The Virtues Of Discrimination

By Chris at www.CapitalistExploits.at

I deserve to be punished!

Yesterday, I received some mail from subscribers in response to my article about the end of the empire:

“More buggered than an alter boy at the Vatican”. This is a witch hunt against the clergy. Can’t you see that? You perpetuate the lies and I hope God punishes you for it. What’s more I’m British, and proud of it and your article is racist. I’ve unsubscribed from your stupid discriminating blog.

Not everyone wants me dead, though… which is nice:

“God, I love these essays!”

And:

Hi Chris

 

Just a quick thanks to you and your team for all the updates and your insights. Having a feed of well thought through investment advice mixed with highly entertaining commentaries which cut through the thickest layers of the BS right to the essence of the matter is more than I had expected when I signed up for this and I really appreciate it.

 

 

Regards

And:

“I just shared this around the office here in London, where I have to tell you…we’re having a cup of tea:-) Love your take on the world and your unashamed way of dealing with reality. I first came across your work when a friend forwarded this one to me. It is so rare to find clarity of thinking and I really appreciate your ability to bring together the complexity of economics, human behaviour, history and everything in between. Keep up the fantastic truly insightful work.”

I’m reminded that you can’t please everyone… and neither should you try. It’s also useful to weed out morons so it’s got that going for it.

As much as I find amusement from hate mail and am humbled by well wishers, it made me think about this problem of political correctness. It’s an incredibly important topic and, in fact, was a significant factor in correctly predicting the ascension of Trump to the throne.

The people, like the disgruntled Brit above, who refuse to acknowledge things like the epidemic of pedophilia in the church are dangerous. The selective bias is appalling. They look at themselves and others not as individual human beings… which is how we should interact with one another, but rather as some group. Everything to them is pigeon holed into some category: white, black, male, female, left, right, capitalist, globalist, and so on.

They actually define themselves and others as a class, not as an individual. It’s lazy thinking at its finest. This is seriously problematic for a simple reason: it subjugates the individual in favour of the group. Some humour about Brits (who I secretly love) is immediately classed as racist. It’s completely absurd to the point of bordering on mentally ill.

Everything that doesn’t fit into their world view finds a label with “discrimination” being extremely popular. This is because it’s so loosely defined – literally anything can (and is) jammed into the discriminatory jar.

Have you ever bought a new car and then found that everywhere you look you seem to see the same car and colour?

In a similar fashion, these people search for discrimination, find it everywhere, and then attack it.

Say after me: we need discrimination. It is what keeps society ordered and civilised.

An example:

Some time ago my wife and I were out having dinner with a group of friends – 3 other couples. One of the guests, who I’ll call Harry (not his real name), had shoddy manners, cut people off in mid-conversation in order to put his point across, and was generally overbearing, loud, and obnoxious. Even when I cut him down and told him, in no uncertain terms, that he was being rude and offensive, this washed over him like water off a duck’s back. When a shared plate of food arrived, Harry proceeded to scoop literally half of the plate straight onto his own plate and eat it… without the slightest acknowledgement that his bahaviour may not be exactly acceptable.

Have we and the other couples subsequently discriminated against Harry? Hell, yeah! We won’t be inviting him and his poor wife over anytime soon.

Discrimination? Sure.

Necessary? Absolutely.

It’s what keeps society civilised. It comes as no surprise that Harry has few friends, is constantly “in between” jobs, and survives, as far as I can tell, by the grace of his wife, who for whatever reason, continues to support him. That, too, may at some point become too much, and Harry will find that, in order for him to not starve, he’ll need to change his ways. This is how things should work.

Do you discriminate when you steer clear of a group of young men with an aggressive swagger walking at night?

I sure hope so. This is not prejudice it’s bloody prudence.

Multiculturalism

It’s got such a nice ring to it but those using it don’t actually understand its true meaning. The dictionary tells us it’s the preservation of different cultures or cultural identities within unified society. 

Discrimination is closely tied with multiculturalism, which is easily one of the most misunderstood and misinterpreted terms in our modern lexicon. From my experience – and I’ve lived in 7 different countries, traveled to over 50, and do business with, have employees, colleagues, and business associates that traverse not only the globe but all the major religions and ethic groups – I can tell you this: those who live and work with many cultures and across geographies never, and I mean never, have an issue with this.

Those who do are inevitably the ones who have never traveled or travel little, and they wish to actually enforce on others their own world view. These are the worst sort of people. Those who not only believe things which are false but are not content until you, too, adhere to their beliefs. It’s an ideology, and ideologies are more dangerous than nuclear weapons.

Peter Thiel saw this coming a full 20 years ago. I would urge you to spend 15 minutes and listen to this speech he gave:

He quite correctly mentions that

“Multiculturalism has nothing to do with the study of other cultures.” He goes on to say that “You do not see students protesting on college campuses demanding missionary postings in third world countries, to learn more about other societies. You do not have people protesting to learn Chinese or Swahili.”

 

“You cannot have diversity on a college campus with people who look different but think alike.”

Peter discusses the threat to Western civilisation, which ironically is not posed by any other civilisation but rather comes from within. Those who have been reared in the warm bosom of Western civilisation providing freedom of speech, freedom of religion, and a host of freedoms, which have allowed for unparalleled wealth and opportunity. This is where the threat comes from. It’s not unlike a spoilt child who has been given too much by well-meaning parents… only to invite drug dealers and gangsters into the homestead to destroy it and rape and pillage.

This is not non-Western but anti-Western and advocating the destruction of Western civilisation.

Multiculturalism joins the ranks of a long list of junk words that have crawled into popular vocabulary but which infest our brain and are used by self-righteous pompous pseudo intellectuals to further goals which have little to do with what we’re told they do.

