Grant Williams: A Punch To The Face For Central Banks

Grant Williams, publisher of the economic blog Things That Make You Go Hmmm and principal of Real Vision TV, returns to the podcast this week to discuss his expectation of a return of volatility to the markets.

Grant warns that over the past seven years, the various financial markets around the globe have melded into a single world market dominated by trading algorithms and the central banks. This new system only knows how to operate effectively in one direction: Up.

Grant is very concerned that a return of volatility will act as a wrench tossed into the gears, quickly throwing the world financial system into panic.

I’ve spent a lot of time thinking about the incredible amount of counterintuitive moves that we see in markets.  It’s all inextricability linked to the rise of computer trading

Once you get momentum, markets start going up based on the back of algorithms. Then we start to see the day traders coming on the back of it, and everyone starts to gain confidence.

Markets are global now. There really is only one equity market around the world, certainly when they’re going up. We’ll see when markets turn and start to go down. And I think that’s definitely something we need to talk about because I suspect it will be very, very different market action when this trend turns.

So we really do live in an entirely new world. I don't think we’ve had a bidirectional market through which we can understand what these things do. The markets have been drifting higher, for essentially the entire period of time that these machines have gained ascendency.

And so we as humans are trying to figure out what this means, trying to figure out how it works. And we don’t know because we only know which way it works in one direction. When we start to see cold-hearted, trend-following algorithms determine that the path is down, when you really are going to need human beings.

I’ve talked about this a lot: When markets are going up, I can guarantee you there’s an offer. At any price at any hour of the day or night, someone will show you an offer, and it may be significantly higher than the last trade, but there will be an offer. But when markets turn and go down, people forget that oftentimes there are no bids.

People forget, particularly central bankers, that every now and again, the markets tend to punch central bankers in the face. And the last time we really saw this, I think, goes back to the day that Soros forced the pound of the European Exchange Rate mechanism back in the early 90’s.

And this was something that Soros bet on. The central bankers had said this is solid. We’re not going to do anything. The markets took the other side of that when they sensed weakness. And within a day, the chancellor of the UK was forced very sheepishly to backtrack in front of the TV cameras.

That was the last time that these guys got punched really hard, and it’s almost twenty-five years ago. So I think memories are short. I think confidence is high, both on their part and in them on the part of the markets.

But we are, it seems, reaching a point of newly introduced volatility, and it really only takes confidence on the part of the market in central banks to wane for their powers to be weakened considerably. Because without that tailwind of people believing in what they’re doing and believing that they will be successful, they then have to prove it.

And I think you and I both understand that really markets are and will always be bigger than a group of eight or nine or ten guys around the world with a plan and a desire. And if they are forced into proving their strength and proving what they can and can’t do, I think they are very quickly going to find out that there’s an awful lot they can’t do. And it could get very, very ugly. 

This is a companion discussion topic for the original entry at

Excellent talk with Grant Williams. I’ve subscribed to TTMYGH for years; his folksy and ironic writing style yet command of the metrics is unsurpassed.
Super (as in Patriots!) glad he invited you onto Real Vision TV! It’s about time your brain got on that forum, those video interviews are all deeply intriguing and another anticipated resource for this reader…Your presence there and further linking with Grant and Raoul should help Peak Prosperity get to even more people that need your help.

Excellent podcast!
(You’ve got to be kidding me!)
There has been no war in 50 years?!
We must have very different definitions of what constitutes war.
I know we haven’t been napalming villages into burned out rubble since 1975, which was 42 years ago, by the way.
However, the US did drop 26,171 bombs, that we know of, in 7 countries during 2016. We droped bombs in Syria, Iraq, Pakistan, Yemen, Somalia and Libya. Those are only the ones we know about.
In 2015 we know about 23,144 in the same countries, excluding Yemen but adding Afghanistan.
I’ve started calling it the “Forever War,” after a SciFi book by that name.

Council of Foreign Relations resident skeptic Micah Zenko recently tallied up how many bombs the United States has dropped on other countries and the results are as depressing as one would think. Zenko figured that since Jan. 1, 2015, the U.S. has dropped around 23,144 bombs on Iraq, Syria, Afghanistan, Pakistan, Yemen, and Somalia, all countries that are majority Muslim. The chart, provided by the generally pro-State Department think tank, puts in stark terms how much destruction the U.S. has leveled on other countries. Whether or not one thinks such bombing is justified, it’s a blunt illustration of how much raw damage the United States inflicts on the Muslim world.

Stats for that exchange hover around 3.5 million tons of explosives. I don’t think that includes the two big ones on Japan. It’s hard to call what we are doing now “peace”, but with that much of a quantitative differential coupled with many more involved countries, I think Grant’s point is that it was qualitatively different for thosed involved. I haven’t noticed food rationing in any of the countries supplying arms.

