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Should we be concerned about the massive amount of leverage around the world?

April 22, 2015

Chris gets us going on the topic of leverage. First in the US and then around the world, should we all be concerned or is this the new normal?

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Discussion
26 Comments
    Apr 22, 2015 22:19 AM

    In the long run I don’t think it’s a question only of “they CAN”T raise rates” because of the dire consequences. I believe they will surprise folks regardless, if only to save what tiny bit of credibility they still possess. If nothing else, it’s a control thing.
    Yes, there will be repercussions in the general markets but I think a small raise would eventually see the markets still playing the same upward bound game of the last 4-5 years. I believe the real unknown is the fallout from the hundreds of billions in derivitives, the majority of which are bets on interest rates. Will all of the counterparties remain solvent and what type of collateral damage would occur. There’s only one way for them to find out! JMHO

      Apr 22, 2015 22:12 PM

      Could not agree with you more Silverdollar. There are a lot of those people saying there is no way they can raise rates but those were the same people saying QE would never be tapered. I’m not saying it will work out for the Fed in the long run but I truly think they will raise rates sometime in the next year.

        Apr 22, 2015 22:17 PM

        Agree……never say never.

        Apr 22, 2015 22:39 PM

        Chris, Al, Cory – Great macro interview on to raise or not to raise…….

        Chris is spot as per usual.

        Thanks!

    Apr 22, 2015 22:29 AM

    I would have liked to write this article:
    http://seekingalpha.com/article/3091036-the-naked-truth

    Apr 22, 2015 22:20 PM

    interesting video from 2012 https://www.youtube.com/watch?v=eL5hqvTWkYg

    Apr 22, 2015 22:24 PM

    Chris, I found this (haha). You can rock out to:
    “When The Cubs Win The World Series”
    http://www.cleaningladys.com/mp3s/Cubs.mp3

    Just change the line about Ryne Sandberg to this…
    Interest rates raised by the Fed >> When the Cubs win the world series

    GOTTA LAUGH!!

      Apr 22, 2015 22:14 PM

      I really enjoy Chris’s sayings and the Cubs one is another good one.

        Apr 22, 2015 22:03 PM

        I agree Cory and the first time I heard Chris say the Cubs one, I practically fell out of my chair laughing. Of course being Cubs fan is very frustrating as is wondering what the heck The Fed is gonna do.

        Incidentally, the first team to play at Wrigley Field in 1914 wasn’t the Cubs. It was actually a team called the Chicago Federals, nicknamed The Feds. Weird, wild and wacky stuff 🙂

      Apr 22, 2015 22:53 PM

      Damn…do I have any kind of copyright protections I can enforce?

        Apr 23, 2015 23:29 AM

        Are you a Cubs shareholder? 🙂

    Apr 22, 2015 22:15 PM

    Chris, did you catch this article on Hillary? I picked it up from an Armstrong article. Here is a quote that I thought was pretty interesting for those who are becoming increasingly uncomfortable with the extremes in wealth equality we are now seeing around the world. And I just heard somewhere (here maybe) that the top 1% worldwide now control an amount of wealth equal to the bottom 99%!!! Nuts man!

    “In a meeting with economists this year, Mrs. Clinton intensely studied a chart that showed income inequality in the United States. The graph charted how real wages, adjusted for inflation, had increased exponentially for the wealthiest Americans, making the bar so steep it hardly fit on the chart. Mrs. Clinton pointed at the top category and said the economy required a “toppling” of the wealthiest 1 percent, according to several people who were briefed on her policy discussions but could not discuss private conversations for attribution”.

    Campaign Casts Hillary Clinton as the Populist It Insists She Has Always Been – NYT
    http://mobile.nytimes.com/2015/04/22/us/politics/hillary-clintons-quest-to-prove-her-populist-edge-is-as-strong-as-elizabeth-warrens.html?ref=politics&_r=2&referrer=

      Apr 22, 2015 22:45 PM

      Doesn’t that chart of exponential increase in wealth gap coincide with the rise of socialism in the USA?

      Apr 22, 2015 22:55 PM

      If Hillary is a populist, I’m a Benedictine nun

        Apr 22, 2015 22:40 PM

        Ha! funny.