Words such as “islamophobia”, a nonsensical word if ever there was one (which I’ll write about in a separate article… because nobody else will)… and another pet hate: “marginalized”, which if you look carefully, is a term used to describe any minority group that enjoys support from multimillion dollar lobby groups where the objective is to destroy criticism of the particular group and to garner favours which would, if the group couldn’t muster being “marginalised” would NOT receive largess. Interestingly, these “marginalised” groups cannot ever be white and male. Think about why that is.

Be careful of using these rubbish euphemisms and fight back against those who throw them out as accusations, because they are the epitome of lazy thinking and are being used as weapons to destroy what is often common sense. In this world or irrationality, when a rational statement is made that it walks like a duck and quacks like a duck, society runs the risk of being to afraid to say that yes, it’s a duck. That, my friends, is dangerous territory indeed.

– Chris

“If everyone is thinking alike, then somebody isn’t thinking.” — George S. Patton

 

————————————–

Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).

————————————–

The post The Virtues Of Discrimination appeared first on crude-oil.news.

The Virtues Of Discrimination

By Chris at www.CapitalistExploits.at

I deserve to be punished!

Yesterday, I received some mail from subscribers in response to my article about the end of the empire:

“More buggered than an alter boy at the Vatican”. This is a witch hunt against the clergy. Can’t you see that? You perpetuate the lies and I hope God punishes you for it. What’s more I’m British, and proud of it and your article is racist. I’ve unsubscribed from your stupid discriminating blog.

Not everyone wants me dead, though… which is nice:

“God, I love these essays!”

And:

Hi Chris

 

Just a quick thanks to you and your team for all the updates and your insights. Having a feed of well thought through investment advice mixed with highly entertaining commentaries which cut through the thickest layers of the BS right to the essence of the matter is more than I had expected when I signed up for this and I really appreciate it.

 

 

Regards

And:

“I just shared this around the office here in London, where I have to tell you…we’re having a cup of tea:-) Love your take on the world and your unashamed way of dealing with reality. I first came across your work when a friend forwarded this one to me. It is so rare to find clarity of thinking and I really appreciate your ability to bring together the complexity of economics, human behaviour, history and everything in between. Keep up the fantastic truly insightful work.”

I’m reminded that you can’t please everyone… and neither should you try. It’s also useful to weed out morons so it’s got that going for it.

As much as I find amusement from hate mail and am humbled by well wishers, it made me think about this problem of political correctness. It’s an incredibly important topic and, in fact, was a significant factor in correctly predicting the ascension of Trump to the throne.

The people, like the disgruntled Brit above, who refuse to acknowledge things like the epidemic of pedophilia in the church are dangerous. The selective bias is appalling. They look at themselves and others not as individual human beings… which is how we should interact with one another, but rather as some group. Everything to them is pigeon holed into some category: white, black, male, female, left, right, capitalist, globalist, and so on.

They actually define themselves and others as a class, not as an individual. It’s lazy thinking at its finest. This is seriously problematic for a simple reason: it subjugates the individual in favour of the group. Some humour about Brits (who I secretly love) is immediately classed as racist. It’s completely absurd to the point of bordering on mentally ill.

Everything that doesn’t fit into their world view finds a label with “discrimination” being extremely popular. This is because it’s so loosely defined – literally anything can (and is) jammed into the discriminatory jar.

Have you ever bought a new car and then found that everywhere you look you seem to see the same car and colour?

In a similar fashion, these people search for discrimination, find it everywhere, and then attack it.

Say after me: we need discrimination. It is what keeps society ordered and civilised.

An example:

Some time ago my wife and I were out having dinner with a group of friends – 3 other couples. One of the guests, who I’ll call Harry (not his real name), had shoddy manners, cut people off in mid-conversation in order to put his point across, and was generally overbearing, loud, and obnoxious. Even when I cut him down and told him, in no uncertain terms, that he was being rude and offensive, this washed over him like water off a duck’s back. When a shared plate of food arrived, Harry proceeded to scoop literally half of the plate straight onto his own plate and eat it… without the slightest acknowledgement that his bahaviour may not be exactly acceptable.

Have we and the other couples subsequently discriminated against Harry? Hell, yeah! We won’t be inviting him and his poor wife over anytime soon.

Discrimination? Sure.

Necessary? Absolutely.

It’s what keeps society civilised. It comes as no surprise that Harry has few friends, is constantly “in between” jobs, and survives, as far as I can tell, by the grace of his wife, who for whatever reason, continues to support him. That, too, may at some point become too much, and Harry will find that, in order for him to not starve, he’ll need to change his ways. This is how things should work.

Do you discriminate when you steer clear of a group of young men with an aggressive swagger walking at night?

I sure hope so. This is not prejudice it’s bloody prudence.

Multiculturalism

It’s got such a nice ring to it but those using it don’t actually understand its true meaning. The dictionary tells us it’s the preservation of different cultures or cultural identities within unified society. 

Discrimination is closely tied with multiculturalism, which is easily one of the most misunderstood and misinterpreted terms in our modern lexicon. From my experience – and I’ve lived in 7 different countries, traveled to over 50, and do business with, have employees, colleagues, and business associates that traverse not only the globe but all the major religions and ethic groups – I can tell you this: those who live and work with many cultures and across geographies never, and I mean never, have an issue with this.

Those who do are inevitably the ones who have never traveled or travel little, and they wish to actually enforce on others their own world view. These are the worst sort of people. Those who not only believe things which are false but are not content until you, too, adhere to their beliefs. It’s an ideology, and ideologies are more dangerous than nuclear weapons.

Peter Thiel saw this coming a full 20 years ago. I would urge you to spend 15 minutes and listen to this speech he gave:

He quite correctly mentions that

“Multiculturalism has nothing to do with the study of other cultures.” He goes on to say that “You do not see students protesting on college campuses demanding missionary postings in third world countries, to learn more about other societies. You do not have people protesting to learn Chinese or Swahili.”