Source: How Many Bombs Did the United States Drop in 2016?
by Micah Zenko
January 5, 2017
Imagine the amount of damage we could have caused had we been at war!!

aggrivated wrote:
Stats for that exchange hover around 3.5 million tons of explosives. I don't think that includes the two big ones on Japan. It's hard to call what we are doing now "peace", but with that much of a quantitative differential coupled with many more involved countries, I think Grant's point is that it was qualitatively different for thosed involved. I haven't noticed food rationing in any of the countries supplying arms.
Perhaps the majority of the planet is not at war. But, when the US drops 26,000 bombs in seven countries, it's hard to argue that the US is not at war, or at least involved in war. To use a more palatable term, like police action, would imply that it's normal for police to drop thousands of bombs. Personally, I'd argue that the US, Russia, Ukraine, Afghanistan, Iraq and Syria are at war. I'm sure I left out a number of combatants, in my ignorance. Heck, it seems like the US is always carpet bombing someone back into the Stone Age, hence the "Forever War." Very few other countries consider carpet bombing an effective diplomatic tool and no one matches the US in this.
Heck, it seems like the US is always carpet bombing someone back into the Stone Age, hence the "Forever War."
While I agree completely with the term "Forever War", the term "carpet bombing" has a specific meaning, and its not what the US does - anymore. For those who don't know, carpet bombing involves dropping a large number of unguided bombs from a group of planes flying in formation so as to completely destroy an entire region of territory.
Carpet bombing, also known as saturation bombing, is a large aerial bombing done in a progressive manner to inflict damage in every part of a selected area of land.[1][2][3][4] The phrase evokes the image of explosions completely covering an area, in the same way that a carpet covers a floor. Carpet bombing is usually achieved by dropping many unguided bombs.
And referring to the Arc Light strikes by small formations of B-52 bombers during the Vietnam War:
The B-52s were restricted to bombing suspected Communist bases in relatively uninhabited sections, because their potency approached that of a tactical nuclear weapon. A formation of six B-52s, dropping their bombs from 30,000 feet, could "take out"... almost everything within a "box" approximately five-eights mile wide by two miles long. Whenever Arc Light struck ... in the vicinity of Saigon, the city woke from the tremor.
That's carpet bombing. While today's bomb-dropping causes a great deal of damage, its not carpet-bombing. I'd be willing to bet that almost all the bombs the US military drops these days are guided, either from drones or from manned aircraft, and that most of them actually land more or less where they were intended to land. Whether or not they do any good - that's another matter. And its certainly not "peace."

I’ll admit to being verbally lazy.
While 26,171 bombs in 2016 does not compare to the Gulf wars 88,500 tons (177 million pounds) of bombs in 1991, it’s still an average of three bombs per hour all year.
Back to the point I was trying to make. The US has not had peace for 50 years.
US citizens have become way too complacent when it comes to Washington and the Pentagons behavior. If you look close enough, it’s hard to see the US government as the white hat in world affairs. It’s also fairly easy to see how we could have pissed off a bunch of terrorists.
I wonder how this list compares to Russia, our favorite bad guy.

The bombing list

Korea and China 1950-53 (Korean War) Guatemala 1954 Indonesia 1958 Cuba 1959-1961 Guatemala 1960 Congo 1964 Laos 1964-73 Vietnam 1961-73 Cambodia 1969-70 Guatemala 1967-69 Grenada 1983 Lebanon 1983, 1984 (both Lebanese and Syrian targets) Libya 1986 El Salvador 1980s Nicaragua 1980s Iran 1987 Panama 1989 Iraq 1991 (Persian Gulf War) Kuwait 1991 Somalia 1993 Bosnia 1994, 1995 Sudan 1998 Afghanistan 1998 Yugoslavia 1999 Yemen 2002 Iraq 1991-2003 (US/UK on regular basis) Iraq 2003-2015 Afghanistan 2001-2015 Pakistan 2007-2015 Somalia 2007-8, 2011 Yemen 2009, 2011 Libya 2011, 2015 Syria 2014-2016

Perpetual war is a bankster’s wet dream. The financing of the Military Industrial Complex is the most profitable activity known to man.
George Orwell predicted the present state of affairs in his novel ‘1984’ set in an England of the future re-named ‘Airstrip One’ which was under omnipresent government surveillance and perpetually at war with mysterious enemies Eurasia and Eastasia. It is all very reminiscent of NSA and the ‘War on Terrorism’.
Certainly, Orwell’s Ministry of Truth bears a strong resemblance to todays MSM.
However, Orwell cast ‘The Party’ as the villains. I don’t think he anticipated that banks would be running the world.

This is the article with the chart mentioned in the podcast.

“The chart below shows the median price/revenue ratio across all S&P 500 components, in data since 1986. I should note that from a long-term perspective, the valuation levels we observed in 1986 are actually close to very long-term historical norms over the past century, as the pre-bubble norm for the market price/revenue ratio is just 0.8 in data since 1940. With the exception of 1986, and the 1987, 1990 and 2009 lows, which were moderately but not severely below longer-term historical norms, every point in this chart is “above average” from the standpoint the longer historical record. Presently, the median stock in the S&P 500 is more overvalued than at any point in U.S. history, easily exceeding the overvaluation observed at the 2000 and 2007 pre-crash extremes.”