Financialization of the Economy

Published on
13 August, 2018
Topic
Credit-cycle, Monetary policy, Macro
Duration
28 minutes
Asset class
Bonds/Rates/Credit

Financialization of the Economy

Featuring Grant Williams, Simon Mikhailovich, Dan Oliver

Does cheap capital and its misallocation lead to a financialization of the economy, in a process that is detrimental to consumers? In this second installment of their Exchange series, Grant Williams, Simon Mikhailovich and Dan Oliver tackle some increasingly thorny issues such as the inevitability of cycles and their distorting effect on capital and ask if the central banks are now the last stop in the march of excess credit. Filmed on May 8, 2018 in New York.

Published on
13 August, 2018
Topic
Credit-cycle, Monetary policy, Macro
Duration
28 minutes
Asset class
Bonds/Rates/Credit
Rating
24
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Comments

  • JW

    Jason W.

    14 11 2018 21:43

    0       0

    Superb and right to the point! No messing!

  • CA

    Craig A.

    2 9 2018 07:59

    3       0

    Loved this video type. Brilliant discussion and elaboration/extrapolation of ideas. Want more of this type of content. Upvoted.

  • RW

    Raymond W.

    27 8 2018 23:19

    5       0

    This is exactly the kind of discussion I wanted to hear.

  • PM

    Pierre M.

    26 8 2018 11:01

    0       0

    I love how Grant isn't fooled when they say something that isn't backed up by data, while managing to rebuttal in a very eloquent way. Professionalism at its best.

  • MZ

    Mike Z.

    24 8 2018 00:25

    1       0

    Hi Simon, at the very end of this discussion you claim that there is no one to bailout the gov't next time, what about the IMF and their Special Drawing Rights? Isn't the IMF the central bank of central banks so to speak?

  • WM

    Will M.

    18 8 2018 19:34

    4       0

    Very good indeed. Great discussion. Although at least make it look like you are eating the food between segments.....

  • JA

    John A.

    18 8 2018 01:00

    4       0

    Minutes 13:30 - 17:00 blew my mind. Simon and Dan were able to articulate their views so clearly, and convincingly, that my jaw hit the floor...and Ive been a RV subscriber since day 1! Many things make much more sense now. Grant plays a wonderful devil's advocate. I will be downloading this transcript for both my education and future reference as this all unfolds.

  • BM

    Bryan M.

    17 8 2018 04:48

    5       0

    Brilliant? You bet! Wonderful? Absolutely! Educational? Very. Entertaining? Very again. Like, it doesn't get better when ya put 3 smart people in a room and let'em think out loud. Kudos to you all!!!

  • KE

    Kathryn E.

    17 8 2018 02:47

    4       0

    The best sentence was "In the next segment..."
    Keep them coming!

  • PD

    Pat D.

    17 8 2018 02:25

    3       0

    One word for this series ......... Brilliant!
    Grant is getting so good at steering these discussions that one only notices if you look for it.
    Can't wait for the next one!

  • GO

    Gary O.

    16 8 2018 04:38

    5       0

    The casual group conversation is another Real Vision winner.
    Real Vision is real, that is what makes it the best!
    I love it!
    Give me more!

  • JO

    JOHN O.

    15 8 2018 22:09

    7       0

    The Exchange is one of my favorite features on RV. Wouldn't it be great to join these three over a few beers and continue the discussion. You guys should do a road show. Bloomberg had a good piece today on CLOs and the fact that we are starting to see, or have been seeing for some time if you were paying attention, both technical and fundamental indicators that this sector of the fixed income space is getting way overcrowded. Once again the packagers of complicated financial instruments are applying lipstick to a pig and too many investors are falling for the pitch. Is it time for a Big Short, Round 2? maybe not quite yet, but think we're getting close. And its going to be the little guy that gets hurt again.

  • FM

    Faris M.

    15 8 2018 21:08

    1       0

    loving the exchange, three people in open discourse is very insightful. RV brilliance!

  • BT

    Brian T.

    15 8 2018 11:56

    1       0

    Well said Dan - great point!