 

“You cannot have diversity on a college campus with people who look different but think alike.”

Peter discusses the threat to Western civilisation, which ironically is not posed by any other civilisation but rather comes from within. Those who have been reared in the warm bosom of Western civilisation providing freedom of speech, freedom of religion, and a host of freedoms, which have allowed for unparalleled wealth and opportunity. This is where the threat comes from. It’s not unlike a spoilt child who has been given too much by well-meaning parents… only to invite drug dealers and gangsters into the homestead to destroy it and rape and pillage.

This is not non-Western but anti-Western and advocating the destruction of Western civilisation.

Multiculturalism joins the ranks of a long list of junk words that have crawled into popular vocabulary but which infest our brain and are used by self-righteous pompous pseudo intellectuals to further goals which have little to do with what we’re told they do.

Words such as “islamophobia”, a nonsensical word if ever there was one (which I’ll write about in a separate article… because nobody else will)… and another pet hate: “marginalized”, which if you look carefully, is a term used to describe any minority group that enjoys support from multimillion dollar lobby groups where the objective is to destroy criticism of the particular group and to garner favours which would, if the group couldn’t muster being “marginalised” would NOT receive largess. Interestingly, these “marginalised” groups cannot ever be white and male. Think about why that is.

Be careful of using these rubbish euphemisms and fight back against those who throw them out as accusations, because they are the epitome of lazy thinking and are being used as weapons to destroy what is often common sense. In this world or irrationality, when a rational statement is made that it walks like a duck and quacks like a duck, society runs the risk of being to afraid to say that yes, it’s a duck. That, my friends, is dangerous territory indeed.

– Chris

“If everyone is thinking alike, then somebody isn’t thinking.” — George S. Patton

 

————————————–

Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).

————————————–

The post The Virtues Of Discrimination appeared first on crude-oil.news.

Central Bankers ‘Are’ The Crisis

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

If there’s one myth – and there are many – that we should invalidate in the cross-over world of politics and economics, it‘s that central banks have saved us from a financial crisis. It’s a carefully construed myth, but it’s as false as can be. Our central banks have caused our financial crises, not saved us from them.

It really should -but doesn’t- make us cringe uncontrollably to see Bank of England governor-for-hire Mark Carney announce -straightfaced- that:

“A decade after the start of the global financial crisis, G20 reforms are building a safer, simpler and fairer financial system. “We have fixed the issues that caused the last crisis. They were fundamental and deep-seated, which is why it was such a major job.”

Or, for that matter, to see Fed chief Janet Yellen declare that there won’t be another financial crisis in her lifetime, while she’s busy-bee busy building that next crisis as we speak. These people are now saying increasingly crazy things, and that should make us pause.

Central banks don’t serve people, or even societies, as that same myth claims. They serve banks. Even if central bankers themselves believe that this is one and the same thing, that doesn’t make it true. And if they don’t understand this, they should never be let anywhere near the positions they hold.

You can pin the moment central banks went awry at any point in time you like. The Bank of England’s foundation in 1694, the Federal Reserve’s in 1913, the ECB much more recently. What’s crucial in the timing is where and when the best interests of the banks split off from those of their societies. Because that is when central banks will stop serving those societies. We are at such a -turning?!- point right now. And it’s been coming for some time, ‘slowly’ working its way towards an inevitable abyss.

Over the past few years the Automatic Earth has argues repeatedly, along several different avenues, that American society was at its richest between the late 1960s and early 1980s. Yet another illustration of this came only yesterday in a Lance Roberts graph:

Anyone see a recovery in there? Lance uses 1981 as a ‘cut-off’ date, but the GDP growth rate as represented by the dotted line doesn’t really begin to go ‘bad’ until 1986 or so. At the tail end of the late 1960s to early 1980s period, as the American economy was inexorably getting poorer, Alan Greenspan took over as Federal Reserve governor in 1987. A narrative was carefully crafted by and for the media with Greenspan as an ‘oracle’ or even a ‘rock star’, but in reality he has been instrumental in saddling the economy with what will turn out to be insurmountable problems.

Greenspan was a major driving force behind the repeal of Glass-Steagall, which was finally established through the Gramm-Leach-Bliley act of 1999. This was an open political act by the Federal Reserve governor, something that everyone should have then protested, and still should now, but didn’t and doesn’t. Central bankers should be kept far removed from politics, anywhere and everywhere, because they represent a small segment of society, banks, not society as a whole.

Because of the ‘oracle’ narrative, Greenspan was instead praised for saving the world. But all that Greenspan and his accomplices, Robert Rubin and Larry Summers, actually did in getting rid of the 1933 Glass-Steagall act separation between investment- and consumer banking was to open the floodgates of debt, and even more importantly, leveraged debt. All part of the ‘financial innovations’ Greenspan famously lauded for saving and growing economies. It was all just more debt on top of more debt.

Greenspan et al ‘simply’ did what central bankers do: they represent the best interests of banks. And the world’s central bankers have never looked back. That most people still find it hard to believe that America -and the west- has been getting poorer for the past 30-40 years, goes to show how effective the narratives have been. The world looks richer instead of poorer, after all. That this is exclusively because of rising debt numbers wherever you look is not part of the narratives. Indeed, ruling economic models and theories ignore the role played by both banks and credit in an economy, almost entirely.

Alan Greenspan left as Fed head in 2006, after having wreaked his havoc on America for almost two decades, right before the financial crisis that took off in 2007-2008 became apparent to the world at large. The crisis was largely his doing, but he has escaped just about all the blame for it. Good PR.

