Once again, the unintended consequences (or fundamental flaw as we noted previously) remain front-and-center, just as with prior episodes of QE, we have seen the market surge into the very assets that the Fed has promised to buy (in this case into Eternity). 30Y current coupon mortgages spread to 10Y Treasuries has fallen - rather stunningly - below 20bps. An all-time record low by a mile. Homebuilders and broad equity markets are not so excited as in his failed attempts to drive people into risky assets (stocks), those 'smart' people have simply front-run the Fed's MBS buying deluge - more than willing to sell the market back to the Fed while reaping some additional yield.
On September 15, 2008 (aka Q3) 2008 everything broke. What happened next has been a piecemeal triage by one (then all) central banks to stop the crunch in the world's credit markets, by monetizing the bulk of public issuance (i.e., creating money out of thin air), and thus keeping GDP from collapsing, while private sector debt creation has stalled and in many cases has been put in reverse. And while the US household balance sheet which we showed earlier is important from a stock perspective of asset, liability and wealth allocation, as everyone knows money (if not wealth) comes from credit, and should the credit formation system be shuttered it means game over. So what, according to the Fed's Flow of Funds, has been the credit creation, and destruction, since Q3 2008, i.e., during the neverending Great Depression Ver 2.0? Well, of the $2.8 trillion in total debt created (table L.1 in Z.1), $5.8 trillion or 208% has come from, you know it, Uncle Sam: this is the amount by which US Treasurys have risen, and will continue to rise as long as the two key sectors continue to delever. These sectors are the Household at $855 billion in deleveraging in the past 4 years, but most importantly the Financial Sector who have unwound a whopping $2.9 trillion in debt since Q3 2008. Which brings up an interesting question: why has the Financial Sector refused to lever, and why did it delever by $162 billion in Q2 2012 - the most since Q2 2010? Simple - regulations such as Basel III (which will eventually be scrapped) and lack of confidence in a system, in which the central counterparty is and will be the central bank. In other words, the more Treasury issuance is monetized by the Fed, the greater the penetration of central-planning, the lower the confidence in the system, the greater the deleveraging by everyone else, until finally, as David Rosenberg predicted, the Fed owns everything! Is this the biggest Catch 22 of the modern Depressionary market? You bet.
If you wanted to sum up the just-concluded Casey Research/Sprott Inc. Summit titled Navigating the Politicized Economy, you could say "The situation is hopeless but not serious." More than 20 speakers – many of them world-renowned financial experts and best-selling authors – gathered in Carlsbad, CA, from September 7 to 9 to ascertain exactly how hopeless, and what investors can do to protect themselves.
Equity markets rallied into the close (pre-OPEX and index re-weightings tomorrow) to end near their highs for the day but this was only enough to get back to practically unchanged. The Dow was the only index to manage a green close on the day-session (as AAPL dragged NASDAQ lower and the S&P couldn't get above Tuesday's or Wednesday's closing levels). With the CDS market rolling today (and indices being recomposed), we saw a somewhat unusual selling pressure into the roll - suggesting many credit longs were less than willing to roll that long into the new index (though technicals do make this uncertain). HYG underperformed. Stocks seemed to levitate back up to track Gold and the afternoon's weakness in Treasuries (unch on the day but 3-4bps higher in the afternoon) and strength in Oil dragged risk-assets more in sync with stocks (after suggesting weakness in the middle of the day).
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latest Z.1, aka the Flow of Funds, which is the primary source of information of that one component of modern finance which all modern economists continue resolutely to ignore because it blows all their anachronistic theories on monetary theory out of the water: shadow banking data. But more on that later. for now, here is the graphic summary of that most important of conventional data points updated every quarter: the US household balance sheet, and specifically the net worth of the US consumer, which in Q2 declined from a 4 year high of $63 trillion to $62.7 trillion, on a $900 billion drop in financial assets, offset by a $400 billion hike in real estate assets. Most importantly, and the reason why to the CTRL-P operator the only thing that matters is the stock market, of a total of $76.1 trillion in assets, only $24.2 trillion are tangible: i.e., real estate and durable goods. The remainder, $51.9 trillion or 68.2% of total, is Financial assets. It is this number that is the sole target of Bernanke's "monetary policy" and which must be inflated at any and all cost.
