Things That Make You Go Hmmm...

The Hypocritic Oath

By Grant Williams

August 19, 2013


 
(Wikipedia): The Hippocratic Oath is an oath historically taken by physicians and other healthcare professionals swearing to practice medicine honestly. It is widely believed to have been written either by Hippocrates, often regarded as the father of western medicine, or by one of his students. The oath is written in Ionic Greek (late 5th century BC), and is usually included in the Hippocratic Corpus. Classical scholar Ludwig Edelstein proposed that the oath was written by Pythagoreans, a theory that has been questioned due to the lack of evidence for a school of Pythagorean medicine. Of historic and traditional value, the oath is considered a rite of passage for practitioners of medicine in many countries, although nowadays the modernized version of the text varies among them.
 
The Hippocratic Oath (orkos) is one of the most widely known Greek medical texts. It requires a new physician to swear upon a number of healing gods that he will uphold a set of professional ethical standards.
 
Hippocrates.psd

There is absolutely no legal obligation whatsoever for any medical graduate to swear an oath to any healing god; and yet some 98% of American students make such a pledge upon graduation. In Britain, the number is only 50%, but I am presuming that's because dentists are exempted.
 
The situation in Europe is slightly different. In 1948, the Declaration of Geneva was adopted by the General Assembly of the World Medical Association in, you've guessed it, Geneva in order to standardize the Hippocratic Oath. As is the way of large, global organizations, the General Assembly amended the oath in 1968 ... and 1983 ... and 1994, before it was "editorially revised" in 2005 ... and again in 2006. That's Europe for you, folks.
 
In accordance with the International Code of Medical Ethics, the Declaration of Geneva was intended to create a formulation of the Hippocratic Oath that would allow "the oath's moral truths [to] be comprehended and acknowledged in a modern way".
Which is nice.
 
The current version of the Declaration of Geneva (subject, obviously, to further amendment, since I am writing this on Saturday and it probably won't reach you before Tuesday) reads as follows:
 
At the time of being admitted as a member of the medical profession:
 
    I solemnly pledge to consecrate my life to the service of humanity;
     
    I will give to my teachers the respect and gratitude that is their due;
     
    I will practice my profession with conscience and dignity;
     
    The health of my patient will be my first consideration;
     
    I will respect the secrets that are confided in me, even after the patient has died;
     
    I will maintain by all the means in my power, the honour and the noble traditions of the medical profession;
     
    My colleagues will be my sisters and brothers;
     
    I will not permit considerations of age, disease or disability, creed, ethnic origin, gender, nationality, political affiliation, race, sexual orientation, social standing or any other factor to intervene between my duty and my patient;
     
    I will maintain the utmost respect for human life;
     
    I will not use my medical knowledge to violate human rights and civil liberties, even under threat;
     
    I make these promises solemnly, freely and upon my honour.
Personally, if I were about to start practicing medicine, I think I would prefer to take the original Oath, which supposedly started out like this (though it has been argued that these exact words do not appear in the text as written by Hippocrates):
 
First, do no harm.
 
Simple, pithy, easy to remember.
 
That's how you start an oath, Pope Pius X. "I profess that God, the origin and end of all things, can be known with certainty by the natural light of reason from the created world" (the Oath Against Modernism, 1910) just doesn't have the same kind of zip.
 
And I don't know what you radical Republicans over there in the corner are snickering about. "I do solemnly swear that I have never voluntarily borne arms against the United States since I have been a citizen thereof" is hardly going to sell a whole bunch of T-shirts at rallies, now, is it? No. It's not.
 
I must say, though, that the Omerta is a little more like it. Legend has it that it originated when a wounded man said to his assailant, "If I live, I'll kill you. If I die, I forgive you". Now THAT is a bumper sticker I could get behind — but unfortunately I promised not to talk about it.
 
Unfortunately for Hippocrates and all his successors in the medical arena, however, the Greek word for "jealous", "play-acting", "acting out", "cowardly", or "dissembling" is ???????? or hypokrisis; and this is the etymological root of the word hypocrisy, which is defined as:
 
The state of falsely claiming to possess characteristics, such as religiosity or virtues, that one lacks. Hypocrisy involves the deception of others and is thus a kind of lie.
 