With Ben Bernanke, an alleged academic genius on the Great Depression, as Greenspan’s replacement, the Fed just kept going and turned it up a notch. It was no longer possible in the financial world to pretend that banks and people had the same interests, so the former were bailed out at the expense of the latter. The illusionary narrative for the public, however, remained intact. What do people know about finance, anyway? Just make sure the S&P goes up. Easy as pie.

The narrative has switched to Bernanke, and Yellen after him, as well as Mario Draghi at the ECB and Haruhiko Kuroda at the Bank of Japan, saving the world from doom. But once again, they are the ones who are creating the crisis, not the ones saving us from it. They are saving the banks, and saddling the people with the costs.

In the past decade, these central bankers have purchased $20-$50 trillion in bonds, securities and stocks.

The only intention, and indeed the only result, is to keep banks from falling over, increase their profits, and maintain the illusion that economies are recovering and growing.

They can only achieve this by creating bubbles wherever they can. Apart from the QE programs under which they bought all those ‘assets’, they used -and still do- another tool: lowering interest rates to the point where borrowing money becomes so cheap everyone can do it, and then do it some more. It has worked miracles in blowing stock market valuations out of all realistic proportions, and in doing the same for housing markets in locations all over the globe.

The role of China’s central bank in this is interesting too, but it is such an open and obvious political tool that it really deserves its own discussion and narrative. Basically, Beijing did what it saw Washington do and thought: why hold back?

Fast forward to today and we see that we’ve landed in a whole new, and next, phase of the story. The world’s central banks are all stuck in their own – self-created – bubbles and narratives. They all talk about how they solved all the issues, and how they will now return to normal, but the sad truth is they can’t and they know it.

The Fed stopped purchasing assets through its QE program a while back, but it could only do that because Frankfurt and Japan took over. And now they, too, talk about quitting QE. Slowly, yada yada, because of control, yada yada, but they know they must. They also know they can’t. Because the entire recovery narrative is a mirage, a fata morgana, a sleight of hand.

And that means we have arrived at a point that is new and very dangerous for the entire global economy and all of its people.

That is, the world’s central bankers now have an incentive to create the next crisis. This is because they know this crisis is inevitable, and they know their masters and protégés, the banks, risk suffering immensely or even going under. ‘Tapering’, or whatever you might call the -slow- end to QE and the -slow- hiking of interest rates, will prick and blow up bubbles one by one, and often in violent fashion.

When housing bubbles burst, economies lose the primary ingredient for maintaining -let alone increasing- their money supply: banks creating money out of thin hot air. Since the money supply is one of the key components of inflation, along with velocity of money, there will be fantastic outbursts of debt deflation. You’ve never seen -let alone imagined- anything like it.

The worst part of it is not government debt, though that, when financed with bond sales, is not not an instrument to infinity and beyond either. But the big hit to economies will be private debt. Where in many bubble areas, and they’re too numerous too mention, eager potential buyers today fret over affordable housing supply, it’ll all turn on a dime and owners won’t be able to sell without being suffocated by crippling losses.

Pension funds, which have already suffered perhaps more than any other parties because of low interest ZIRP and NIRP policies, have switched en masse to riskier assets like stocks. Well, another whammy, and a bigger one, is waiting just outside the door. Pensions will be so last century.

That another crisis is waiting to happen, and that politics and media have made sure that just about no-one at all is aware of it, is one thing. We already knew this, a few of us. That the world’s main central bankers have an active incentive to bring about the crisis, if only by sitting on their hands long enough, is new. But they do.

Yellen, Draghi and Kuroda may opt to leave before pulling the trigger, or be fired soon enough. But whoever is in the governor seats will realize that unleashing a crisis sooner rather than later is the only option left not to be blamed for it. Let the house of dominoes crumble now, and they can say “nobody could have seen this coming”, while at the same time saving what they can for the banks and bankers they serve. That option will not be on the table for much longer.

We should have never given them, let alone their member/master banks, the power to conjure up trillions out of nothing, and use that power as a political tool. But it is too late now.

The post Central Bankers ‘Are’ The Crisis appeared first on crude-oil.news.

Central Bankers ‘Are’ The Crisis

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

If there’s one myth – and there are many – that we should invalidate in the cross-over world of politics and economics, it‘s that central banks have saved us from a financial crisis. It’s a carefully construed myth, but it’s as false as can be. Our central banks have caused our financial crises, not saved us from them.

It really should -but doesn’t- make us cringe uncontrollably to see Bank of England governor-for-hire Mark Carney announce -straightfaced- that:

“A decade after the start of the global financial crisis, G20 reforms are building a safer, simpler and fairer financial system. “We have fixed the issues that caused the last crisis. They were fundamental and deep-seated, which is why it was such a major job.”

Or, for that matter, to see Fed chief Janet Yellen declare that there won’t be another financial crisis in her lifetime, while she’s busy-bee busy building that next crisis as we speak. These people are now saying increasingly crazy things, and that should make us pause.

Central banks don’t serve people, or even societies, as that same myth claims. They serve banks. Even if central bankers themselves believe that this is one and the same thing, that doesn’t make it true. And if they don’t understand this, they should never be let anywhere near the positions they hold.

You can pin the moment central banks went awry at any point in time you like. The Bank of England’s foundation in 1694, the Federal Reserve’s in 1913, the ECB much more recently. What’s crucial in the timing is where and when the best interests of the banks split off from those of their societies. Because that is when central banks will stop serving those societies. We are at such a -turning?!- point right now. And it’s been coming for some time, ‘slowly’ working its way towards an inevitable abyss.

Over the past few years the Automatic Earth has argues repeatedly, along several different avenues, that American society was at its richest between the late 1960s and early 1980s. Yet another illustration of this came only yesterday in a Lance Roberts graph:

Anyone see a recovery in there? Lance uses 1981 as a ‘cut-off’ date, but the GDP growth rate as represented by the dotted line doesn’t really begin to go ‘bad’ until 1986 or so. At the tail end of the late 1960s to early 1980s period, as the American economy was inexorably getting poorer, Alan Greenspan took over as Federal Reserve governor in 1987. A narrative was carefully crafted by and for the media with Greenspan as an ‘oracle’ or even a ‘rock star’, but in reality he has been instrumental in saddling the economy with what will turn out to be insurmountable problems.

