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David Einhorn, President, Greenlight Capital, a very large hedge fund:

“It sometimes feels like the Federal Reserve is more concerned about which way the next 50 points in the S&P go than the average hedge fund manager.”

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Read the Introduction
to Panderer to Power

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"The Coming Collapse of the Municipal Bond Market"

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"Chairman Greenspan: A Fiat Mind for a Fiat Age"

For speaking, interview, writing, and research requests, please contact Frederick Sheehan at info@aucontrarian.com

Insights and Analysis

Friday, August 29, 2014
Handing Out Money

To be clear on the main point of "The Killing Fields": The world's central banks have been working for well over a year on handing out money to the people. Their intention is to avoid the intermediate step of operating through commercial banks. The Federal Reserve, for example, generates (through electronic dollar credits to the banks) "money" (as the word is used today) in operations between the New York Fed and the primary dealers. After these electronic dollars are credited to banks, the money does not always get lent out or go where the central banks would like. The central banks are trying to get legislation that will permit direct currency transfers to the people. - Read more

Thursday, August 28, 2014
The Killing Fields

The house organ for the Council of Foreign Relations, Foreign Affairs, has published its final solution under the title: "Print Less and Transfer More: Why Central Banks Should Give Money directly to the People."  Written under the names Mark Blyth and Eric Lonergan, but trumpeting the establishment voice of, say, Martin Wolf, they state: "It's well past time, then, for U.S. policymakers - as well as their counterparts in other developed countries -  to consider a version of Friedman's helicopter drops.... Many in the private sector don't want to take out any more loans; they believe their debt levels are already too high. That's especially bad news for central bankers: when households and businesses refuse to rapidly increase their borrowing, monetary policy can't do much to increase their spending.... Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly.... The transfers wouldn't cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them." - Read more

Wednesday, August 20, 2014
Meet Your Investment Manager

     There is little else left in the asset-pricing world than central bankers. The redoubtable Ben Hunt, chief risk officer at Salient investment managers ($20 billion under management), wrote on David Stockman's Contra Corner: "I've spent the past few weeks meeting Salient clients and partners across the country.... When I had conversations [with clients and partners] six months ago, I would get a fair amount of resistance to the notion that narratives dominate markets and that we're in an Emperor's New Clothes world. Today, everyone believes that market price levels are largely driven by monetary policy and that we are being played by politicians and central bankers using their words for effect rather than direct communication. No one requires convincing that markets are unsupported by real world economic activity. Everyone believes that this will all end badly, and the only real question is when." - Read more

 

Some Things Never Change
Old Insights Now Relevant

The blowup ahead is baked in the cake, just as it was in 2007. “When and where will it start?” is often asked. The proverbial snowflake that launches the avalanche fell some time ago. It is more difficult to interpret the when and where of collapses than in olden days with so much interference in markets. The avalanche rumbling in the distance is probably credit rather than the stock market. Stocks get much more attention, so the blame will most likely fall on Facebook or Yelp! or Twitter or Tweeter or Cynk or Right, On! or Drop Dead!

In the June 2007 and July 2007 issues of Marc Faber’s Gloom, Boom, and Doom Report, I described the collapse we were then entering. I discussed similarities to the 1960s and 1980s credit busts. (Credit is usually the reason. In 1929, margin loans, foreign loans, and the Florida Land Bubble pushed the stock market to the point of no return. The dot.com crash in 2000 was made much worse from telecom borrowing.)

This is an introduction to a condensed version of what appeared in the Gloom, Boom, and Doom Report under the title of “Tin Men with Tin Ears.” It was abbreviated for the November 2007 issue of Charles Allmon’s Growth Stock Outlook.

This is also an introduction to the new-and- improved AuContrarian website.“Some Things Never Change” will be a regular feature. Here is a link to the Growth Stock Outlook version of “Tin Men with Tin Ears.”

This précis was entirely wrong in one regard. The comparison to the earlier periods went beyond financial similarities to the public outcry that accompanied the destruction. In the 1960s and 1980s, public opinion, the media, Congress, and the courts did justice to the perpetrators. After 2008, the worst offenders, sometimes having committed multiple felonies, were not touched. Not one of them, in the United States, at least, even had to appear in a courtroom. They have gotten richer and richer, with the means to isolate themselves even further from the body politic.

Predictions and Advice

Frederick Sheehan is a regular contributor to Marc Faber’s The Gloom, Boom & Doom Report. Click here to read excerpts from some of Sheehan’s articles.

June 21, 2004: “[Americans] are caught in the pitiable condition of not being able to live on 1% interest; the disincentive to save has been energetically promoted with a short-term yield of microscopic content…. The flows have not been channeled towards productive enterprise but towards speculation.”

July 1, 2007: “The CDO and CLO markets have acted as both lubricant for structuring credit with no thought to tomorrow and as glue by which all asset classes have risen the past couple of years."

December 2012: “It is important to note, for all the talk of deleveraging, there has not been a single quarter when non-financial debt decreased. The government took over when consumer debt and investment bank leverage collapsed between 2007 and 2009…. [C]orporations increased borrowing by 6.2% in the third quarter…. [N]et capital investment by corporations during the quarter was negative. This is the death knell for companies and economies alike. …. Sufficient investment leads to profits. Profits generate more capital to invest. This cycle was propounded by J. Maynard Keynes: ‘It is investment, i.e., the increased production of material wealth in the shape of capital goods, which alone creates national wealth.’”

About Frederick Sheehan

Fred Sheehan

Frederick J. Sheehan Jr. is an investor, investment advisor, writer, and public speaker. He is currently working on a book about Ben Bernanke.

He is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and co-author, with William A. Fleckenstein, of Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve (McGraw-Hill, 2008). He writes regularly for Marc Faber's “The Gloom, Boom & Doom Report."

Sheehan serves as an advisor to investment firms and endowments. He is the former Director of Asset Allocation Services at John Hancock Financial Services where he set investment policy and asset allocation for institutional pension plans. For more than a decade, Sheehan wrote the monthly "Market Outlook" and quarterly "Market Review" for John Hancock clients.

Sheehan earned an MBA from Columbia Business School and a BS from the U.S. Naval Academy. He is a Chartered Financial Analyst.