Over the last several years, a new oath has appeared in the world of finance as global investment banks have been hauled in front of Senate committees, Congressional panels, various regulatory bodies, and (what always used to be the harshest of judges) the public: the Hypocritic Oath.
 
It begins thus:
 
First, admit no wrong.
 
In just the past two years, JPMorgan alone has paid some $7 billion in fines for a series of transgressions, including a whopping $5.29 billion fine over the robo-signing scandal, a further $300 million for misleading investors about the quality of mortgages underlying MBS securities, $150 million over risky structured investments, $230 million over the alleged rigging of various bond auction processes, and $153 million for misleading investors in one of those oh-so-common allow-a-hedge-fund-to-select-a-portfolio-of-bonds-to-sell-to-investors-that-they-then-short scams.
 
In most of these cases, the bank paid to settle the charges "without admitting or denying the allegations".
 
Now, before anybody assumes this is another of those "bash JPMorgan" diatribes, it isn't.
The Hypocritic Oath has been adopted by a multitude of banks in recent years and, like the Fifth Amendment, once it was rolled out, it seems to have been accepted absolutely without question (though the skeptics out there will naturally wonder why someone would pay a fine of several hundred million dollars when they had done nothing wrong — those pesky skeptics just can't mind their own business, I guess).
 
Way back in November 2011, Citi agreed to a $285 million fine whilst neither admitting nor denying wrongdoing something the judge in the case took issue with:
 
(CNN Money): But why would Citi agree to such a payment and reforms if they didn't violate regulations? This conundrum is not a new one for Judge [Jed] Rakoff and one he raised in an SEC settlement case two years ago involving Bank of America. In that case, although Bank of America had originally neither admitted nor denied the violations, when the case came under scrutiny by Rakoff, Bank of America went ahead and denied.
 
So Rakoff asked a reasonable question: why would a bank pay out shareholder dollars for something it had denied committing? If the bank did the deeds as the SEC contended, why weren't individuals being punished in line with SEC guidelines, he had asked?
 
Along similar lines, in this most recent Citi case, Rakoff has asked the SEC to explain why the court should "impose a judgment in a case in which the SEC alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing."
 
Either there was a violation or there wasn't. Which is it?
Which indeed?
 
Or how about Wells Fargo (then Wachovia) and allegations of bond-market rigging, also in 2011:
 
(SEC): The SEC alleges that Wachovia generated millions of dollars in illicit gains during an eight-year period when it fraudulently rigged at least 58 municipal bond reinvestment transactions in 25 states and Puerto Rico. Wachovia won some bids through a practice known as “last looks” in which it obtained information from the bidding agents about competing bids. It also won bids through “set-ups” in which the bidding agent deliberately obtained non-winning bids from other providers in order to rig the field in Wachovia’s favor. Wachovia also facilitated some bids rigged for others to win by deliberately submitting non-winning bids.
 
Sounds sort of unsavoury to me, and Wachovia fell on its sword pretty much straightaway, as the very next paragraph in the SEC press release reveals:
 
Wachovia agreed to settle the charges by paying $46 million to the SEC that will be returned to affected municipalities or conduit borrowers. Wachovia also entered into agreements with the Justice Department, Office of the Comptroller of the Currency, Internal Revenue Service, and 26 state attorneys general that include the payment of an additional $102 million. The settlements arise out of long-standing parallel investigations into widespread corruption in the municipal securities reinvestment industry in which 18 individuals have been criminally charged by the Justice Department’s Antitrust Division.
 
Then, after an outline of the complaint, find this:
 
Without admitting or denying the allegations in the SEC’s complaint, Wachovia has consented to the entry of a final judgment enjoining it from future violations of Section 17(a) of the Securities Act of 1933 and has agreed to pay a penalty of $25 million and disgorgement of $13,802,984 with prejudgment interest of $7,275,607.
 