Greenspan was a major driving force behind the repeal of Glass-Steagall, which was finally established through the Gramm-Leach-Bliley act of 1999. This was an open political act by the Federal Reserve governor, something that everyone should have then protested, and still should now, but didn’t and doesn’t. Central bankers should be kept far removed from politics, anywhere and everywhere, because they represent a small segment of society, banks, not society as a whole.

Because of the ‘oracle’ narrative, Greenspan was instead praised for saving the world. But all that Greenspan and his accomplices, Robert Rubin and Larry Summers, actually did in getting rid of the 1933 Glass-Steagall act separation between investment- and consumer banking was to open the floodgates of debt, and even more importantly, leveraged debt. All part of the ‘financial innovations’ Greenspan famously lauded for saving and growing economies. It was all just more debt on top of more debt.

Greenspan et al ‘simply’ did what central bankers do: they represent the best interests of banks. And the world’s central bankers have never looked back. That most people still find it hard to believe that America -and the west- has been getting poorer for the past 30-40 years, goes to show how effective the narratives have been. The world looks richer instead of poorer, after all. That this is exclusively because of rising debt numbers wherever you look is not part of the narratives. Indeed, ruling economic models and theories ignore the role played by both banks and credit in an economy, almost entirely.

Alan Greenspan left as Fed head in 2006, after having wreaked his havoc on America for almost two decades, right before the financial crisis that took off in 2007-2008 became apparent to the world at large. The crisis was largely his doing, but he has escaped just about all the blame for it. Good PR.

With Ben Bernanke, an alleged academic genius on the Great Depression, as Greenspan’s replacement, the Fed just kept going and turned it up a notch. It was no longer possible in the financial world to pretend that banks and people had the same interests, so the former were bailed out at the expense of the latter. The illusionary narrative for the public, however, remained intact. What do people know about finance, anyway? Just make sure the S&P goes up. Easy as pie.

The narrative has switched to Bernanke, and Yellen after him, as well as Mario Draghi at the ECB and Haruhiko Kuroda at the Bank of Japan, saving the world from doom. But once again, they are the ones who are creating the crisis, not the ones saving us from it. They are saving the banks, and saddling the people with the costs.

In the past decade, these central bankers have purchased $20-$50 trillion in bonds, securities and stocks.

The only intention, and indeed the only result, is to keep banks from falling over, increase their profits, and maintain the illusion that economies are recovering and growing.

They can only achieve this by creating bubbles wherever they can. Apart from the QE programs under which they bought all those ‘assets’, they used -and still do- another tool: lowering interest rates to the point where borrowing money becomes so cheap everyone can do it, and then do it some more. It has worked miracles in blowing stock market valuations out of all realistic proportions, and in doing the same for housing markets in locations all over the globe.

The role of China’s central bank in this is interesting too, but it is such an open and obvious political tool that it really deserves its own discussion and narrative. Basically, Beijing did what it saw Washington do and thought: why hold back?

Fast forward to today and we see that we’ve landed in a whole new, and next, phase of the story. The world’s central banks are all stuck in their own – self-created – bubbles and narratives. They all talk about how they solved all the issues, and how they will now return to normal, but the sad truth is they can’t and they know it.

The Fed stopped purchasing assets through its QE program a while back, but it could only do that because Frankfurt and Japan took over. And now they, too, talk about quitting QE. Slowly, yada yada, because of control, yada yada, but they know they must. They also know they can’t. Because the entire recovery narrative is a mirage, a fata morgana, a sleight of hand.

And that means we have arrived at a point that is new and very dangerous for the entire global economy and all of its people.

That is, the world’s central bankers now have an incentive to create the next crisis. This is because they know this crisis is inevitable, and they know their masters and protégés, the banks, risk suffering immensely or even going under. ‘Tapering’, or whatever you might call the -slow- end to QE and the -slow- hiking of interest rates, will prick and blow up bubbles one by one, and often in violent fashion.

When housing bubbles burst, economies lose the primary ingredient for maintaining -let alone increasing- their money supply: banks creating money out of thin hot air. Since the money supply is one of the key components of inflation, along with velocity of money, there will be fantastic outbursts of debt deflation. You’ve never seen -let alone imagined- anything like it.

The worst part of it is not government debt, though that, when financed with bond sales, is not not an instrument to infinity and beyond either. But the big hit to economies will be private debt. Where in many bubble areas, and they’re too numerous too mention, eager potential buyers today fret over affordable housing supply, it’ll all turn on a dime and owners won’t be able to sell without being suffocated by crippling losses.

Pension funds, which have already suffered perhaps more than any other parties because of low interest ZIRP and NIRP policies, have switched en masse to riskier assets like stocks. Well, another whammy, and a bigger one, is waiting just outside the door. Pensions will be so last century.

That another crisis is waiting to happen, and that politics and media have made sure that just about no-one at all is aware of it, is one thing. We already knew this, a few of us. That the world’s main central bankers have an active incentive to bring about the crisis, if only by sitting on their hands long enough, is new. But they do.

Yellen, Draghi and Kuroda may opt to leave before pulling the trigger, or be fired soon enough. But whoever is in the governor seats will realize that unleashing a crisis sooner rather than later is the only option left not to be blamed for it. Let the house of dominoes crumble now, and they can say “nobody could have seen this coming”, while at the same time saving what they can for the banks and bankers they serve. That option will not be on the table for much longer.

