Tuesday, June 9, 2015

Globalization: Extrapolating The Impossible Into Infinity

0% means that the future has been discounted to "now", and therefore time has no economic value. Meaning we are all being monetized for what can be consumed today.

Under Globalization, working hard is strictly for the lowest paid schmucks. The harder you work, the less you will be paid. The money today is in monetization, securitization, and liquidation. It's a rent-seeking, zero sum, self-cannibalizing disaster.

For Wall Street, 0% and 0 Vol equals "infinitely profitable risk-free" investment
The present value of future cash flows is calculated based upon the prevailing cost of capital. At a 0% interest rate, the value of a perpetuity approaches INFINITY (c/r). Add in today's artificially compressed volatility and Wall Street's ass-backward-looking allocation models will prescribe ever-greater leverage to these "infinitely profitable riskless" investments.

Do we see a problem with this? There are no perpetuities in the natural world, so all  financial valuations at this juncture are merely a massively extrapolated fabrication. Furthermore, the ubiquitous liquidation process has rendered the assumed future cash flows wholly unsustainable. Think profit margins outsourced to record highs. Meanwhile, volatility is mean reverting, so the current low vol environment is merely a Jedi Mind Trick for stunned dunces that will unwind proportionally violently as three years of trickle flow asset accumulation gets unwound instantly. 

Therefore what we have today, on a global scale is a financial system that systematically allocates MAXIMUM leverage to wholly unsustainable investments.

Like fracking: Which was a "great idea" right up until the minute it wasn't:
This is what the Dow will look like upon proper "revaluation":

Unwinding six years of 0% at 0 Vol will be the most violent financial disaster in human history without any comparison.

But still they'll say "No one saw that coming".

Human history's easiest and deadliest IQ Test. Pass. Fail.