{"id":30428,"date":"2020-10-04T13:21:59","date_gmt":"2020-10-04T17:21:59","guid":{"rendered":"http:\/\/stateofthenation.co\/?p=30428"},"modified":"2020-10-04T13:21:59","modified_gmt":"2020-10-04T17:21:59","slug":"highly-over-exposed","status":"publish","type":"post","link":"https:\/\/stateofthenation.co\/?p=30428","title":{"rendered":"Highly Over-Exposed!"},"content":{"rendered":"<h1 style=\"text-align: center;\"><strong>Exposed<\/strong><\/h1>\n<p><!--more-->BY SVEN HENRICH<br \/>\nNorthmanTrader<\/p>\n<p>While this weekend\u2019s headlines are dominated by who got exposed to and infected by Coronavirus from the President on down I want to make sure other key news items are not lost in the shuffle, specifically those that expose a system that has self corrupted itself and is desperately trying to keep the balls in the air while causing ever more long lasting damage to our global economy.<\/p>\n<p>Let\u2019s face it: This week\u2019s market action was dominated by dozens of stimulus headlines. Stimulus progress and markets rip higher, stimulus disagreements and markets dropped lower exposing markets again to be a toy thing of the liquidity game.<\/p>\n<p>Will they or won\u2019t they is the question on everyone\u2019s mind and many bets are placed that they will, for likely they must as the jobs growth picture is slowing dramatically from the summer sugar recovery high and keeping markets and consumer confidence high into the election is a political imperative.<\/p>\n<p>And don\u2019t think for a second that they are not political imperatives. Market levels are as much a national security imperative as is having a strong military. For the last few years Larry Kudlow\u2019s curiously timed TV appearances have become a fodder of Twitter jokes and yours truly has been at the forefront on Twitter of mocking the ever so obvious attempts to manipulate markets higher at every corner and opportunity.<\/p>\n<p>Oh you\u2019re just a conspiracist. No, I just try to cut to the truth and reality of markets.<\/p>\n<p>And sometimes that truth slips out:<\/p>\n<div id=\"north-717915605\" class=\"north-content\"><\/div>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-0\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-0&amp;frame=false&amp;hideCard=false&amp;hideThread=false&amp;id=1312060990381490176&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1312060990381490176\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>\u201cWhen we needed markets to go up\u201d.<\/p>\n<p>And there it is. Markets going up exposed as a necessity for political purposes.<\/p>\n<p>And cue the drum roll:<\/p>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-1\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-1&amp;frame=false&amp;hideCard=false&amp;hideThread=false&amp;id=1312058780818059267&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1312058780818059267\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>And don\u2019t think it\u2019s just the current administration that is playing these games.<br \/>\nWhat? You think it\u2019s an accident that on Friday when futures were down hard that Nancy Pelosi came out with this headline 5 minutes after market open immediately putting a floor under the market:<\/p>\n<div id=\"north-1515832268\" class=\"north-content_5\"><\/div>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-2\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-2&amp;frame=false&amp;hideCard=false&amp;hideThread=false&amp;id=1312023373380308994&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1312023373380308994\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>Sometimes it\u2019s hard to avoid getting the impression that the 2 parties are not in fact one in the same putting on a show of choice. They both are living off a market structure they can\u2019t ill afford to lose in trajectory. As George Carlin once opined: \u201cYou don\u2019t have a choice. You have owners. It\u2019s a big club\u201d.<\/p>\n<p>Do you really think it\u2019s an accident that the only people placed in charge of the country\u2019s monetary policies are doves? People of the perma intervention kind. It is after all the same Congress comprised of these very two parties that approves all the nominations. Bernanke was a dove, Yellen was a dove, Powell now the perma-dove with interest rates at zero forever and ever amen.<\/p>\n<p>There is no diversity of opinion, there\u2019s no diversity of thinking, and critical viewpoints are either not considered or outright dismissed and mocked.<\/p>\n<p>Indeed central bank career path day appears structured on the notion one must show positive effects of QE on growth whether it\u2019s true or not. Critics don\u2019t get considered\u00a0<a href=\"https:\/\/www.bloomberg.com\/opinion\/articles\/2020-10-01\/university-of-chicago-study-finds-central-bankers-inflate-the-numbers-on-qe?sref=q1j4E2z1\" target=\"_blank\" rel=\"noopener noreferrer\"><em><strong>for promotion in the ranks apparently<\/strong><\/em><\/a>:<\/p>\n<p><em>\u201cA new academic paper casts fresh doubt over the case for QE. Lubos Pastor, an economist at the University of Chicago, and three colleagues have parsed about 50 studies looking at the effect of asset purchases on growth and inflation. They found that researchers working in central banks tend to find a larger impact than academics and conclude that central bankers have incentives (such as possible promotions) to be too kind toward QE. Papers written entirely by central bankers found an impact on growth at the peak of QE that was more than 0.7 percentage points higher than the effect estimated in papers written entirely by academics. The authors then investigate the reason for these discrepancies. They suggest that career concerns may have played a role and provide some evidence that central bank researchers who found the largest impact of QE had a better chance of receiving a promotion.