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Tags: bill gross | george soros | druckenmiller | dark

Knights of the Dark Side: Gross, Soros, Druckenmiller See Bad Times Ahead

Knights of the Dark Side: Gross, Soros, Druckenmiller See Bad Times Ahead
(Dollar Photo Club)

Dr. Edward Yardeni By Monday, 13 June 2016 10:25 AM EDT Current | Bio | Archive

Central bankers are becoming modern-day tragic heroes like the ones who were doomed to suffer an awful fate in Greek tragedies. The Greek playwrights imparted enduring messages about the dangers of arrogance and the importance of humility. Their cautionary tales showed the terrible consequences of fighting the laws of nature.

The audience went home uplifted by the edifying tales, knowing that they were still safe and sound. Today’s audience has been forced by the central bankers to become a part of the play. Like it or not, we all will suffer the same fate as the central bankers.

Previously, I’ve argued that central bankers are fighting Mother Nature by pumping massive amounts of liquidity into the global economic system in an effort to avert deflation. According to our Tolstoy War & Peace Model, deflation is a natural force of nature during peacetimes, when globalization leads to free trade and heightens competition.

During wartimes, inflation prevails because there is much less competition. The central bankers also are fighting the natural laws of demography. Populations around the world are rapidly aging as fertility rates have collapsed and longevity has increased. Older consumers tend to spend less than younger ones, resulting in less upward pressure on prices.

Greek tragedies always had a chorus of wise elders who futilely warned the tragic hero that he needed to change course to avoid doom. Today’s chorus seems to have concluded that doom is inevitable. So they have gone to the Dark Side, positioning their portfolios to profit from the inevitable tragic end.

Consider the following:

(1) Hawking. Physicist and cosmologist Stephen Hawking has expanded his theories to explain the protectionist response to globalization. He is most renowned for his research contributions on the subject of black holes, which are places in space where gravity pulls so much that even light cannot get out. In a 5/31 CNBC report, he suggested that the recent rise in protectionist sentiment around the world could be a black hole for global economic growth.

(2) Gross. Bill Gross has also gone cosmic. He recently warned that central bank policies that pushed trillions of dollars into bonds with negative interest rates will eventually backfire violently. Last Thursday, Gross tweeted, “Global yields lowest in 500 years of recorded history,” He added, “$10 trillion of neg. rate bonds. This is a supernova that will explode one day.” A supernova is a star at the end of its life that suddenly increases greatly in brightness because of a catastrophic explosion that ejects most of its mass.

A 6/9 Bloomberg article observed, “Gross has argued for some time that the economy is at the end of a decades-long cycle of expanding credit that has culminated in negative interest rates, a situation he said is unsustainable. Rather than spurring economic growth, low rates are promoting asset bubbles as investors reach for higher yields while punishing individual savers and industries that rely on interest rates, such as bank and insurance companies, according to Gross.”

(3) Soros. The 6/9 WSJ reported: “After a long hiatus, George Soros has returned to trading, lured by opportunities to profit from what he sees as coming economic troubles. Worried about the outlook for the global economy and concerned that large market shifts may be at hand, the billionaire hedge-fund founder and philanthropist recently directed a series of big, bearish investments, according to people close to the matter.”
Soros remains bearish on China. He told the WSJ in an email: “China continues to suffer from capital flight and has been depleting its foreign currency reserves while other Asian countries have been accumulating foreign currency. China is facing internal conflict within its political leadership, and over the coming year this will complicate its ability to deal with financial issues.”
Soros is also bearish on the European Union. He argues that there’s a good chance the EU will collapse under the weight of the migration crisis, continuing challenges in Greece, and a potential exit by the United Kingdom from the EU: “If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable.”
(4) Druckenmiller. In a 5/4 speech at the Sohn Investment Conference, Stanley Druckenmiller, the legendary investor, announced that he was going to the Dark Side: “Three years ago on this stage I criticized the rationale of Fed policy but drew a bullish intermediate conclusion as the weight of the evidence suggested the tidal wave of central bank money worldwide would still propel financial assets higher. I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself.”

He warned, “While policymakers have no end game, markets do.”

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.

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Central bankers are becoming modern-day tragic heroes like the ones who were doomed to suffer an awful fate in Greek tragedies.
bill gross, george soros, druckenmiller, dark
Monday, 13 June 2016 10:25 AM
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