“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Saturday, January 03, 2015

The year of dollar danger for the world

We are entering a new financial order where there is no longer an automatic “Fed Put” or a “Politburo Put” to act as a safety net for asset markets 

US dollar bank notes are seen in this picture illustration taken in Warsaw
My prediction for 2015: The dollar will hit $1.08 against the euro before 2015 is out, and 100 on the dollar index Photo: Reuters
America’s closed economy can handle a surging dollar and a fresh cycle of rising interest rates. Large parts of the world cannot. That in a nutshell is the story of 2015. 
Tightening by the US Federal Reserve will have turbo-charged effects on a global financial system addicted to zero rates and dollar liquidity. 
Yields on 2-year US Treasuries have surged from 0.31pc to 0.74pc since October, and this is the driver of currency markets. 
Since the New Year ritual of predictions is a time to throw darts, here we go: the dollar will hit $1.08 against the euro before 2015 is out, and 100 on the dollar index (DXY). 
Sterling will buckle to $1.30 as a hung Parliament prompts global funds to ask why they are lending so freely to a country with a current account deficit reaching 6pc of GDP. 
There will be a mouth-watering chance to invest in the assets of the BRICS and mini-BRICS at bargain prices, but first they must do penance for $5.7 trillion in dollar debt, and then do surgery on obsolete growth models. 
The MSCI index of emerging market stocks will slide another third to 28 before touching bottom. 
The Yellen Fed will be forced to back down in the end, just as the Bernanke Fed had to retreat after planning a return to normal policy at the end of QE1 and QE2. 
For now the Fed is on the warpath, digesting figures showing US capacity use soaring to 80.1pc, and growth running at an 11-year high of 5pc in the third quarter. 
The Fed pivot comes as China’s Xi Jinping is trying to deflate his own country’s $25 trillion credit boom, early in his 10-year term and before it is too late. He does not need or want uber-growth. The Politburo will more or less keep its nerve as long as China continues to meet its target of 10m new jobs a year – easily achieved in 2014 – and job vacancies outstrip applicants. 
Uncle Xi will ultimately blink, but traders betting on a quick return to credit stimulus may lose their shirts first. Worse yet, when he blinks, a tool of choice may be to drive down the yuan to fight Japan’s devaluation, and to counter beggar-thy-neighbour dynamics across East Asia. This would export yet more Chinese deflation to the rest of the world. 
At best we are entering a new financial order where there is no longer an automatic “Fed Put” or a “Politburo Put” to act as a safety net for asset markets. That may be healthy in many ways, but it may also be a painful discovery for some. 
A sated China is as much to “blame” for the crash in oil prices as America’s shale industry. Together they have knouted Russia's Vladimir Putin. The bear market will short-circuit at Brent prices of $40, but not just because shale capitulates. Marginal producers in Canada, the North Sea, West Africa and the Arctic will share the punishment. The biggest loser will be Saudi Arabia, reaping the geostrategic whirlwind of its high stakes game, facing Iranian retaliation through the Shia of the Eastern Province where the oil lies, and Russian retaliation through the Houthis in Yemen. 
Mr Putin will achieve his objective of crippling Ukraine’s economy and freezing the conflict in the Donbass, but only by crippling Russia in the process. Controls will not stem capital flight. Mr Putin will have to choose been a dangerous loss of foreign reserves and a dangerous chain of corporate bankruptcies. He will continue to pawn Russia’s national interest to Beijing in order to save his Siloviki regime, but wiser heads in Moscow will question how a perpetual dispute with Europe and the revival of a dying NATO can possibly be in Russia’s interest. They will check his folly. 
The European Central Bank cannot save the day for asset markets as the Fed pulls back: it does not print dollars, and dollars are what now matter. Nor is it constitutionally able to act with panache in any case. While Mario Draghi and the Latin bloc could theoretically impose full-fledged QE against German resistance, such Frechheit would sap German political consent for the EMU project. Mr Draghi will accept a bad compromise: low-octane QE that makes no macro-economic difference, but noisy enough to provoke a storm. 
The eurozone will be in deflation by February, forlornly trying to ignite its damp wood by rubbing stones. Real interest rates will ratchet higher. The debt load will continue to rise at a faster pace than nominal GDP across Club Med. The region will sink deeper into a compound interest trap. 
The political triggers for the next spasm of the EMU crisis are complex, yet trouble must come since the North-South gap is as wide as ever in key respects, and the depression drags on. The detonator may of course be Greece. If Syriza rebels hold their poll lead into the snap-election this month, a cathartic showdown with Brussels will occur in short order. 
The EU creditors may agree to debt forgiveness for Greece, but they might equally refuse to talk with a gun held to their heads. There is a 50/50 risk that they would instead switch off life-support and eject Greece, calculating that they now have the back-stop machinery to stop contagion. In this they would be wrong. 
Breaking my normal rule of discussing equity prices let me say only that the S&P 500 index of Wall Street stocks will not defy monetary gravity or the feedback loops of global stress for much longer. Half the earnings of US big-cap companies come from overseas, repatriated into a stronger dollar, and therefore worth less in reporting terms. 
The index has risen at double-digit rates for three years, further inflated this year by companies buying back their own shares at a pace of $130bn a quarter, often with borrowed money. The profit share of GDP is at a post-war high of 12.5pc (much like 1929), an untenable level as US wages start to rise and the balance of power swings back to labour. The S&P index measuring the price-to-sales ratio is higher today than at its pre-Lehman peak. 
Expect a shake-out of 20pc comparable to the LTCM crisis in 1998 when the wheels came off in Russia and East Asia, though don’t be shocked by worse. Emerging markets are a much bigger part of the world economy today, and their combined debt ratio is a record 175pc of GDP. 
Once these hiccups are behind us, we can look forward to sunlit uplands as always. Happy New Year. 

