Eric Peters: “We Are About To Reach The Top Of The Wall Of Worry… And Then Look Down”

Following up on Eric Peters’ contrarian comments about “technological disruption”, in which he said that “we should be careful not to overlook the possibility that today’s disruptive technology companies may be not much more than mechanisms to drive wages down to subsistence levels”, in the One River CIO’s latest letter, Peters reverts back to his familiar, macro self with the following brief allegory on recent events, which as always cuts through the noise to highlight what is important, in this case that “the chasm between policy and reality has never been wider” which he says “matters little, until you arrive at the top of the wall of worry. And then look down.”

Here are the choice excerpts from his latest letter:

“Absolutely,” answered Trump, as sure as sure can be. You see, the reporter had asked if Mexico would pay. She couldn’t help herself, we’re fixated by walls. We need them; to build, to topple, to scale.


They define us, give us purpose. Walls surround us, they’re everywhere, literally, metaphorically.


“We are showing that the world doesn’t have to go 100 years back in time,” announced Tusk, symbolically isolating America, while breaking down the wall that separates Europe and Japan.


“The deal is the birth of the world’s largest, free industrialized economic zone,” said Abe, shaking hands, the barrier surrounding his little island crumbling.


But of course, the most formidable walls exist in our delicate minds. Steel and stone structures all succumb to determined efforts to overcome them; the Iron Curtain, Berlin Wall, Great Wall.


But self-doubt is another matter entirely, a barrier towering above all others, the greatest obstacle ever created. In its shadow stands worry. But this wall can be climbed. And eight years into a historic bull market, we’re approaching the top.


“Very adverse scenarios for the inflation outlook had become less likely, in particular as deflation risks had largely vanished,” said the ECB, its multinational nerds climbing, their worries dissolving at altitude. Europe’s purchasing manager index rose to 57.4, a six-year high. Unemployment held steady at 9.3%, the 2009 low. After years of senseless agony, the EU held its nose and approved Italy’s bank bailout. And in Germany, manufacturing PMI hit 59.6, industrial production surged 5%, with overnight interest rates still 0.40% below zero and the ECB printing money fast enough to make even Robert Mugabe blush.


The chasm between policy and reality has never been wider. Which matters little, until you arrive at the top of the wall of worry. And then look down.

And a bonus anecdote on the Bank of Japan

“Oh dear,” said the CIO, from Tokyo. “No sooner have we declared that Japan is no longer experiencing deflation than we are looking to pre-empt inflation.”


We were discussing Kuroda, who in a recent speech quoted Ralph Hawtrey, pioneer in the field of central bank expectations management.


“In his book ‘Monetary Reconstruction’ published in 1923, Hawtrey stated that “it is not the past rise in prices but the future rise that has to be counteracted,” said Kuroda in the speech. Hawtrey was later made famous, in the depths of depression, for his argument that public-works spending would not increase employment.


“Hawtrey was on the wrong side of history. Yet it is he who the Bank of Japan turns to for support. It has learned nothing.


The BOJ has reduced its pace of bond purchases from Y80trln in 2016 to Y50trln in 2017 this year. “They gently announced a recalibration of how they’ll communicate the exit from QE. But bureaucratic organizations don’t tell you what they’re going to do; they tell you what they’ve done. They’ve tightened.”


An independent member of the policy board proposed reducing ETF purchases from a targeted Y6trln to Y1trln and J-REIT purchases from Y90bln to Y30bln. “The impact of a reduction in J-REIT purchases cannot be overestimated,” he explained. “Japanese property rests on the assumption that in the end, everything can go into a REIT.


So valuation becomes a game of applying the REIT’s cost of capital to property not yet in REITs.”


By buying REITs, Kuroda has signaled that everything can eventually be bought by the BOJ, lifting all asset prices, lowering their financing rates.


“So speculators who earn their profits by packaging assets to be put into REITS, to then be sold to the BOJ, may be a trifle upset when they change the rules of the game.” 

