In response to an FT article by Martin Wolf on 26th August 2014, entitled 'Opportunist shareholders must embrace commitment'
How do you square your admonitions to the market with the conditions created by Central Banks?
They've spent six years printing money. The main effects of this funny money have been:
1. It has enabled their mates on Wall Street to repair their balance sheets (after a fashion)
2. It has unleashed an unprecedented upsurge in speculative behaviour from the recipients of the largesse - the banks and the 0.1%
3. It has facilitated the S&P500 to borrow at ZIRP in order to buy back their own shares, thus inflating the share price, thus inflating the EPS, thus inflating their bonuses. The insiders and the activist shareholders are well aware of this, as are the Fed. Just before it bursts the insiders will exit first, indeed they are already doing so. When the bubble bursts, which it will very soon in my opinion, the Executives will leave or get fired, leaving the next CEO to repair the balance sheet.
4. It has encouraged Fund Managers to buy stock at valuations they know are absurd, but they have mandates to fill…and if they want to keep their jobs…
5. It has been Christmas almost every day for the carry trade, with the accompanying problems of boom-bust that creates for emerging markets
6. It has fuelled a reach for yield that has produced a market where people are getting 6% for ten year paper three levels down from investment grade.
And why are we here? Because first Alan Greenspan, then Ben Bernanke thought that they could create prosperity with free money and a printing press. Because they were looking after their mates. Because they were propping up a government that spends trillions on guns and butter - except now the butter is margarine, and before long it will be dry bread when the unfunded liabilities come home to roost - revealing the fact that governments are insolvent, not illiquid - insolvent.
In short, how on earth do you expect your thesis, however clever it sounds, to make the slightest bit of difference to the dystopian nightmare that the Central Banks are in the process of creating, and which the governments have encouraged, through the double dose of economic morphine that is Friedmanite money printing and Keynesian fiscal fantasy?
The market has to clear Mr Wolf, it is an ersatz market, fed upon by ersatz banks, bled dry by ersatz governments, given intellectual respectability by ersatz economists and hubristic control freaks, who don't know the first thing about markets or human behaviour...and who refuse to tell the truth…they haven't got the foggiest idea what they are doing.