Followed by this:
 
Four financial institutions have so far paid a total of $673 million in the ongoing investigations into corruption in the municipal reinvestment industry. Other financial institutions that the SEC has previously charged are: J.P. Morgan Securities LLC$228 million settlement with SEC and other federal and state authorities on July 7, 2011; UBS Financial Services Inc. — $160 million settlement with SEC and other federal and state authorities on May 4, 2011; and Bank of America Securities LLC$137 million settlement with SEC and other federal and state authorities on Dec. 7, 2010.
 
Each of the other three institutions named in the suit also neither admitted nor denied the allegations, but simply got out their cheque books and signed away the accusations. Simple.
First, admit no wrong.
 
A look at the "trusted bank brands ladder", based on a survey conducted by BAV Consulting in late 2012, demonstrates the damage done to the large banks by their seemingly continuous visits to Capitol Hill in recent months — and also makes clear the debt of thanks JPMorgan and HSBC owe to Barclays, Citi, and Bank of America for being just that little bit less trustworthy:
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Trusted%20Banks.psdSource: BAV Consulting
 
We saw wrongdoing in the Libor scandal (though in this case the Banks were forced to admit their transgressions, but the march of bad behavior goes on. Copping to a fine of $200 million, Barclays would only go so far as to admit that "the manipulation of the submissions affected the fixed rates on some occasions").
 
Meanwhile, there are swirling rumors of wrongdoing around the pricing of ISDAFix (a benchmark off which hundreds of trillions of dollars of interest-rate swaps are priced by a group of 15 of those same household-name banks). And of course there are the machinations in the gold market (about which I recently wrote a piece for King World News, here). But whenever possible, banks pay huge fines, and quickly — on the condition that the terms of their deals with prosecutors and regulators are subject to the Hypocritic Oath:
 
Corzine.psd


First, admit no wrong.
 
The admission of wrongdoing is something to be avoided at all costs by many of the big players in the financial system; and certainly, there are those who would accuse the Federal Reserve itself of hypocritical behaviour.
 
The Fed's "dual mandate" was reassessed by Fed Governor John Williams in a 2012 speech:
 
It’s often said that Congress assigned the Federal Reserve a dual mandate: maximum employment and stable prices. But, that’s not quite accurate. In fact, the Fed has a triple mandate.
 
Section 2A of the Federal Reserve Act calls on the Fed to maintain growth of money and credit consistent — and I quote — “with the economy’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
 
The "dual mandate" is, it seems (at least in the eyes of one Fed Governor), a triple mandate; but all three components are most certainly designed to try to ensure that no harm is done to the economy or the public. Everything the Fed has done since the dog days of 2008 has been intended, in their eyes, to cure the patient; and, in the words of none other than the Fed Chairman himself at Jackson Hole in 2009, without the Fed's actions (and, by implication, the actions of their peers around the world), things would have been a LOT worse:
(Bernanke Speech, September 15, 2009): [T]he world has been through the most severe financial crisis since the Great Depression.
 
The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge.
As severe as the economic impact has been, however, the outcome could have been decidedly worse.
 
Unlike in the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal, and financial policies around the world have been aggressive and complementary.
Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk.
 
We cannot know for sure what the economic effects of these events would have been, but what we know about the effects of financial crises suggests that the resulting global downturn could have been extraordinarily deep and protracted.
 
Bernanke went on to say that "In this episode, by contrast, policymakers in the United States and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation", and that the policy response "averted the imminent collapse of the global financial system, an outcome that seemed all too possible to the finance ministers and central bankers".
 
However, what might have happened is something we will never know for sure, so the threat of a cataclysm has been a convenient justification for any action taken in the name of preventing one.
 
But — and it's a big but — a recent study by two prominent Fed economists, Vasco Curdia and Andrea Ferrero of the Federal Reserve Bank of San Francisco (home stomping ground of one-time shoo-in for Bernanke's job, Janet Yellen), suggests that, in fact, the protracted policy response of the Fed has been far less successful than the Chairman would have you believe:
 
In November 2010, the Fed’s policy committee, the Federal Open Market Committee (FOMC), announced a program to purchase $600 billion of long-term Treasury securities, the second of a series of large-scale asset purchases (LSAPs).
The program’s goal was to boost economic growth and put inflation at levels more consistent with the Fed’s maximum employment and price stability mandate. In Chen, Cúrdia, and Ferrero (2012), we estimate that the second LSAP program, known as QE2, added about 0.13 percentage point to real GDP growth in late 2010 and 0.03 percentage point to inflation.
 
