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Tuesday, October 14, 2014

Understanding Where things Are in Global Economy in 5-10 min

It was nice to see the market drop another 223 pts to close Monday afternoon at 16,321..

No, we're not being facetious, sarcastic or snide..

It really was nice to see.

Of course wake us up when the one-day drop is 4 digits, as in 1,000pts or more and Not followed by a surge of 1,001 the following day based on investor 'bargain shopping'

Until then we don't take any of this serious..
~ Russian cat: 'Da dorogaya, ya krasivaya koshka'  --  Yes Darling' I am a beautiful cat

It is kinda funny what happened though..  We mean the 'why' for Monday's drop..

Someone decided at 3:30p it was time to dump three-quarters of a billion dollars from the US equity market in...

One second..   Tick..

Prior to that, the greedy Wall Street investor rats had pushed things up to show a positive close on the day..

Then...  'finger-snap'
Don't know about you kiddies, but we would never have our money tied into anything where other individuals or entities had the means to withdraw $750 million in valuation thus disrupting the proverbial shark tank in the span of time it takes to draw a breath..

Now most financial media will still be spewing 'recovery' and telling investors to hold or buy but we know the truth of things..

The global economy is running on empty.

See, what is supposed to happen is this..

Governments increase spending in areas such as job creation to re-energize a stagnant economy where neither people or companies are spending..
Even cheap gimmicks like corporate tax breaks can work in a basically healthy global economy and ultimately in time,  self-sustaining recovery occurs when businesses expand hiring particularly middle-class wages and in turn, those people begin spending and borrowing again..

But what to do when the global economy is anemic and major Western nations in particular are afraid of forcing the corporations to bring back the manufacturing bases they've entrenched in third world soil?

Well..  Policymakers globally are relying on central bank monetary policy.
They have reduced official interest rates to historically lows, often near zero which historically was never heard of until the present.   Also long-term bond rates are also at historic lows in many countries.

With interest rates bounded at zero, central bankers have turned to quantitative easing (“QE”) where central banks purchase securities, primarily government bonds, to inject liquidity into the financial system.

So what does all that gibberish mean?

Well as we've spent 4 years here explaining, with the ability to change price (interest rates) now restricted, central banks are, in effect, manipulating the quantity of money.

The balance sheets of major central banks have expanded to more than $18 trillion from around $5-$6 trillion prior to 2008.

Really think about that..

In a span on only six years, there has been a $12,000,000,000,000 creation in paper money which doesn't just exist in a vacuum..

It is newly created global debt.
In many developed countries, central bank assets now constitute between 20% and 30% of gross domestic product (GDP).

This means basically no nation.. not even the good ole' USA or Communist-Capitalist China can ever come close to re-paying..

But what does all that matter as long as the market keeps a' risin'..

And if dares to drop, then Lordy, help us all..

"Man the Fed money-pumping stations.. Full Manipulation ahead!"
So what has all this low interest done?

The absence of customer demand due to being financially tapped-out and excess capacity means that low interest rates have not encouraged new investment.

Larger companies, meanwhile, have taken advantage of low rates to raise long-term debt to refinance existing borrowings, to repurchase shares or return capital to shareholders.

Share buybacks by U.S. and U.K. companies equate to 2%-3% of GDP annually. Low rates have also spurred merger and acquisitions activity.
So in essence, low interest policy helps those its Intended to help.

The Big Boys..

Major American and European non-financial firms alone have cash balances of around $2.8 trillion.

 Globally, total cash balances may be as much as $7 trillion, roughly double the level 10 years ago.
Are they hiring?

Well..  depends..

If the temp agency you work for recommends you, then sure..

And no one complains..  No one really gets angry..

Some people in some nations do but rather than target who is responsible, they prefer throwing rocks and bottles at heavily protected police seeking to disband them from parks
When playing life-chess, it never makes sense to devote so much energy to confronting and capturing the pawns..

So anyways..   That's where we are..

This is the global policy--  cheap money and low interest for banks and corps and by extension this allows dead-beat nations like the US to afford its debts without actually having to do politically suicidal things..

Like properly tax the wealthy and make spending cuts in areas like defense..
We forget that every year the US runs a deficit..  We spend more than we take in

But hard to get peeved at people who don't realize what a terrible path we're heading toward when no one in any position of government, finance or the media itself ever acknowledge it, unless its a sound-bite for one's own need..

Yep.. We hope the stock market keeps dropping and dropping..
We know it won't..

That is unless something happens the powers that be can't control or manipulate..

But we still wish it would.