The earnings downside of a strong US dollar



  1. Who cares? Money just wipes away one's capacity for empathy.

    “When the brokers are roaring like beasts on the floor of the Bourse.”
    ―W. H. Auden
    ‘‘In Memory of W. B. Yeats’’ l. 25 (1940)

    “Defenseless under the night
    Our world in stupor lies;
    Yet, dotted everywhere,
    Ironic points of light
    Flash out wherever the Just
    Exchange their messages:
    May I, composed like them
    Of Eros and of dust,
    Beleaguered by the same
    Negation and despair,
    Show an affirming flame.”
    ―W. H. Auden:
    Lines 89-99 - September 1, 1939 (1939)

    “In times of joy, all of us wished we possessed a tail we could wag.”
    ―W. H. Auden

    woof, woof

    1. When ignorance is personified, here at the Elephant Bar, that person is Robert "Draft Dodge" Peterson.

    2. When ignorance is personified, here at the Elephant Bar, that person is Robert "Draft Dodger" Peterson.


    3. What a stupid rat "The Crapper" is - takes him two times to get his little attack right and he's done it 500 times.

      Poor guy is nothing but nasty and hatred.

      And he thinks he funny.

  2. When an Ignorant Turd is personified, here at the Bar, it's The Crapper.

  3. Cocaine Lil and Morphine Sue

    Did you ever hear about Cocaine Lil?
    She lived in Cocaine town on Cocaine hill,
    She had a cocaine dog and a cocaine cat,
    They fought all night with a crapper rat.

    She had cocaine hair on her cocaine head.
    She had a cocaine dress that was poppy red:
    She wore a snowbird hat and sleigh-riding clothes,
    On her coat she wore a crimson, cocaine rose.

    Big gold chariots on the Milky Way,
    Snakes and elephants silver and gray.
    Oh the cocaine blues they make me sad,
    Oh the cocaine blues make me feel bad.

    Lil went to a snow party one cold night,
    And the way she sniffed was sure a fright.
    There was Hophead Mag with Dopey Slim,
    Kankakee Liz and Yen Shee Jim.

    There was Morphine Sue and the Poppy Face Kid,
    Climbed up snow ladders and down they skid;
    There was the Stepladder Kit, a good six feet,
    And the Sleigh-riding Sister who were hard to beat.

    Along in the morning about half past three
    They were all lit up like a Christmas tree;
    Lil got home and started for bed,
    Took another sniff and it knocked her dead.