We should have never given them, let alone their member/master banks, the power to conjure up trillions out of nothing, and use that power as a political tool. But it is too late now.

The post Central Bankers ‘Are’ The Crisis appeared first on crude-oil.news.

“If The VIX Goes Bananas”, Morgan Stanley Shows What It Would Look Like

From Chris Metli of Morgan Stanley

It’s easy to become numb to the low volatility environment and the risks it presents.  While trying to pick a trough in vol has been a fool’s errand, focusing on the risks resulting from vol being so low is not.  Low volatility has produced a regime where the risks are asymmetric and negatively convex, so being prepared for an unwind is critical.  This is not a call that vol is about to spike, but you need a plan if it does.

This note details how a short vol unwind might develop. A violent rise in volatility could be driven by just a 3% to 4% one-day S&P 500 selloff.  Right now the risk is greatest in the VIX complex, and demand for VIX futures from three main sources could result in 100,000 contracts ($100mm vega) to buy in a down 3.5% SPX move.  For context VIX futures ADV over the last year is 230,000 (although has risen to as high as 700,000 in big selloffs).

It’s important to note that this only happens if there is a large 1-day move lower in equities starting when VIX is very low – a slower drawdown, or a selloff from higher starting levels of vol, would not create as much demand.  The biggest S&P 500 selloff when VIX was less than 12 was 3.5% (Feb 2007), so this type of move would be on par with the worst-case historical move for a low vol environment.

Why highlight this now?  Simply because as volatility goes lower, these risks rise.   In April and May QDS acknowledged that the short vol base was large, but viewed the risk as manageable (‘Keep Calm and Carry On’).  In June the team’s stance on volatility turned neutral.  And since then volatility levels have only gone lower.

What happens if the S&P 500 were to fall 3.5% today?

1) First, the VIX could rise as much as 12 points.  When volatility is low it tends to move a lot for a given change in the S&P 500.  That effect is likely to be exacerbated now because a) skew is steep (and VIX rolls up the skew in a selloff) and b) many players in the VIX market are short.  Taking these dynamics into account QDS estimates VIX could rise ~12 points for a 3.5% 1-day decline in SPX.

If VIX rises 12 points, 1-month VIX futures are likely up 5.5 points, a ~50% increase.  The 1-day percentage change is a big deal in the VIX complex because the levered and inverse VIX ETFs and ETNs rebalance daily based on the percentage change, and some of the thresholds for forced unwinds are based on the percentage change.  This is why lower vol creates higher risk.

2) In a 50% increase in VIX futures, the levered and inverse VIX ETFs and ETNs need to buy ~70,000 VIX futures to rebalance their portfolios and maintain target exposures (this estimate is net of redemptions – long vol ETPs are generally sold by their holders as vol rises, offsetting the levered rebalance).  While these flows likely occur near the close, the dynamic is well known, and many traders will bring forward those flows to the middle of the day.

3) A VIX futures level in the high teens (up from 11 – 12 now) means dealers get short VIX call gamma.  There has been considerable buying of VIX calls and call spreads, with much of the hedging flow in the last month focused on VIX (instead of SPX).  As VIX futures rise, dealers will get more and more short delta, which needs to be hedged by buying VIX futures.  In a 3.5% SPX selloff QDS estimates there could be 25,000 VIX futures to buy from dealers hedging.

4) If VIX futures approach +100% in a single day, there is a risk that the providers of inverse VIX ETPs cover the VIX futures that they sold to hedge the products.  This is because there is a mismatch in the hedge if VIX futures rise more than 100% – the inverse ETPs can’t go below zero (-100%) but the loss on a short VIX futures position can be more than -100%.

There are two inverse ETPs that sell the front of the VIX futures curve – XIV (an ETN) and SVXY (an ETF).  For XIV (holding ~73,000 contracts short) the prospectus indicates that it will unwind if the NAV falls more than 80% intraday, with investors receiving the end of day value.  Given this is a known threshold, anything close to a +80% move in VIX futures would likely trigger buying (by the ETN provider and/or market participants) in anticipation of the unwind.  Note that because XIV is an ETN, investors receive the theoretical value of the index based on its rules, not what the provider actually trades.

SVXY (holding ~37,000 contracts short) does not have a set threshold to unwind according to its prospectus.  That said VIX futures currently have a margin requirement of ~45% of notional for the average of the front two contracts, and any decline in value of the inverse ETPs to those levels could trigger a rapid forced unwind.   Note that SVXY is an ETF, so the NAV is based on the actual holdings of the fund at the end of the day.

5)  The 2nd derivative impacts are likely large.  An overnight gap higher that doesn’t give investors the opportunity to hedge is the worst case.  Consider if there is an overnight gap in VIX futures of +150% (VIX futures to ~29, VIX to 35+):

  • The holders of the inverse ETPs lose the $1.4bn as the AUM of inverse ETPs goes to zero.
  • The providers (hedge counterparties / clearers) of the ETPs lose $600mm due to the mismatched hedge if VIX futures more than double.
  • Investors that sold long vol ETPs against short vol ETPs (a somewhat common carry trade) have the same unhedged gap risk in a +100% VIX futures move as the ETP providers.  Assuming they are 20% of the shorts in the inverse ETPs (a guess) – they lose $250mm.
  • Dealers who can’t hedge their delta on the way up could lose $500mm on our estimates.
  • Hedge funds who are short VIX futures ($250mm vega on just the short leg per CFTC) playing the rolldown trade lose over $4bn.
  • Investors who are wrong way in VXX, SVXY, and UVXY options could lose hundreds of millions – estimating loss here is hard, but assuming 20% of the open interest is wrong way, the loss would be ~$1bn.
  • Investors who have sold vol in other forms (options, variance, etc.) would take losses and likely look to cover as well.

