My Dear Extended Family,
The final end game of QE3 to infinity, with a month or two off from time to time, will be a product of the long term viability of the Federal Reserve Balance sheet and the impact on the dollar there from.
Let’s review what has transpired and begin to look at what will happen:
1. OTC derivative manufacturers and distributors sold fraudulent paper to almost every entity as clients of the Western world financial system. Inherently the OTC derivatives manufacturers and distributors had part of the transaction on their books. No problem as long as the entire scam was a "Daisy Chain," a connected set of transactions that has the appearance of risk but when all netted out equals almost zero.
2. Until Lehman was flushed, and flushed it was, most all OTC derivatives could have been netted to zero in a derivative resurrection bank. Losers would have rejoiced and winners would have declared war. However when Lehman was forced into bankruptcy it broke the "Daisy Chain" (a chain of near risk-less transactions when netted) of the OTC derivatives scam. At this point winners had won huge and loser had lost huge and there was no longer a means of repair to the quadrillion dollar scam. The problem has no practical solution other than transferring all losing paper to the balance sheet of the Federal Reserve where then it was anticipated no non-government "mark to market" audit would ever occur. It was the perfect hole to stick the junk into.
3. The size of the OTC derivative market stood at one quadrillion one hundred and forty four trillion as reported by the Bank of International Settlement, the counter internationally.
4. The Bank of international Settlements, seeing this outrageous number, changed their computer method of valuation to maturity assuming no failures and reduced the size of OTC derivatives of all kinds to a more acceptable but still huge number of $700 trillion notional value.
5. In the first and second round of QE the Federal reserve purchased OTC derivatives including the variety called securitized mortgage debt to remove them from the balance sheets of the Western world financial system, thereby improving the Western world’s financial institutions balance sheet and preventing an international industry wide bankruptcy. That means the Federal Reserve has impaired its balance sheet in order to repair some of the balance sheet integrity of the Western world financial system. The amount they have purchased is significant, but not compared to total outstanding above more than one quadrillion dollars.
6. The reason for QE to infinity, QE3, is the failure of business activity in the Western world to pick up with early huge monetary stimulation so as to repair the balance sheet of the Western financial world financial system. The unseen crisis is the hidden weakness of the Western world financial system thanks to FASB (The gatekeepers of world accounting) which allows financial institutions internationally to hide their losses by valuing their paper at whatever the bank wants it to be with no reference to seek a market value, primarily because there is none to seek.
7. The crisis not seen by Fed observers is the true balance sheet condition of the loses on the trillions of dollar of worth-less paper fraudulent paper because numbers are given but no independent mark to market audit has been or is likely performed.
8. As QE3 to infinity moves ahead, the balance sheet of the Federal Reserve continues to acquire worthless paper in exchange for dollars. Junk moved onto the balance sheet of the US Federal Reserve as the common share of the USA, the US dollar, continues to expand exponentially.
9. The end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit grows, US state deficit spending continues to grow and the quality of the Federal Reserve balance sheet proceeds to deteriorate further.
Therefore the end game is the perception of the weakness of the lender of last resort, the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.
Now you know what brings about the end game.
In the future I will do small simple articles dealing with the impact on markets of a to be Bankrupt Central Bank, the US Federal Reserve. The end game could come sooner, but only if there was an independent "mark to market" audit of the Federal Reserve inventory of worthless paper which remains unlikely no matter who wins the election in November.
Those of you invested in gold and silver vehicles of all kinds (with the exception of ETFs and futures) rest well this weekend. $3500 will easily be a place gold trades. The Canadian dollar and blasphemy to the euro snobs, the Swiss franc, remain go to vehicles for cash positions. Yes cash because you to not have to pay to own them as you do with a sovereign paper with negative interest.
Your watchman,
Jim
If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State. – Joseph Goebbels, Minister of Nazi Propaganda
Jim Sinclair’s Commentary
Compliments of Dean Harry Schultz.
Any intelligent fool can make things bigger and more complex. It takes a touch of genius – and a lot of courage to move in the opposite direction. –Albert Einstein
Life is like riding a bicycle. To keep your balance you must keep moving. –Albert Einstein
Intellectuals solve problems; geniuses prevent them. –Albert Einstein
Jim Sinclair’s Commentary
It is my opinion that the 7 hits at a meaningless number $1775 by the manipulators was done for the purpose of accumulating gold as the accepted standard the golden cross occurred.
Gold is going to $3500 and nothing is going to stop it. To assume the big boys will ignore what to the establishment is gospel and will be short gold to $3500 is nuts.
