David Stockman explains...

[Lukey]

*edited* why high stock markets don't indicate economic recovery. And, frankly, I have to admit, he does a better job of it than I ever have:

It now appears that US corporate bond issuance will hit a record $1.7 trillion this year—-or 55% more than the last blow-off in 2007. And that is due to one reason alone——bond managers are desperate for yield and are moving out the risk spectrum exactly as our monetary central planners have ordained.


And that’s not the half of it. The other side of the coin is that the massive proceeds from this orgy of bond issuance are not going into productive investments in plant, equipment, technology and other forms of business efficiency and capacity enhancement. As we demonstrated in earlier chapters, real net business investment in the US is still 20% below its turn of the century level.


Instead, this corporate fund-raising spree is being cycled right back into the stock market in the form of share buybacks, M&A deals and other financial engineering maneuvers. Since the financial crisis, in fact, upwards of $7 trillion has gone into stock buy backs and M&A deals.


This massive purchasing power, in turn, has driven the stock market to the perilous heights described in Chapter 12. It has effectively turned America’s C-suites into stock trading rooms . Our stock option crazed CEOs and boards are doing nothing less than de-equitizing their balance sheets and eating their seed-corn.


Someday the due bill will arrive. But in the interim corporate finances are being ransacked owing to the scramble for yield set in motion by central banks and the $13 trillion of subzero sovereign debt that has been generated during the last two years.

http://davidstockmanscontracorner.com/bubbles-in-bond-land-a-central-bank-made-mania-part-2/

 

[Lukey]

More interesting stuff from Part 3:

It originated awhile back when central banks made cheap debt available to households in the US and Europe. That caused a consumption boom there, and an oversized export boom in China and the far east.


Next, more cheap capital enabled by the Asian central banks funded an artificially large investment boom in China and among its EM supply chain, which, in turn, caused demand for bulk, crude oil and container ship capacity to surge.


Needless to say, still more cheap capital generated a massive excess of highly leveraged ship-building capacity that needs cash flow to service its debt. So the huge state enabled ship-building industries of China and South Korea built new ships like there was no tomorrow and, to move the iron, priced them near marginal cost.


Then, even more yield hungry capital hooked-up with the growing surplus of these “new builds”, funding on high leverage what is ultimately a day rate commodity (i.e. shipping capacity).


Even then, the daisy chain was not done. The bank arrangers and other intermediaries who bought and financed the surplus ships that the central bankers indirectly built needed to enhance their own returns. So they funded their newly acquired “assets” with yield-bait like the Bremen LB contingent bonds which blew sky high on a moments notice.


The one thing that is absolutely true in a $300 trillion global financial market is that Bremen LB is not a one-off. After a $20 trillion central bank printing spree and 90 months on the zero bound these kind of FEDs exist in their tens of thousands.


Soon we will know their names.


After all, creating this kind of fiery demise is what central banks ultimately do……

http://davidstockmanscontracorner.com/bubbles-in-bond-land-a-central-bank-made-mania-part-3/

A) It succinctly summarizes precisely how we have arrived where we find ourselves from an economic perspective, and why the economy has been (and will continue to be) unable to regain the pre-2007 momentum.

B) Anyone who thinks this description fits with "capitalism" has shit for brains...