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“… A Recession Has Always Followed”: Is This The Real Reason The Fed Is Suddenly Panicking

“Why is the Fed so desperate to raise rates and tighten financial conditions? Why has the Fed shifted from a dovish to a hawkish bias?”
That is the question on every trader’s, analyst’s and economist’s mind in the past month. Is it because the Fed is s…

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What Oil Bulls Don’t Know About Global Inventories

Dispensing his usual dose of optimistic crude oil buzzkill, Bloomberg energy strategist Julian Lee points out something troubling to both OPEC and those who are hoping that the latest dip in oil will finally lead to a sharp rally. He writes that while at first glance, this year’s diminishing U.S. oil stockpiles appear to support the notion OPEC is finally getting the global crude glut under control. Surging exports mean that the market should treat that idea with caution. The problem is that, as has been the case over the past year, stockpiles…

Obama Returns To Political Spotlight With Speech On Gerrymandering

After six months of vacationing at some of the most lavish resorts on earth, including Richard Branson’s own private island in the British Virgin Islands, Obama, as it was foretold by Eric Holder many months ago, is apparently ready to make his valiant return to the political spotlight.  His return will come in the form of a speech to be delivered on behalf of the National Democratic Redistricting Committee (NDRC), which just happens to be chaired by Holder.  More from the Washington Post:

Obama’s appearance Thursday before a few dozen people at a closed-door event in the District on behalf of the National Democratic Redistricting Committee (NDRC) highlights the balance he is trying to strike as his party seeks to regain its footing at both the state and national levels. Obama does not want to cast “a long shadow,” in the words of Democratic National Committee Chairman Tom Perez, but he remains a central figure for a party that has yet to settle on a single strategy to combat President Trump.


Perez said in an interview Sunday that while some Democrats have urged Obama recently, “You’ve got to get out front on issue X or issue Y,” the former president wants instead to “build the bench” for the party. Democrats suffered a greater loss of power during Obama’s tenure than under any other two-term president since World War II.


“Because tomorrow’s president is today’s state senator. And he knows that very personally,” said Perez, referring to Obama’s experience as a state senator in Illinois. “When you lose 900 state legislative seats, those are people who could have been the next governors and senators and Cabinet positions, and that is something that he’s very committed to.”



Of course, after overseeing the loss of over 1,000 Democrat legislative seats during his presidency, it’s no wonder that Obama feels some obligation to help Democrats regain an edge by any means necessary.  Per Fox News, here is a recap of how many democrat-held seats were lost under Obama’s reign:

The Democratic Party suffered huge losses at every level during Obama’s West Wing tenure.


The grand total: a net loss of 1,042 state and federal Democratic posts, including congressional and state legislative seats, governorships and the presidency.


Democratic U.S. Senate seats fell from 55 to 46. Their share of the House plummeted from 256 seats to 194. Republicans still control both chambers going into the next session.


Democratic governerships also became a rarity during this eight-year period, slipping from 28 to 16.


The Obama years, which saw the rise of the Tea Party as well as a new movement form around Trump that is still being defined, coincided with a loss of 958 state legislative seats for Democrats.

Not surprisingly, Obama and Holder plan to attack their redistricting efforts by alleging racism as the primary motivator of current district maps.

But Democrats now see cause for optimism, in part because of several recent legal victories. In May the Supreme Court struck down two North Carolina congressional districts as unconstitutional, finding that lawmakers used race as the dominant factor when crafting their lines. The court has made similar rulings regarding Alabama and Virginia, and has agreed to take up a case regarding gerrymandering in the coming year.


In 2011, when state legislators and governors were drawing districts in many states, Republicans have 22 states in which they held the governor’s mansion and both legislative chambers, while Democrats controlled 11. The situation has grown even bleaker for Democrats, since they have just six such trifectas now to the GOP’s 25.


“Restoring fairness to our democracy by advocating for fairer, more inclusive district maps around the country is a priority for President Obama,” Lewis said.


One senior Obama adviser, who spoke on the condition of anonymity to talk frankly, said the former president will be “supporting efforts that tackle the inequities of our current political system,” although he would only weigh in publicly on political questions sparingly.

Of course, we’re certain that district maps in California and New York have been drawn in a completely ‘fair’ manner and will not draw any criticism in Obama’s speech.

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