Our analysis suggests that forward guidance is essential for quantitative easing to be effective. Without forward guidance, QE2 would have added only 0.04 percentage point to GDP growth and 0.02 to inflation.
 
Under conventional monetary policy, higher economic growth and inflation would usually lead the Fed to raise interest rates, offsetting the effects of LSAPs. Forward guidance during QE2 mitigated that factor by making it clear that the federal funds rate was not likely to increase.
 
Our estimates suggest that the effects of a program like QE2 on GDP growth are smaller and more uncertain than a conventional policy move of temporarily reducing the federal funds rate by 0.25 percentage point. In addition, our analysis suggests that communication about when the Fed will begin to raise the federal funds rate from its near-zero level will be more important than signals about the precise timing of the end of QE3, the current round of LSAPs.
 
And so it is that, with its policy decisions, the Fed has impoverished a generation of savers through the confiscation of safe interest income (thus violating the Hippocratic Oath, if Fed Governors are economic doctors); and now, courtesy of Curdia and Ferrero, it looks for all the world as though the Fed has also broken the Hypocritic Oath and admitted doing wrong.
 
23529.pngSource: St. Louis Fed
 
Yes, it's not an explicit admission, but if buying $600 billion in long-term treasuries and reinvesting another $250 million of proceeds from earlier MBS purchases has resulted in just 0.13% of real growth, I'm afraid the question has to be asked, was it worth making a direct transfer from savers on the order of hundreds of billions of dollars in order to stop the banking system melting down?
 
How about the efficacy of Operation Twist? Or QE3 or QE4? What's next, I wonder, now that we have interest rates pinned at zero for at least a couple more years (you would have to be truly foolhardy to believe that the goalpost of 6.5% unemployment is set in stone) and inhabit a world where hundreds of billions of dollars in asset purchases now barely moves the needle.
 
We may well learn more about the ultimate effectiveness of the Fed's programs when we hear at their September meeting whether they will begin their dreaded tapering; but in advance of that watershed moment, we were recently given some great insights into what might happen by developments across the pond in the land of my birth, the United Kingdom.
 
Our story begins on August 1st, when new BoE governor and all-around knight in shining armour Mark Carney announced that the Bank's bond-buying program would be placed on hold at ? 375 billion and interest rates would be held at 0.50%.
 
Now this was no surprise.
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Carney%20Knight.psd

Of 42 economists surveyed by Bloomberg, 41 had already called Carney's moves perfectly, and a respected member of that august profession had laid out just what a snoozefest this announcement was:
 
(Bloomberg): “It was always looking likely to be a non-event ahead of the announcement about forward guidance,” said Vicky Redwood, an economist at Capital Economics Ltd. in London and a former BOE oficial. Recent economic news has supported the [Monetary Policy Committee’s] forecast for a gradual recovery. Even though the committee might return to the QE option further ahead if the recovery wobbles, we think that it will prefer to wait to see what impact forward guidance has.”
 
Redwood's assessment that recent data had supported the MPC's forecast and justified the freezing of QE was a common oneafter all, they could wait to see if things really were improving as much as the data suggested; and if not, they could always restart QEafter all, there are no consequences of printing money out of thin air, when required.
 
Barely a week later, clearly feeling confident in his new role, Carney opened his shoulders:
 
(Euromoney): Bank of England (BoE) governor Mark Carney on Wednesday introduced a new era in UK monetary policy when he provided forward guidance for the first time on the future direction of interest rates. In an eagerly anticipated move, Carney said during his inaugural inflation report press conference that the BoE would not consider raising interest rates until the unemployment rate has fallen to 7% or below.
 
