David Stockman Warns Investors “Get Out Of Harm’s Way”

"Today David Stockman warned King World News that people need to be prepared for tremendous chaos in global financial markets, and investors need to “get out of harm’s way.”  Stockman is the man former President Reagan called on in 1981, during that crisis, to become Director of the Office of Management and Budget.  Below is what Stockman had to say in part II of his powerful and exclusive interview.

 

Eric King:  “You’ve talked about large carry trades, and I’m just wondering what your vision is of how those will unwind?”

Stockman:  “That’s what’s wrong with zero interest rate policy and keeping the overnight rate at zero.  It allows people to buy assets that have any kind of yield or any kind of appreciation, put them up as repo, and borrow 95 cents to 98 cents on the dollar.

This isn’t a natural way for a market to function.  The point is that if confidence is ever lost that the Fed and the other central banks of the world can keep this game going, these massive trillions of dollars of carry trades of this sort will unwind....
People will sell the assets, pay down the overnight repo, and there will be no bid to stop the downward acceleration.  The Fed is playing with fire.  It’s created enormously unstable and dangerous markets, and it seems to be either unaware or clueless as to how much danger it has created in the financial system.

We’re taking so much for granted today -- that a $17 trillion debt is no problem.  (Investors assume) we will kind of work our way out of it over time.  Or that a Fed which has taken its balance sheet from a half a trillion dollars at the beginning of this century to $3.5 trillion today is trying to help.

These things are not sustainable.  These things are dangerous policy aberrations that are creating tremendous risks for the whole global economy and financial system.  As I say, all markets are dangerous because correlations have gone to 1.0 during a moment of crisis. 

You can’t have confidence in the central banks, and you can’t have confidence in the mainstream narrative.  The only thing you (investors) can really do is get out of harm’s way.”

 

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/23_David_Stockman_Warns_Investors_Get_Out_Of_Harms_Way.html