    They laid her out in her cocaine clothes:
    She wore a snowbird hat with a crimson rose;
    On her headstone you’ll find this refrain:
    She died as she lived, sniffing cocaine
    WH Auden

  4. Bob OreilleSat Jan 03, 03:01:00 AM EST

    Another body of new research has shown that people from the East of the USA, from the big cities, Boston, Chicago, Detroit, Philly, New York, where everything is tooth and claw, have a great deal less empathy for the suffering of innocent animals than do farm folks out West. They are much more likely to identify with predators, rather than helpless prey, the researchers state.

    1. .

      The research was published by the “Idaho Shoot an Elk from Your Porch Recreation and Hunter Benevolent Society”, an association made up primarily of hunter’s, outfitter’s, adventure tours, and guides as well as any politicians that can be bought. It is dedicated to the principle that predators are prey and should never be allowed to drive elk and other prey more than a 10 minute drive from anyone’s home.

      Please visit the following website

      if you are interested in attending their 13th annual Exotic Animal Wassail and Frolic.

      The mile long buffet will include eye of newt and toe of frog for appetizers along with shark fin soup, Malayan tiger bits salad with Moroccan vinaigrette dressing, giant tortoise eggs, harp seal heart, curried dolphin sweetmeats, braised Sumatran elephant tail, eastern lowland gorilla knuckles in Bearnaise sauce, barbequed panda balls, and poached koala kidneys au chocolat for dessert.

      Please note: Wolf will once again have to be replaced on the menu due to the continued inability on the part of club members to even spot one much less kill any, as well as, the continued obstinence of zoo owners who refuse to harvest and sell any of their stock in accordance with good herd management practices. However, we are getting closer as one of our members, Wayne, again mentioned that he had spotted lupine tracks on his property. While it turned out that Wayne was wrong and that his unfortunate error led to the deaths of numerous neighborhood pets, we still feel we are getting closer.

      This year, roasted wolf will be replaced on the menu by snow leopard.

      Price per head: $5,000

      Bon appetit.


    2. :):):):):):)

      Here’s to thee, old apple-tree,
      Whence thou mayst bud, and whence thou mayst blow,
      And whence thou mayst bear apples enow!
      Hats-full! Caps-full!
      Bushel, bushel sacks-full!
      And my pockets full, too! Hurra!

      Wassail! wassail! all over the town,
      Our toast it is white and our ale it is brown;
      Our bowl it is made of the white maple tree;
      With the wassailing bowl, we'll drink to thee
      O magical O magical
      O magical Quirkie

      eastern lowland gorilla knuckles in Bearnaise sauce..............heh

  5. Watch Capacity Utilization. Another tick or two, upward, and they're going to have to start building a few more factories, office buildings, and whatnot, along with the attendant infrastructure.

    1. I watch Cap Ut every day.

      We're damn near capped out right now.

      We're gonna need more whatnot, and soon too.

  6. Europe has two huge systemic problems:

    The VAT Tax, and

    The Super-high Petrol Taxes.

    They're in a real bind.

    1. Europe has two huge systemic problems:

      Moslems and old people

  7. Brilliant thread Deuce, I for one would have NEVER thought about the Federal reserve and Quantitative Easing as an issue to the stability to the markets and the world...

    /off sarcasim


  8. We're in pretty good shape, as long as Janet Yellen doesn't let the hard-money crazies bully her into raising rates too soon, and, most importantly, too high.

    1. It's the soft money crazies who want to take us into negative interest rates that I lose sleep over. That and gas at $1.00/gal. which does nothing for those without cars.

      How will the credit card companies ever make a go of it?

      Not too mention high beef prices.

      The rubes will shoot the last elk.

      Go to my blog 'Alternative Concerns".com for more info.

    2. My financial guru Quru writes an occasional column for my "Alternative Concerns".

      Also, he's a great chef and will answer your culinary questions on line.