Patience my dear friends.
‘Golden cross’ indicates gold momentum turning more bullish Fri Sep 21, 2012 1:19am IST
By Frank Tang
NEW YORK, Sept 20 (Reuters) – A "golden cross" formed on spot gold’s price chart gives bullion investors another reason to increase their bullish bets.
On Thursday, gold’s 50-day moving average (DMA) traded above its 200 DMA, which marked a golden cross in technical analysis, indicating bullion’s intermediate and longer-term momentum is getting increasingly bullish.
"Given shorter-term moving averages have all turned higher in recent weeks and the bullish price action recently, this golden cross today is an additional indicator of strength in an already strong market," said Adam Sarhan, chief executive of Sarhan Capital.
The previous long-lasting golden cross on bullion charts was formed on Feb. 6, 2009, and gold prices surged 11 percent in the following 11 sessions.
Technical traders and momentum-driven investors could buy more gold as the bullish formation will remain in place as long as the current gold price stays sharply above its 50-day and 200-day moving averages.
More…
Jim Sinclair’s Commentary
A total disgrace only exceeded by the USA’s disdain for the elderly.
More Americans Added to Food Stamps Than Find Jobs 10:30 AM, Sep 21, 2012
By DANIEL HALPER
An alarming data point from the minority side of the Senate Budget Committee: More Americans are being added to food stamps than are finding jobs. The data is detailed in this chart, provided by the committee:
As the chart shows, between April-June 2012 (the most recent three month block for which government data is available), only 200,000 jobs have been created while 265,000 individuals have been added to the food stamp rolls. Additionally, in that time period, 246,000 workers were awarded disability.
Another chart shows that the last three month block is part of a larger trend. The chart, also from the minority side of the Senate Budget Committee, shows that "Workforce Shrinks Since January 2009 While Millions Sign Up For Disability And Food Stamps."
More…
Jim Sinclair’s Commentary
The sharks eating the sharks?
Lehman Sues J.P. Morgan Over Derivatives Claims By PATRICK FITZGERALD
September 18, 2012, 1:54 p.m. ET
Lehman Brothers Holdings Inc.’s bankruptcy estate is suing J.P. Morgan Chase JPM -0.82% & Co. over the bank’s more than $2.6 billion in derivatives claims.
Lehman, joined by its creditors, is asking a bankruptcy judge to slash J.P. Morgan’s claims related to terminated swaps and other deals Lehman’s commodities, derivatives and foreign exchange subsidiaries struck with the bank and Bear Stearns Cos. J.P. Morgan snapped up a stricken Bear Stearns in the spring of 2008 just a few months before Lehman collapsed later that year.
Lehman’s lawyers said Friday that J.P. Morgan "inflated" its claims by, among other techniques, choosing the wrong valuation dates and adding charges for losses the bank didn’t suffer. Lehman also claims J.P. Morgan understated the amounts that the bank and Bear Stearns owed the failed investment bank after netting out their trades.
Lehman is also asking U.S. Bankruptcy Judge James Peck of Manhattan to force J.P. Morgan to return more than $230 million it says the bank illegally grabbed as so-called setoffs of amounts owed under derivatives transactions.
A J.P. Morgan spokeswoman declined to comment on Lehman’s allegations.
While Lehman Brothers officially emerged from Chapter 11 protection in March after nearly 3½ years, the estate’s lawyers are trying to drastically reduce the tens of billions in claims filed by creditors. Near the top of the creditor list is J.P. Morgan.
More…
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PIIGS In America: Is Illinois Preparing To Request A Federal Bailout?
Moments ago we saw the following amusing headline crossing the BBG:ILLINOIS TEACHERS' PENSION FUND CUTS RATE OF RETURN TO 8% FROM 8.5%
It's amusing because these are the same teachers who were demanding, and received, higher pay - 17% higher over four years in fact - following a several day strike. It is even more amusing considering that in a fiscal year in which we saw QE2, Operation Twist 1 and 2, and LTRO 1 and 2, the nation's largest pension fund, Calpers, managed to eek out a measly 1% gain (and this is including the end of June surge following the then announced European bailout which turned out to be yet another dud). It is, however sadly, most amusing, because it may be a harbinger of something truly sad: the advent of the "PIIG bailout" to America, when a US state demands a Federal bailout. We have seen how eager Europe has been to bailout its insolvent nations. We are next about to see just how "united" the US is when its own solidarity is tested as state after state repeat the European bailout experience. But hey: at least we have the dollar so all should be well.