    "The reason I think this could be the last cycle is because this time the bubble is really in the government bond market. Right? And those are the assets that sit directly on the Fed's balance sheet. The other assets that blew up were in other private players, and the Fed ran and rescued them through guarantees and so on. This is the actual-- the core assets that fund the government and that keep the Federal Reserve and all the other central banks functioning.
    And so when that asset blows up, they really will have very little authority or power do anything. And the way the market will liquidate the Federal Reserve, which I talked about last time, is it will send the gold price up to a level that backs Fed liabilities. And the day that prices around, it depends on how you calculate it, but $8,000 to sort of $16,000 an ounce.
    If the Federal Reserve prints money to forestall the liquidation, the way John Law tried a few times, and the way we tried before in the '20s, that number could get materially higher. But right now, I do think that sovereign bond markets are leaking. And when they go, that's it. Lights out for this whole supercycle."

  • SS

    Steve S.

    15 8 2018 05:32

    1       1

    So the only way for the USA to solve its debt issues is to sell its Gold reserves once gold goes above 8000USD? Is that right? Won't the price of Gold go down once it tries to sell such a large amount?

  • RM

    Ralph M.

    14 8 2018 21:16

    2       0

    Love this format - keep it up RV!

  • PJ

    Peter J.

    14 8 2018 12:27

    3       0

    Really enjoyed the Vid, great format and all three contributors are first rate (Dan waiting for your next article on the Myrmikan website :)). I don't know if its just me but there appears to be a general uptick in clamour around the $64K question of 'When' the markets are going to role over and 'When' the Reset is going to begin. Maybe it already has but just hasn't hit the USA yet.

  • MM

    Mike M.

    14 8 2018 11:58

    1       3

    Excellent. 1% of us know the direction. We have cannibalized the financial system. The trigger event whatever it is will occur in the early a.m. the 99% will be trapped like rats, and at 0935 limit down will be imposed closing the equity markets. Limit down will happen daily for an indefinite period, maybe for a month or more. Pitchforks will be sold out. Civil unrest? Who and what do they tell the employees of public/private sector pension funds?The remaining question begs who has this turd put in their pocket. Does the FED. Res. get it or does the Twitter in Chief? Booyah

  • vt

    vadim t.

    14 8 2018 08:53

    7       1

    Hi Simon, this is my reply to your question from the last "the exchange". I saw it just yesterday, felt it needs to be replied for, not sure you see it there, so just post it here.

    Simon, it has to be a long conversation, because the idea of the gold as an insurance is misleading in different ways. as short as possible: 1) Insurance From What? Today is 13.08. full blown EM crisis. What is going on with Gold? Don't bother answering, and it's not an accident or some "JPM manipulation" nonsence. First of all: gold couldn't be an insurance where the dollar is. Period. It doesn't mean however that gold couldn't rise or fall with the dollar, it's just doing so as any other asset class. In an Armageddon scenario gold as an insurance is even bigger nonsense. As far as I understand you and me are both originated from USSR (correct me if I'm wrong), and you should have known more than anybody else that although you could change your gold for bread and coal, it doesn't worth trying to buy gold beforehand, you aren't gonna like the rate, if you wish to prepare - buy "tushenka" (tinned stew) and ammunition instead. So there are some very specific class of failures of the system which could be considered for gold to be an insurance for. It's not very difficult to show, one by one, that it doesn't work this way either, although it could be decent investment (there is a huge difference between an insurance and investment, isn't there?) but it'll take a lot of space and effort, so let's assume you are right and there are such cases, which brings us to 2) Insurance For Whom? That's where my strongest disagreement is. You guys (goldbugs) are constantly promoting a product which is maybe fine for big institutions but for retail it brings a disaster over and over again. It's not the same to have a 5% cost insurance of $2bln+ book and $100k savings, it's as if it's not the same to owe a bank 2b vs 100k. There will be very different needs and outcomes when THE day comes and there is much smaller probability that the little guy is able to hold your insurance through all those waiting years. I'm sure your intentions are pure and you are trying to do your best to help them, but the great irony is it's the same old game - just a different "contrarian" herd going into a different slaughter-house. 3) Last. Out of personal curiosity. You guys, spend so much time saying the same things over and over again, and it looks like the Gold theme is of much interest of you, why the hell don't you spent this time to discuss/investigate for example 95% correlation of Gold/usdjpy, or take a look at XAUCNY weekly, esp. monthly and try to think it over before tell the crowd how amazing the gold insurance is, or take a deep look into what is going on inside (deep inside) goldminers space, you will discover an amazing stuff, I guarantee. If you keep asking, you even could come across some taboos which are avoided at all cost everywhere, even here on RTV. Just couple of thoughts on very complicated subject,
    With real huge respect for your efforts and intentions,
    Vadim.