      Some pics of the creations of Quru and his Team here -;_ylt=AwrTcd11MqhUzPYAziQPxQt.;_ylu=X3oDMTBsOXB2YTRjBHNlYwNzYwRjb2xvA2dxMQR2dGlkAw--?_adv_prop=image&fr=yhs-mozilla-001&va=culinary&hspart=mozilla&hsimp=yhs-001

  9. The Sun doesn't seem to care about the economy........or does it? -

    Mystery at the sun's south pole: Nasa reveals huge 'coronal hole' on the solar surface where winds reach 500 miles per SECOND

    Coronal holes are regions of the corona where the magnetic field reaches out into space
    Particles moving along those magnetic fields can leave the sun rather than being trapped near the surface
    Polar coronal hole can remain visible for five years or longer, although constantly changes shape

    By Mark Prigg For

    Published: 15:29 EST, 2 January 2015 | Updated: 11:21 EST, 3 January 2015

    There were no fireworks on the sun to welcome in the New Year - and in fact, scientists say the end of the year was relatively quiet on the solar surface.

    However, the sun has started 2015 with a mysterious event - a huge hole has appeared.

    Known as a coronal hole, the phenomenon occurred near the south pole - and is seen as a dark area covered all of its base in these stunning images..................

    Read more:
    Follow us: @MailOnline on Twitter | DailyMail on Facebook

  10. Exodus: the evidence for the Bible story
    Did the ten plagues really happen? Was Moses an Egyptian cult member? And how did he part the Red Sea?

    It is undeniable that the Israelites are defined in the Bible by not being Egyptian. Take cats. There are no cats in the Bible. The Egyptians, by contrast, mentioned them constantly, mummified them and included them in their flexible pantheon. Actually, there is one mention, just one, of a cat in the Scriptures, but only in the Book of Baruch, which is not included in the Hebrew Bible, only in the Greek-language Septuagint. It comes in a passage about idols, which allow every sort of foul creature to creep over them, for they are no gods but senseless blocks: “Bats, swallows, and birds alight on their bodies and heads; and so do cats"..........

    Interesting article.

  11. Why doesn't Jack Hawkins, with his vast Portfolio, and financial management experience, and holdings in land, cattle, and publishing, have anything to say on today's topic?

    1. Consulting in those areas, Anonymous, is fee based.
      It certainly is not done free.

  12. The interesting thing, right now, is that with the end of QE, and the promise of an increase in the FF target, the 10 and 30 yr. Bonds didn't weaken, they strengthened - pushing the 10 yr. down to 2.11%, and the 30 yr. down to 2.70 ish.

    1. This puts Janet Yellen in a sticky situation.

      If she raises too much (and, this could be very little) she's liable to invert the yield curve, and put our asses right back into recession.

      The good news is, with a still fairly weak jobs market, and low inflation, she has all the rationale in the world to go slow.

      The bad news is, a bunch of misguided crazies, some in very influential places, are going to push on her to, as they so mistakenly understand it, "normalize."

      The worst news is, the assholes will probably win.

  13. Huckabee Apparently About To Announce Plans For 2016
    5:47 PM 01/03/2015
    Alex Pappas

    Former Arkansas Gov. Mike Huckabee appears ready to announce his plans for the presidential race in 2016.

    In a tweet Saturday afternoon, Huckabee previewed a forthcoming announcement on his show later in the evening on Fox News: “Don’t miss my show tonight on Fox; You can watch tonight or read about it in the papers tomorrow.”

    Huckabee’s show is scheduled for 8 p.m. EST.

    Asked about his tweet, a Huckabee aide told The Daily Caller: “All I can say right now is that you certainly want to watch.”

    If Huckabee is serious about running for president, it’s expected that he would give up his weekend show on Fox. Previously, Huckabee used his Fox News show to announce that he would not run for president in 2012.

    The former Republican governor didn’t immediately return an email seeking comment from TheDC on Saturday............

    1. Ben Carson is throwing his hat in soon too, I read.

  14. Huckabee
    Rand Paul

    The Republicans may have 10 or more contenders at the beginning.

    1. I've heard on the q t that Rufus is considering a run as a Republican 'undercover stealth candidate'.

      That would be 10 right there.

      Add in Rubio and Trump we're at 12.......

    2. In other words, a Grand Jury, a Circus Maximus Chariot Race.....

    3. I am going to send you a copy of Huckabee's soon to be released book "God, Guns, Grit and Gravy".

      This should at least point you in the right direction.

