by William Skink
A higher return on investment is just another way of saying greed, and greed is ultimately at the core of the world’s financial problems. Fuck modest returns on investment, say the self-anointed Masters of the Universe. If you take away our derivative toys we’ll just leverage the shit out of VIX instead.
If you don’t know what the hell I’m talking about it don’t worry, neither do I. It’s not just strange financial terms that befuddle regular people from understanding what is happening, it’s the increasing complexity of what return junkies have to do to get their fix.
I’ve been watching Zerohedge for an article that explains yesterday’s signal that we’ve entered a period of volatility in language I can understand. I think this piece, titled The Death Of The “Death Of Contagion” Central Bank Meme, is worth reading even though the language is still a bit heavy on Wall Street Speak. Here’s an excerpt:
We’re experiencing a major correction in the equity markets brought on in a mean-reversion exercise thanks to central banks trying to shore up their defenses around the last battle they lost, namely off-exchange, unregulated CDOs — synthetic debt-based investment products.
Humans are clever and will always find a way around a problem. The problem is incentives. The banks created CDO’s because there was a demand for investment returns far above what the central banks were allowing the market to pay, by setting interest rates well below the real risk profile of the investment community.
In other words, government bonds were over-priced and investors went looking for better returns. Now that Yellen et.al. have stamped out most of that market investors still need yield.
The response to the 2008 financial crisis was zero-bound interest rates and trillions in liquidity created by the central banks sitting around looking for yield. It found its way into the equity markets which over the past six plus years been on an historic rally off the October 2011 low.
During that time the VIX became more important. What was once only discussed by the real pros was now in the hands of everyone. Contagion risks jumped asset classes.
Essentially what this is saying is that gambling addicts enabled by greedy investors moved their derivative scam after the economic crisis to another arcane niche of the financial universe.
Why? Because why not? The architects of the last crisis were bailed out and no one went to jail. So why not chase some other scheme for investors?
Whatever comes next–and it won’t be more immediate financial carnage–Donald Trump is going to own it. By claiming the high water mark of the market, whatever comes next is his.
The reality is the seeds were sewn as Obama took power and Democrats controlled Congress. Thanks to the complicity of the entire political class, no high-profile bankster went to prison, the Federal Reserve opened the zero-interest spigots, and greed went back to work with the same incentives in place to maximize short-term returns and fuck everything else.
To be clear, that everything else is us.
“Government now acts as the princes and lords of a mythical king. The American people can only look to themselves for a solution to problems this big. The progressive era ushered in a century ago began the long trek towards the overthrow of the republic. Now that the metamorphosis to collectivism is nearly complete the people find themselves at the mercy of people like Comey, Strzok and Mueller, enabled by people like Obama and Clinton. “-TL Davis
We were visiting an aunt when this came about, and she is active in the market. I suggested to her that on the day of the 1,000+ drop that short-sellers had a heyday. She said “Oh no, there’s no time for that.” She had no clue that when there is a precipitous drop in the market the big players know about it in advance, make a fortune, and that they will never be exposed or investigated. It’s a rigged game, but outside of passbook savings, there’s no return for ordinary people that offers reasonable safety. Since the Fed has removed interest from the game, nobody of ordinary means gets any kind of return on investment.