Abby dissects the ongoing narrative of sweeping generalizations from the the establishment media following a wave of protests that have spread across the Muslim world – and explores why ‘they’ really hate the West.
Japan starts infinite QE and the Yen goes up. The US starts QE and there won’t be any help for the economy of the dismal employment numbers. But that doesn’t stop them trying over and over again. No one gets what they want. The more you do, the more things get messed up and corrupted.
With news of the gold plated tungsten bars found in the US, we wonder, how much fake gold is really out there? Be safe. Buy one ounce coins, they’re a lot harder to counterfeit. Andy Hoffman speaks with Kerry Lutz of the Financial Survival Network about quantitative easing.
Paul Krugman is on the attack again against a free-market school whose views he will not even bother to learn or state correctly — but he refuses a debate with a prominent member of the Austrian School. Don’t let him get away with this.
With uncertainty developing in global markets, investors and professionals are wondering where markets are headed from here. Today King World News interviewed 33 year veteran, John Gray, from Investors Intelligence to get the answer. When asked what he is seeing and where he believes markets are headed, Gray responded, “The latest polling of advisory sentiment, and that’s about 130 independently produced stock market newsletters, showed the bulls jumping this week up to 54.2%. The bearish reading declined to 24.5%.”
“The current reading of bulls at 54.2% is the highest reading we’ve had since the start of this year, and that would be mid-February when the Dow was approaching 13,000 for the first time. Readings of bulls over 55% starts to get scary to us, and occasionally, in strong market moves, major bull tops, you will have the bulls up as high as 60%.
That gets to be very dangerous (see chart below).
John Gray continues @ KingWorldNews.com
I used to have a deputy who said that the FHA mortgage insurance funds were where mortgages went to die. That was, however, before the creation of MERS, derivatives and the explosion of mortgage fraud during the 1990′s which in combination with the “strong dollar policy” engineered what I have referred to as a financial coup d’etat.
The challenge for Ben Bernanke and the Fed governors since the 2008 bailouts has been how to deal with the backlog of fraud – not just fraudulent mortgages and fraudulent mortgage securities but the derivatives piled on top and the politics of who owns them, such as sovereign nations with nuclear arsenals, and how they feel about taking massive losses on AAA paper purchased in good faith.
On one hand, you could let them all default. The problem is the criminal liabilities would drive the global and national leadership into factionalism that could turn violent, not to mention what such defaults would do to liquidity in the financial system. Then there is the fact that a great deal of the fraudulent paper has been purchased by pension funds. So the mark down would hit the retirement savings of the people who have now also lost their homes or equity in their homes. The politics of this in an election year are terrifying for the Administration to contemplate.
Read More @ TheDailyBell.com
GoldMoney’s James Turk interviews Félix Moreno de la Cova, who is a studied economist, trader and GoldMoney contributor. They discuss the idea of currency competition and talk about the pros and cons of Bitcoin and digital gold currencies.
Félix explains the working mechanisms behind Bitcoin, which is a digital currency. He talks about the decentralised Bitcoin protocol, which is the DNA of Bitcoin and assures that bitcoins will not be double-spent. He states that Bitcoin can’t be shut down unless the whole internet gets shut down.
They discuss the differences, but also the similarities between Bitcoin and digital gold currencies. James Turk points out that using tangible assets as money eliminates counterparty and payment risk. Félix states, that the amount of minable bitcoins is limited similar to the amount of gold.
Furthermore they talk about the security of Bitcoin exchanges and the difference between money and currency. Both endorse the idea of bringing competition to currencies and developing new ways to transact more efficiently.
The Case for Precious Metals Miners
You don’t need me to tell you. Precious metals mining shares have been nothing short of a historic fiasco over the past couple of years. Specifically, gold is up 25% since the end of 2010, while the ETF of large cap miners, the GDX, is down 11%. That is not just under-performance, that is catastrophic.
Now there are many reasons for this horrific performance, but in my mind the main reasons have been; political risk (the confiscation of mines or forced renegotiation of contracts), rising cost structure (both energy and personnel), and massive execution shortfalls from many of the major precious metals miners on the planet.