  • DS

    David S.

    14 8 2018 08:20

    2       0

    CNBC reported $US 1.4 billion from 3/23 to 7/16/2018 on imports of foreign steel and aluminum. Congress would not pass a border tax so tariffs are the next best thing? It would be terrible if a worldwide trade war were started by a surrogate border tax. DLS

  • DH

    Daniel H.

    14 8 2018 08:05

    1       0

    So, why do we not just follow in the path of Japan and keep kicking the can down the road? Saying it is a sovereign debt bubble does not answer that question. If Japan can simply go to zero on rates and stay there, why can't we?

  • NI

    Nate I.

    14 8 2018 03:58

    0       0

    You hit it out of the park Grant. The everything bubble is no secret, but the one question that matters is how much longer can it go on? Indeed, the growing demand on the Treasury to pay out more benefits combined with a bond market that's not likely to go much higher could be the infinite force meeting the immovable object. Perhaps that finally sounds the death knell of the everything bubble. This question really deserves a big chunk of RV air time with all of the experts weighing in.

  • RI

    R I.

    14 8 2018 03:54

    2       1

    Good ole fashioned gold porn.

  • CT

    Christopher T.

    14 8 2018 03:09

    5       0

    This was filmed in may, why is it being released in aug?

  • my

    markettaker y.

    14 8 2018 02:41

    3       1

    Holy smokes. This is intense. Um. Please do this more. Do it all again, but differently. From every angle. What the heck. This is bananas. Real Vision is like the best financial media in the world?

  • MS

    Mark S.

    14 8 2018 02:38

    2       0

    Watched it twice already. Mom always said I was slow.

  • TE

    Tim E.

    14 8 2018 00:44

    2       0

    Excellent segment gentlemen. Really nailed it.

  • PD

    Peter D.

    13 8 2018 23:58

    8       0

    This format was priceless content on a variety of levels.

    1. The best line since Gretzky, Anderson and Kurri suited up for the Edmonton Oilers in the 1980s.

    2. It showcases Grant's personal brand as an interviewer, which raises the quality of any debate by 50%.

    3. It provides long-term gold investors with a way of rethinking and re-integrating their long-term investment/hedging strategies (which are essentially to sit and wait) in light of current economic and market events.

    To attract new viewers much of the newer RV content is naturally targeted at a lower common denominator.

    But give us one or two of these shows a week, and we in the old guard RV base will get more than our money's worth.

  • SS

    Steven S.

    13 8 2018 23:43

    2       0

    Simon, Grant or Dan - do you remember a fellow named Denis Karnoski of the Federal Reserve?? -

    Featured here in 3 local St. Louis television interviews, Mr. Karnoski stated that "we fool the public into thinking that they have wealth, when they do not" and that "whatever a dollar is, I do not recommend people hold onto it".

    I've read Mr. Karnoski was fired by the Federal Reserve soon after this interview.
    Any comments? Would love to hear your view on his comments ;)

    His direct comments on video starting here: https://youtu.be/sGsFK52L0lk?t=15m6s

  • BM

    Beth M.

    13 8 2018 21:48

    3       1

    The greatest exchange that I have seen. The writing is on the wall...our credit "super cycle" (as Simon noted) is nearly done. I have a serious question for my viewing colleagues...does anyone know of a relieable source to buy gold coins? I am very serious.

  • VE

    Viktor E.

    13 8 2018 20:28

    1       0

    Fantastic, thanks!

  • Sv

    Sid v.

    13 8 2018 20:26

    1       0

    excellent!

  • DR

    David R.

    13 8 2018 20:09

    7       0

    Any reason why it's ten weeks between filming and posting?

  • DS

    David S.

    13 8 2018 19:59

    5       0

    Timing? The politicians will do everything in their power to delay the crisis. IMO, I think a possible Fed. move is to issue massive 100-year interest free bond to the Treasury with or without annual principal repayment, i.e., budget problem solved. I know that this is way out there, but no one loses power without trying all the tricks. Even worse the Fed may be absorbed into the Treasury. There is no fundamental knowledge here, just human nature. This could happen in Japan even earlier. DLS

  • BC

    Burton C.