Carney said he expected this would require the creation of about 750,000 jobs and could take three years. The UK unemployment rate stands at 7.8%. “It is now more important than ever for the Monetary Policy Committee (MPC) to be clear and transparent about how it will set monetary policy in order to avoid an unwarranted tightening in interest rate expectations as the recovery gathers strength,” said Carney.
 
“That is why the MPC is today announcing explicit state-contingent forward guidance.”
 
Again, as is the custom in this post-2008 landscape, the big news was telegraphed well in advance so as not to scare the horses.
 
What was NOT quite so well-disseminated prior to their official release a week later was the minutes of the MPC meeting.
And therein, as the Bard once didn't exactly say, lay the rub:
 
(WSJ): Dissent within the Bank of England's interest-rate setting panel fueled investor doubts Wednesday over whether the central bank can stick to its new governor's pledge not to raise interest rates until joblessness in the U.K. falls sharply.
 
New BOE Gov. Mark Carney, in his debut news conference last week, outlined a major shift in the central bank's policy framework, vowing to keep interest rates at record lows at least until the U.K. jobless rate falls to 7%. BOE officials predict such a drop could take until 2016.
 
But minutes of this month's policy meeting published Wednesday showed Martin Weale, an external member of the central bank's monetary policy committee, voted against the introduction of the BOE's "forward guidance" strategy.
 
Mr. Weale, a British economist who has long fretted about inflationary pressures in the U.K. economy, was the lone dissenter. The remaining eight officials backed the plan, and the newly minted central bank governor announced the pledge Aug. 7.
 
One out of 42 economists going with a different view is not a problem. One out of 8 members of the Monetary Policy Committee piping up is a bigger deal, it would seem; and the lone dissension of Mr. Weale was enough to force UK investors to face the (admittedly slim) possibility of their own "tapering". The results were not pretty:
 
(UK Daily Telegraph): The rates at which banks lend to one another — usually a key indicator of the future direction of fixed rate mortgage rates — have been rising in recent weeks, in spite of Bank Governor Mark Carney's clear "guidance" that the Bank would cap rates until 2016.
 
The interbank rates reflect the demand for and cost of money changing hands between large institutions. These are rising, suggesting market participants are not convinced by Mark Carney's commitment made on August 7 to keep rates low until certain economic conditionsnotably unemployment targets — are met.
 
But will rising interbank or "swap" rates as they are also known, translate into higher mortgage rates? And if so, how quickly?
 
Swap rates, like mortgages, apply over set periods. Two-year swap rates have risen by 16pc in the fortnight since July 30, from 0.68pc to 0.79pc. Five-year swap rates have risen by a greater 21pc, from 1.37pc to 1.66pc.
 
In effect, these increases mean the market expects the Bank rate to rise sooner than Carney has indicated.
 
"It shows that while Carney says one thing, the markets think another with at least one base rate rise priced in," according to Mark Harris of mortgage broker SPF Private Clients. "Can he really keep a lid on rates until 2016?"
 
That's the (inflation-adjusted) 64-bazillion-dollar question. Can Carney do what he says he will?

Can any of the world's central bankers bend markets to their will forever? Unfortunately for Carney and his counterparts at other central banks, they believe that the decision will ultimately be theirs and that the markets will do what they say, because ... well, because for the last few years they have done.
 
Big mistake.
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Arthur%20Burns.psd
 
These decisions are NEVER made by central banks in the long term — just ask Arthur Burns, who, interestingly enough as we contemplate a Larry Summers-led Fed, had a reputation of being overly influenced by political pressure in his monetary decisions during his time as Fed Chairman.
 
No more than a couple of days after the MPC minutes were released, the commentators looked at the market reaction to Mr. Weale's lone voice of dissent (incidentally, Weale voted for a 0.25% hike for seven consecutive months in 2011, so his contrarian stance can hardly have come as a shock) and let loose:
 
(UK Daily Telegraph): Morgan Stanley predicts that sterling will fall from a current value of around $1.56 to $1.48 in three months’ time — a 5pc fall — as Bank of England Governor Mark Carney continues to pursue measures to stimulate the economy.
 