Gold And Silver Trump US Equities In Q3 And Year-To-Date
With
the combination of a strong quarter (week or two) for stocks, futures
rolls (and CDS yesterday) and the OPEX / index re-weighting it seems we
had a modest case of small doors, large crowds into the close today (S&P futures end 1pt above FOMC-day close). Volume picked up dramatically (NYSE highest in a year) as the Dow closed lower on a Friday for the first time in nine weeks!
Treasuries outperformed - ending near the low yields of the week
(having retraced all the post-QE move - down 10-15bps on the week) but
Gold remained relatively bid ($1775) and Oil also rose in the last
couple of days. VIX was unch but noisy thanks to OPEX (and remember it's
still at a high premium to realized vol - not entirely complacent). Credit underperformed as risk-assets in general led stocks lower. On the quarter, Silver was the big winner (up ~26%) followed by Gold (up ~11%) both beating all the major US equity indices.How to Measure Strains Created by the New Financial Architecture
We believe an unsustainable
new global financial architecture that arose in response to the US and
European financial crises has replaced an older, more sustainable,
architecture. The old architecture was crystallized in
Washington- and IMF-inspired policy responses to the numerous sovereign
defaults, banking system failures, and currency collapses. Most
importantly, the previous architecture recognized limits on fiscal and
central bank balance sheets. The new architecture attempts to 'back', perhaps unconsciously, the entire liability side of the global financial system.
This framing is consistent with a purely political—institutional
stylized—fact that it is nearly impossible to penetrate the US political
parties if the message is that there are limits to their power…or that
their power requires great effort and sacrifice. This is why
Keynesians (at least US ones) who argue there are no limits to a fiscal
balance sheet are so popular with Democrats, and why monetarists (at
least US ones) who argue there are no limits to a central bank balance
sheet are popular with (a decreasing number of) Republicans. Party on!
Again, nobody chooses hard-currency regimes – they are forced on non-credible policymakers. Let me put it more positively. If
politicians want the power of fiat money, let alone the global reserve
currency, they need to behave differently than they have - or the
consequences for Gold are extraordinary.Look Beyond the Chess Piece In Hand
Keys to Investment Success Discpline Singular Voice Ability to reading the
markets Chess masters win because they have the ability to play well beyond
the piece in hand. Investment masters must possess that same ability.
Don't let the stock market rally disconnect you from the message of the
market. Divergences or non-confirmations which can last for...
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content, and more! ]]
A Sharply Increasing Trend in U.S. Layoffs
While QE kick the can down the road a little further, it cannot lift it up. As long as private demand destruction exceed public spending increases during an economic deceleration, investment in physical and human capital (via job creation), which contribute to future production and national income, will continue to decline. Chart: Average Weekly Initial Claims State Unemployment... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]The Gaping Maw Of Centrally-Planned Surreality
There was a time when the market led, and the economy followed. That's when the market was still a discounting mechanism, a long, long time ago. Then came a time when the clueless market, after every illusion it held about a Dow 36,000 future was shattered, would respond with a slight, millisecond delay to every flashing red economic "surprise" headline and thanks to HFTs exaggerate the momentum of the move spectacularly, leading to delirium-inducing volatility, and even further confusion. But what we have now, under the final advent of the central planner New Normal, when the economy is clearly going one way (the wrong one), while the S&P is dogedly chasing the opposite direction and completely ignoring any and all downside macro surprises, is something never seen before. One thing is certain: the gaping maw of the alligator: the red and the blue arrows will converge, and sooner or later the convergence will not be in the direction that the central printer, and his Liberty 33 henchmen, request.
QE3 And The Bernank's Folly - Part II
Quad Witching Day Sends NYSE Volume Soaring To Highest In Over A Year
Between quarter-end, quad-witching, and the index-rebalancing, activity at the NYSE soared today. More
than triple the average of the last few weeks, today's volume was the
highest since the US downgrade last August - over 13 months ago
- and given the downward pressure in prices into the close it seems
more motivated sellers than buyers locking in anticipated Fed/ECB gains.Will Nasdaq Be The Next Casualty Of The SEC's Anti-Latency Arbitrage Push?