In order to decide whether the group may make sense at the moment, it is key to analyze the risks above. As far as political risk, I think it is as significant a risk as ever, but one that will never go away. Does that mean you should never buy the space? In my view it does not. What matters is if this risk has been embedded sufficiently in the valuations and I believe it has.
Read More @ LibertyBlitzkreig.com
by Chris Martenson, Peak Prosperity:
For a while now, I have been expecting a coordinated, global central bank action that would seek to print more money out of thin air, or “QE” (quantitative easing), as it is now called. Now we have two of the most important central banks, that of the U.S. (the Federal Reserve) and in Europe (the ECB) having committed to open-ended, limitless QE.
In Part I of this report, we analyze the actions themselves, and then in Part II we discuss the implications to individuals and those with responsibilities to manage money.
The most recent announcement came from the Fed, and it had these features:
- The creation of $40 billion a month out of thin air to purchase agency mortgage-backed securities (MBS)
- The continuation of Operation Twist, which uses short-term Treasury bills and notes on its books to purchase long-term Treasury paper (that’s 10- and 30- year bonds)
- When MBS payments come in – the Fed holds over $840 billion dollars of those – they will buy still more MBS paper (‘rolling’ the payments into new MBS, as it were).
- Taken together, the Fed will expand its balance sheet holdings of long-term assets (i.e., “debt”) by ~$85 billion per month through the end of the year…but wait! There’s more… Read More @ PeakProsperity.com
Head of the Bundesbank, Jens Weidmann has shocked Europeans by appearing to compare the ECB’s unlimited bond buying program to a scene from the important German literary work Dr. Faust where the devil persuades an emperor of a small kingdom to print money to solve his financial problems and it ends in financial disaster.
It is a clever literary reference as Germany celebrates the 200th anniversary of the birth of Goethe, the German equivalent to Shakespeare who wrote Faust. It’s also a clever reminder that nothing is new in history and that money printing always ends up badly.
No different this time
Basically the initial impact of money printing is deceptively reassuring, people have money to spend again and things look very positive. But then the reality of price inflation become more and more apparent until their wealth is completely inflated away by paper money.
You can’t actually create prosperity by printing money, only the illusion of wealth and the economic distortion it creates will eventually destroy those caught up in this illusion with inflation and devalution.
Read More @ GoldSeek.com
A Decade-Long Plunge from No. 2 to No. 19
Measurement is often the crucial step in understanding—and gaining control—of a complex phenomenon. For example, we debate—endlessly, it seems—the state of economic freedom in America. But the Fraser Institute, a Canadian think tank, gives us the crucial ability to go beyond that. Since 1996, with a project inspired by the late Milton Friedman, the Institute has published an extraordinarily sophisticated report that measures the economic freedom of every country in the world—and tracks the rise or decline of freedom in each country—so that we can talk about how much, in what areas, and to what effect.
Their report, released yesterday, is Economic Freedom of the World in 2010. Let me give you the bottom line for the United States of America—which we have called, and rightly so, a “beacon to the world” when it comes to economic freedom and the prosperity it makes possible. In the words of the report:
The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade. From 1980 to 2000, the United States was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore.Read More @ Financial Sense.com
One question Slavey hears time-and-time again is whether or not one should value organic foods over price savings or vice versa. This is a great question, and very relevant for the first issue of Homegrown – Slavey’s new home – in which TDV examines whether or not one truly spends that much more money while eating out.
But, in the meantime, let’s look at the question at-hand: “Is it worth it to buy mostly organic food or is it more important save money?”
This is a great question, and so let’s get down to basics. Quite frankly, it is nearly impossible for a middle class earner with a family today to live in the USSA only on true organic foods; that is, those found at local farmer’s markets where conspiratorial talk and mistrust of the government flourishes. And, this is not merely because the farmers markets are too expensive for the middle-class-with-a-family-and picket-fence-income. The forty-hour workweek is a thing of the past for those who are not self-employed contractors working on their own terms. A multitude of individuals work for now oftentimes 50-hours a week just to make ends meet. That means the End of the Weekend. And so, to sacrifice time spent one-on-one with a partner or children in order to forage can be burdensome. So, for some, the farmer’s market is simply not only too expensive, but also too inconvenient.