    4. The Huckster has just 'said goodbye', but adds, 'stay tuned, there is more to come'.

    5. With that group, the Democrats should be able to win in double digits.


    PALM BEACH DRAMA: Billionaire paedophile with links to Bill Clinton...

    Jane Doe 3... ...........Drudge

    The English always have the best sex scandals.

    Ours are always sordid.

    1. Hmmmm.....well, this new English sex scandal does seem to partake of the sordid in a rather royal way -

      Andrew and the under-age 'sex slave': Duke denies claim in court papers that teen was picked to sleep with him by Robert Maxwell's daughter

      Woman said she was 'forced' to have sex with Prince Andrew at parties
      The royal has issued a strong denial of the 'categorically untrue' claims
      Alleged victim hit back by saying she would not be 'bullied into silence'
      She was told to 'give the prince whatever he demanded' by Jeffrey Epstein
      Claimed underage girls were ‘procured for sexual activities’ by Maxwell

      By Sam Greenhill and Daniel Bates and Rebecca English for the Daily Mail

      Published: 17:28 EST, 2 January 2015 | Updated: 08:58 EST, 3 January 2015

      Prince Andrew abused an underage girl at an orgy where she was being used as a sex slave, it was sensationally claimed last night.

      In an extraordinary legal allegation, a woman said she was ‘forced’ to have sex with him at parties in London, New York and the Caribbean.

      Last night the prince issued a strongly-worded denial, with Buckingham Palace saying ‘any suggestion of impropriety with underage minors is categorically untrue’. But his alleged victim immediately hit back by saying she would not be ‘bullied into silence by aggressive attacks’.

      Scroll down for video
      'Met three times': Prince Andrew with 17-year-old Virginia Roberts, centre, and Ghislaine Maxwell in 2001

      'Met three times': Prince Andrew with 17-year-old Virginia Roberts, centre, and Ghislaine Maxwell in 2001

      The woman – named only as Jane Doe #3 but said to be 30-year-old Virginia Roberts – says in court documents she was told to ‘give the prince whatever he demanded’ by his friend Jeffrey Epstein, the US billionaire paedophile who hosted the sordid parties.

      She claimed she and other underage girls were ‘procured for sexual activities’ by Ghislaine Maxwell, the socialite daughter of crooked tycoon Robert Maxwell.

      Miss Maxwell is alleged to have facilitated the prince’s ‘abuse’ of the girl, after helping Epstein to convert her ‘into what is commonly referred to as a sex slave'...............

      Read more:
      Follow us: @MailOnline on Twitter | DailyMail on Facebook

    2. How can one be 'underage' when one is 30?

      Have the laws changed in England recently?


  16. But the thing to which I want to call attention now — I'll try to come back to other topics in the book in later posts — is Thompson's claim that Buddhist contemplative practices, religion and spirituality aside, can be thought of as a kind of phenomenological training — one that can serve the scientific study of mind. This is related to a second claim advanced in the book. I mentioned before that our reflection on experience tends to be governed by concepts that do not always do justice to the full range of qualities that we experience. Thompson argues that there is an ancient Indian philosophical tradition (which comes down to us in the text of the Upanishads, and to which Thompson offers an accessible introduction) that aimed, with rigor and precision, among other things, at the development of a taxonomy of modes of human consciousness.

    In Search Of A Science Of Consciousness
    December 30, 2014 8:17 AM ET

    As Thompson notes, in the Western tradition we tend to think of consciousness as something that is present or absent. You have it when you are awake. You lose it when you are knocked out. But ancient Indian philosophers — writing thousands of years before Socrates — thought it was crucial to distinguish modes of consciousness within the range of what, in the Western tradition, we call unconsciousness. Dreaming, lucid dreaming, deep and dreamless sleep, and so-called pure awareness — the awareness that is always present beneath or behind waking, dreaming, and peaceful, dreamless sleep — are examples of such modes.............

    Alva Noë is a philosopher at the University of California at Berkeley where he writes and teaches about perception, consciousness and art. You can keep up with more of what Alva is thinking on Facebook and on Twitter: @alvanoe

    Where there is matter there is always mind, however deeply veiled.

    No matter, never mind.

    Those Hindus.......