A series of positive economic news has boosted the pound recently, sending it to eight-week highs against the dollar, but Morgan Stanley’s head of foreign exchange strategy Hans Redeker said significant slack remains in the economy and that Mr Carney may even pursue an expansion of the Bank’s £375bn quantitative easing programme.
 
Philip Aldrick had similar concerns:
 
(Philip Aldrick): Top economists said the Monetary Policy Committee (MPC) could relaunch quantitative easing (QE) within months if markets did not move into line with the “forward guidanceunveiled by Governor Mark Carney last week.
 
The warning came after another rise in both sterling and government borrowing costs, and as traders brought forward their forecasts for a first rate rise to the third quarter of 2015roughly a year earlier than the Bank has signalled.

 
 
And Liam Halligan went one step furtheroutlining why he was worried about Carney's bold plan:
 
(Liam Halligan): I’d like to be positive. The new Governor has barely got his feet under the table and is a decent man. Amidst sky-high expectations, he faces a formidable task. Yet my instincts tell me that forward guidance is counter-productive and could even be highly dangerous.
 
Carney delivered his much-anticipated monetary sermon on August 7. Already, the policy appears to be unravelling. Since the Governor spoke, 10-year UK gilt yields have spiralled, up over 20 basis points to 2.64pc, the highest level since October 2011. So borrowing has become dearer, not only for the Government but across the economy. That, presumably, is not what Carney intended....
 
Forward guidance is losing traction for reasons that go beyond recent improvements in the growth data. Investors are also concerned that the Bank will need to raise rates sooner than it says in order to counter inflation. The Consumer Price Index rose 2.8pc during the year to the end of July, we learnt last Tuesday. While that was marginally down from 2.9pc the month before, inflation still remains way above the Bank’s 2pc target, as it has been for no less than 45 months in a row.
 
While the Government’s pet economic commentators are doing their best to ignore oil prices, it’s also the case that, despite a sluggish global economy, crude prices remain firmly above $110 per barrel.
 
Egyptian unrest notwithstanding, oil markets remain tight, amidst ever-growing demand from the Eastern giants and, despite the fracking hype, an ongoing struggle to source new supplies. That can only aggravate inflation.

Ahhh... yes, inflation. I remember that.
 
So here we are.
 
One dissenter, and the QE program that was put on hold just TWO WEEKS prior is being touted as the solution to a problem that hasn't even occurred yet, simply because markets won't "move into line".
 
Oh, Mama!
 
But it's not just the UK. Over in the USA, the signs are already appearing that rates are starting to be set not by the Fed but by the market, and that spells trouble.
 
Exhibit A: Mortgage Rates
Mish%20Mortgage%20Rates.psd Source: Mike Shedlock
 
 
That is not going to help the housing "recovery" that has done so much to inspire confidence in the US economy; and indeed, as Mike Shedlock pointed out this week, mortgage application data is already cause for concern:
 
(Mish): From the latest Mortgage Bankers Association Weekly Application Survey ...
 
Mortgage applications decreased 4.7% from the previous week

The Refinance Index decreased 4% from the previous week


The seasonally adjusted Purchase Index decreased 5% from the previous week

The unadjusted Purchase Index decreased 6% compared with the previous week


One week does not make a trend, but the trend looks ominous. The weekly application surveys show a decline in mortgage applications for the 13th time in 15 weeks.
Curiously, refinance applications, although trending lower, still account for about 63% of applications.
 
I spoke with my friend Michael Becker, a mortgage broker at WCS Funding Group, and he commented that he is still refinancing people with rates over 6%. Some people just now have the equity available to refinance.
 
Yet, with rising rates, the drop in affordability, the pent-up demand to buy declining, and the decline in the number of applications, don't expect too much more (if any), rise in home values. And don't expect mortgage applications to break this trend either.
 
What does that look like graphically? Well, like this:
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23459.png 
Source: MBA/Bloomberg
 

Central banks are now reaching the point of no return. They have pegged rates at zero; they have bought what would have been, until a few short years ago, an utterly incomprehensible amount of bonds; and now they have promised to keep rates at zero for years to come — but the markets are finally beginning to rebel.
 
