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Thoughts from the Frontline

Central Bank Smackdown

July 5, 2014

Smackdown: smack·down, ˈsmakˌdoun/, noun, US informal
1.  a bitter contest or confrontation.
"the age-old man versus Nature smackdown"
2.  a decisive or humiliating defeat or setback.

The term “smackdown” was first used by professional wrestler Dwayne Johnson (AKA The Rock) in 1997. Ten years later its use had become so ubiquitous that Merriam-Webster felt compelled to add it to their lexicon. It may be Dwayne Johnson’s enduring contribution to Western civilization, notwithstanding and apart from his roles in The Fast and The Furious movie series. All that said, it is quite the useful word for talking about confrontations that are more for show than actual physical altercations.

And so it is that on a beautiful July 4 weekend we will amuse ourselves by contemplating the serious smackdown that central bankers are visiting upon each other. If the ramifications of their antics were not so serious, they would actually be quite amusing. This week’s shorter than usual letter will explore the implications of the contretemps among the world’s central bankers and take a little dive into yesterday’s generally positive employment report.

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Comments

Bruce Lawrence

July 6, 7:14 a.m.

My recent translation of Fed speak alos works for Yellen’s remarks.
translation:  ” We continue to be confident in our policies. Looking ahead we do not know what to do or when to do it, we disagree with one another, and we have no experience with this situation before. Also many other unknowns and uncertainties may cause us to change our minds because, you know, shit happens. But we remain fully confident.”
BIS look like adults and Fed/ECB look like sding salesman. (apologies to siding salesan)

Denny Schlesinger

July 6, 4:33 a.m.

>>> smackdown vs. contretemps

Charming literary contrast!

Your economic scenario sounds plausible but whatever happened to the hyperinflation scenario when velocity returns? Wouldn’t hyperinflation negate the collapse of asset prices? Stagflation all over again?

Denny Schlesinger

Nick Proferes

July 5, 4:17 p.m.

Without going back and actually re-reading them, this piece reminds me so much of John’s warnings prior to the GFC, it just makes so much sense.  The GFC happened, a lot of people lost money, homes, etc. and the rest started saving again, paying down debt (nominally a good thing, but it slowed the economy). Nothing much has changed regulation-wise so financial institutions continue to be prosecuted for misdeeds where they can be, and cheap money and low yields encourage borrowing once again.  I keep a July,1987 copy of a local investment journal “Personal Investment” to remind me that the warning signs were there in print well before the actual events unfolded, but I also keep in mind Gary Shillings warning that “Markets can remain irrational a lot longer than you and I can remain solvent.”