Shreddin’ The Gnar
“What the Fed has begun to worry about is financial stability…the longer rates stay very low, the greater the risk they become built into the current financial architecture…It is useful to think of the Fed’s mindset here as being like that of the avalanche patrol at a ski resort. You detonate your tools in order to see if there are any avalanches out there to be triggered. You don’t know if there are any out there, but you know the longer you wait, the larger the risks grow in probability and magnitude…the policy rate can be used to signal, to keep us on our toes, and to help clear the slopes now so as to lower the risk of triggering a larger and potentially destabilizing avalanche later.” Meanwhile, John Williams is soooooo stoked bro : “As we go through time, that probability of saying ‘well, the shocks are going to push us back,’ seems to be [decreasing]…More importantly, we are really thinking about a path, we are talking about moving interest rates from zero to a normal level over several years.” “To get that message across Williams has begun giving away T-shirts, printed at his own expense, showing an arrow busting upwards out of a computer and declaring: ‘Monetary policy — it’s data dependent.’” Meanwhile, the powder abroad is DEEP dude: “investors speculating the dollar rally is fizzling out may be overlooking trillions of reasons why it will keep on going…Sovereign and corporate borrowers outside America owe a record $9 trillion in the U.S. currency…’There’ll be huge demand for the dollar that is much more than what’s consistent with growth or interest-rate differentials’…in addition, central banks that had reduced their holdings of the greenback are starting to reverse course, creating more demand…’Central banks are re-accumulating their dollar reserves and low, or negative, bond yields in the euro zone will probably speed up that trend.’” Also, whether you are on
snowboard Team Summers or skis Team Bernanke, the gnar is the same: “There’s too much money and not a lot to do with it. And that’s why we’re seeing investors make some interesting, seemingly non-economic decisions with their piles of cash.” Speaking of piles of cash, “General Electric’s deal to sell off real estate and get out of most of the finance business contains a little sweetener for the U.S. government, in the form of up to $4 billion worth of taxes on repatriated earnings…Right now, U.S.-based multinationals are not taxed by the U.S. government on what they earn overseas — until they bring that money back to the U.S….and there’s at least $690 billion in overseas cash…Companies can use it to make acquisitions abroad, or do what’s called ‘synthetic repatriation,’ which means borrowing against the overseas cash and giving it to shareholders in the form of buybacks and dividends.” “Shareholders in the biggest US companies stand to receive a record $1tn in cash this year, as blue chips’ concerns over the global economic outlook have diverted cash away from investment and is driving a boom in buybacks and dividends.”
Meanwhile, the “impossible” trade is working.