\u201d<\/em><\/p>\n<p>You can\u2019t make this stuff up. And it is this very institutional group stink that leads to statements of self delusion such as this:<\/p>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-3\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-3&amp;frame=false&amp;hideCard=false&amp;hideThread=true&amp;id=1218171896765829121&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1218171896765829121\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>This from the President of the Minneapolis Fed who, while denying QE\u2019s impact on asset prices, proceeded to dismiss yours truly as a QE conspiracist and \u201cswashbuckling pirate\u201d:<\/p>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-4\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-4&amp;frame=false&amp;hideCard=false&amp;hideThread=false&amp;id=1218184587580452864&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1218184587580452864\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>It\u2019s all fun and giggles while markets go up but the dismissive conspiracist voices fell notably silent during the 35% market crash in Q1 2020. Since then we again see the original criticism confirmed as markets rallied to new all time highs despite the largest economic crisis in our lifetimes. Amazing things can happen when you expand your balance sheet by $3 trillion in just 4 months. It\u2019s called market distortion.<\/p>\n<p>And no, that\u2019s not my opinion, it\u2019s a fact confirmed by another nugget of truth that crossed the headlines this week courtesy\u00a0<a href=\"https:\/\/www.reuters.com\/article\/us-usa-fed-kaplan-idUSKBN26N2WW?taid=5f776ac12e33a100010a4b76&amp;utm_campaign=trueAnthem:+Trending+Content&amp;utm_medium=trueAnthem&amp;utm_source=twitter\" target=\"_blank\" rel=\"noopener noreferrer\"><em><strong>Dallas Fed president Kaplan<\/strong><\/em><\/a>:<\/p>\n<p class=\"Paragraph-paragraph-2Bgue ArticleBody-para-TD_9x\"><em>\u201cMy concern about asset purchases is they can distort markets,\u201d Kaplan told the Wall Street Interview in a webcast interview. \u201cIt\u2019s a tool that I\u2019d want to be careful with.\u201d<\/em><\/p>\n<div class=\"AdSlot__container___2BqUD ArticleBody-ad-slot-83sCj\" data-creative-type=\"fluid\">\n<p>I guess now that we ballooned the balance sheet to a historic $7 trillion and continuing to buy assets at a clip of $120B per month ($1.44 trillion annualized) NOW we want to be careful as it might distort markets.<\/p>\n<p>Give me a break. Markets are already grossly distorted. After all:<\/p>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-5\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-5&amp;frame=false&amp;hideCard=false&amp;hideThread=false&amp;id=1311617640327245824&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1311617640327245824\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>There\u2019s little doubt a renewed stimulus package would be beneficial to asset prices again in the short term, no matter the valuations.<\/p>\n<p>The question for all of us is how long the valuation disconnect jig so constantly danced by monetary and government authorities can be maintained in the face of its ever more self evident failure:<\/p>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-6\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-6&amp;frame=false&amp;hideCard=false&amp;hideThread=false&amp;id=1312370279230906368&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1312370279230906368\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>While career focused central bankers are keen on promoting the fantasy that QE promotes growth the ever more frantic interventions from cycle to cycle amid ever slowing growth cycles ever more dependent on expanding debt strongly suggest otherwise.<\/p>\n<p>Indeed this week\u2019s frantic market action chasing every single stimulus headline not only again highlights how utterly dependent markets are on artificial stimulus to maintain lofty valuations, but how fragile the underlying economic construct really is.<\/p>\n<p>For after 11 years of nonstop interventions, the building of a $7 trillion Fed balance sheet (and ever growing larger), zero rates, a US debt now exceeding $27 trillion (a $17 trillion increase since just 2007) and heading toward $30 trillion, it takes ever more to support this market valuation construct:<\/p>\n<p><a href=\"https:\/\/i0.wp.com\/northmantrader.com\/wp-content\/uploads\/2020\/10\/debt.png?ssl=1\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-90425\" src=\"https:\/\/i0.wp.com\/northmantrader.com\/wp-content\/uploads\/2020\/10\/debt.png?resize=492%2C267&amp;ssl=1\" sizes=\"auto, (max-width: 492px) 100vw, 492px\" srcset=\"https:\/\/i0.wp.com\/northmantrader.com\/wp-content\/uploads\/2020\/10\/debt.png?w=743&amp;ssl=1 743w, https:\/\/i0.wp.com\/northmantrader.com\/wp-content\/uploads\/2020\/10\/debt.png?resize=300%2C163&amp;ssl=1 