Pushing Against The Big Wave
By Kevin Muir of “The Macro Tourist” fame; reposted here with permission
One of the greatest traders of all time, yet probably one of the least well known, once said, “win or lose, everybody gets what they want out of the market.” Easy for Ed Seykota to say as he sits on his deck overlooking Lake Tahoe sipping a nice California cab. Yet as I struggle to make sense of this great game we all love to play, I wonder if maybe Ed is correct. I know his comment might seem a little preachy, bu
This is an interesting point. I’ve often wondered why the velocity has been declining since the 2008 crash (although never technically referred to it as velocity). From my point of view, the question has always been, why are companies hoarding so much money. To what purpose and what end. Apple, for example, has the equivalent of a small county. Banks who received the benefits of QE have not lended at levels that the amount of cash might have implied? I believe some of it is simply economic engineering. Cash is king, as they say. I also think the Fed move with QE has put visors onto everyone in the market creating a “wait and see” attitude about how the economy may go after such an experiment. As long as money is being made the “new” way instead of the “old fashioned way,” velocity is will take its course.
More so, I think it is right to wonder what may happen should velocity shift course, but would not expect a shift until after a massive correction. This, I believe, is another symptom of the bull cycle. As long as we don’t see a correction, I expect velocity to continue down.
Is there a way to short velocity for a while? LOL
You won’t find a good explanation for the velocity decrease from the anti-Keynesians that are often featured here, such as Stockman and Muir. After nearly a decade of spectacular failure you would think that they might seek a new model or convert to the dark side.
OTOH, here is a fun nightmare scenario from the Fed on an improbable liquidity shock from excess reserves.
https://www.minneapolisfed.org/research/economic-policy-papers/should-we-worry-about-excess-reserves
OK Dude – Knowing that a lot of bankers are the ones who ate the crayons in school, and mange to upset the apple carts in their favor on a regular basis, that Fed postulation scares the shyte out of me.
I think another huge factor in the decline in Velocity is the widening wealth gap. The wealth class hordes as their ranks shrink and their net worth increases geometrically. The consumer class grows in number gets squeezed with escalating mandatory expenses (housing, healthcare, education) leaving less and less for discretionary spending. There is a reason the consumer staples segment is struggling right now: consumers have no more money to spend so increases in input costs cannot be passed along.
I am a firm believer in a meritocracy, but at some point we need to admit to ourselves that the game is rigged and this not good for the long term economic growth of the country (US). It will eventually lead to lower net worth for the wealth class as eventually Consumption will implode and recede markedly making all those greedy pricks poorer.
I think another huge factor in the decline in Velocity is the widening wealth gap. The wealth class hordes as their ranks shrink and their net worth increases geometrically. The consumer class grows in number gets squeezed with escalating mandatory expenses (housing, healthcare, education) leaving less and less for discretionary spending. There is a reason the consumer staples segment is struggling right now: consumers have no more money to spend so increases in input costs cannot be passed along.
I am a firm believer in a meritocracy, but at some point we need to admit to ourselves that the game is rigged and this not good for the long term economic growth of the country (US). It will eventually lead to lower net worth for the wealth class as eventually Consumption will implode and recede markedly making all those greedy pricks poorer.
PS- not sure why the previous posted as anon. can’t figure out how to delete that comment. Please delete it if anyone knows how