 
Bill Fleckenstein likes to call this part of the process "the market taking away the printing press", and if that is in fact the phase we are about to enter, then all hell could be let loose. The markets wresting control from the central banks will signify that the endgame has begun.
 
 
Already, as you can see from the chart below, interest rates have backed up across the world (though Japanwhose bond market went through some wild convulsions in the wake of BoJ governor Kuroda's pledgeseems once again to be under control ... for the time being) as investors start to realize that eventually market forces will ride roughshod over central bankers, and at that point they will need to take drastic measures.
 
Bond%20Yields.psd Source: Bloomberg
 

Unlike in the 1980s, though, raising rates into the teens is categorically not an option this timein fact, raising rates back to the average over the last 25 years is not even on the table, since, despite a consistently falling yield during that extended time period, the average rate is still 5.25% (see chart below); and THAT, dear reader, is a number that isn't affordable today due to the explosion in the amount of debt issued by the US.
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23414.png Source: Bloomberg
 

But surely, if the market WERE in the process of removing the printing presses from the central banks of the world, there would be signs elsewhere that a race had begun to buy some sort of asset that would perform well in an environment where things were getting out of control, no? Surely, if the prospect of inflation picking up was real, there would be SOME way to tell?
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23428.png 
Source: Bloomberg
 

If only there were an asset that might act as some kind of early warning signal...
 
Hmmm...
 
So, to summarize:
 
As if by magic, markets are no longer doing exactly what is required of them, when required. Interest rates are backing up as fears of "tapering" mount; and no matter how hard Bernanke, Carney, or any of their mouthpieces try to reassure folks that any taper won't be a disaster and that rates will be low for a VERY long time, they are having to keep the helicopters gassed up and ready to drop more money at a moment's notice, because that is Mr Market's default response: "I want more cowbell!"
 
 
In our through-the-looking-glass world where down is up and bad is good, markets conditioned to expect stimulus are reacting poorly to "strong data", and fears that the flood of free money may be about to be stemmed are growing.
 
 
After several years of bad news being good, we are now at the point where good news is bad.
That's bad (and by bad, I don't mean good).
 
 
What is actually happening is that, once you subtract the injection of bountiful free money by central banks, that "strong data" is seen exactly for what it is: weak data. And the prospect of a low-growth world emptied of easy money is hardly one that inspires confidence amongst investors.
 
 
(UK Daily Telegraph): Strong data sparks market sell-off on fears stimulus is over
 
Stock markets across the world slumped and government borrowing costs soared after strong economic data from the US and the UK renewed fears that central banks would soon start withdrawing stimulus and move towards interest rate rises.
 
That's it in a nutshell.
 
So ... it's all about the taper.
 
What happens now? Do we get the dreaded taper, followed by a measured retreat in bond markets with equities stabilizing at all-time highs and central bankers having the world graciously bend to their will forever? Or do we get a taper that is accompanied by a big break lower in equity markets that causes one last panic-driven rush into sovereign debt, making things look optically OK for a little while longer? Or maybe we get a taper followed by a break in equities, a continued sell-off in bonds, and a panic into real assets like precious metals?
 
But there's one more scenario that worries me: what if they taper ... and everything falls anyway?
What then?
 
 
*******
 
OK, so another week is in the books; and revisiting the high (well, low) points, our first port of call is that nearly forgotten thorn in the side of Europe: Spain.
 
Not only do we find a 47-storey building with a minor flaw, but we discover entire villages for sale and take a look through German eyes at the progress being made in Spain on the path to reform.
 
China features prominently this week, too, as Michael Pettis exposes the urbanization fallacy; Caixin examines the tremendous increase in interbank business; and, in a development that will shock precisely nobody, we contemplate the possibility that Chinese economic data is "dodgy".
 
Japan's debt passes a major milestone that seems to have not even registered; we drop in on Cyprus to remind ourselves that there is still a problem or two in parts of Europe that don't rhyme with "Hermany"; and in our charts section we examine the Summers vs Yellen race to the Mariner S. Eccles Building, ETF holdings of gold and silver, and the housing "recovery".