafts and tell them they should turn around," says the Greek liaison officer onboard the Tejo. "But when nothing happens, the Turkish boats just leave."
Merkel is not finding a willing partner in Turkey:
Since October, she has negotiated with the Turkish government six times, most recently on Monday. But there is little indicating that success is imminent.
"Forget it," Turkish EU Ambassador Selim Yenel told the Guardian this week when asked about Merkel's refugee plan. "It's unacceptable and it's not feasible."
She doesn’t even have support through much of Europe (to say nothing of within Germany):
Macedonia is not a member of the EU, but Hungary and other countries have already sent 80 officials to the country to assist with closing the border. At a meeting of the Visegrád Group -- which includes Eastern European EU members -- planned for next Monday, Poland, the Czech Republic, Hungary and Slovakia are to discuss ways in which the Balkan route can be closed off for good.
This doesn’t sound “open.”
That Didn’t Take Long
This post was original published two days ago, February 15 (HT LRC). The title says enough: “Turkey is about to launch a false flag operation so they can invade Syria.”
Then what do I read today?
A car bomb went off in the Turkish capital Wednesday near vehicles carrying military personnel, killing at least 28 people and wounding 61 others, officials said.
Things are likely to get worse before they get better.