Read More @ DollarVigilante.com
The currency wars are heating up. Now Japan is in on the act. Yesterday, the Bank of Japan announced it would print another ¥10 trillion, bringing its total asset purchase program to ¥80 trillion by the end of next year.
Of course we have no idea what that means. What’s another ¥10 trillion in the scheme of things? It all amounts to rearranging the chairs on the Titanic. The Financial Times says that the Bank of Japan responded to complaints from the likes of consumer electronics companies Sharp and Panasonic. The strong yen is killing their business…they want a weaker yen.
So the Bank of Japan responded. Everyone wants a weaker currency. It’s the policy weapon of choice in a post bubble economy – steal demand from your trading partners. It’s pretty much the playbook that the International Monetary Fund (IMF) has employed for years.
Whenever a small developing economy got into trouble after Western banks went on a lending spree, the IMF would come in, privatise a whole bunch of assets, bail out the banks and devalue the currency. It effectively transferred wealth from the middle class to the kleptocracy.
Read More @ DailyReckoning.com.au
from, Business World:
Concerned over rising gold imports, the Reserve Bank of India on Wednesday said it is planning to come out with financial products on the lines of gold ETFs to give options to investors to take advantage of price movement in the precious metal. “…We can provide people with financial attraction of gold without them having physically own it. That would in a sense reduce the pressure on imports. So ETFs are one such,” RBI Deputy Governor Subir Gokarn told reporters on the sidelines of a PHD Chamber event in New Delhi.
Exchange Traded Funds (ETFs) allow people to buy or sell gold without physically holding it. “We are looking at expanding scope (of products like gold ETFs) essentially sort of bank related products … Essentially finding different ways of allowing people to take advantage of gold price movement but not physically buying it,” Gokarn said. In the 2011-12 fiscal, India’s gold imports stood at USD 60 billion and the quantum of import was 1,067 tonnes. In the April-June quarter of the current fiscal, however, gold imports had contracted by 18.4 per cent year-on-year to Rs 71,912 crore (USD 13 billion). Gold imports into the country has risen considerably in the last 3-4 years.
Read More @ CaseyResearch.com
from The Onion:
In a turn of events that has stunned the worldwide medical community, local infant Nathan Jameson, born just six days ago, has become the youngest person ever to permanently and irrevocably lose all faith in humanity.
“This shatters all previous records,” University of Chicago psychologist Douglas McAllister said Monday. “In all of documented medical history, there is no case of a newborn taking less than four months to develop the mental faculties required to grasp the full extent of this existential nightmare we call life on earth.”
“Considering he already comprehends harsh realities that many people spend their entire fleeting, shallow existences attempting to deny, Baby Nathan is quite the little miracle!” he added.
Though he has not yet developed the capacity for speech, extensive cognitive testing has definitively shown that the shockingly perceptive 6-day-old fully understands and accepts that human beings cannot be trusted, that they remain far too ignorant for their opinions to be reliable, that a lack of self-awareness about their own destructive tendencies pervades the species as a whole, and that most are too ineffectual to successfully pursue even the shallow self-interested agendas that rule their lives.
Read More awesome SATIRE @ TheOnion.com
Abby Interviews outspoken journalist, and US Congressional Candidate, David Seaman, about the slow erosion of civil liberties in America.
There have been several different predictions and scenarios involving how inflation and austerity measures in the U.S. could bring about food shortages and other shortages, food riots, looting, violent protests, flash mobs, and martial law.
All these things can be prevented, of course, if more people could wake up to the fact that government central planning in money and economic matters is inherently flawed and doomed to failure, societal self-destruction and collapse.
Some people see the recent German court decision to approve German bailouts of irresponsible European governments as a new dictatorship for Germany and a boon for investors. And there are others who see this new scheme as the beginning of runaway hyperinflation in Europe that will spread to the U.S.
Following this decision by the high German court, the U.S. Federal Reserve has announced a new round of quantitative easing (QE3). Some people believe that QE3 will cause more economic instability, and further destruction of the dollar.
Read More @ LewRockwell.com
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