    13 8 2018 19:11

    9       0

    Great conversation... keep em coming... but get rid of the food, its a distraction

  • BG

    Bruno G.

    13 8 2018 18:28

    0       0

    When does gold rise? Please lay out the framework for this to happen. What will the market looks like prior to the gold reset

  • JK

    John K.

    13 8 2018 17:59

    3       0

    Grant... you are a master of creating the "cliffhanger" moment... eagerly awaiting the next episode!

  • DS

    David S.

    13 8 2018 17:21

    3       1

    August 13: Turkey is in a serious fiat currency crisis. Turkish investors with gold instead of the Turkish lira are protecting themselves. Can someone explain to me, however, why my gold in $US is down 1.5% today and down over 5% YTD? DLS

  • SL

    Seth L.

    13 8 2018 17:04

    8       8

    I'm sorry to say this, but despite the intellectual brilliance of the guests they are significantly off-base with their pessimism. Yes, there are real and BIG problems. But those are largely due to the mixture of politics in with the economy. The explosion of the ABS
    market was a response (IMHO) to the real need of USD-denominated assets to fund the mandated fiat-USD monetary system (ie a private sector response to a publicly created problem). Also, to act like we're living in dreary, dystopian, homogenous world is just wrong. There has never been more choice in the US economy - just walk into a mall or a supermarket, or log onto your computer to buy something, go car shopping. Not only has choice has never been greater but cost has never been lower meaning choice has never been so accessible. Furthermore, the creativity in jobs have never been greater. Netflix, Amazon, YouTube, iTunes, etc. have made it possible for more people to work in creative jobs (more actors, musicians, podcasters, bloggers, freelancers, artist, Real Vision employees, etc.). Data tools have also made people more productive, freeing them to either focus more on the intellectual aspects of their jobs or take more leisure time. As a securities analysts my coverage universe has never been larger, but I'm also equipped to handle the load since I spend less time mindlessly inputting data into models; hence I have more time to focus on the intellectually rewarding parts of the job.

    Stop blaming the banks. Stop pretending that finance isn't a productive endeavor that makes modern economies and all of their benefits possible. Both exist because of their life affirming benefits. Focus on the real issue - the incursion on politics into the economy. Politicians crave power and our cultures have for some reason been all to complicit to oblige. With the greater influence of politics comes the homogenisation as a handful of central planners call the shots: how much capital a bank must hold and what businesses they are allowed to conduct and with whom; how many slots an airport can have; why type of material a house must be made out of and where it can be located.

    It's easy to be pessimistic because there are real and big problems. The issues are complex. But look (more closely) at history. Whenever and wherever economic freedom has improved so have lives and prosperity. Focus on that and drop the hate for bankers.

    For the record, I never was nor have any relationship to bankers.

  • CB

    Charles B.

    13 8 2018 15:58

    3       0

    This was the best interview so far. Very clear thinking.

  • TS

    Tyler S.

    13 8 2018 13:41

    4       2

    This is like waiting for the next game of thrones to air...

    Pretty much this is a repackage of the same info I've heard over and over the past 4 years, no need to break this up and spread it out in 27min chunks

  • KS

    Karen S.

    13 8 2018 12:52

    5       0

    Grant at the end asks the same question all my friends ask. Great question.

  • BD

    Bruce D.

    13 8 2018 12:20

    4       0

    That was simply fantastic! To breakdown such complex interconnected positions into a simple explanation is just beautiful.....Thank You!

  • NG

    Nick G.

    13 8 2018 12:04

    6       0

    Excellent discussion, thank you. The conclusion is also correct, imho: it all hinges on confidence. When the magician runs out of tricks, the audience start throwing tomatoes.

  • AR

    Alex R.

    13 8 2018 10:44

    4       5

    I like analytical conversations like this but it would be great if these analysts would put up a timeframe. Then videos like these would be actually useful. Without a timeframe this remains just a interesting tidbit of the same theme people have been talking about on and off for years now. Just my 2cts.

  • RC

    Robert C.

    13 8 2018 10:30

    7       0

    Looking forward to the next episode!