PLAYING WITH AETHER – Investors Reach for the Celestials

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One of life’s hardest lessons to learn is that you can only control the controllables. The odds of communicating it are slim to none. It must be experienced to make an indelible, unforgettable mark.

Without a doubt, the world’s central bankers are sitting back in collective horror as they bear witness to Bitcoin mania. It’s akin to a runaway train wreck in the making. There’s no emergency hand brake to pull and the undeniable bubble is fast demoting the dotcom bubble to a history book sideshow. And not a thing can be done to stop it.

You would have thought central bankers would have learned the lesson on the controllables and their nasty sibling, the uncontrollables, during the depths of the financial crisis. And yet when the time came, they found it impossible to restrain themselves.

Monetary policymakers worldwide knew that the longer they kept rates at zero or worse, in negative territory, the higher the prospects for good money being crammed into bad investments. They knew that the odds systemic risk would be unleashed grew with every excess drop of liquidity they pumped into the markets.

Where do policymakers find themselves today? To use a technical term, in a pickle.

Set aside the earnings you hear about and focus on the length of the workweek rising in the November payroll report. Focus your attention on producer prices and you will see they’re running at a six-year high. Take a drive on the highway and pay attention to those 18-wheelers. Most of them say “Hiring Drivers” on the back of them. And ask any manufacturer and they’ll sing the same woeful tune – my cost of materials is going through the roof.

Any way you slice it, pipeline pressures are building. And what do central bankers intend to do about it? Why tighten, of course!

Add it all up and global quantitative easing is stated, as in a public commitment, to halve by this time next year. That was not a typo. We’re going from a record annual rate of $2 trillion in quantitative easing to $1 trillion when you sum the Federal Reserve’s Quantitative Tightening and the European Central Bank’s taper. Even the Japanese look poised to ease off on their ETF binge (you can only buy so much of a market despite what the academics’ models say).

So policy is set to tighten into a speculative mania with contagion written all over it. What could possibly go wrong? Endeavoring to defy nature’s laws is a fool’s game at best and inevitably ends in tears, frustration or worse. You can only control the controllables. Learn it by living it and try your best to not forget it.

For more on the challenges facing investors and central bankers alike as we peer over the horizon into 2018, please link to this week’s installment, PLAYING WITH AETHER: Investors Reach for the Celestials.

With the highest hopes for your holiday party season and wishing you well,



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