With a buyer for every seller someone is making this money too, and some of the above could be hedged as well.  But the point is that when there are losses, ‘sell what you can’ will take over and drive further supply.  While the point of max pain in volatility would likely be the first day of the spike, the knock on effects could mean equity markets take longer to recover.

6)   Adding to the pain – on days after the initial shock – would be the flow from annuity and risk parity deleveraging.  Both of those investors are slow by comparison to the VIX market – annuities will sell over several days, starting the day after a selloff.  Risk parity funds are more discretionary, and the supply could come over a matter of weeks.  But given high leverage resulting from the low vol environment, their potential supply is large and could prolong any downturn.

Investors have been crying wolf about the VIX complex for years, and have been wrong so far.  And it’s important to note that the odds are still heavily stacked against the above scenario playing out and the most likely scenario is still a graceful unwind of the short vol trade:

  • If volatility is just a little bit higher, the unwind potential is much less – there needs to be a shock when volatility starts at these very low levels
  • The unwind in VIX only happens in a 1-day gap lower in stocks – a slow bleed would not create as much supply
  • History suggests a gap from low vol levels is unlikely:  the biggest selloff in S&P 500 when VIX was less than 12 was -3.5%, and -2.2% when VIX was less than 11, not enough to trigger this type of unwind.  That -2.2% selloff occurred on Feb 4th 1994 when the Fed raised interest rates – bond volatility remains the major risk factor.
  • Investors are still not all-in on stocks, with exposures moderate and many hiding out in defensives and Tech – raising the bar for a big selloff in stocks
  • Active manager performance this year has been strong, meaning funds are less likely to become forced sellers of positions, which helps keeps volatility tame and can limit the speed of a selloff
  • Correlation remains low due to both fundamentals and positioning, and for the index to sell off sharply it would need to rise

The point is simply that if there is an external market shock that nobody is prepared for (and this likely coincides with a selloff across asset classes), the risks of a quick unwind are higher than in the past.  QDS favors staying long equities, but does not view the risk / reward on simply selling volatility as attractive anymore.  Instead consider:

  • Replacing long stock with S&P 500 upside calls that look very cheap given low volatility – buy the SPX Dec 2550 call (30^) for ~1% (sub-9% implied vol)
  • Buying VIX puts instead of selling VIX futures to collect rolldown – buy the VIX Sept 10.5 put for $0.25, which offers attractive leverage if futures roll down to current spot levels of VIX with a 9 handle.
  • Hedging this potential tail event with OTM VIX calls – buy the Sept 20 calls (17^) for $0.45.  VIX calls are not cheap by any measure, but they are reasonably priced given these potential risks, and for those that see a shock occurring in the next few months VIX calls are the best hedge.

The post “If The VIX Goes Bananas”, Morgan Stanley Shows What It Would Look Like appeared first on crude-oil.news.

“If The VIX Goes Bananas”, Morgan Stanley Shows What It Would Look Like

From Chris Metli of Morgan Stanley

It’s easy to become numb to the low volatility environment and the risks it presents.  While trying to pick a trough in vol has been a fool’s errand, focusing on the risks resulting from vol being so low is not.  Low volatility has produced a regime where the risks are asymmetric and negatively convex, so being prepared for an unwind is critical.  This is not a call that vol is about to spike, but you need a plan if it does.

This note details how a short vol unwind might develop. A violent rise in volatility could be driven by just a 3% to 4% one-day S&P 500 selloff.  Right now the risk is greatest in the VIX complex, and demand for VIX futures from three main sources could result in 100,000 contracts ($100mm vega) to buy in a down 3.5% SPX move.  For context VIX futures ADV over the last year is 230,000 (although has risen to as high as 700,000 in big selloffs).

It’s important to note that this only happens if there is a large 1-day move lower in equities starting when VIX is very low – a slower drawdown, or a selloff from higher starting levels of vol, would not create as much demand.  The biggest S&P 500 selloff when VIX was less than 12 was 3.5% (Feb 2007), so this type of move would be on par with the worst-case historical move for a low vol environment.

Why highlight this now?  Simply because as volatility goes lower, these risks rise.   In April and May QDS acknowledged that the short vol base was large, but viewed the risk as manageable (‘Keep Calm and Carry On’).  In June the team’s stance on volatility turned neutral.  And since then volatility levels have only gone lower.

What happens if the S&P 500 were to fall 3.5% today?

1) First, the VIX could rise as much as 12 points.  When volatility is low it tends to move a lot for a given change in the S&P 500.  That effect is likely to be exacerbated now because a) skew is steep (and VIX rolls up the skew in a selloff) and b) many players in the VIX market are short.  Taking these dynamics into account QDS estimates VIX could rise ~12 points for a 3.5% 1-day decline in SPX.

If VIX rises 12 points, 1-month VIX futures are likely up 5.5 points, a ~50% increase.  The 1-day percentage change is a big deal in the VIX complex because the levered and inverse VIX ETFs and ETNs rebalance daily based on the percentage change, and some of the thresholds for forced unwinds are based on the percentage change.  This is why lower vol creates higher risk.

2) In a 50% increase in VIX futures, the levered and inverse VIX ETFs and ETNs need to buy ~70,000 VIX futures to rebalance their portfolios and maintain target exposures (this estimate is net of redemptions – long vol ETPs are generally sold by their holders as vol rises, offsetting the levered rebalance).  While these flows likely occur near the close, the dynamic is well known, and many traders will bring forward those flows to the middle of the day.

3) A VIX futures level in the high teens (up from 11 – 12 now) means dealers get short VIX call gamma.  There has been considerable buying of VIX calls and call spreads, with much of the hedging flow in the last month focused on VIX (instead of SPX).  As VIX futures rise, dealers will get more and more short delta, which needs to be hedged by buying VIX futures.  In a 3.5% SPX selloff QDS estimates there could be 25,000 VIX futures to buy from dealers hedging.