300w, https:\/\/i0.wp.com\/northmantrader.com\/wp-content\/uploads\/2020\/10\/debt.png?resize=150%2C81&amp;ssl=1 150w\" alt=\"\" width=\"492\" height=\"267\" data-attachment-id=\"90425\" data-permalink=\"https:\/\/northmantrader.com\/2020\/10\/03\/exposed\/debt-99\/\" data-orig-file=\"https:\/\/i0.wp.com\/northmantrader.com\/wp-content\/uploads\/2020\/10\/debt.png?fit=743%2C403&amp;ssl=1\" data-orig-size=\"743,403\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;0&quot;}\" data-image-title=\"debt\" data-image-description=\"\" data-medium-file=\"https:\/\/i0.wp.com\/northmantrader.com\/wp-content\/uploads\/2020\/10\/debt.png?fit=300%2C163&amp;ssl=1\" data-large-file=\"https:\/\/i0.wp.com\/northmantrader.com\/wp-content\/uploads\/2020\/10\/debt.png?fit=639%2C347&amp;ssl=1\" data-recalc-dims=\"1\" \/><\/a><\/p>\n<p>And still, with all this,\u00a0<a href=\"https:\/\/www.marketwatch.com\/story\/half-of-americans-over-55-may-retire-poor-2020-10-01\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>over half of Americans may retire poor<\/strong><\/a>.<\/p>\n<p>I suggest this is not a record of success but of systemic failure that has left the country poorer, and long term growth prospects weaker as the forces of deflation and demographics will be with us for years to come. Indeed the monetary and government cheerleaders of ever higher asset prices find their narratives confronted with\u00a0<a href=\"https:\/\/www.wsj.com\/articles\/demographics-and-debt-hang-over-long-term-u-s-growth-11601467381\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>a brutal long term reality<\/strong><\/a>:<\/p>\n<p><em>\u201cIf you\u2019re worried about the short-term economic outlook, I have bad news: the long-term outlook is worse.\u00a0That\u2019s what emerges from\u00a0<a class=\"icon none\" href=\"https:\/\/www.cbo.gov\/publication\/56598\" target=\"_blank\" rel=\"noopener noreferrer\">the latest long-term budget outlook<\/a>\u00a0released by the Congressional Budget Office last week. It contained this sobering number: the agency expects annual economic growth to average\u00a0<a class=\"icon none\" href=\"https:\/\/www.wsj.com\/articles\/new-cbo-projections-show-weaker-economic-growth-11600711886\" target=\"_blank\" rel=\"noopener noreferrer\">just 1.6% over the next three decades<\/a>\u2014down by about a quarter of a point from its forecast a year ago\u2014and just 1.5% by the 2040s. The U.S. hasn\u2019t had trend growth that low since the 1930s.\u201d<\/em><\/p>\n<p>I submit that to approach this structural reality with record indebtedness and the highest market valuations in history is a math equation that does not solve itself with a positive outcome.<\/p>\n<p>But for now the rallying cry is for more stimulus again:<\/p>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-7\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-7&amp;frame=false&amp;hideCard=false&amp;hideThread=false&amp;id=1312449034154504192&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1312449034154504192\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>Where is the rallying cry for structural solutions? It doesn\u2019t exist. Instead the rallying cry is to cheerlead markets higher at every opportunity, to convince of policy success when there isn\u2019t any, to maintain confidence at all cost. Wall Street wants more Fed stimulus. The Fed wants more fiscal stimulus. Everybody wants more and more so not to risk the great unwind that is staring us all in the face.<\/p>\n<p>We can\u2019t know when and how the unwind will present itself, but at least we know when Larry Kudlow will go on TV. \u201cWhen we need markets to go up\u201d.<\/p>\n<p>Looks like we will see Larry on TV a lot more, especially if there\u2019s no stimulus deal. But hey, maybe they\u2019ll get one done after all for without there is nothing but hope for another Fed bailout following the December Fed meeting:<\/p>\n<div class=\"twitter-tweet twitter-tweet-rendered\"><iframe id=\"twitter-widget-8\" class=\"\" title=\"Twitter Tweet\" src=\"https:\/\/platform.twitter.com\/embed\/index.html?dnt=false&amp;embedId=twitter-widget-8&amp;frame=false&amp;hideCard=false&amp;hideThread=false&amp;id=1311979303446380544&amp;lang=en&amp;origin=https%3A%2F%2Fnorthmantrader.com%2F2020%2F10%2F03%2Fexposed%2F&amp;siteScreenName=northmantrader&amp;theme=light&amp;widgetsVersion=ed20a2b%3A1601588405575&amp;width=550px\" frameborder=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\" data-tweet-id=\"1311979303446380544\" data-mce-fragment=\"1\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>Stimulus. Fed injections. No solutions.<\/p>\n<p>___<br \/>\n<a href=\"https:\/\/northmantrader.com\/2020\/10\/03\/exposed\/\">https:\/\/northmantrader.com\/2020\/10\/03\/exposed\/<\/a><\/p>\n<\/div>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Exposed<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-30428","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts\/30428","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=30428"}],"version-history":[{"count":0,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts\/30428\/revisions"}],"wp:attachment":[{"href":"https:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=30428"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=30428"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=30428"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}