Quick Shots -19/Apr/2014

What I Lie Awake Thinking

I was thinking in my half-waking sleep dream mode this morning that the world's free market could be understood very clearly as this giant chaotic mass of fear and greed. The bears and bulls are exactly that, animal spirits of fear for the market and greed for the market. It then occurred to me that Karl Marx could see the logical ramification of this capitalist system as a giant train wreck and that somehow human beings with our superior rational intellect would want to add rationality in to the mix.

Of course the communist experiment of the Twentieth Century ended up being mostly fear: fear of Stalin, fear of Mao; fear of counter-revolutionaries; fear of freedom and the corrupting influence of capitalism and so on. But you look at something like the post-Soviet economy of Russia and it is clear that the logical outcome of capitalism is the kind of oligarchic Kleptocracy and all that inequality that comes with such structures. China has similarly headed straight to the income inequality and disparity between the oligarchs and the ever-suffering peasants.

The most worrying aspect of free market capitalism isn't even this disparity in income or the mis-valuing of labour or the reification of money or the degradation of government and public finnances or the emergence of these oligarchs. It's that the more we commit to it, the more extreme our reliance becomes, upon a system that is essentially held up by our collective fear and greed. Think about the fact that we are 72hours away from starvation and riots. All that fear and greed has taken us to the ledge and here we are thinking this is the best deal going on how to distribute goods and services.

I'm not about to go become a communist but you'll pardon me if some mornings I think to myself there must be a much better way than what we've got.

Is QE Really Working?

This is what makes me ponder each and every day. It seems that the most successful thing Quantitative Easing has done is shore up the prices of equities and risk assets. The second most successful thing it has done is gone out of the first world into emerging markets in the carry trade - which is another way of saying it didn't really go to the places in the economy for which it was intended. This is disturbing because the ramification of this is that the economies that most propped up asset prices did so by shipping inflation out to the emerging markets.

I don't know about you, but I imagine this is having an effect on commodity prices because frankly, you can't print that much money and not have inflation showing up somewhere.  It sure hasn't been appearing in America or Australia or the UK, but lately the price of food staples have gone up steadily. The last time this happened it prompted the Arab Spring so we may be headed for even more instability around the globe.

Just to make things a little tricky, Bernanke's successor Yellen has announced the taper will progress at a constant rate and this is sending investment money back to America, but you have to wonder if the emerging markets are going to be able to handle the drop in liquidity and the rise in commodity prices for food staples.

Then there is the little issue of moral hazards associated with the bail outs. It seems the people who benefited the most from QE and TARP and all the socialised losses governments have taken on around the world as debt (and bad debt at that), were not the people on 'main street' as they are called but the top echelon of the wealthy. Not the 1%, but in fact the top 0.1% have made the most wealth out of this exercise. If you lost your house and job in the GFC, I think you'd be entitled to feel quite duped by all of this stuff. The data coming out of the USA saying there's a recovery going on seems to betray the fact that a lot o the jobs created since the GFC are lower in value than the jobs lost. If the Fed and the US Government worked so hard for this outcome, then surely there's a problem in reflexively thinking that the bail outs were a success. Thus,  seven years on from when the GFC started to happen, we should be asking just who is benefiting from all this Quantitative Easing?

Ukraine, The Ugly

It's one of those situations that won't go away. Russia has essentially taken the opportunity of the instability to annex Crimea back into Russia. While there has been much tub thumping condemnation of Russia by the first world, it seems the other nations in the BRICS have tacitly moved behind Russia. NATO i making noises about moving troops in to Ukraine while the interim government in Kiev has declared the Russia-sympathisers as terrorists. You can see that this is not going to go in any direction of pretty.

Putin and his government have been saying this week that Ukraine is on the brink of a civil war. They may well be heading in that direction right now. All the while I'm a little curious as to what exactly the Obama Administration thinks it is going to accomplish in Ukraine. There is a growing bit of incredulity every time the White House announces it's going to send a ship through the Bosphorus into the Black Sea. This lone vessel encountered (or rather, got buzzed by) a Russian jet that came within 1000yeards.

It's enough to make you wonder if Obama and Putin want to repreise the Cuban missile crisis. Unlike Kennedy ad Khrushchev who had to work through elaborate diplomatic channels. Obama and Putin have been on the phone 6 times with very little to show for it. Putin being an ex-KGB man makes it immensely difficult to read, let alone game for advantage, while Obama has a record of drawing lines in the sand and letting people walk all over them.  If all of this ends up as a hot war in Ukraine with NATO troops on the ground, I think that would be the day things have gone incredibly wrong.