4) If VIX futures approach +100% in a single day, there is a risk that the providers of inverse VIX ETPs cover the VIX futures that they sold to hedge the products.  This is because there is a mismatch in the hedge if VIX futures rise more than 100% – the inverse ETPs can’t go below zero (-100%) but the loss on a short VIX futures position can be more than -100%.

There are two inverse ETPs that sell the front of the VIX futures curve – XIV (an ETN) and SVXY (an ETF).  For XIV (holding ~73,000 contracts short) the prospectus indicates that it will unwind if the NAV falls more than 80% intraday, with investors receiving the end of day value.  Given this is a known threshold, anything close to a +80% move in VIX futures would likely trigger buying (by the ETN provider and/or market participants) in anticipation of the unwind.  Note that because XIV is an ETN, investors receive the theoretical value of the index based on its rules, not what the provider actually trades.

SVXY (holding ~37,000 contracts short) does not have a set threshold to unwind according to its prospectus.  That said VIX futures currently have a margin requirement of ~45% of notional for the average of the front two contracts, and any decline in value of the inverse ETPs to those levels could trigger a rapid forced unwind.   Note that SVXY is an ETF, so the NAV is based on the actual holdings of the fund at the end of the day.

5)  The 2nd derivative impacts are likely large.  An overnight gap higher that doesn’t give investors the opportunity to hedge is the worst case.  Consider if there is an overnight gap in VIX futures of +150% (VIX futures to ~29, VIX to 35+):

  • The holders of the inverse ETPs lose the $1.4bn as the AUM of inverse ETPs goes to zero.
  • The providers (hedge counterparties / clearers) of the ETPs lose $600mm due to the mismatched hedge if VIX futures more than double.
  • Investors that sold long vol ETPs against short vol ETPs (a somewhat common carry trade) have the same unhedged gap risk in a +100% VIX futures move as the ETP providers.  Assuming they are 20% of the shorts in the inverse ETPs (a guess) – they lose $250mm.
  • Dealers who can’t hedge their delta on the way up could lose $500mm on our estimates.
  • Hedge funds who are short VIX futures ($250mm vega on just the short leg per CFTC) playing the rolldown trade lose over $4bn.
  • Investors who are wrong way in VXX, SVXY, and UVXY options could lose hundreds of millions – estimating loss here is hard, but assuming 20% of the open interest is wrong way, the loss would be ~$1bn.
  • Investors who have sold vol in other forms (options, variance, etc.) would take losses and likely look to cover as well.

With a buyer for every seller someone is making this money too, and some of the above could be hedged as well.  But the point is that when there are losses, ‘sell what you can’ will take over and drive further supply.  While the point of max pain in volatility would likely be the first day of the spike, the knock on effects could mean equity markets take longer to recover.

6)   Adding to the pain – on days after the initial shock – would be the flow from annuity and risk parity deleveraging.  Both of those investors are slow by comparison to the VIX market – annuities will sell over several days, starting the day after a selloff.  Risk parity funds are more discretionary, and the supply could come over a matter of weeks.  But given high leverage resulting from the low vol environment, their potential supply is large and could prolong any downturn.

Investors have been crying wolf about the VIX complex for years, and have been wrong so far.  And it’s important to note that the odds are still heavily stacked against the above scenario playing out and the most likely scenario is still a graceful unwind of the short vol trade:

  • If volatility is just a little bit higher, the unwind potential is much less – there needs to be a shock when volatility starts at these very low levels
  • The unwind in VIX only happens in a 1-day gap lower in stocks – a slow bleed would not create as much supply
  • History suggests a gap from low vol levels is unlikely:  the biggest selloff in S&P 500 when VIX was less than 12 was -3.5%, and -2.2% when VIX was less than 11, not enough to trigger this type of unwind.  That -2.2% selloff occurred on Feb 4th 1994 when the Fed raised interest rates – bond volatility remains the major risk factor.
  • Investors are still not all-in on stocks, with exposures moderate and many hiding out in defensives and Tech – raising the bar for a big selloff in stocks
  • Active manager performance this year has been strong, meaning funds are less likely to become forced sellers of positions, which helps keeps volatility tame and can limit the speed of a selloff
  • Correlation remains low due to both fundamentals and positioning, and for the index to sell off sharply it would need to rise

The point is simply that if there is an external market shock that nobody is prepared for (and this likely coincides with a selloff across asset classes), the risks of a quick unwind are higher than in the past.  QDS favors staying long equities, but does not view the risk / reward on simply selling volatility as attractive anymore.  Instead consider:

  • Replacing long stock with S&P 500 upside calls that look very cheap given low volatility – buy the SPX Dec 2550 call (30^) for ~1% (sub-9% implied vol)
  • Buying VIX puts instead of selling VIX futures to collect rolldown – buy the VIX Sept 10.5 put for $0.25, which offers attractive leverage if futures roll down to current spot levels of VIX with a 9 handle.
  • Hedging this potential tail event with OTM VIX calls – buy the Sept 20 calls (17^) for $0.45.  VIX calls are not cheap by any measure, but they are reasonably priced given these potential risks, and for those that see a shock occurring in the next few months VIX calls are the best hedge.

The post “If The VIX Goes Bananas”, Morgan Stanley Shows What It Would Look Like appeared first on crude-oil.news.

Shortage Of Fracking Crews Slows The Shale Boom

The resurgence in shale drilling and production could be bumping up against some limits, with output expected to fall far short of market expectations for this year and next, according to a new study. Some of the constraints that shale companies will run into are on the access to oilfield services (OFS), including rigs, equipment and personnel, according to Kayrros, a French research firm backed by the former CEO of OFS giant Schlumberger, and reported on by the FT. Over the past three years, the oil market downturn led to sharp cutbacks in drilling…