        Apr 23, 2015 23:35 AM

        Bet you would look awful in a skirt and one of those flying hats. But Hillary is clearly positioning for the populist vote. How the heck else could she win if not by taking up the cause of public discontent? The one percent seems an easy target as a platform. It has been done before. The Great Depression era comes to mind. And notice she is not going after the financial sector and Wall Street while she does it. Smart move on her part I think. Not saying I agree with any of it but just making the observation that electability comes with ideas that voters will get behind and support en mass.

        Apr 23, 2015 23:02 AM

        She acts like part Joan of Arc and part Huey Long, when she’s really part David Rockefeller and part Leona Helmsley

    Apr 22, 2015 22:43 PM

    Yes we should be concerned. It’s a gigantic financial bubble; the biggest in history and will collapse some day.
    However, in 1999 I read a book called ‘Debt & Delusion’ which looked at leverage, bank collapses as well as high national debt levels and bond issuance.
    If you look at the tables in that book now, it would look like a joke. Everything is perhaps a factor of 10 higher now and it still hasn’t gone bust yet. So who knows how long it can go on? Central banks seem to have new tricks up their sleeves. Even the weakest players like Greece have not yet fallen under the bus, so the process is taking an inordinately long time.

      Apr 22, 2015 22:51 PM

      I have something for you Dave. You will just love this chart from Andrew Hoffman at Miles Franklin. It is a chart of asset bubbles around the world broken down by decades since the 1860’s.

      As Andrew says, the chart of bubbles has itself become a bubble and gone parabolic since 1971. In his own words he writes:

      “Not only are there more financial bubbles today than ever, but even the rate of growth in said “bubblicious” markets is bubble-like. I’m sure it surprises no one that the chart started going parabolic after the gold standard was abandoned in 1971; really parabolic; after the global economy peaked at the turn of the century; and hyperbolic after the financial system broke in 2008. This is a snapshot of history that will one day be viewed in awe – particularly as the one market that should benefit most from said money printing, Precious Metals, is at this point in time “not allowed” to participate in the bubble party”.

      THE ONE CHART THAT SAYS IT ALL — Financial Survival Network — April 22 2015
      http://blog.milesfranklin.com/the-one-chart-that-says-it-all

    Apr 23, 2015 23:36 AM

    You can read for yourselves the IMF Global Stability Report that is getting so much press these last few days for its rather dire warnings about the health of the global economy.

    Global Financial Stability Report — The IMF April 15, 2015
    https://www.imf.org/external/pubs/ft/gfsr/

    Apr 23, 2015 23:39 AM

    From Ambrose Evans Pritchard at the Telegraph….The Fed is signalling much higher interest rates than the market expects due to a heating US economy and is likely to act despite the risks implied to Emerging Markets. Prepare for rates to rise…..

    Fed’s Bill Dudley is alert to global liquidity storm, yet signals 3.5pc rates
    http://www.telegraph.co.uk/finance/economics/11550833/Feds-Bill-Dudley-is-alert-to-global-liquidity-storm-yet-signals-3.5pc-rates.html

    Apr 23, 2015 23:42 AM

    Here is the Hoisington Investment Group first Quarterly Review and Outlook. As always it is required reading for those trying to stay informed of what guys like Lacy Hunt and the fixed income experts are thinking.
    http://www.hoisingtonmgt.com/pdf/HIM2015Q1NP.pdf

      Apr 23, 2015 23:55 AM

      On this last article from Hoisington it is advisable when reading about the great empires of debt to keep China at the back of your minds and wonder aloud how it is possible they will have the world eating popcorn from their hands anytime soon given the extent of the credit and debt growth there. Seriously, far too much ink gets spilled on the threat of China becoming THE globally dominant player anytime in the near future. That country first must pass through a trial by fire that in some ways will not be so different than what the US experienced in its own early stages of development. Where we stand today it is far more probable China sees an outcome similar to what Japan went through than it does a massive unexpected breakthrough to the upside.

        Apr 23, 2015 23:04 AM

        I couldn’t agree more on that, Birdman…I don’t think they can get away forever without some comeuppance.