|Dow||-25.24 to 16,826.60|
|S&P 500||-.73 to 1,960.23|
|Nasdaq||-10.25 to 4,408.18|
|10-YR Yield||-.016 to 2.516%
|Gold||+$7.80 to $1,327.80
|Crude Oil||-$.33 to $105.41|
The world of central banks is a cushy, closed one. Picture a revolving door of private bankers, ex-bankers, and set-for-life policymakers jet-setting around the globe to attend expensive conferences, eat fancy dinners, and rub elbows with other stuffy, like-minded individuals.
Oh, and don’t forget all the boring policy papers filled with incomprehensible mathematical formulas and econ-o-jargon so thick you could cut it with a knife! Most of it is so stultifying, I wouldn’t even waste your time bringing it up.
But this weekend, a central bank “traitor” emerged in the midst. I’m talking about a landmark annual report from the Bank for International Settlements, or BIS.
If you haven’t heard of the BIS, think of it as the “central bank to central banks.” The Basel, Switzerland-based institution produces research and facilitates international monetary transactions for central banks the world over.
You’d expect the BIS, whose board of directors is stacked with central bankers like Mario Draghi of the European Central Bank and William Dudley of the U.S. Fed to basically toe the party line. You know, the one that says cheap money is great, it fixes everything, it actually does more than inflate financial bubbles over and over again, blah, blah, blah.
|“It’s not so much what is being said that should have you concerned. What matters is who is saying it.”|
But the 84th annual report just released yesterday did anything but! Among other things, it called out central bankers for creating a completely artificial market, noting that “it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.”
One side effect of all the easy money is that companies aren’t bothering to do anything productive (from an economic standpoint, such as building factories or hiring workers) with it. Instead, they’re just giving the dough to shareholders! Or in BIS-speak:
“Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions. And despite lacklustre long-term growth prospects, debt continues to rise. There is even talk of secular stagnation.”
And what about all that happy talk? The talk about an easy, smooth return to normal policy conditions? Fuggedaboutit! The BIS said, “It will be difficult to ensure a smooth normalization” and that “the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly.”
Again, it’s not so much what is being said that should have you concerned. I have accurately warned of exactly these threats for months. What matters is who is saying it. When even the central bank to central banks is saying this stuff, it’s a sign that a significant policy shift is underway. One toward tighter money, less QE, and yes, short-term interest rate hikes!
So fasten your seatbelts! The low-rate, low-volatility market many on Wall Street have gotten fat and happy off of may be in for a shake-up before long.
What do you think? Is the BIS on target? Do you think central banks have artificially manipulated markets, and if so, are they finally going to have to shift tacks? Will inflation be the trigger for a shift in policy? Worries over market complacency? Something else?
Let me and your fellow investors know by clicking over to the comment section here. Please note: The comment system was temporarily disabled over the weekend by computer issues.
|OTHER DEVELOPMENTS OF THE DAY|
The Supreme Court ruled 5-4 that companies like Hobby Lobby Stores can choose not to provide contraceptive coverage for employees. The decision strikes down a provision from the Affordable Care Act, otherwise known as Obamacare, that required them to do so.
General Motors (GM, Weiss Ratings: B) and the attorney it retained, Kenneth Feinberg, are offering millions of dollars in compensation to families whose loved ones were either killed or injured as a result of the carmaker’s defective ignition switches. GM isn’t capping overall payouts. But individual payments won’t be unlimited, either. They will depend on the severity of a victim’s injuries, the future potential earnings of a deceased victim, and other parameters.
Privacy advocates aren’t too happy with Facebook (FB, Weiss Ratings: C) after learning that a firm scientist and two co-researchers tinkered with people’s news feeds. They did so for a week in 2012 in order to see how Facebook members reacted to either more positive or more negative news items. The problem is that they didn’t tell anyone the experiment was running, nor did they obtain anyone’s consent in advance.
Fourth of July is almost here! If you happen to be in South Florida on Friday night, plug your ears. We’re planning a heck of a fireworks show at “Chez Larson!” I may even get an early start if Team USA pulls off a victory tomorrow against Belgium in the World Cup!
Until next time,