Back in 2009 Zero Hedge was first the only, and shortly thereafter, one of very few non-conformist voices objecting to pervasive high frequency trading and other type of quantitative market manipulation in the form of Flash Trading (which has recently reemerged in yet another form of frontrunning known as "Hide not Slide" practices) quote stuffing, and naturally latency arbitrage:
one of the most subversive means to rob the less than sophisticated
investor blind, due to an illegal coordination between market markers,
exchanges and regulators, which effectively encouraged a two-tier market
(one for the ultra fast frontrunning professionals, and one for
everyone else). A week ago we were amused to see that the SEC charged the NYSE with a wristslap,
one for $5 million dollars and where the NYSE naturally neither
admitted nor denied guilt, accusing it of doing precisely what we said
it, and all others, had been doing for years: namely getting
paid by wealthy traders, those using the prop data feed OpenBook Ultra
and other paid systems, to create and perpetuate a two-tiered market,
all the while the regulator, i.e., the SEC was paid to look the other
way. This action was nothing but a desperate, and futile,
attempt to regain some investor confidence in the market. It has
failed, and since said "enforcement" action has done nothing to restore
confidence, expect to see more exchanges slapped with fines for
actively perpetuating latency arbitrage opportunities for "some"
clients. Well, since the SEC will be desperate to come up with more
means of "restoring credibility" of both the market and its regulator,
another exchange it may want to look at is the NASDAQ, which as Nanex
demonstrates, may well have been engaging in comparable (most likely
not pro-bono) latency arbitrage benefiting some: those paying for its
direct feed aka TotalView, and thus not harming others, or those
relying on the Consolidated Feed (UQDF) for data dissemination.With An Hour To Go - Which Sector Is Outperforming Post-QEternity?
Everyone will be chasing high-beta? QEternity 'fixes' our problems? HHhhmm, not so much. While the fact that Utilities are undrperforming makes some sense, the fact that Healthcare is the clear winner (and Goldman Sachs and Morgan Stanley the big losers) is fascinating...
Housing, Diminishing Returns And Opportunity Cost
Saving the banks by dumping trillions into housing is classic marginal return. Since the mechanism is broken--housing as the "wealth effect" generator and the source of billions in profits for banks--every $1 trillion in subsidies, give-aways, guarantees and mortgage purchases by the Fed yield fewer benefits to the real economy. Once again the question arises: rather than loan $16 trillion to banks at 0%, why doesn't the Fed just buy all residential mortgages for $10 trillion and charge 0.25% interest on the lot? That would cut out the banks, and that is the point here: the Fed's policies are not aimed at "helping housing," they're aimed at protecting the banks' income streams, assets and political power. Since the banks own $10 trillion in mortgages, housing is a key concern of the Fed's "save and enrich the banks" campaign.
Here's the Fed's policy in plain English: Debt-serfdom is good because it enriches the banks. All hail debt-serfdom, our goal and our god!
Presenting: President Inflation
While InTrade did not exactly 'nail' the Obamacare odds, the surge in the odds of Obama winning the election has been incredible since the announcement of QEternity. Admittedly it has coincided with some general 'foot-in-mouth'-edness by his opponent, but the record high levels over 70% are not behaving how one would expect given equity movements. In fact it appears that rather than 'the market' being the main factor in his re-election, it seems inflation expectations are more critical - especially given the huge volume rise. It seems implicitly that Meyer Rothschild's famous quote: "Let me control a peoples' currency and I care not who makes their laws" has never been more true. Or perhaps, the odds can be gamed to become self-confirming (just as with HFT in stocks) - especially given the volume surge?
Mitt Romney Releases 2011 Tax Filing
Everyone has been desperately waiting for this. At 3:00 pm it will be publicly released. Hopefully, shortly thereafter we can proceed with the discussion of important things such as the complete economic collapse of not only America, but the entire world (which is apparently now hooked into voting for Obama as disclosed earlier). For those strapped for time here is the summary: Romneys 2011 tax rate 14.1%, Charity donations: 30%; Obamas tax rate: 20.5%, Charity donations: 22%. And going back, "Over the entire 20-year period, the average annual effective federal tax rate was 20.20%."Highlights:
- In 2011, the Romneys paid $1,935,708 in taxes on $13,696,951 in mostly investment income.
- The Romneys’ effective tax rate for 2011 was 14.1%.
- The Romneys donated $4,020,772 to charity in 2011, amounting to nearly 30% of their income.
- The Romneys claimed a deduction for $2.25 million of those charitable contributions.
- The Romneys’ generous charitable donations in 2011 would have significantly reduced their tax obligation for the year. The Romneys thus limited their deduction of charitable contributions to conform to the Governor's statement in August, based upon the January estimate of income, that he paid at least 13% in income taxes in each of the last 10 years.
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